New power spot market pricing methodology OKd

MANILA, Philippines — The Energy Regulatory Commission (ERC) has finally approved the new price determination methodology (PDM) for the Wholesale Electricity Spot Market (WESM), which will speed up electricity trading and pave the way for the full operations of the electricity bourse in Mindanao.

“The new PDM provides amended features with regard to price determination and settlement in the WESM and consolidated the various pricing mechanisms which are currently contained in several issuances of the commission,” ERC chairperson and CEO Agnes Devanadera said.

Under the new PDM, the key features of the enhanced WESM design and operations include shorter scheduling and pricing intervals from one hour to five minutes; adoption of ex-ante only pricing; automatic re-runs when prices reflect constraint violations to provide timely disclosure of settlement-ready prices; and hour-ahead projections, in addition to the week-ahead and day-ahead projections, to facilitate commitment decisions of trading participants.

According to the ERC, the adoption of the enhanced WESM design and operations provides a shorter dispatch interval of five minutes which will result in better pricing signals by instantly reflecting the changes in supply and demand.

This would also potentially reduce the requirement for frequency regulation reserve which is beneficial to consumers, it said.

“Projecting possible conditions in the next five minutes will result in a more accurate picture of the actual conditions as compared to projecting the possible market conditions in the next one hour. Since regulating reserves are needed to address the fluctuations in supply and demand, lesser fluctuation brought about by better projection would mean lesser requirements for regulating reserves. Also, considering that customers pay for the procurement of regulating reserves, this would translate to lower costs for the customers,” Devanadera said.

The ERC recognizes the importance of having the correct pricing signals and timely publication of settlement-ready prices in real-time for efficiency and transparency in prices.

With better pricing signals, congested areas that need additional local generation and transmission improvements and enhancements are identified and improved.

As such, lower congestion cost will result in lower resulting market prices which will redound to the benefit of the consumers, the ERC said.

The approval of the new PDM will also be used for the upcoming commercial operations of WESM in Mindanao.

After several delays, WESM Mindanao was supposed to go live on Jan. 26 alongside the commencement of operations of the New Market Management System (NMMS) in Luzon and Visayas. The operation, however, was pushed back to mid 2021 pending the approval of the PDM.

The NMMS allows the transition from the one-hour interval to the five-minute market and aims to address the obsolescence of the existing MMS that will complement the market’s mandate in promoting efficiency and transparency in electricity trading.

The new PDM shall continue to adhere with the basic principles of the existing PDM for the WESM, such as the gross pool design concept, adoption of net settlement for bilateral contract quantities, use of locational marginal pricing, and the concept of self-commitment where trading participants manage their respective technical operations, unit commitment decisions and other market risks through the submission of bids and offers to the WESM.