People's Domain

[Opinion] What is the electricity spot market

The realization of a Wholesale Electricity Spot Market (WESM) operation in the Visayas was met with mixed reactions. Power industry players and executives on the supply sector were all praises while officials on the demand sector were divided on the WESM. On the other hand, many from private distribution utilities were supportive while electric cooperatives calls for postponement or suspension of its operations.

The establishment of WESM is a component of the privatization program of the country’s power industry and mandated by the Electric Power Industry Reform Act of 2001 (EPIRA). The EPIRA directs the Department of Energy (DoE) to establish the spot market for electricity one year upon the effectivity of the law by bringing together participants from the country’s power industry and that of the wholesale electricity market.

The objective of the coming together of participants was to “formulate detailed rules for the open market and provide mechanism for determining the price of electricity not covered by bilateral contracts between sellers and purchasers of electricity.”

However, the vision to establish an open market for electricity the soonest time was not realized for privatization effort confronted setbacks. Power industry players and government’s power privatization proponent, the Asian Development Bank, acknowledged these setbacks by recognizing it as part of the “birth pains” of privatization.

The “birth pains” subjected government’s privatization program for further fine tuning and time table was re-adjusted. So it was only in June 2006 that WESM was finally launched and three days after WESM went into full operations in Luzon.

A host of “attractive benefits” comprises the over-all objective of WESM. It is aimed to establish a competitive, efficient, transparent, and reliable market for electricity where: (a) a level playing field exists among WESM participants; (b) trading of electricity is facilitated among participants within the spot market; (c) third parties are granted access to the power system in accordance with EPIRA; (d) prices are governed as far as practicable by commercial and market forces, and (e) efficiency is encouraged.

Its aims are sounds likewise “inviting”. 1.) To provide incentives for the cost efficient dispatch of power plants through an economic merit order; 2.) Create reliable price signals to assist participants in weighing investment options e.g. invest in additional generating capacity; and, 3) Protect a fair and level playing field for suppliers and buyers of electricity, wherein prices are driven by market forces.

It is assumed that by treating electricity as a commodity and traded in an electricity market rates will go down for players will compete among themselves and buyers will be able to choose among the cheapest offer possible. It is also anticipated that by allocating a certain percentage of the electricity requirement of a distribution utility in the open market, energy mix will be optimized and cost of electricity will go down to the benefit of consumers.

It is also envisioned that by establishing this platform for competition, excess electricity generated by power producers will now become affordable and accessible to distribution utilities and electric cooperatives.

Few weeks ago, however, it was reported that executives of electric cooperatives are opposed for the full operations of the WESM in the Visayas for fear of high electricity rates and the market manipulation similar to what has been already experienced in Luzon. (From ‘Wholesale Electricity Market’, Misreadings, The News Today, 20 January 2011)

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