The Philippine Wholesale Electricity Spot Market

1
The Philippine Wholesale Electricity Spot Market
2008 APEx Conference Sydney, Australia
Lasse A. Holopainen President Mario R.
Pangilinan Executive Vice President Philippine
Electricity Market Corporation
2
Presentation Outline

• Philippine Power Industry
• Overview of the Philippine WESM
• Results of Market Operations
• Market Benefits
• Market and Industry Outlook
• Conclusions and Considerations

3
The Philippine Power Industry
4
The Philippine Power Industry
Overview

• Electric Power Industry Reform Act of 2001
  mandated deregulation and restructuring of the
  electricity industry
• Generation sector was dominated by the National
  Power Corporation but is currently undergoing
  privatization
• Transmission sector is a monopoly franchise
  awarded to private sector
• Distribution sector is divided into franchise
  areas among private utilities or cooperatives but
  will be subjected to open access and retail
  supply competition
• The WESM was established by law to promote supply
  competition at the wholesale level

5
The Philippine Power Industry
The New Industry Structure
Competitive generation
Regulated transmission and distribution

• Establishment of WESM

Competitive retail electricity providers

• Privatization of NPC

• Unbundling of electricity rates for transparency

End-user choice

• Establishment of an Independent Transmission
  Company

• Open Access of distribution network and retail
  competition

6
The Philippine Power Industry
Generation Rated Capacity Mix, MW
7
The Philippine Power Industry
Demand Distribution
8
Overview of the Philippine WESM
9
Market Design

• Gross Pool
• All energy transactions are scheduled through the
  market
• Net Settlement
• Bilateral Contract quantities transacted in the
  pool can be settled outside of the market
• Locational Marginal Pricing
• Marginal price computed at each node or location
  to reflect transmission loss and / or congestion
• Reserve Co-Optimization
• Reserve and energy offers are scheduled at the
  same time
• Demand Bids
• Customers choice to buy energy lower than a
  specified price
• Mandatory Market
• EPIRA mandates procurement of at least 10 from
  the market for distribution utilities for the
  first 5 years from the establishment of the WESM

10
WESM Product Offering
11
WESM at a Glance

• Locational Marginal Pricing (LMP) market with 270
  trading nodes
• 30 Generating Resources/13 Trading Teams
• 8 Direct Customer Participants
• 135 Indirect/Unregistered Customers

12
WESM Structure and Governance
Oversight

• ERC
• Enforcement
• Pricing

• DOE
• Policy making
• Planning

Governance
PEM Board
PEMC
PEM Audit
Market Assessment Group
Enforcement and Compliance
Market Operator
WESM Members
Generators/ A/S Providers
Network Service Providers (SO-Transco DUs)
Suppliers/ Aggregators
Buyers
13
Results of Market Operations
14
Market Outcomes
7-Day Moving Averages - Supply, Demand LWAP
Hydro and Coal Supply Limitation ( 990 MW)
Maintenance of Nat. Gas Facility (2700 MW)
Forced Planned Outages ( 1280 MW)
Congestion at EHV Backbone
2008
2007
2006
Actual Demand
Generation Offers
Hourly LWAP
15
Market Outcomes
Luzon Energy Mix
Congestion at EHV Backbone
Hydro and Coal Supply Limitation
Tight Supply
Maintenance of Nat Gas Facility
4.6
4.8
6.8
5
5.2
9.6
10.2
Max 52.9 Min 35.1
Max 36.3 Min 21.2
Max 11.7 Min 6.3
Max 21.8 Min 5.1
Note Data based on metered quantities
16
Market Outcomes
Representative Nodes Ave Nodal Price and Max
Price Spread
Average Monthly LMPs
La Trinidad
Mexico
Balintawak
Maximum Price Spread
Sucat
Batangas
Naga
2007
2008
2006
17
Market Outcomes
Effective Settlement Price
Cumulative Average P4,989/MWh


2008
2006
2007
18
Market Outcomes
Transaction Volumes and Values
2006
2007
2008
19
Market Benefits
20
Market Benefits
Long-Term Pricing Impact
Price Trend
Year
21
Market Benefits
Generation Efficiency
3.2
4.1
5
11.5
44.1
39.7
41.5
31.1
2.4
34.2
47.1
39
36.1
31.8
28.1
8.5
9.6
6.7
7.6
10.7
10.6
10.7
13.3
11.6
10.9
1st Half
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Market Benefits
Increased Investor Interest
Tiwi-Makban Geo (747.5MW, 446.9M)
WESM Commercial Operations
Ambuklao-Binga Hydro (175 MW, 325M)
Calaca Coal (600 MW, 787M)
Masinloc Coal (600 MW, 930M)

• Loboc Hydro (1.2 MW, 1.4M)
• Cawayan Hydro (0.4 MW, 0.4M)
• Agusan Hydro (1.6 MW, 0.4M)
• Barit Hydro (1.8 MW, 0.48M)
• Talomo Hydro (3.5 MW, 1.37M)

Magat Hydro (360 MW, 530M)
Pantabangan-Masiway Hydro (112 MW, 129M)
2008
2006
2007
2005
23
Market and Industry Outlook
24
Market and Industry Outlook

• Visayas Market
• Completed System Readiness, Participant Training,
  Trial and Live Dispatch Operations
• Awaiting for DOEs decision for WESM Commercial
  Operation
• Reserve Market
• The Energy Regulatory Commission (ERC) has
  recently released on order setting forth
  additional compliance requirements on the part of
  PEMC-MO and Transco-SO prior to the opening of
  the reserve market
• Industry is continually evolving towards retail
  competition
• Monitoring and Enforcement of Market Rules
• Regulatory oversight and policy planning for new
  capacities
• Customer participation and Demand side management
• Full preparation for Retail Competition
• Enhanced competition with Wholesale Aggregators
  (WA) and Retail Electricity Suppliers (RES)
  participation

25
Market and Industry Outlook

• Traders Accreditation Program
• Formation of an Electricity Traders Association
• Aims to institutionalize the Electricity Trader
  as a profession, promoting competency,
  professionalism, compliance and ethics
• Electricity Derivatives Forward Market
• Development of an OTC bulletin board facility to
  allow auctioning and trading of standardized
  Forward Contracts
• Market is non-mandatory and is the venue for
  hedging physical spot market risks, and trading
  of excess capacities
• Capacities in IPPA portfolios can be bundled into
  Forward Contracts
• Aims to provide indications of future supply
  scenario and economics

26
Conclusion and Considerations
27
Conclusion and Considerations

• Operation of Electricity Markets brings benefits
  to the industry, stakeholders and government
• Market is faced with challenges
• Policy
• Regulation
• Design
• Operations
• Market is only good as industry
• Stakeholders
• Regulator
• Policymakers
• Physical System on which it operates

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Conclusion and Considerations

• While vested interests exist in the Market,
  decisions should be focused on objectives for
  which the Market was established
• Good governance and enforcement is key to the
  sustainable operation of the Market
• As the industry evolves the Market should
  continuously develop itself to maintain its
  relevance in the reform process

29

• THANK YOU
• WWW.WESM.PH
• laholopainen_at_wesm.ph
• mrpangilinan_at_wesm.ph