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The Philippine Wholesale Electricity Spot Market

The Philippine Wholesale Electricity Spot Market. 2008 APEx Conference Sydney, Australia. Lasse A. Holopainen – President Mario R. Pangilinan – Executive Vice President Philippine Electricity Market Corporation. Presentation Outline. Philippine Power Industry

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The Philippine Wholesale Electricity Spot Market

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  1. The Philippine Wholesale Electricity Spot Market 2008 APEx Conference Sydney, Australia Lasse A. Holopainen – President Mario R. Pangilinan – Executive Vice President Philippine Electricity Market Corporation

  2. Presentation Outline • Philippine Power Industry • Overview of the Philippine WESM • Results of Market Operations • Market Benefits • Market and Industry Outlook • Conclusions and Considerations

  3. The Philippine Power Industry

  4. The Philippine Power Industry Overview • Electric Power Industry Reform Act of 2001 mandated deregulation and restructuring of the electricity industry • Generation sector was dominated by the National Power Corporation but is currently undergoing privatization • Transmission sector is a monopoly franchise awarded to private sector • Distribution sector is divided into franchise areas among private utilities or cooperatives but will be subjected to open access and retail supply competition • The WESM was established by law to promote supply competition at the wholesale level

  5. The Philippine Power Industry The New Industry Structure Competitive generation Regulated transmission and distribution • Establishment of WESM Competitive retail electricity providers • Privatization of NPC • Unbundling of electricity rates for transparency End-user choice • Establishment of an Independent Transmission Company • Open Access of distribution network and retail competition

  6. Visayas Luzon Mindanao Wind 0.2% Diesel/ Oil Hydro 0.6% Hydro Diesel/ Oil Diesel Hydro 14.6% 19.8% 31% Nat. Gas 34% Geo 7.7% Geo 52% 24.3% 11% 11% Coal 33.4% Coal Geo 6% Coal The Philippine Power Industry Generation Rated Capacity Mix, % MW

  7. Wholesale Customers (% based on Peak Demand) No. of Distribution Utilities Per Region Mindanao Elec. Coops Luzon 30 (25.4%) 28% 54 (45.8%) 61% Meralco 34 (28.8%) 11% Private DUs Visayas End-Users (% based on Actual Energy) Others 3% Industrial 35% 35% Residential 27% Commercial The Philippine Power Industry Demand Distribution

  8. Overview of the Philippine WESM

  9. Market Design 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 Pricing 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 for distribution utilities for the first 5 years from the establishment of the WESM

  10. WESM Product Offering

  11. Locational Marginal Pricing (LMP) market with 270 trading nodes 30 Generating Resources/13 Trading Teams 8 Direct Customer Participants 135 Indirect/Unregistered Customers WESM at a Glance

  12. Rule Change Committee Market Surveillance Committee Dispute Resolution Group Technical Committee WESM Structure and Governance Oversight • ERC • Enforcement • Pricing • DOE • Policy making • Planning Governance PEM Board PEMC PEM Audit Enforcement and Compliance Market Assessment Group Market Operator WESM Members Generators/ A/S Providers Network Service Providers (SO-Transco & DUs) Suppliers/ Aggregators Buyers

  13. Results of Market Operations

  14. Market Outcomes 7-Day Moving Averages - Supply, Demand & LWAP Hydro and & Coal Supply Limitation ( 990 MW) Maintenance of Nat. Gas Facility (2700 MW) Forced & Planned Outages ( 1280 MW) Congestion at EHV Backbone 2008 2007 2006 Generation Offers Actual Demand Hourly LWAP

  15. Market Outcomes Luzon Energy Mix Congestion at EHV Backbone Hydro and Coal Supply Limitation Tight Supply Maintenance of Nat Gas Facility 4.6% 4.8% 6.8% 5% 5.2% 9.6% 10.2% Max = 52.9% Min = 35.1% Max = 36.3% Min = 21.2% Max = 11.7% Min = 6.3% Max = 21.8% Min = 5.1% Note: Data based on metered quantities

  16. Price spikes due to line congestions Market Outcomes Representative Nodes: Ave Nodal Price and Max Price Spread Average Monthly LMPs La Trinidad Mexico Balintawak Maximum Price Spread Sucat Batangas Naga 2006 2007 2008

  17. * - TOU Rates Applied Market Outcomes Effective Settlement Price Cumulative Average: P4,989/MWh * * 2008 2006 2007

  18. Market Outcomes Transaction Volumes and Values 2006 2007 2008

  19. Market Benefits

  20. Market Benefits Long-Term Pricing Impact Price Trend Year

  21. Market Benefits Generation Efficiency 3.2% 4.1% 5% 11.5% 44.1% 39.7% 41.5% 31.1% 2.4% 34.2% 47.1% 39% 36.1% 31.8% 28.1% 8.5% 9.6% 6.7% 7.6% 10.7% 10.6% 10.7% 13.3% 10.9% 11.6% 1st Half

  22. Market Benefits Increased Investor Interest Tiwi-Makban Geo (747.5MW, $446.9M) WESM Commercial Operations Ambuklao-Binga Hydro (175 MW, $325M) Calaca Coal (600 MW, $787M) Masinloc Coal (600 MW, $930M) • Loboc Hydro (1.2 MW, $1.4M) • Cawayan Hydro (0.4 MW, $0.4M) • Agusan Hydro (1.6 MW, $0.4M) • Barit Hydro (1.8 MW, $0.48M) • Talomo Hydro (3.5 MW, $1.37M) Magat Hydro (360 MW, $530M) Pantabangan-Masiway Hydro (112 MW, $129M) 2008 2006 2007 2005

  23. Market and Industry Outlook

  24. Market and Industry Outlook • Visayas Market • Completed System Readiness, Participant Training, Trial and Live Dispatch Operations • Awaiting for DOE’s decision for WESM Commercial Operation • Reserve Market • The Energy Regulatory Commission (ERC) has recently released on order setting forth additional compliance requirements on the part of PEMC-MO and Transco-SO prior to the opening of the reserve market • Industry is continually evolving towards retail competition • Monitoring and Enforcement of Market Rules • Regulatory oversight and policy planning for new capacities • Customer participation and Demand side management • Full preparation for Retail Competition • Enhanced competition with Wholesale Aggregators (WA) and Retail Electricity Suppliers (RES) participation

  25. Market and Industry Outlook Traders Accreditation Program Formation of an Electricity Traders Association Aims to institutionalize the “Electricity Trader” as a profession, promoting competency, professionalism, compliance and ethics Electricity Derivatives Forward Market Development of an OTC bulletin board facility to allow auctioning and trading of standardized Forward Contracts Market is non-mandatory and is the venue for hedging physical spot market risks, and trading of excess capacities Capacities in IPPA portfolios can be bundled into Forward Contracts Aims to provide indications of future supply scenario and economics

  26. Conclusion and Considerations

  27. Conclusion and Considerations • Operation of Electricity Markets brings benefits to the industry, stakeholders and government • Market is faced with challenges • Policy • Regulation • Design • Operations • Market is only good as industry • Stakeholders • Regulator • Policymakers • Physical System on which it operates

  28. Conclusion and Considerations • While vested interests exist in the Market, decisions should be focused on objectives for which the Market was established • Good governance and enforcement is key to the sustainable operation of the Market • As the industry evolves the Market should continuously develop itself to maintain its relevance in the reform process

  29. THANK YOU WWW.WESM.PH laholopainen@wesm.ph mrpangilinan@wesm.ph

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