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

1. Philippine Power Industry

2. Overview of the Philippine WESM
3. Results of Market Operations
4. Market Benefits
5. Market and Industry Outlook
6. Conclusions and Considerations
The Philippine Power Industry
The Philippine Power Industry
Overview
1. Electric Power Industry Reform Act of 2001 mandated
deregulation and restructuring of the electricity industry
2. Generation sector was dominated by the National Power
Corporation but is currently undergoing privatization
3. Transmission sector is a monopoly franchise awarded to
private sector
4. Distribution sector is divided into franchise areas among
private utilities or cooperatives but will be subjected to
open access and retail supply competition
5. The WESM was established by law to promote supply
competition at the wholesale level
 The Philippine Power Industry
The New Industry Structure t ion
e r a
ge n
p e t itive
C om is s ion
t ra nsm
Establishment u la t ed n
Reg stributio

of WESM d d i e ta il
an i ve r rs
p e t it v id e
 Privatization of NPC Com icity pro
tr
elec
 Unbundling of electricity rates for - u s er
transparency End e
c
choi
 Establishment of an Independent
Transmission Company

 Open Access of distribution network and retail

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

Luzon Visayas Mindanao Philippines

Total Gen Rated Capacity (MW) 11,396 1,778 1,907 15,081
2007 Peak Demand (MW) 6,589 1,171 1,203 8,963
The Philippine Power Industry
Demand Distribution
No. of Distribution Utilities Wholesale Customers
Per Region (% based on Peak Demand)
Mindanao
Elec.
30 Luzon Coops
(25.4%) 54 28%
(45.8%)
34 61% Meralco
(28.8%) Private 11%
DUs
Visayas
End-Users
(% based on Actual Energy)
Others
3% Industrial
35%

Residential 35%
27%
Commercial
Overview of the Philippine WESM
Market Design
1. Gross Pool
– All energy transactions are scheduled through the market
2. Net Settlement
– Bilateral Contract quantities transacted in the pool can be settled outside of
the market
3. Locational Marginal Pricing
– Marginal price computed at each node or location to reflect transmission loss
and / or congestion
4. Reserve Co-Optimization
– Reserve and energy offers are scheduled at the same time
5. Demand Bids
– Customers’ choice to buy energy lower than a specified price
6. 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
WESM Product Offering
Product Description Purchaser Sellers

Energy Electricity provided to Consumers Customers Generators

Ancillary Services
1. Regulating Load Following and Frequency Generators
Regulation
Reserve
2. Contingency Spinning reserve to provide Generators
response to significant decrease
Reserve
in system frequency.
Generators/
3. Dispatchable Back-up Reserves in response to Customers* Generators
a re-dispatch performed by the
Reserve
System Operator.
4. Interruptible Customer loads that can respond Customers
to re-dispatch from the System
Load
Operator.
WESM at a Glance
• Locational Marginal Pricing (LMP) market
with 270 trading nodes
• 30 Generating Resources/13 Trading
Teams
• 8 Direct Customer Participants
• 135 Indirect/Unregistered Customers
1st Year 2nd Year %
Operation Operation Change
Peak Demand, MW 6,589 6,681 1.4%
Total Energy Volume, GWh 39,006 40,488 3.8%
Spot Market Volume, GWh 10,263 4,927 -52%

Average % Spot Volume 27% 13% -55.6%

Spot Market Value, MPhp 51,253 22,542 -56%
Cumulative ESP, P/MWh 5,062 4,933 -2.5%
WESM Structure and Governance
Oversight
DOE ERC
• Policy making • Enforcement
• Planning • Pricing

Governance Rule Change

Committee
PEM Board Market Surveillance
Committee
Dispute Resolution
Group

PEMC PEM Audit

Market Enforcement and Market Assessment Technical
Operator Compliance Group Committee

WESM Members

Generators/ Network Service Providers Suppliers/

Buyers
A/S Providers (SO-Transco & DUs) Aggregators
Results of Market Operations
 Market Outcomes
7-Day Moving Averages - Supply, Demand & LWAP
8000
Hydro and & Coal Supply Limitation ( 990 MW) 30000
Maintenance of
Nat. Gas Facility (2700 MW) Forced & Planned Outages ( 1280 MW)
7000
25000

6000

20000
5000

P/MWh
4000 15000
Congestion at EHV Backbone
MW

3000
10000

2000

5000
1000

0 0
J J A S O N D J F M A M J J A S O N D J F M A M J J A

2006 2007 2008

Generation Offers Actual Demand Hourly LWAP
Market Outcomes
Luzon Energy Mix
Hydro and Coal Supply Limitation Congestion at EHV
Backbone
Maintenance of Nat Gas Facility Tight Supply
4.6%
4.8%
6.8% 9.6% 5% 5.2%

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

 Market Outcomes
Representative Nodes: Ave Nodal Price and Max Price Spread

Average Monthly LMPs

La Trinidad

Mexico
Balintawak
Maximum Price Spread
Sucat
Price spikes due to line
Batangas congestions
Naga

2006 2007 2008

Market Outcomes
Effective Settlement Price
ESP with Surplus ESP without Surplus Cumulative Average Surplus ESP

10,000 800

9,000
700
8,000

Surplus ESP (P/M W h)

Cumulative Average:
600
7,000 P4,989/MWh
Price (P /M W h)

500
6,000

5,000 400

4,000 * * 300
3,000
200
2,000
100
1,000

0 -
J A S O N D J F M A M J J A S O N D J F M A M J J A
2006 2007 2008
- TOU Rates Applied
*
 Market Outcomes
Transaction Volumes and Values
Spot Market Volume Bilateral Contract Volume Spot Market Value

4,000 7,000

S p o t T ra n s a c tio n V a lu e (M P h p )
3,500
E n e rg y V o lu m e s (G W h )

6,000

3,000
5,000

2,500
4,000
2,000
3,000
1,500
2,000
1,000

1,000
500

0 0
J A S O N D J F M A M J J A S O N D J F M A M J J A
2006 2007 2008
Market Benefits
Market Benefits
Long-Term Pricing Impact
9

7
Genration Price, P/kWh

6 Price Trend

1
2003 2004 2005 2006 2007 2008
Year
Simulated Blended Rates WESM ESP NPC Rates Price Trend
Market Benefits
Generation Efficiency
45,000
11.5% 5% 4.1% 3.2%
40,000
35,000 44.1%
39.7%
30,000 31.1% 41.5%

25,000
GWh

2.4%
20,000
15,000 39% 36.1% 34.2% 31.8% 47.1%

10,000
8.5% 9.6% 28.1%
5,000 7.6% 6.7%
10.7%
10.6% 10.7% 13.3% 10.9% 11.6%
0
2004 2005 2006 2007 2008
1st Half
Hydro Wind Geo Coal Nat Gas D/O
 Market Benefits
Increased Investor Interest
3000
Tiwi-Makban Geo
(747.5MW, $446.9M)

2500
WESM
Ambuklao-Binga Hydro
Commercial
(175 MW, $325M)
2000 Operations
Calaca Coal
(600 MW, $787M)
MW

1500
• Loboc Hydro (1.2 MW, $1.4M) Masinloc Coal
• Cawayan Hydro (0.4 MW, $0.4M) (600 MW, $930M)
1000 • Agusan Hydro (1.6 MW, $0.4M)
• Barit Hydro (1.8 MW, $0.48M) Magat Hydro
• Talomo Hydro (3.5 MW, $1.37M) (360 MW, $530M)
500
Pantabangan-Masiway
Hydro (112 MW, $129M)

0
2005 2006 2007 2008
Market and Industry Outlook
 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
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
Conclusion and Considerations
Conclusion and Considerations
1. Operation of Electricity Markets brings benefits to the
industry, stakeholders and government
2. Market is faced with challenges
• Policy
• Regulation
• Design
• Operations
3. Market is only good as industry
• Stakeholders
• Regulator
• Policymakers
• Physical System on which it operates
Conclusion and Considerations
4. While vested interests exist in the Market, decisions should
be focused on objectives for which the Market was
established
5. Good governance and enforcement is key to the
sustainable operation of the Market
6. As the industry evolves the Market should continuously
develop itself to maintain its relevance in the reform process
 THANK YOU

WWW.WESM.PH

laholopainen@wesm.ph
mrpangilinan@wesm.ph