WESM Overview (02-25-06)

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WELCOME:

WELCOME Copyright © 2005 by the Philippine Electricity Market Corporation. All rights reserved.

PowerPoint Presentation:

Philippine Wholesale Electricity Spot Market Overview

Republic Act No. 9136:

Republic Act No. 9136 Electric Power Industry Reform Act of 2001 ( EPIRA)

The R. A. 9136 (EPIRA):

The R. A. 9136 (EPIRA) provides a framework for the restructuring of the Electric Power Industry, Including privatization of the assets of NPC, Transition to the desired competitive structure, and The definition of the responsibilities of the various government agencies and private entities.

Electric Power Industry Restructuring:

Electric Power Industry Restructuring changing the overall structure of the electricity industry involves mainly the separation of the competitive from the monopolistic components of the industry also involves the unbundling of electricity tariffs (or breaking down the cost components of power rates to ensure transparency)

Ultimate Goals of Restructuring:

Ultimate Goals of Restructuring Greater efficiency Reliable and competitively priced electricity Full range of choices for the stakeholders

PowerPoint Presentation:

The New Industry Structure Competitive generation Regulated transmission and distribution Competitive retail electricity providers End-users Establishment of WESM Unbundling of electricity rates for transparency Opening up of high voltage transmission lines for easy access of distributors and large consumers Open Access of distribution lines for competitive consumers Privatization of NPC

The Philippine WESM:

The Philippine WESM

Legal Basis of WESM:

Legal Basis of WESM EPIRA Sec. 30: Wholesale Electricity Spot Market (WESM) Within one (1) year from the effectivity of this Act, the DOE shall establish a wholesale electricity spot market composed of the wholesale electricity spot market participants. The market shall provide the mechanism for identifying and setting the price of actual variations from the quantities transacted under contracts between sellers and purchasers of electricity.

What is WESM?:

What is WESM? WESM Determined by a transparent bidding process, driven by supply and demand Expected to result in the best economic value for the participants The WESM is operated professionally and with the highest level of integrity. The WESM is governed by stakeholders and independent committees to ensure that the rules are enforced in the most equitable and transparent manner. The WESM operates transparently along rules agreed on by all stakeholders. PRICE RULES GOVERNANCE OPERATION The WESM Price Determination Methodology shall be approved by the Energy Regulatory Commission. The WESM Rules endorsed by the Industry Participants & DOE in 2002 Rule Change Committee oversees revisions. Equitable representation of the industry in the PEMB Market Surveillance Committee monitors unfair practices in the market. Technical staff trained in electricity market development & operations. Broad experience in the electricity industry Market for fair and competitive trading of electricity Aimed at encouraging efficiency of the electricity supply through competition

The WESM:

The WESM Internet https://www.mmswesm.ph http://www.wesm.ph SELLERS (GenCo’s) BUYERS (Customers) 400 MWh @ PhP 5,500 10 MWh @ any price 100 MWh @ any price 20 MWh @ PhP 7,000

WESM Participants:

WESM Participants Generation Companies Distribution Utilities Suppliers Aggregators End-users TRANSCO or its Buyer or Concessionaire IPP Administrators Other entities authorized by the ERC to participate in the WESM in accordance with the Act.

WESM Members:

WESM Members A person or an entity registered with the Market Operator Direct WESM Member Indirect WESM Member (person or entity who wishes to indirectly trade in the spot market; may only transact thru a Direct WESM Member) No person or entity shall be allowed to inject or withdraw electricity from the G rid unless that entity or person is a registered member of the WESM .

Trading Participant:

Trading Participant A person or an entity registered with the Market Operator as either: Customer (BUYER) DU, EC, LC, Suppliers/Aggregators Generation Company (SELLER) NPC and IPP’s

Basic Features of WESM:

Basic Features of WESM Gross Pool All energy transactions are scheduled through the market Net Settlement Bilateral Contract quantities transacted in the pool can be settled outside of the market Locational Marginal Price Marginal price computed at each node or location to reflect transmission loss and/or congestion Reserve Co-Optimization Reserve and energy offers are scheduled at the same time Demand Bids Customers’ choice to buy energy lower than a specified price Mandatory Market EPIRA mandates procurement of at least 10% from the market

What will be traded in the WESM?:

What will be traded in the WESM? Transmission Generation DEREGULATED Energy Reserves REGULATED Distribution Services and rates unbundled

Power System Illustration:

Power System Illustration

SELLERS: Generation Companies:

SELLERS: Generation Companies 200 MWh @ PhP 2,500 100 MWh @ PhP 2,500 10 MWh @ any price 400 MWh @ PhP 5,500

BUYERS: Customers:

BUYERS: Customers 50 MWh @ PhP 2,500 100 MWh @ PhP 4,500 400 MWh @ any price

Who are the WESM Customers?:

Who are the WESM Customers? Distribution Utilities Electric Cooperatives Large Directly-Connected Customers Suppliers/Aggregators (upon implementation of EPIRA Sec. 31)

What is Sec. 31 of EPIRA?:

What is Sec. 31 of EPIRA? Retail Competition and Open Access on the Distribution level Implementation as per ERC Resolution No. 02, Series of 2004: July 1, 2006 in the Luzon Grid for DU’s July 1, 2007 in the Luzon Grid for EC’s Retail Competition – the provision of electricity to a Contestable Market by Retail Electricity Supplier (RES) through Open Access. Open Access – the system of allowing any qualified person the use of transmission, and/or distribution system and associated facilities subject to the payment of transmission and/or distribution retail wheeling rates duly approved by the ERC.

Sec. 31 of EPIRA Implementation:

Sec. 31 of EPIRA Implementation Establishment of the WESM Approval of the unbundled transmission and distribution wheeling charges Initial implementation of the cross subsidy removal scheme Privatization of at least seventy percent (70%) of the total capacity of generating assets of NPC in Luzon and Visayas Transfer of the management and control of at least seventy percent (70%) of the total energy output of power plants under contract with NPC to the IPP Administrators PRE-CONDITIONS:

PowerPoint Presentation:

Supply of Electricity “the sale of electricity by a party other than a Generator or a Distributor in the franchise area of a distribution utility using the wires of the distribution utility concerned” EPIRA Sec. 4(zz)

Coverage of Supply of Electricity:

Coverage of Supply of Electricity

PowerPoint Presentation:

Supply of Electricity (cont’d) Aggregator – any person or entity engaged in consolidating electric power demand of end-users in the contestable market for the purpose of purchasing and reselling electricity on a group basis. EPIRA Sec. 4(a) Supplier – any person or entity authorized by the ERC to sell, broker, market or aggregate electricity to the end-users. EPIRA Sec. 4(xx)

PowerPoint Presentation:

Contestable Market Electricity end-users who have a choice of a supplier of electricity, as may be determined by the ERC in accordance with the Act (EPIRA Sec. 4h) Electricity end-users with a monthly average peak demand of at least 1 MW for the preceding 12 months to be allowed by the ERC upon Implementation of EPIRA Sec. 31 (Retail Competition and Open Access)

PowerPoint Presentation:

Contestable Market (cont’d) Two years after EPIRA Sec. 31 implementation, threshold level of 1 MW shall be reduced to 750 kW. At this level, Aggregators shall be allowed to supply electricity to end-users within a contiguous area. Subsequently and every year thereafter, the ERC shall evaluate the performance of the market. On the basis of such evaluation, the ERC shall gradually reduce the threshold level until it reaches the household demand level.

Levels of Competition:

Levels of Competition GENERATION SUPPLY TRANSMISSION DISTRIBUTION WESM Retail Competition and Open Access EPIRA Sec. 30 (Wholesale) EPIRA Sec. 31 (Retail)

Demand-Supply Balancing:

Demand-Supply Balancing Generation Companies (GenCo’s) Customers (DU’s, EC’s, LC’s, Suppliers and/or Aggregators) Offers Bids Supply Side Demand Side Price P = = / MWH 0.8 0.7 0.9 1.00

Law of Supply and Demand:

Law of Supply and Demand Price Quantity Market Clearing Price (MCP) Market Clearing Volume (MCV) Supply Demand

What is the difference between the OLD and the NEW regime?:

What is the difference between the OLD and the NEW regime? Cost-Based Pricing: The Old Regime Market-Based Pricing: The New Regime Based on historical costs Long-term averaging Fixed by regulators Possible cross-subsidy No economic incentives Sales Price Market Price Volume Price is determined by interaction of supply & demand Demand Supply

Merit Ordering in the WESM:

Merit Ordering in the WESM Before Merit Ordering Offer of GenCo A Q = 100 MW P = P 1,000/MWh Offer of GenCo B Q = 250 MW P = P 1,500/MWh Offer of GenCo C Q = 500 MW P = P 2,000/MWh Offer of GenCo D Q = 500 MW P = P 2,500/MWh Offer of GenCo E Q = 300 MW P = P 9,500/MWh Merit Ordering Offer of GenCo A Q = 100 MW P = P 1,000/MWh Offer of GenCo B Q = 250 MW P = P 1,500/MWh Offer of GenCo C Q = 500 MW P = P 2,000/MWh Offer of GenCo D Q = 500 MW P = P 2,500/MWh Offer of GenCo E Q = 300 MW P = P 9,500/MWh Ranking of Generating Plants according to Price Offer After Merit Ordering

Dispatch Scheduling:

Dispatch Scheduling P/MWh MW Supply Side Demand Side Offer of GenCo A Q = 100 MW P = P 1,000/MWh 100 Offer of GenCo B Q = 250 MW P = P 1,500/MWh 250 1,000 2,000 Offer of GenCo C Q = 500 MW P = P 2,000/MWh 400 Offer of GenCo D Q = 500 MW P = P 2,500/MWh 50 Genco A Genco B Genco C Offer of GenCo E Q = 300 MW P = P 9,500/MWh Industry Demand: 400 MW Market Clearing Price (MCP) is set at P 2,000/MWH. (System Marginal Price) 1,500

Single-Node Dispatch Optimization (with Optional Demand Bid):

Single-Node Dispatch Optimization (with Optional Demand Bid) C B A A B C 2 500 MWh @ P1,000/MWh 350 MWh @ P3,000/MWh 100 MWh @ any price 200 MWh @ P1,500/MWh 150 MWh @ P2,000/MWh 300 MWh @ P1,200/MWh 3 1 500 MWh 000 MWh 000 MWh 200 MWh 200 MWh 100 MWh MWh P/MWh Generation Schedule Load Schedule Gen A 500 MWh Load 1 100 MWh Gen B 000 MWh Load 2 200 MWh Gen C 000 MWh Load 3 200 MWh Total 500 MWh Total 500 MWh Market Pricing: System Marginal Price = P1,200/MWh 1 2 3 1,200 100 300 500 Loads 1+2+3 = 600

PowerPoint Presentation:

G1 G2 G3 G4 Price(P/MWh) Demand Bids Supply Offers Quantity (MW) Market Clearing Price A. SCHEDULING Demand and Supply are stacked in merit order based on price offers. Generators are scheduled up to the point where the Supply meets the Demand. Market Clearing Price (MCP) is set by the last plant scheduled to meet the demand. The MCP is the basis for determining the prices for the other locations (LMP). LMP MCP Transmission Congestion Cost Cost of Marginal Losses = + + B. LOCATIONAL MARGINAL PRICING (LMP) MCP is adjusted to account for the transmission losses. If transmission congestion exist, the next generator in the stack is called to generate to avoid transmission overloading. The additional cost incurred will be the transmission congestion cost. The WESM Determination of Dispatch Schedule and Market Clearing Price

PowerPoint Presentation:

Market Price (PhP/MWh) Weighted Average Price Outlook

PowerPoint Presentation:

Daily Demand Variations

Seasonal Demand Variations:

Seasonal Demand Variations 4000 4500 5000 5500 6000 6500 1 11 21 31 41 51 61 71 81 91 101 111 121 131 141 151 161 171 181 191 201 211 221 231 241 251 261 271 281 291 301 311 321 331 341 351 361 Day MW

PowerPoint Presentation:

San Manuel LMP: P2.18 /kWh Metro Manila LMP: P 2.22/kWh Naga LMP: P 2.08/kWh The WESM Locational Marginal Prices (Luzon Grid) Trial Operations Program (TOP) Data

Basic Facts to Note::

Basic Facts to Note: Generator Customer Bilateral Contract Without WESM (existing)

PowerPoint Presentation:

Generator Customer/s Bilateral Contract With WESM (EPIRA Sec. 30) Spot Hourly

PowerPoint Presentation:

Generator Bilateral Contract Suppliers/ Aggregators Bilateral Contract Spot Hourly Customer/s With WESM (EPIRA Sec. 30) and Retail Competition & Open Access (EPIRA Sec. 31)

Basic Facts to Note::

Basic Facts to Note: Generator Customer Bilateral Contract Without WESM (existing)

Basic Facts to Note::

Basic Facts to Note: Generator Customer Bilateral Contract With WESM (EPIRA Sec. 30) Spot Hourly

Important Things to Note::

Important Things to Note: Generating Plants will compete with each other to supply electricity to the Power System Electricity Prices will vary depending on: Time, Day, Week, Month, Season Location Power Market and System Conditions Choice for Stakeholders: Bilateral Contracts WESM

Important Things to Note::

Important Things to Note: Transparency: All relevant WESM Documents, Manuals, Operational Market Results Summaries, News, Developments, Notices and other information are published in the WESM Website for the general public. Operational Market Results, Forecasts, Advisories, Notices and other relevant information are published thru the Web for all Market Participants Efficiency: Economic Technical Opportunities: Demand-Side Management Economic price signals to investors

PowerPoint Presentation:

Thank You!

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