Feature: WESM’s touchdown in Visayas

Cebu, March 17 (PIA) --The Wholesale Electricity Spot Market (WESM) has now launched operations in the Visayas, a decade after its formulation in 2001, following the promulgation of the Electric Power Industry Reform Act (the EPIRA Law).

According to Section 30 of the EPIRA, the Department of Energy is mandated to establish a wholesale electricity spot market that will be composed of electricity market participants.

As such, the WESM is directed to create a competitive, efficient, transparent and reliable market for electricity, where a level playing field exists among WESM participants.

Trading of electricity is facilitated among WESM participants within the electricity spot market, but the parties may also have direct bilateral contracts within the power system.

Prices are governed as long as it is practicable by commercial and market forces. Efficiency is also encouraged in the pursuit of these objectives.

 The Philippine Power Industry

         

The Philippine Power Industry is mainly divided into three sections: generation, transmission and distribution.

Generation deals with the process of generating electricity from other forms of energy. Power stations are mostly responsible for generating electricity through the use of electromechanical generators.

In the Philippines, energy comes mainly from four sources: hydro, geothermal, coal and diesel. Among these four, hydroelectric power is the cheapest form of electricity.

         

Some key players in this category are San Miguel Electric Corporation, the largest electricity generator in the country; First Gen Corporation; Aboitiz Power Corporation; Team Energy and Korea Electric Power Corporation (KEPCO).

The Philippines has a total generation rated capacity of 15,674 Megawatts (MW), with Luzon’s GRC accounting for 11,468 MW.

         

The second stage in the delivery of electricity to consumers is transmission. Transmission involves the bulk transfer of electrical energy, such as power plants transferring electricity to substations which are near population centers.

Power is delivered through transmission lines operated by the National Grid Corporation of the Philippines (NGCP).

The industry has eight main transmission lines. Luzon has a 230 kiloVolt and 500 kiloVolt backbone transmission line, while Visayas has a 138 kiloVolt and 230 kiloVolt (for Cebu only) backbone transmission line and Mindanao has a 138 kiloVolt and 230 kiloVolt backbone transmission line.

Other line include Leyte-Cebu, which has an AC submarine cable link that goes for 2x200 MW;  Negros-Panay which has an AC submarine cable link at 100MW; Cebu-Negros which has an AC submarine cable link at 2x100MW; and Leyte-Luzon which has an HVDC link that interconnects the Luzon and Visayas Transmission Lines.

         

Finally, distribution is the final stage in the delivery of electricity to consumers. A distribution system’s network takes electricity from the transmission system and brings it to consumers or end-users.

In relation, the distribution demand varies, specific to various factors. In the Philippines, Manila Electric Company (Meralco) is among the leading distributors in Luzon, while Visayas Electric Company and Davao Light & Power Corporation dominate Visayas and Mindanao respectively.

Before WESM

         

Before the EPIRA was enacted, the electric power industry was a monopoly. The old regime meant pricing was cost-based. Price was based on historical costs, long-term averaging, and was fixed by regulators.

Cross-subsidy was possible and there were no economic incentives. This meant that price manipulation was very much possible and a threat to end-users.

         

In 2001, however, the EPIRA was promulgated, and it provided the framework for the restructuring of the Electric Power Industry.

The National Power Corporation’s assets started to be privatized, and the monopoly transitioned into a more competitive structure desired by many.

The EPIRA was also able to appropriately define the responsibilities of the various government agencies and private entities.

         

Among EPIRA’s major objectives was to ensure the quality, reliability and security of electricity in the country.

It also aimed to ensure transparent and reasonable prices of electricity and enhance the inflow of private capital and broaden the ownership base of the power generation, transmission and distribution sectors.

In addition, the EPIRA wanted to assure that there are socially and environmentally compatible energy sources and infrastructure in the country that can satisfy the varying demands of end-users.

Lastly, it wanted to provide an orderly and transparent privatization of the assets and liabilities of the National Power Corporation, as well as establish a strong and purely independent regulatory body and system that will ensure consumer protection and enhance the competitive operation of the electricity market.

         

Now, the new regime provides a facility for pricing to be based on market forces, where price is determined by the interaction of supply and demand.

As well, WESM was put into place to accommodate EPIRA’s objectives and ensure equality for all energy users.

Inside WESM

         

Put simply, WESM is a market for fair and competitive trading of electricity. It has been established solely to encourage efficiency of the electricity supply by providing competition among participants.

         

WESM acts as an overseer between producers and distributors, monitoring the movement and pricing of demand, so that needs of consumers are met without abuse.

WESM schedules generation and supply of electricity in real time. It is also the venue for competition in the generation of electricity.

It determines the prices of un-contracted quantities and settlement of spot market transactions, and also provides transparency in pricing methodology.

Pricing is determined by a transparent process, which is driven by supply and demand.

         

Much like a stock market, WESM is able to display producers’ offers of power capacities so that distributors can choose which supplier best meets their needs.

Inversely, distributors can put up their demand and producers can bid for it.

           

WESM involves the following: Gross Pool, where all energy transactions are scheduled through the market and every generator submits offers to be scheduled in the power system.

Net Settlement, where Bilateral Contract quantities transacted in the pool can be settled outside the market, but Spot quantity is settled only at market price.

 Locational Marginal Price, wherein marginal price is based on each node or location so that it can reflect transmission loss or congestion.

 Hourly and bid-based market mechanism, where generators submit bids for each hour of the day; and the Mandatory Market, where all entities that withdraws or injects power to the grid are required to participate in the WESM.

As well, EPIRA is mandated to procure at least 10 percent from this market.

Trading in the WESM

         

WESM employs a typical trading system composed of four steps. The first step is where the bids and offers are submitted by participants on an hourly basis.

The second step involves scheduling, where a market operator matches generation offers with demand while still taking into consideration the system conditions.

It then comes up with a schedule of generation quantities to be dispatched with prices at each location.

The third step, the dispatch, is where the system operator implements the dispatch schedule.

Finally, the last step is the settlement, where participants settle their transactions through the WESM settlement system or between themselves for quantities covered by bilateral contracts.

WESM Participants

         

WESM has many participants, including 45 Generation Companies, 89 Private Distribution Utilities and Electric Cooperatives, 89 Directly-Connected Bulk Users and 7 Wholesale aggregators.

Generation companies are composed of both privately owned and government-owned production facilities, namely National Power Corporation and PSALM Corporation.

It also includes generation from renewable energy sources (hydro, geothermal, wind and biomass).

With the entry of Visayas participants, increased participation of generation from renewable energy sources is expected.

On the other hand, private distribution utilities and electric cooperatives are mandated to source 10 percent of their demand from the WESM, while the directly-connected bulk users are involved in trade in the WESM through their power suppliers. (PIA-7/Minerva BC Newman with reports from Resti Reyes)