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Overview of the Philippine Wholesale Electricity Spot Market (WESM)

Electric Power Industry Structure: PRE- EPIRA


IPPs NPC GenCo NPC GenCo IPPs

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


IPP IPP IPP IPP

WESM

TRANSCO

SO

DU

Supplier

Direct

DU

Customers

Competitive generation Wholesale electricity spot market (WESM) Open access to high voltage wires Regulated transmission and distribution Open access to distribution networks Retail competition

WESM Fundamentals
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.

The WESM
SELLERS (GenCos)

BUYERS (Customers)

400 MWh
@ PhP 5,500

0.09 MWh @ any price Price-taker

4 MWh @ any price

https://www.mmswesm.ph http://www.wesm.ph

20 MWh @ PhP 7,000 Price-taker

Basic Features of WESM

Gross Pool

All energy transactions are scheduled through the market Bilateral Contract quantities transacted in the pool can be settled outside of the market Marginal price computed at each node or location to reflect transmission loss and/or congestion

Net Settlement

Locational Marginal Price

Reserve Co-Optimization

Reserve and energy offers are scheduled at the same time


Customers choice to buy energy lower than a specified price EPIRA mandates procurement of at least 10% from the market

Demand Bids

Mandatory Market

WESM Participants

WESM Members

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)

What will be traded in the WESM?


Generation
Energy Reserves

Services and rates unbundled

Transmission

DEREGULATED

Distribution

REGULATED

What will be traded in the WESM?


Product Description Electricity provided to Consumers Purchaser
Customers (ECs,DUs,Bulk ), Suppliers

Sellers

Energy
Ancillary Services*
Regulating Reserve Contingency Reserve Dispatchable Reserve Interruptible Load

Generators

Load Following and Frequency Regulation Spinning reserve to provide response to significant decrease in system frequency. Back-up Reserves in response to a redispatch performed by the System Operator. Customer loads that can respond to redispatch from the System Operator.

Generators Generators Generators/ Customers (ECs,DUs, bulk), Suppliers

Generators

Customers (ECs,DUs, Bulk) Suppliers

Thank You!

Retail Competition and Open Access Overview

Pre-EPIRA Situation
Almost all ECs 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 ECs are public utilities, they have franchises

Pre-EPIRA Situation (contd)


The ECs 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 ECs 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 ECs are not spared from the challenges and risks in the changing electric power industry environment

EPIRA Regime (contd)


Not only viability and sustainability of the ECs are at risk, but rather also their very existence The ECs 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 ECs to competitive market forces This will separate and unbundle the two major businesses of the ECs (remember BSUP of ERC?) The Distribution Business will remain regulated The Retail Supply Business shall become competitive (EPIRA Sec. 31) The ECs will be engaged in direct competition

What are the Major Challenges?


Privatization of NPC
Since NPCs capacity has been dwindling, the ECs eventually can no longer source power from NPC The ECs will be forced to source power from privately owned IPPs, WESM or other possible sources like Wholesale Aggregators, self-generation embedded generation, etc. The ECs 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 ECs will gradually become contestable market The ECs eventually will directly compete with the Retail Electricity Suppliers (RES) on the contestable market The ECs will most likely be the Supplier of Last Resort (SOLR)

What are the Major Challenges?


Open Access and Retail Competition
If roughly the ECs 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 ECs 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 ECs viability?

What Needs to be Done?


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

Possible Options for the ECs


Development of New and Renewable Energy Resources within the ECs franchise area
This will be a major additional revenue source for the ECs Additional supply source A plus factor that will make the ECs better-off in direct competition with the RES Both an expansion and diversification strategy

Possible Options for the ECs


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 dont 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

Regulated
GENERATION TRANSMISSION DISTRIBUTION

SUPPLY

Competitive

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 anticompetitive or discriminatory behaviour to be promulgated by ERC

Who May Obtain a Suppliers License?


A Generation Company or Affiliate thereof An Affiliate of a DU with respect to the latters Contestable Market within or outside its Franchise Area Aggregators IPP Administrators

Who May Obtain a Suppliers 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 DUs & ECs) 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 WESM 2. Approval of the unbundled transmission and distribution wheeling charges 3. Initial implementation of the cross subsidy removal scheme 4. 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 DUs & ECs:

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


Wholesale

NO OPEN ACCESS

Retail

At present: All End Consumers belong to CAPTIVE MARKET

Industrial Commercial Consumers Consumers Residential Consumers

With Open Access & Retail Competition


Wholesale

Suppliers/ Aggregators

Contestable Captive Market Market

WESM

Thru 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
Supplier any person or entity authorized by the ERC to sell, broker, market or aggregate electricity to the end-users.
EPIRA Sec. 4(xx)

Aggregator any person or entity engaged in consolidating electric power demand of endusers in the contestable market for the purpose of purchasing and reselling electricity on a group basis.
EPIRA Sec. 4(a)

Registered Retail Electricity Supplier (RES)*

1. GN Power Ltd. Co. 2. Aboitiz Energy Solutions, Inc. 3. Trans-Asia Oil and Energy Development Corporation 4. 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 Corporation 9. TeaM Philippines Energy 10. 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
EPIRA Sec. 30 (Wholesale)

EPIRA Sec. 31 (Retail)

WESM

Retail Competition and Open Access

GENERATION

TRANSMISSION

DISTRIBUTION

SUPPLY

Thank You!

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