The wholesale electricity spot market (WESM) in the Philippines was launched last June 23, 2006. Initially, it covers only the Luzon grid. Its commencement marks a crucial point in the transition from a monopolistic vertically integrated power sector to a competitive market-based industry.
The system of trading electricity was first established in the United States of America in 1927. The Pennsylvania-Jersey-Maryland (PJM) Interconnection operates one of the largest competitive wholesale electricity markets in the world.
This so-called “stock market for electricity” works basically like a stock exchange that allows sellers and buyers to trade electricity as a commodity. Trading is everyday in real-time, using equally real-time demand and supply information. The system pools all output from generators, price trends and projections that are expected to improve trading and investment decisions. Then, the market operator will schedule electricity generation and dispatch, balancing these with demand at all times.
As a wholesale market, WESM is open to distributors, directly-connected customers, large users and eventually supply aggregators. For now, only bulk-users consuming at least one megawatt of electricity per month can participate in trading. Smaller users will have to wait for the start of open access and retail competition, hopefully, by July next year.
The WESM aims to achieve four objectives of the Electric Power Industry Reform Act of 2001 or more popularly known as the EPIRA:
- Ensure better pricing for residential, commercial and industrial users of electricity by reflecting its “true cost” or the price the market is willing to pay;
- Enhance inflow of private capital into the electricity industry;
- Achieve economic efficiency in the power industry;
- Ensure the quality, reliability and security of electricity supply.
Meanwhile, the Visayas leg is now undergoing trial operations. It is expected to come on stream by January 2008. The EPIRA excluded Mindanao from the market-based thrust until 2010.
The spot market role in overall power sector reform is to create a fair, transparent and reliable trading environment that will attract investments and encourage healthy competition.
*DECORP Currents ("WESM Launched"), Jan-Jul 2006.
© 2006 by Ludwig Ritchel A. Kalambacal
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