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An exciting new phase for WESM

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The Independent Electricity Market Operator of the Philippines (IEMOP) is currently studying and establishing several market-driven strategies to advocate developments in the power sector. Market developments, such as the continuous lowering of threshold for the Retail Competition and Open Access (RCOA), Green Energy Auction (GEA), Green Energy Option Program (GEOP), Reserves Market, Forwards Market, among other initiatives are all on track to make the country’s sole electricity market more dynamic, competitive, and transparent. The ultimate objective of these initiatives is to ensure a reliable, stable, and economical supply of power to support nation-building.

Foremost, among these advocacies, is the implementation of the Reserve Market. Reserves or Ancillary Services are commodities which are intended to ensure the reliability and security of the grid in an event of a contingency, such as when a generator suddenly went on outage. Currently, reserves are being contracted by the System Operator, the National Grid Corporation of the Philippines (NGCP), and are scheduled on a day-ahead basis. These reserve capacities are then reflected in the WESM during real-time scheduling.

With the Reserve Market design approved by the DOE through its Department Circular DC2019-12-0018 and DC2021-03-0009, reserve capacities shall be traded in the WESM. Hence, upon the Reserve Market implementation, reserves shall be scheduled in the least-cost basis through a more competitive and transparent landscape. In WESM, transparency is ensured by publication of all data and information relevant to the trading of energy and reserves. In this environment, investors and existing generators shall be incentivized to build new or enhance their current facilities which are technically capable of providing ancillary service.

IEMOP is also currently preparing to launch an alternative trading system for forward contracts. Forwards contracting provides a solution to the capital-intensive nature of building a power plant by providing generators a way to manage their risks in supplying power to their consumer counterparties. These forward contracts guarantee that there will be steady return-of-investment to recover capital expenses over the generator’s lifespan, thus, ensuring its financial viability. Currently, the mode of securing these contracts is bilateral in nature, and the time and costs associated in closing such contracts is challenging, especially for new players in the industry.

Through a central platform, industry players and future investors can buy and/or sell forward contracts faster and in a more transparent manner. This in effect also speeds up the process of determining the financial viability of new generation capacity and hastens the time to construct the power plants. Other benefits of establishing a forward market include market-based price discovery, significant reduction of transaction costs, and more stable WESM prices.

IEMOP is also studying the feasibility of integrating a Capacity Market to the WESM. A Capacity Market enables customers to buy “capacity” in the Electricity Market to ensure adequacy of supply in the long run. In comparison to other common commodities in an electricity market, which are (1) energy and (2) ancillary services, “capacity” is a commodity wherein the seller offers “commitment” to either (a) supply power or (b) reduce consumption, when the buyer requires it. As seen in other jurisdictions, the benefits of having a Capacity Market are (1) long-term adequacy of supply, (2) reliability of supply, and (3) more accurate pricing signals.

The implementation of these advocacies will ensure the Philippine’s security and reliability of supply in the most economical way possible. Encouraging new investments requires a long-term and thorough evaluation and analysis of all sectors of the society, not only within the energy industry. As such, IEMOP continues its commitment in supporting the nation’s advancement by implementing the policies of the Department of Energy, proposing developments that will benefit the stakeholders and the public, and studying innovative ways to ensure stable and economical power throughout the future. — Andrea May T. Caguete

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