Asian Energy Advisors

It’s nice, actually, seeing Usec. Ocampo taking a proactive role in looking at PEMC’s implementation of the spot market in the Visayas. (BusinessWorld article; pdf) And it permits us to bring to the surface some important issues regarding the spot market that I believe have been under-addressed by DOE (although Sec. Lotillia did bring them up).

Admittedly, I’m heavily influenced by spot market design and issues in California where the bulk of my experience is (as opposed, say, to the U.K., Norway, others). But California seems particularly applicable to the Visayas and the Philippine market in general.

The spot market here is best suited for hedgers, speculators, and, most importantly, generators that need to deal with maintenance outage, forced outages, and fuel price/electricity price arbitrage opportunities. It is, simultaneously, the place where we sort out dispatch issues for addressing real-time transmission constraints. It is not a place you want to be exposed to if you’re purchasing power for retail customers that need stability in price.

A spot market is important. And the very fact that prices spike when capacity is short is EXACTLY how you want it to work - it allocates scarce resources to those that can make the best economic use of it.

Trying to time the commercial operation of the spot market to over/under capacity situations is the wrong question to be looking at. It’s heavily politically motivated. Retail customers are much better served, in my opinion, by DOE’s focusing on ways for retail customers to get hedged through bilaterals and forward contracts - short, medium, and long-term - and to figure out how the capacity markets are going to work for creating sufficiency of supply.

One of the weaknesses in EPIRA is the requirement that distribution utilities source a minimum of 10% of their supply from the spot market. Ugh. That was a mismash of European and South American markets that doesn’t seem to fit here in our situation.

Capacity sufficiency is a real problem in the Visayas. The real-time and day-ahead energy markets that PEMC is running are not the tools to address that issue for the utilities. It seems to me that we are better off focusing on that problem and letting the WESM perform it’s (somewhat limited, but important) function.