Overview of the Philippine Wholesale Electricity Spot Market (WESM)

Electric Power Industry Structure:PRE- EPIRA

IPPsNPC

GenCoNPC

GenCoIPPs

NPC

DU EC Direct DU

Customers

Generation – NPC, IPPs (IPPs - wholesale contract with NPC and some distribution companies)

Transmission – NPC Distribution and supply –

distribution utilities, electric cooperatives, NPC

Electric Power Industry Structure:EPIRA

Competitive generation Wholesale electricity spot

market (WESM) Open access to high

voltage wires Regulated transmission

and distribution Open access to

distribution networks Retail competition

IPP IPP IPP IPP

WESM

TRANSCO

DU Supplier Direct DU

Customers

SO

Legal Basis of WESM

EPIRA Sec. 30: Wholesale Electricity Spot Market (WESM) Within one (1) year from the effectivity of this Act,

the DOE shall establish a wholesale electricity spot market composed of the wholesale electricity spot market participants.

The market shall provide the mechanism for identifying and setting the price of actual variations from the quantities transacted under contracts between sellers and purchasers of electricity.

WESM Fundamentals

The WESM

Internet

https://www.mmswesm.ph

http://www.wesm.ph

SELLERS (GenCo’s) BUYERS (Customers)

400 MWh

@ PhP 5,500

4 MWh @ any price

0.09 MWh @ any price

20 MWh @ PhP 7,000

Price-taker

Price-taker

Basic Features of WESM

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 Price– 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

WESM Participants

Generation Companies Distribution Utilities Suppliers Aggregators End-users TRANSCO or its Buyer or

Concessionaire IPP Administrators Other entities authorized by

the ERC to participate in the WESM in accordance with the Act.

A person or an entity registered with the Market Operator:

– Direct WESM Member

– Indirect WESM Member (person or entity who wishes to indirectly trade in the spot market; may only transact thru a Direct WESM Member)

WESM Members

What will be traded in the WESM?

Transmission

Generation

DEREGULATED

•Energy

•Reserves

REGULATED

Distribution

Services and rates unbundled

What will be traded in the WESM?

Product Description Purchaser Sellers

Energy Electricity provided to Consumers

Customers (ECs,DUs,Bulk), Suppliers

Generators

Ancillary Services*• Regulating

ReserveLoad Following and Frequency Regulation

Generators/ Customers

(ECs,DUs, bulk), Suppliers

Generators

• Contingency Reserve

Spinning reserve to provide response to significant decrease in system frequency.

Generators

• Dispatchable Reserve

Back-up Reserves in response to a re-dispatch performed by the System Operator.

Generators

• Interruptible Load Customer loads that can respond to re-dispatch from the System Operator.

Customers (ECs,DUs, Bulk) Suppliers

Thank You!

Retail Competition and Open Access

Overview

Pre-EPIRA Situation

• Almost all EC’s buy wholesale electric power supply from NPC

• Using the Distribution System, electricity purchased from wholesale is distributed to residential, commercial, industrial, & other customers; all of which are “captive”

• By Law, captive market is normally regulated

• Also, since EC’s are public utilities, they have franchises

Pre-EPIRA Situation (cont’d)

• The EC’s inherently have two fundamental businesses:–Distribution Business (wires business)–Retail Supply Business (buy-and-sell

business)• Both are regulated because the entire EC

market is captive• For so long a time all EC’s have

comfortably operated in this type of environment (fully regulated)

EPIRA Regime

• Since the signing into Law of the EPIRA in 2001, many things have changed significantly

• The entire electric power industry has been more and more becoming exposed to various risks and uncertainties associated with EPIRA implementation

• The EC’s are not spared from the challenges and risks in the changing electric power industry environment

EPIRA Regime (cont’d)

• Not only viability and sustainability of the EC’s are at risk, but rather also their very existence

• The EC’s have to do, not only something, but a lot of things as quickly as possible

• Status quo is a perfect recipe for disaster• Better act now while there is yet but a

little time left• The decision is still in your hands...

What are the Major Challenges?

• Electric power industry restructuring– This will expose the EC’s to competitive

market forces– This will separate and unbundle the two major

businesses of the EC’s (remember BSUP of ERC?)

– The Distribution Business will remain regulated

– The Retail Supply Business shall become competitive (EPIRA Sec. 31)

– The EC’s will be engaged in direct competition

What are the Major Challenges?

• Privatization of NPC– Since NPC’s capacity has been dwindling,

the EC’s eventually can no longer source power from NPC

– The EC’s will be forced to source power from privately owned IPP’s, WESM or other possible sources like Wholesale Aggregators, self-generation embedded generation, etc.

– The EC’s will be forced to do what is has never done before

What are the Major Challenges?

• Open Access and Retail Competition– The captive retail market (residential,

commercial, industrial, etc.) of the EC’s will gradually become contestable market

– The EC’s eventually will directly compete with the Retail Electricity Suppliers (RES) on the contestable market

– The EC’s will most likely be the Supplier of Last Resort (SOLR)

What are the Major Challenges?

• Open Access and Retail Competition– If roughly the EC’s entire business is 50%

Distribution and 50% Retail Supply, then 50% eventually will be at risk of being grabbed away by the Retail Electricity Suppliers (RES)

– If the EC’s run only the Distribution System and allowed recovery of costs thru the distribution wheeling charges (no more supply charges), what will be the impact on the EC’s viability?

What Needs to be Done?

• The EC’s have to re-invent, and realize that there are still possible options, revenue sources and other opportunities

• Be proactive, share resources and join hands toward a common goal of protecting the best interests of the EC’s

• Establish partnerships with electric power industry leaders, stakeholders, active players, and other entities that are willing to share

Possible Options for the EC’s

• Development of New and Renewable Energy Resources within the EC’s franchise area– This will be a major additional revenue

source for the EC’s– Additional supply source– A plus factor that will make the EC’s better-

off in direct competition with the RES– Both an expansion and diversification

strategy

Possible Options for the EC’s

• Join WESM as Direct Member– Improvement of rates

• Purchase of energy at lower prices• Return of Net Settlement Surplus (NSS)

– Flexibility and choice• Purchase energy any hour, day, week, etc.• Purchase only if you like, not purchase if you

don’t like

– Economic and operational efficiency• Get rid of take-or-pay (a double-whammy)• Sell excess contracted energy at higher prices• System loss reduction

The Restructured Industry

GENERATION

SUPPLY

TRANSMISSION

DISTRIBUTION

Competitive

Regulated

The Supply Sector

• Provided under Section 29 of the EPIRA and Rule 8 of the IRR

• Suppliers to Contestable Market shall require license from ERC

• Supply of electricity to Contestable Market shall not be considered a public utility operation (franchise not required)

The Supply Sector

• Prices to be charged by Suppliers for the supply of electricity to Contestable Market shall not be subject to regulation by the ERC

• Suppliers shall be subject to the rules and regulations concerning abuse of market power, cartelization, and other anti-competitive or discriminatory behaviour to be promulgated by ERC

Who May Obtain a Supplier’s License?

• A Generation Company or Affiliate thereof• An Affiliate of a DU with respect to the

latter’s Contestable Market within or outside its Franchise Area

• Aggregators• IPP Administrators

Who May Obtain a Supplier’s License?

• Any other Person authorized by the ERC to engage in the selling, brokering or marketing of electricity to the Contestable Market, consistent with the EPIRA and its IRR

Sec. 31 of R. A. 9136 (EPIRA)

• Retail Competition and Open Access• To take place on the distribution

wires (of DU’s & EC’s)• For implementation not later than

three (3) years upon the effectivity of R. A. 9136 (but subject to five pre-conditions)

Power System – Retail Competition Coverage

The Five (5) Pre-Conditions

1. Establishment of the WESM2. Approval of the unbundled transmission

and distribution wheeling charges3. Initial implementation of the cross subsidy

removal scheme4. Privatization of at least seventy percent

(70%) of the total capacity of generating assets of NPC in Luzon and Visayas

5. Transfer of the management and control of at least seventy percent (70%) of the total energy output of power plants under contract with NPC to the IPP Administrators

What is Retail Competition?

• Retail Competition – the provision of electricity to a Contestable Market by Retail Electricity Supplier (RES) through Open Access.

• Fundamental Functions of DU’s & EC’s:– Distribution (wires business)– Retail Supply (merchant

function)

What is Open Access?

The system of allowing any qualified person the use of transmission, and/or

distribution system and associated facilities subject to the payment of

transmission and/or distribution retail wheeling rates duly approved by the

ERC.

Present Condition

• Without Open Access on the Distribution level

Generators EC

Industrial Consumers Commercial

Consumers Residential Consumers

Wholesale

R e t a i l

At present: All End Consumers belong to CAPTIVE MARKET

XNO OPEN ACCESS

With Open Access & Retail Competition

Generators EC

Captive Market

Contestable Market

Wholesale

Suppliers/Aggregators

WESMThru RES

Supply of Electricity

“the sale of electricity by a party other than a

Generator or a Distributor in the franchise area of a

distribution utility using the wires of the

distribution utility concerned”

EPIRA Sec. 4 (zz)

Supply of Electricity

Aggregator – any person or entity engaged in consolidating electric power demand of end-users in the contestable market for the purpose of purchasing and reselling electricity on a group basis.

EPIRA Sec. 4(a)

Supplier – any person or entity authorized by the ERC to sell, broker, market or aggregate electricity to the end-users.

EPIRA Sec. 4(xx)

Registered Retail Electricity Supplier (RES)*

1. GN Power Ltd. Co.2. Aboitiz Energy Solutions, Inc.3. Trans-Asia Oil and Energy

Development Corporation4. GN Power Mariveles Coal

Plant Ltd. Co.5. First Gen Energy Solutions,

Inc.* Published in the ERC Website

Registered Retail Electricity Supplier (RES)*

6. Cabanatuan Electric Corp.7. Masinloc Power Partners Co.

Ltd.8. Premier Energy Resources

Corporation9. TeaM Philippines Energy10.Adventenergy, Inc.

* Published in the ERC Website

Contestable Market

Electricity end-users who have a choice of a supplier of electricity, as may be determined by the ERC in accordance with the Act (EPIRA Sec. 4h)• To be determined by the ERC prior to

implementation of Open Access & Retail Competition

• Will be given the freedom to choose where to source their electricity supply

Contestable Market

Electricity end-users with a monthly average peak demand of at least 1 MW for the preceding 12 months to be allowed by the ERC upon Implementation of EPIRA Sec. 31 (Retail Competition and Open Access)• Not directly-connected• Within the franchise area of DU or EC• Existing big customers of DU or EC

Contestable Market

After two (2) years of Retail Competition & Open Access implementation, the threshold level of 1 MW shall be reduced to 750 kW

At this level (750 kW), Aggregators shall be allowed to supply electricity to end-users within a contiguous area

Contestable Market

Subsequently and every year thereafter (possibly for 7 years), the ERC shall evaluate the performance of the market

On the basis of such evaluation, the ERC shall gradually reduce the threshold level until it reaches the household demand level.

Aggregator

• An entity that combines customers into a buying group

• The group that buys large blocks of electric power and other services at cheaper price

• May act as an agent (broker) between customers and retailers

Levels of Competition

GENERATION

SUPPLYTRANSMISSION

DISTRIBUTION

WESMRetail Competition and Open Access

EPIRA Sec. 30 (Wholesale) EPIRA Sec. 31

(Retail)

Thank You!