DOE wants to start installing WESM in Mindnao
Mike Banos
February 27, 2011
Energy Secretary Jose Rene Almendras said in a recent forum the WESM would benefit energy users and providers even in a limited form.
"We are requesting the Philippine Electricity Market Corp. (PEMC) to start putting in some of the WESM structures in Mindanao," Almendras said. "It will be a hybrid market, to maximize use of existing ancillary market resources with partial booking."
"We will wait until the ancillary production levels will improve. There should be enough reserves. If the coal-fired power plants come in, there may be a shift from baseload hydro to ancillary," he said.
The WESM, which was created by Republic Act 9136 (the Electric Power Industry Reform Act of 2001 or EPIRA), is a trading platform which allows the trading of excess electricity between power generators and customers in a ´spot market" that reflects the actual cost of electricity through competition.
WESM allows buyers and suppliers to trade electricity as a commodity that will invite interested power facility investors to open plants, where it is needed, as the electricity spot market will show the real demand and supply of power.
As a spot market, electricity is traded at the WESM on a real time basis or on the "spot" and as such prices could be volatile. Before the WESM, prices were pegged by bilateral power supply contracts forged between suppliers and their clients.
However, Almendras´ move on the WESM is not shared by energy consultant James Nichols.
"Hourly marginal energy costs in Mindanao are very volatile today," Nichols said. "That wouldn't change under WESM nor any schedule for its implementation."
Nichols believes implementing the WESM in Mindanao would impact neither the level nor the volatility of consumer prices since 100 percent of the power supply of Mindanao DUs are sourced from bilateral and ancillary contracts with the National Grid Corporation of the Philippines (NGCP) and Therma Marine, Inc. (TMI) which wouldn´t be affected by the implementation of WESM.
"It would change only if a DUs supply is no longer structured as they are today," he added.
"From my perspective, it's the upcoming change in bilaterals (or loss of full-requirements coverage by bilaterals) that will impact consumer prices. That's the boogie man, not WESM."
David Tauli, spokesperson for Coalition 6/25, shares Nichols views about the irrelevance of WESM at this time but for other reasons.
"It is a waste of time to be talking about the WESM in Mindanao because it can become practical only when there is an excess of power capacity in Mindanao, which won't be happening anytime soon," Tauli said. "In the meantime, we can live with the current regime of pricing of electricity."
Tauli said the coalition would be working to ensure that the non-privatization of the Agus-Pulangi is extended for another five years or longer, and the equitable allocation of the production of Agus-Pulangi to all Mindanao customers over the period during which the hydro plants remain with the government.
"I also expect that DU's in Mindanao (with a few exceptions) would agree to negotiate as one group with generating companies for their long-term bulk-power supply," he said. "I look forward to a good year for power customers in Mindanao, notwithstanding the incapacity of PSALM-NPC to deliver on their power contracts with their customers."
The WESM began commercial operations in Luzon in 2006 and was launched in the Visayas in December 2010. The DOE recently announced that it has formulated various mechanisms to avert any power supply problem. The operation of the WESM is part of this overall strategy.
The energy chief related the stiff opposition to WESM in West Visayas when it started. However, Almendras showed a graph which demonstrated how once the WESM was installed, all manual load droppings and manuals virtually disappeared.
"That´s because the WESM enabled 256 megawatts (MW) of idle generating capacity which was previously shut down due to the lack of a market mechanism which would have made it possible to be dispatched on an intermittent pattern."
As a result, DOE statistics show 80 percent of the ex-ante weighted average price of electricity sold in the WESM was sold below P4.00 per kilowatt hour (KwH).
"We´re looking for market structure that will let you get the power you need only when you need it, making even expensive diesel affordable," Almendras explained.
Melinda Ocampo, PEMC president said WESM would serve as the channel through which excess power available in the grid at any particular time could be availed of at a low cost by industries and distribution utilities.
Energy stakeholders in Mindanao fear the operation of the WESM in the island would lead to higher prices due to inadequate capacity for power generation and transmission
But Almendras said the spot market would not increase existing rates since it only sells unused capacity for peak hours and existing demand is already covered by bilateral contracts between the distribution utilities and end-users. Hence, only the rate for the demand during peak hours could be affected with negligible effect on existing rates.
If WESM is allowed to operate excess power supply which would otherwise be idle could be traded in the spot market to be operated by PEMC, Ocampo added.
Aboitiz Equity Ventures shares a similar experience with WESM in Cebu.
"Cebu doesn´t have as much brownouts today since WESM started," said Sebastian Lacson, AEV first vice president and chief reputation officer during a media briefing held here last week.
"Although WESM spot prices can be expensive at times, these don´t have significant effects on electricity prices overall since they are only availed of for a limited time during peak hours, and no power is certainly more expensive," Lacson added.
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