Overview of Market Reforms and the WESM

Debora Anastacia T. LayuganSpot Market Division

Presented by:

Discussion points

Reforms in the energy market The WESM and its basic concepts The role of ERC in competitive markets

Industry Structure Prior to Reforms

NPCIPPs

NPCGENCOs

PrivateIPPs

Generation

NPCNPCTransmissionTransmission

Transmission

Distribution

Utilities

Distribution End-Users

Reforms under the EPIRA

Privatization of government owned generation and transmission assets. (Sections 8 & 47) Restructuring of the industry into four (4) major sectors comprising of the generation, transmission, distribution and supply. (Section 5)

Objectives of reforms

Restructuring

• More efficient delivery of electricity to End-users•Transparent and reasonable prices•Freeing up government funds through private sector participation

Encourage competitionand attract

moreprivate sectorInvestments.

Major Sectors

Transmission Distribution

SupplyGeneration

Competition takes place at the

--Wholesale level--Retail level

The WESM

Generation prices comprise almost 64% of retail rate.

• The heart of the industry structure

Market place for trading electricity as a commodity Prices not subject to regulation but governed by market forces Generation portion of the retail rate is being traded

How WESM works

Adopts the gross pool concept Prices are market driven Uses the least cost economic dispatch concept Governed by locational marginal pricing concept (nodal pricing) Adopts the ex-ante ex-post pricing scheme

Basic concepts:

Gross pool concept

All physical electricity is traded through a centralized venue known as the gross pool At least 10% of total requirements of DUs subject to spot price

Pool(WESM) 10%

90% DU

OTHERBUYERS

GENCOs GENCOs

GENCOs GENCOs

GENCOs GENCOs

Genco

C

Economic Dispatch; Supply & Demand

P/MWhP/MWh

MWMW

Supply SideSupply Side

Demand SideDemand SideOffer of Genco AQ = 100 MWP = P500/MWh

100 100

Industry Demand:Industry Demand:400 MW400 MW

Offer of Genco BQ = 250 MWP = P 800/MWh

250250

500

1,500Offer of Genco CQ = 500 MWP = P 1,500/MWh

400400

Market ClearingPrice is set atP 1,500/MWH.

Offer of Genco DQ = 500 MWP = P 1,800/MWh

5050

Genco A

Genco B

Offer of Genco EQ = 300 MWP = P 9,500/MWh

Bilateral Contracts as hedge to spot price volatility

02000400060008000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

HOURS

PRIC

E

SPOT PURCHASE BILATERAL PURCHASE DU P/MWH

Locational Marginal Pricing

LMP Generation CongestionLosses= + +

Cost of supplying next MW of load at a specific location, considers generation

marginal cost, cost of losses and transmission congestion cost.

LMP

LMP

ZoneZone

Nodes and Zones; LMP

A node is a point where the WESM participants (i.e generation facilities and loads) are connected to the transmission network.

Prices are calculated hourly at 406 nodes on the HV grid

- Luzon – approx. 214 nodes, 118 generation; 96 customer nodes- Visayas – approx. 120 nodes, 69 generation; 51 customer nodes- Mindanao – approx. 72 nodes, 43 generation; 29 customer nodes

Approximately 406 nodal prices for each trading interval

Nodal pricing provides economic signals in real time

A

B Gen A = 50MW @ P50Gen B = 60MW @ P100Demand = 100 mwMCP = P100

C

Basic Concepts

Pricing Mechanism

(MMS)

Hourly NodalSpot Prices

DUs and other buyers

PayGENCOs

Paid

Price determination flow

Regulatory Filings

1. Price Determination Methodology- provides the principles and formula by which energy and reserves shall be priced in the WESM

2. Market Fees – charge to be imposed on all WESM participants for the recovery of the cost and expenses of PEMC and MO for administering and operating the WESM.

3. Administered Price - methodology for determining the administered price that will be used for settlement of energy in the WESM in cases of market intervention and/or market suspension.

Dealing with market imperfections

WESM RULES

PGDC

COMPETITION RULES

INVESTIGATESANTI-COMPETITIVE

BEHAVIOR

IMPOSE FINESAND PENALTIES

“Regulation has worked where marketconditions for competition don’t exist”.

Need for government and players to inform the consuming public about new power industry

Dialogue, cooperation and coordination among players, regulators and government

Gradual and proper sequencing of reforms

How to get things going!How to get things going!

“ “ Let us not go Let us not go over old ground, over old ground, let us rather let us rather prepare for what is prepare for what is to come.”to come.”

Marcus Marcus Tullius CiceroTullius Cicero

(106-43 (106-43 B.C.)B.C.)

Thank you.