Energy market: an eager contributor to development

energy market an eager contributor to development 1024x699 - Energy market: an eager contributor to development

Economic development concerns a wide range of aspects, including electricity. Meeting increasing demands for electricity, mostly through new power plants, is seen to support such development. Otherwise, development might stall.

As the country’s centralized venue for electricity trading, the Wholesale Electricity Spot Market (WESM) plays significant roles in supporting economic development by maintaining well-rounded efficiency and competition in the energy industry.

One of WESM’s primary roles is providing the mechanism for identifying the price of actual variations from the quantity transacted between sellers and purchasers of electricity.

As explained by Isidro E. Cacho, Jr., chief corporate strategy and communications officer, the WESM establishes prices according to location in the power grid, more known as nodal pricing. Every hour and, eventually, every five minutes — once the enhanced WESM design gets implemented — each generation offer submitted by generation companies (GenCos) is stacked in ascending order of prices; and the clearing price is set by the last offer that matches forecasted demand.

“The market nodal prices are then determined by adjusting the clearing price to reflect the economic cost of losses (transmission line losses) or congestion (transmission line capacity limitation) at each location,” it continued.

This information that WESM generates and provides helps investors ensure the viability of their investments in constructing new power plants, IEMOP stressed.

Specifically, the differences in nodal prices help investors identify where to construct new power plants or where to put up factories. The nodal prices also help in determining the expansion or planning for new transmission lines.

“With the transparency required in the WESM, investors have available information on the level of competition in the electricity market as well as expected revenues based on published prices,” IEMOP explained. “These information help investors identify what level of capacity may be needed to be constructed and when to construct these new power plants.”

It is this transparency in the spot market, coupled with trust in WESM’s market operator, the Independent Electricity Market Operator in the Philippines (IEMOP), which ensures that market participants have enough confidence to invest and conduct their transactions in the Philippine electricity market with the WESM.

“It’s all about having those two — trust and confidence — in the market as well as the entity operating it, that there will be consistency in applying the rules and enable the market participants to manage the market volatility with some certainty,” IEMOP emphasized.

WESM also allows customer participants to choose the optimal sourcing of electricity that will benefit their end-users, while it allows GenCos and their investors to sell their electricity even without a contract.

“This allows everyone to participate in the market in a reasonable manner that ensures competitive pricing in the short-term and security of supply of electricity for the country in the long-term. This then translates to growth and support for economic development,” it continued.

Progress amid pandemic

Such development was recognized by IEMOP as he cited recent figures from the Department of Energy (DoE), which indicated that the country’s power demand rose 5.3% in 2019.

For IEMOP, this growth of electricity demand generally reflects the country’s gross domestic product (up by 6.4% in the fourth quarter of 2019 according to the Philippine Statistics Agency) and consequently indicated a movement towards economic growth. It was also recognized, however, that both economic growth and electric demand were dampened by the coronavirus disease 2019 (COVID-19) pandemic. 

Nonetheless, IEMOP noted, operations in WESM continue in spite of comparatively low market prices; while GenCos and suppliers were able to provide a secure amount of supply in the market regardless of pandemic-impacted revenues. Furthermore, IEMOP, as the market operator of the spot market, ensured business continuity.

“We can also say that the power industry players and the market operator, together with their relentless drive to ensure that each household is being supplied with electricity, can be deemed as major contributors in the country especially now that most people are working from the comforts of their own homes,” it added.

Advancing renewable energy

Meeting increasing demands for electricity is not only the pressing concern within the industry but also accelerating the transition to renewable energy. At present, DoE continues to implement the provisions of the Renewable Energy Law, with the recent developments for the Renewable Energy Market (REM) and the Green Energy Option Program (GEOP).

IEMOP, with its roles of scheduling generating plants and determining spot prices, has a major role to play in advancing this transition. “Under GEOP, IEMOP, as the Central Registration Body for the retail electricity market, is mandated to facilitate the supply by Renewable Energy Suppliers to end-users of electricity from renewable energy,” Jonathan B. de la Viña, market operations development manager, explained. “Under these mandates, IEMOP shall ensure that market principles are applied in their implementation.”

Since the incentives for additional renewable energy resources will add capacity to the grid, he continued, he believes that the implementation of these programs would further competition within the electricity market. 

In addition, with the Renewable Portfolio Standards expected to be fully implemented, requiring electricity suppliers to source a portion of their sales from renewable energy, IEMOP also believes that the entire industry will follow suit in the move to renewable energy.

Aside from the uptrend in renewable energy, IEMOP also finds that in order for the industry to continue contributing to economic development, it needs to evolve further by enabling all market participants to have a transparent mechanism to manage risks in terms of their exposures to the spot market and the performance of their generating units.

“This, in turn, leads to further investments and support for the growth of the economy and ensures the security of supply for all Filipinos in the medium- and long-term horizon,” it said.

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