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.