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.
2 Comments
I think I understand the need for a forwards market. However, I do not understand the value of a capacity market. Will this also be a spot market? What value would it bring to the industry?
Good question.
Capacity markets only makes sense if there is a regulatory obligation to meet Resource Adequacy requirements. It would be a forward market in capacity – not a spot market.
For example in California, the CPUC imposed a new regulation saying that by October of each year, the IOU’s had to demonstrate that they had enough capacity (identifiable real plants) under contract for the following Summer months to meet 95% of their anticipated Summer demand and they have to have 100% under contract on a month-ahead basis. traditional Forward contracts are energy only – there’s no plant backing it up and so they don’t count.
So a capacity market will facilitate the trading of short-term capacity so that utilities can balance their requirements on a short term basis (i.e. if their demands don’t develop, they have a way to unload capacity they may have pre-purchased, and vice versa).
Anyway, capacity markets go hand in had with Resource Adequacy requirements – which we don’t have yet in the Philippines.
Here’s an older post. Not much there; I’ll try to write more on it.