I was at the AmCham Energy Committee meeting this morning at WESM. WESM gave an overview of what they were about, what’s been going on, and where they are headed.
A very good presentation and Q&A by Mario Pangilinan and Robinson Descanzo. Very open; quite thorough in a number of areas.
I’d like to note here that in California, maybe 3% or so of the statewide hourly energy is transacted in the spot market. All the rest is hedged through short, medium, or long-term bilateral arrangements (physical and financial). The California ISO is primarily a market mechanism (1) to manage transmission congestion and (2) to track real-time load with some level of reliability.
In the Philippines, 35% to 45% of the Luzon energy is transacted through the spot market, the rest being essentially hedged through bilateral contracts. So WESM is, at the moment, a major market for meeting energy loads (unlike California).
I found that there are eleven Luzon cooperatives participating in the spot market; some for just a portion of their load requirements, some for as much as 100% of their load.
A 100% exposure to the spot market is really rolling the dice on behalf of consumers – I hope they have some back-up (plan B) arrangements in place.
Even Meralco’s exposure, which is hovering around 50% as I recall from their news releases, is extremely high. I would look for them to reduce this down to a much smaller level.
WESM is looking to have the Luzon Anscillary Services markets up and running in December or January and the Visayas energy market operational by 1st Quarter 2007.
Development of a Forwards market is esential to properly managing ratepayer risk exposure to short-term spot market gyrations. The hour-by-hour real-time market is not where ratepayers need to be placing bets.
According to Mario, WESM has started to do some internal work on Forards markets – but I understand its very preliminary and that really no else has a substantive study initiative underway. Of course, Forward markets are not within the purview of WESM. But this is an area where some initiative needs to take place.
I also understand that WESM is beginning to take a look at Capacity Markets. The policy issues are outside the purview of WESM (this is heavily tied to regulatory requirements for Resource Adequacy), but WESM could very well be the entity that would run the market. California is just beginning to embark on capacity markets too.