WESM 101

The Philippine Power Market

The EPIRA reform agenda promote competition and choice

Separation
of
generation
from
Private sector Institutional transmission
reforms: ERC, Privatization
participation in power (2003)
PSALM, of NPC
State monopoly generation with generation
oligopsony by NPC and Transco, etc
in generation and (2006)
Meralco (2001)
transmission Creation of
WESM
Electric Power (2006)
1970 1980 1990 2000 Industry Transmission
Reform Act privatization
thru NGCP
Power (2008) Retail
Supply Crisis Competition Competition
in generation and Open
(2006) Access
(2013)
 The Philippine Power Market:
Value Chain has evolved under EPIRA*
Generation
•Open & competitive
•ERC requires that it approves
the PSA for a DU’s captive
customers
•Operates under WESM
•No cross-ownership in
Transmission
•No company can own,
operate and control 30% of
installed capacity of any grid,
or 25% of the national
capacity
Generation
EPIRA – Electric Power Industry Reform Act of 2001, Republic .Act # 9136
Transmission
•Franchised & Regulated
common carrier business
•Subject to rate-setting powers
of the ERC
•National Grid Corporation of
the Philippines (private
consortium)
•Open access transmission
system
•No cross ownership in
generation and /or
distribution
Wires
Distribution DU Regulated Retail Captive Market
•Franchised & Regulated Distribution Services •End-users with demand <1MW
common carrier business •(See contestability thresholds
•DU/EC business segment for sales
•Subject to rate-setting powers to Captive Market below)
of the ERC
•No DU may source more than 50%
•Non-discriminatory of its demand from an associated
distribution open access firm
•No cross-ownership in
Transmission
Local RES Contestable Market
•DU business segment; can sell to •End-users with demand >=1 MW
Contestable Customers in franchise •Contestability threshold reduces
area only to 750 kW by Jul 2016 and to 500
kW by Jul 2018
Retail Electricity
Supplier (RES)
•ERC licensed
Retail Supply End User Market
• Contestability threshold goes down from 1
• Distribution Retail Price to Captive Market
MW to 750kW after 2 years
subject to ERC regulation (including wires
charges to RES) • ERC may further reduce contestability
• Retail Supply Contract does not require ERC
threshold until it reaches household level (7-
year goal)
approval
3
 The Philippine Power Market
Comparative Policy & Regulatory Regimes
Pre – EPIRA
• State monopoly in generation and transmission
(NAPOCOR)
• Government plans for fuel diversity and energy autarky
Generation
• Government has dirigiste oversight on what gets built
Mix
and how plants are run
• “least cost” development planning
• dispatch based on economic merit order
• Bundled generation and transmission (NAPOCOR tariff)
• Regulated by ERB using RoRB regulation (recovery of
actual costs; subject to efficiency standards)
Power Rates
EPIRA promotes cost efficiency through competition and choice
EPIRA
• Generation sector is open and competitive
• Generation mix and what gets built are driven by the
power market:
• Bidding Merit order in the WESM
• PSAs by DUs and Contestable Customers
• Renewable Energy Act imposes RE quota (RPS), subsidies
(FIT) and priority dispatch of VREs
• Unbundled: generation, transmission, distribution, gov’t
charges (taxes, UCME, FITALL)
• DU End-user generation rate is composite of PSA charges
approved by ERC and WESM
• Only the generation rates for captive customers and
rates for wires services are regulated:
• ERC requires DUs to conduct CSP for PSA for captive
market
• PSAs of contestable customers do not require ERC
approval to be implemented
• Regulation is based on full recovery of prudent and
reasonable economic costs
The Philippine Power Market
EPIRA aims to bring supply competition and choice at the household level

Department of Energy (DOE)

WHOLESALE MARKET • Market Operator • Policy making
NPC IPP
(Luzon – Visayas Grid) PEMC • Planning
• Market Establishment
• System Operator Energy Regulatory Commission (ERC)
WESM SELLERS NGCP • EPIRA enforcement
Generator
Wholesale IPP
DU IPPs
• Rate setting (NGCP, DUs)
Administrator
Aggregator
• Meter Service Provider • Quasi-judicial power on Competition
NGCP • CPCs, COCs, Certificate of
Contestability
RETAIL MARKET
WESM BUYERS (Distribution System)
RETAIL
Direct Distribution
Connect
RES SELLERS
Utility

Local RES

RETAIL
Contestable Captive Contestable BUYERS • Meter Service Provider(s)
Customer Customers Customer DUs

Initial contestability threshold is 1000 kW or more; after 2 years, next phase sets threshold 750 kW 5
The Philippine Power Market
The Luzon Grid centers in supplying the requirements of Meralco
 The Philippine Power Market
The Wholesale Electricity Spot Market (WESM): Luzon & Visayas grids

GNPower Masinloc Sual

Luzon Grid Magat Ambuklao Binga
Visayas Grid
~ ~ ~ ~ ~ ~
Naga Coal SPC CPPC
North West North
(3,532 MW) (1,820 MW) ~ ~ ~
~ ~ ~ ~ ~ ~
Bohol Cebu
Pantabangan (25 MW) (862 MW)
Subic Limay Bauang Casecnan San Roque
~ ~ ~ ~
Angat
Bohol Diesel Cebu EDC Toledo KEPCO
~
Leyte
Meralco Central Negros
(710 MW)
(1,197MW) (285 MW)

~ ~ ~ ~ ~
TMO Malaya Unified Leyte
Negros Geo Sacasol
SLTEC Calaca Kalayaan Quezon Pagbilao

~ ~ ~ ~ ~ Panay
(521 MW)

South West South South East ~ ~ ~

(2,326 MW) (1,278 MW) (2,906 MW)
~ ~ ~ ~ ~ SPC Island PEDC Trans Asia
~
Sn Lorenzo Sta. Rita Iijan Mak-Ban Tiwi Bac-Man
The Philippine Power Market
The Wholesale Electricity Spot Market (WESM): Luzon & Visayas grids

Capacity Distribution by Fuel Type Capacity Distribution by Control

The Philippine Power Market
The Buyers: Captive and Contestable Market
The Captive Market
• The Captive Market are the end-user customers of DUs
whose average demand is less than 1,000kW (the
current “Contestability Threshold”)
• Relevant EPIRA Provisions:
• Sec 23: The DUs have the obligation to supply
electricity in the least cost manner to its captive
market subject to the collection of retail rate duly
approved by the ERC.
• Sec 25: Retail rates shall be subject to ERC regulation
based on principle of full recovery of prudent and
reasonable economic costs incurred, or such other
principles that will promote efficiency as may be
determined by the ERC
• DUs secure PSAs effectively on behalf of their customers
• ERC requires CSP for DU PSAs
• PSAs require approval by the ERC before these can be
implemented
• PSA contract prices are on full pass-through(no-gain-no-
loss basis) except any portion disallowed by ERC
• DUs are allowed to recover from their end-users their
approved PSA charges and WESM purchases
The Contestable Market
• The Contestable Market are end-user customers (or
those directly connected to the grid) whose average
demand is at least 1,000kW (the current “Contestability
Threshold”)
• The Contestability Threshold reduces to 750 kW by July
2016 and to 500 kW by July 2018
• Contestable Customers may secure PSAs from licensed
Retail Electricity Suppliers (RES) or from the DUs Local
RES; The DUs will continue to provide Distribution
Wheeling Services
• Contestable Customers are solely responsible for
securing their supply; in the absence of a RES, a
Contestable Customer may be supplied by ERC
designated Supplier of Last Resort (SOLR)
• Any WESM requirement of a Contestable Customer is
secured through its RES
• RES PSAs do not require ERC approval to be
implemented
• The Contestable Market size is expected to grow as the
Contestability Threshold is reduced (~ 35% when
threshold reaches 500 kW)
The Philippine Power Market
Captive Customer Generation Cost

DOE Policy/ERC Rule Y%, X%

Contracting Level DUs Contracting Strategy

1
WESM Power Rate PSA Notes:
Y% @ S Y*S+X*B X% @ B S – spot price
B – Bilateral Contract Rate
S Regulatory Y – percent share bought in WESM
Spot Price Volatility Intervention X – percent share under contract

Abuse of
Scarcity OLIGOPOLY
Market Power
• High Market Concentration (HHI)
• Pivotal Plant
• Price Setting Plant
Must Offer Rule Price Cap
2
Primary
Price Cap
Anti - Abuse
Demand-Side Supply-Side Of Market Power
Determination Determination
Secondary
“too high too long” Rationale
Price Cap
VoLL = Security Plant 4
GDP/kWh Selling Rate “Perfect Storm” 3
Method/ Events
Application • Malampaya S/D
• El Nino
• Elections
Triggers Level
Generation Cost
US EIA April 2013 Report
Nominal Nominal Heat Capital Cost Fixed O&M Cost Variable O&M,
Technology Fuel
Capacity, kW rate, BTU/kWh $/kW $/kW-year $/MWh
Adavance Pulverized Coal (APC) Coal 650,000 8,800 3,246 37.80 4.47
Adavance Pulverized Coal Coal 1,300,000 8,800 2,934 31.18 4.47
APC with Carbon Capture & Sequestration Coal 650,000 12,000 5,227 80.53 9.51
APC with Carbon Capture & Sequestration Coal 1,300,000 12,000 4,724 66.43 9.51
Natural Gas Combined Cycle (NGCC) Gas 620,000 7,050 917 13.17 3.60
Advance Generation NGCC Gas 400,000 6,430 1,023 15.37 3.27
Adavanced NGCC with CCS Gas 340,000 7,525 2,095 31.79 6.78
Conventional Combustion Turbine Gas 85,000 10,850 973 7.34 15.45
Advanced CT Gas 210,000 9,750 676 7.04 10.37
Integrated Gasification Combined Cycle Coal 600,000 8,700 4,400 62.25 7.22
Integrated Gasification Combined Cycle Coal 1,200,000 8,700 3,784 51.39 7.22
Advanced Nuclear Uranium 2,234,000 N/A 5,530 93.28 2.14
Biomass Combined Cycle Biomass 20,000 12,350 8,180 356.07 17.49
Biomass Bubbling Fluidized Bed Biomass 50,000 13,500 4,114 105.63 5.26
Fuel Cells Gas 10,000 9,500 7,108 43.00
Geothermal - Dual Flash Geothermal 50,000 N/A 6,243 132.00 -
Geothermal - Binary Geothermal 50,000 N/A 4,362 100.00 -
Municipal Solid Waste MSW 50,000 18,000 8,312 392.82 8.75
Hydroelectric Hydro 500,000 N/A 2,936 14.13 -
Pumped Storage Hydro 250,000 N/A 5,288 18.00 -
Onshore Wind Wind 100,000 N/A 2,213 39.55 -
Offshore Wind Wind 400,000 N/A 6,230 74.00 -
Solar Thermal Solar 100,000 N/A 5,067 67.26
Photovoltaic (PV) Solar 20,000 N/A 4,183 27.75 -
PV - Tracking Solar 150,000 N/A 3,873 24.69
PV - Tracking with 10% storage Solar 150,000 N/A 4,054
PV - Tracking with 20% storage Solar 150,000 N/A 4,236

Notes:
• Capacity net of auxiliary load
• Capital cost excludes financing costs (e.g., interest during constructions, bank fees)
• Fixed O&M excludes owner’s costs (e.g., insurance, property taxes, asset management fees)
• Variable O&M includes major maintenance
 Generation Cost
US EIA April 2013 Report

Notes:
• Capacity net of auxiliary load
• Capital cost excludes financing costs (e.g., interest during constructions, bank fees)
• Fixed O&M excludes owner’s costs (e.g., insurance, property taxes, asset management fees)
• Variable O&M includes major maintenance
 Generation Cost
Base-load, Mid-Merit & Peaking Plant Cost

Technology Advance CT NG CCGT Advance PC

Capacity MW 210. 620. 650.
Capital Cost US$/kW 676. 917. 3,246.
Fixed O&M
US$/kW-year 7.04 13.17 37.80
• Low Fixed cost
Cost
Variable
US$/kWh 0.0104 0.0036 0.0045
• High variable cot
O&M
Heat Rate BTU/kWh 9,750 7,050 8,800
Fuel Cost $/MMBTU 14.51 14.51 3.04
Project Life Years 20 30 30
Cost of Capital % 15% 15% 15%
• High fixed cost
• Low variable cost

6,788

1,158
Variable
Cost

Fixed
Cost

hours of use
Generation Cost
Luzon Demand Profile (2013)
Generation Cost
Matching Demand with Base-load, Mid-Merit & Peaking Generation

Peaking (1,043 MW)

Mid-Merit (1,844 MW)

Base-load (5,350 MW)

 The Market Framework
Uniform Price Auction

SUPPLIER BUYER
Those willing to sell at a lower price get to sell first Those willing to buy at a higher price get to buy first

Price
The market framework
seeks short-run
efficiency:
• Output is produced by
least-cost suppliers
• Output is consumed by
those most willing to
pay
• The right quantity is
produced
No more sellers Supply
willing to sell at
a lower price
All Suppliers are paid at the
same rate (i.e., a “Uniform
Price” which is the Clearing
Price), notwithstanding their
bid may be lower
Clearing Price

No more
buyers willing
to pay a
higher price
Demand
Quantity
The overall objective of power systems operation is to produce power at the lowest total cost.
 The Market Framework
The current market framework: demand is “Price-Taker”

SUPPLIER BUYER
Those willing to sell at a lower price get to sell first Buyers do not submit “demand bids”; they’re Price-Takers

Price

Clearing Price

Demand is Price Taker

Quantity
 The Market Framework
Market Power & Price Cap

SUPPLIER MARKET POWER Clearing Price

• Physical (Capacity) Withholding With Market Power
• Economic Withholding by Suppliers

Price

Market Price Cap

Economic
Withholding

Clearing Price

Physical
Withholding

Demand is Price Taker

Quantity
Market Power
 The Market Framework
Market Power, Price Cap & Demand Bid

SUPPLIER MARKET POWER Clearing Price

• Physical (Capacity) Withholding With Market Power
• Economic Withholding by Suppliers

Price
Demand with
response
Market Price Cap

Clearing Price Clearing Price

With Demand response

Demand is Price Taker

Quantity
Market Power
Demand Response
 The Market Framework
Market Power, Price Cap & Demand Bid

SUPPLIER MARKET POWER Clearing Price

• Physical (Capacity) Withholding With Market Power
• Economic Withholding Demand with by Suppliers
limited response
Price
Clearing Price
With limited Demand
response
Market Price Cap

Clearing Price

Demand is Price Taker

Quantity
Market Power
Demand Response
The Market Framework
• The overall objective of power systems operation is to produce power at the lowest total cost
• Uniform Price Auction promotes economic dispatch because of the financial incentives for
the suppliers to bid their short-run marginal cost
• The market framework seeks short-run efficiency:
• Output is produced by least-cost suppliers
• Output is consumed by those most willing to pay
• The right quantity is produced
• Generators win market share by offering low prices (Generators are more likely to bid at their
marginal cost)
• Demand is currently a “Price-Taker”
• There are rules to thwart and prevent generators from exercising market power:
• “Must Offer Rule” → physical withholding
• “Price Cap” → economic withholding
• “Secondary Price Cap” → “too-high-too-long”
• The spot market operates under WESM Rules (approved by ERC)
 The Market Framework
WESM is the default market for sellers and buyers

• Default market position:

• A Generator sells all its production in the WESM and a Customer (DU) buys all its requirements in the WESM, unless,
they have a bilateral contract and their transaction is settled outside the WESM

• RCOA effectively places Contestable Customers in the WESM (whose connection is conveyed through its DWSA)

• WESM prices are volatile

• Month to month, hour to hour changes
• More volatile than commodity prices (coal, oil, Fx)
The business of entities selling and buying in the WESM are exposed to volatility risk (Not a way to run business!)

• A bilateral contract is basically a hedge benefitting both buyers and sellers with business stability. WESM Rules on net
settlement allow the parties to settle their bilateral contract transaction outside of the market

• In a WESM regime, the merit of a particular bilateral contract lies in:

• the “trade off” between: (a) the generation rate volatility indexed on commodity prices and escalation indices, versus
(b) the WESM price volatility from market forces and chance events;
• Its competitiveness in relation to other offers (such as plants of other fuel types)
 The Market Framework
End-User Protection

Generating Plant(s) EPIRA Sec 43 (t) – Public Offering:

Public offering of 15% of stock

Dominant Firm(s) EPIRA Sec 45 (a) - Grid Caps: EPIRA Sec28 – De-Monopolization
• 30% of grid and Shareholding Dispersal
• 25% of national
Pivotal Plant(s)
EPIRA Sec 45 (b) - DU contract limit: End-User
PEMC
50% supply limit from associated
Market Price Setting Plant(s) firm
Surveillance
Distribution
Clearing Plant(s)
Transmission
Must Offer Rule Bilateral ERC Tariff Regulation:
Contract Supply Performance-Based Rate-Setting
Spot Market
ERC Approval of DU PSA
Regulation of Retail Rate
WESM Rules Market Suspension by ERC
• Natural Calamities
• National or international
Price Cap security emergency
The WESM
WESM System has marked its 8th year

Highlights
• The WESM is a real time, bid-based and hourly market for energy.
Legend:
Luzon • Similar designs: New Zealand, Australia and Norway.
WESM Connected
Non WESM
Masinloc ►
• Luzon and Visayas grids run as a single market (88% of total demand) but with
limited trade from weak interconnections (Leyte –Luzon HVDC 346 MW)
Metro Manila
• Metro Manila account for 59% of the consumption.

HVDC line & submarine cable • Annual peak demand occurs between May and June (Dry Season)

• Three peaks occurring at 11:00AM, 2:00PM and 7:00PM.

• Hourly trading intervals (shorter durations in the future)

Visayas
Luzon Visayas
PARTICIPANTS
Direct Indirect Direct Indirect
Mindanao Generators 34 18
Mindanao
Electric Cooperatives 26 17 26 2
Private DUs 7 3 3
Bulk Users 6 49 7 13
Suppliers 4
24
 The WESM
Operational Features
 Mandatory Market:
 No one is allowed to inject to or withdraw
from the grid unless such entity is a WESM
member
 Generators must offer all its capacity (“Must
Offer Rule”)
 Generators must run at Pmin (bid price zero)
 Gross Pool & Central Dispatch:
 Generators must bid to win a market share
regardless of their supply contracts;
 Taking into account system status, Market
Operator (MO) schedules all available
generation offers which are “stacked” from
lowest to highest price until demand is met
 Locational Market Pricing:
 The WESM price is the offer of the last
“block” to be “stacked” to meet the demand
 A price is computed at each node reflecting
the cost of transmission loss or congestion.
 Net Settlement:
 Parties with bilateral contracts settle their
transactions outside the WESM (paying their
counter-parties directly based on contract
prices)
 Any off-take of a DU from the grid not
matched with a generator’s BCQ declaration is
deemed supplied from the market (the “spot
quantity” for which DU pays the WESM)
 Settlements are essentially based on BCQ
declarations
 The WESM
Sequence of Transactions

BUYER SELLER MARKET OPERATOR SYSTEM OPERATOR

Period ahead Nominates day-ahead (or period- Submits its offers before bid
ahead)requirements to itsPSA closing based on its customer
counter-party nominations and its market
strategy.

Determines the settlement

prices and Merit Order Table of
1 hour before how plants will be dispatched
using the Market Dispatch
Optimization Model (MDOM);
sends to SO
Implements the dispatch
Draws its real time requirements Complies with SO instructions schedule MOT and monitors
from the grid (tolerance of +/- 3%) actual system conditions and
plant compliance with dispatch
Trading interval orders; makes real time
(one hour) adjustments for frequency,
voltage and contingencies

Declares to the MO the BCQs for Determines settlement SO provides actual metering data
Day after and its customers information (counter-party for previous day trading intervals
quantities for BCQ, spot sales,);
Period after bills users and pays generators
 The WESM
Gross Pool & Central Dispatch
Generator Offer Rules
• Must offer all capacity (Pmax) all the time
• Must offer Pmin at price of zero
• Must make 10 offer blocks every interval for each
unit (including Pmin as first offer block);
• Minimum of 1 MW per block
• Block offers in ascending order of prices
• Price cap at PhP 32,000/MWh
Types of Offers/Bids
 Standing Offers/Bids are default offers/bids that
are submitted to ensure relevant data are used if
the Trading Participant fail to submit Regular
Offers/Bids
 Regular Offers/Bids
 are offers/bids the Trading Participants submit
hourly, daily, or any interval (maximum of 7
days) depending on the Trading Participants’
choice or strategy.
 Also called Daily Offers/Bids as these are
usually submitted on a daily basis.
 A daily bid can only be submitted during an
‘Open Market Window’
 The WESM
Market Clearing Price

CLEARING PRICE
P 3,100/MWh
• Generators submit a bid for
the energy they wish to supply
• Offers are arranged from
lowest to highest price
(“stacked”)
P 2,150/MWh
• Offer of last plant needed to
P 1,850/MWh 100 meet demand sets the
Gen F
“Clearing Price”
P 1,350/MWh
200 • All Buyers pay at the Clearing
P 900/MWh
100 Gen E Price
Gen D
125 • All Generators are paid at the
P 500/MWh 75 Gen C
Clearing Price (whatever the
100 Gne B
Gen A offer)

Demand = 500 MW

 Generators arranged from lowest to highest bid 

 The WESM
Gross Pool & Central Dispatch

Plant Fuel Bid Pmax Pmin Net of Pmin For a System Demand of 7200 MW, determine
Bauang Oil 8,500 190 - 190 the following:
Limay Oil 12,000 540 540 1. Market Clearing Price
Subic Oil 9,000 120 120 2. Marginal Plant
Mariveles Coal 1,800 600 300 300
Masinloc Coal 1,300 600 160 440 Given:
Sual Coal 1,400 1,200 450 750  No Non-Scheduled Generator
Pagbilao Coal 1,450 760 240 520  No Must Run Unit (MRU)
Quezon Coal 1,375 456 180 276
MakBan Geothermal 1,800 120 50 70
BacMan Geothermal 2,000 130 55 75
Tiwi Geothermal 1,500 100 40 60
Pantabangan Hydro 1,200 130 130
Magat Hydro 2,000 360 360
Kalayaan Hydro 2,100 740 740
Ilijan Nat Gas 4,500 1,200 800 400
Santa Rita Nat Gas 5,000 1,060 600 460
San Lorenzo Nat Gas 5,000 530 400 130
8,836 3,275 5,561

System Demand 7200

 The WESM
Gross Pool & Central Dispatch
Bids are sorted from
1 lowest to highest
Plant Fuel Bid Pmax Pmin Net of Pmin "Stack"
Limay Oil 12,000 540 540 8,836
Subic Oil 9,000 120 120 8,296
Bauang Oil 8,500 190 - 190 8,176
Santa Rita Nat Gas 5,000 1,060 600 460 7,986
San Lorenzo Nat Gas 5,000 530 400 130 7,526
Ilijan Nat Gas 4,500 1,200 800 400 7,396 Clearing Plant
Kalayaan Hydro 2,100 740 740 6,996
BacMan
Magat
Geothermal
Hydro
2,000
2,000
130
360
55 75
360
6,256
6,181
4
Mariveles Coal 1,800 600 300 300 5,821 • The last plant to be stacked to fully
MakBan Geothermal 1,800 120 50 70 5,521 cover demand is the “Clearing
Tiwi Geothermal 1,500 100 40 60 5,451 Plant”; its bid sets the Market
Pagbilao Coal 1,450 760 240 520 5,391
Clearing Price
Sual Coal 1,400 1,200 450 750 4,871
Quezon Coal 1,375 456 180 276 4,121
Masinloc Coal 1,300 600 160 440 3,845
Pantabangan Hydro 1,200 130 130 3,405
8,836 3,275 3,275
Non-Scheduled Generation -
System Demand 7200 Must-Run Units - • The “Pmin” is stacked at the
bottom (priced at zero)
The “Pmin” is
taken into account 2 3 • The net of Pmin capacities are
stacked on top
The WESM
Gross Pool & Central Dispatch

System Capacity = 8,836 MW

System Demand = 7,200 MW

Bids in P/MWh

Market Clearing Price= P 4,500/MWh

Pmin = 3,275 MW
The WESM
Gross Pool & Central Dispatch

Offers Not
Dispatched

Offers Dispatched

32
The WESM
Plant Dispatch Protocol: Planned Dispatch (Ex Ante)

Initial Quantity Target Quantity

MO

RTD Schedule
(what should happen)

Interval 7
MMS – Market Management System
MO – Market Operator 0600H 0700H
EAQ – Ex-Ante Quantity

WESM Trading Interval 33

The WESM
Plant Dispatch Protocol: Intra-hour Redispatch

SO
Redispatch
(SO Instructions)

Interval 7
MMS – Market Management System
MO – Market Operator 0600H 0700H
EAQ – Ex-Ante Quantity

WESM Trading Interval 34

The WESM
Plant Dispatch Protocol: Actual(Ex Post)

Initial Quantity Target Quantity

MO

RTX Schedule
(What actually happened)

Interval 7
MMS – Market Management System
MO – Market Operator 0600H 0700H
EAQ – Ex-Ante Quantity

WESM Trading Interval 35

 The WESM
Settlement: WESM Transaction Amounts

Amount Settled Outside WESM Amount Settled in WESM

EPP
Amount Settled
In WESM
EAP
Ex Ante Transaction Amount
“Imbalance”
Amount Settled EATA = EAP x (EAQ – BCQ)
Outside of WESM
(paid directly to generator) Ex Post Transaction Amount
“Forecast Error”
Amount paid under PSA
EPTA = EPP x (MQ – EAQ)
= BCQ x Contract Rate

BCQ
EAQ
39 MQ
The WESM
Determining the Ex Ante Price

Pricing Conditions
Price for Ex Ante
RTD RTX
OK OK RTD
PEN OK RTX
OK PEN RTD
PEN PEN MRR
PSM OK PSMRTD
OK PSM RTD
PSM PSM PSMRTD

• PSM – with congestion resulting in price separation by a factor of 1.2 or more

(ratio of highest nodal price to lowest nodal price)
• PEN – with CVCs; with congestion (no large price separation)
• MRR – Market Re-Run, If the Ex-Post price is believed to be in error or reflect CVC
prices
40
The WESM
Determining the Ex Ante Price

41
 The WESM
NODAL PRICING: Understanding Line Rental

 Line Rental – “The economic rental arising from the use of a transmission line, calculated as the difference in
value between flows out of the receiving node of that line and flows into the sending node…”
 Line rental charges pay for system loss and congestion costs incurred for quantities supplied through power
supply contracts.

Sending Receiving
Node Node
BCQ →
G1 Load
Line Rental = BCQ x (LMPReceiving - LMPSending)

 Parties to a bilateral contract settle their transactions outside the market

 A Generator will supply not only the energy for the BCQ of its customer but also to cover line losses
 “Line rental” is a mechanism that allows a Generator’s recovery of its cost for suppling energy for line losses
 The WESM
Nodal Pricing: Line Rental from Transmission Losses

Price G2 > Price G1

Sending G2 Receiving
Node 100 MW
Node
0 MWh
G1 Load
200 MW Transmission Capacity = 200 MW
Transmission loss = 5%

Transmission Loss = 5 MWh 100 MWh

100 MWh
+ 5 MWh

 Because of “Transmission Losses”, a Generator’s delivery to the grid would be higher

than the energy received by the Customer
 Line rental compensates Generator for having to deliver more for transmission losses
 The WESM
Nodal Pricing: Line Rental from Congestion

Price G2 > Price G1

Sending G2 Receiving
Node 100 MW
Node
24 MWh
G1 Load
200 MW Transmission Capacity = 200 MW but subsequently restricted to 80 MW
Transmission loss = 5%

Transmission Loss = 4 MWh 100 MWh

80 MWh

 When transmission limitations occur, the SO may be constrained to re-dispatch a more

expensive Generator
 Line rental also compensates for the additional cost from a higher priced Generator to
maintain load supply
 The WESM
Nodal Pricing: Line Rental from Transmission Losses

100 MWh
0 MWh G2
+ 5 MWh Sending Receiving
Offer: P 5000/MWh 100 MW
Offer:P 4000/MWh Node Node
Transmission Loss = 5 MWh
G1 Load 100 MWh
200 MW Transmission Capacity = 200 MW
Transmission loss = 5%

LMPG = P 4000/MWh LMPL = P 4200/MWh

(= 4000 * 105/100)

Load does not have PSA Load has 100 MW PSA

Trading Amount: Generator Trading Amount: Load Trading Amount: Generator Trading Amount: Load
= 105 MW x P 4000/MWh = TA + LR = (105-100)MWh x P 4000/MWh = TA + LR
= P420,000 = 100 MWh x P 4200/MWh + 0 MW x P 200/MWh = P 20,000 = 0 MWh x P 4200/MWh + 100 MW x P 200/MWh
= P420,000 = P 20,000

Settlement outside WESM Settlement outside WESM Settlement outside WESM Settlement outside WESM
= P 0.00 = P 0.00 = 100 MWh x PSA Price = 100 MWh x PSA Price
The WESM
Actual Operations: The spot market is volatile
The WESM
Actual Operations: Lack of mid-merit plants in supply stack gestates volatility

Capacity Stack based on Bidding

$/MWh
$/MWh
Stack Heirarchy Peak Demand Ave. Off-Peak Demand
450 2014 Peak Demand
Avg. peak demand (8,717 MW)
400

350

300 Avg. Off-peak demand

250

200

150

100
Pmin, Price Taker (Zero Bids) and MRU
50

0
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000

* Hydrology assumed at 30% capacity factor

** YTD peak demand for 2014 is 8,717 (5.2% growth vs 2013)

Range of daily dispatch

48
The WESM
Actual Operations: The market is highly contracted.
Market Transaction Mix - stacked column

Market Transaction Mix - 100% stacked column

49
49
The WESM
Actual Operations: Market Concentration Index - Herfindahl-Hirschman Index

Herfindahl-Hirschman Index (2010-2013)

50
The WESM
Actual Operations: Market Concentration Index - Residual Supply Index

Hourly Market Residual Supply Index Based on Offered Capacity of Generators (2010-2013)
250

200

150

100

RSI < 100%

50
Presence of
Pivotal
0 Generator(s)
1/1/2010 5/31/2010 10/28/2010 3/27/2011 8/24/2011 1/21/2012 6/19/2012 11/16/2012 4/15/2013 9/12/2013

Monthly Market Residual Supply Index Based on Offered Capacity of Generators (2010-2013)

A Market RSI less than 100% indicates the presence of pivotal generator(s) in a period. A generator that frequently sets
the price may have greater opportunities to design bidding strategies to influence the prices
51
The WESM
Actual Operations: Market Concentration Index -Price Setting Frequency Index

Price Setting Frequency Index (2013)

Category
The price setting index identifies the generators that set
Plants / Resource ID
Below 5,000 5,000 to 10,000 Above 10,000 the price or are near setting the spot price in a trading
LUZON
AMBUKLAO HEP 6.2% 12.1% 4.1% interval. A generator is considered a price setter if its last
ANGAT HEP
APEC
2.2%
6.1%
0.0%
0.0%
0.1%
0.0%
accepted offer is within 95% to 100% of the nodal price.
BAKUN HEP 0.2% 0.0% 0.0% The PSFI is calculated as the percentage of time that a
BATANGAS CFTPP 0.0% 0.0% 0.0%
BAUANG DPP 0.0% 27.5% 50.3% generator qualifies as price set
BINGA HEP 1.9% 2.3% 2.2%
CASECNAN 1.8% 0.0% 0.0%
CBK (KPSPP) 2.2% 1.6% 1.3%
HEDCOR 2.2% 0.0% 0.0%
KEPCO ILIJAN 12.9% 0.0% 0.1% % of Time of Price Range (P) Occurance
LIMAY CCGT 1.0% 0.3% 14.0% P < 5,000
MAGAT HEP 2.3% 5.9% 2.3% 5,000 < P < 10,000
MAKBAN GPP 4.4% 0.0% 0.2% 12.3% P > 10,000
MALAYA TPP 0.4% 0.0% 5.1%
MASINLOC CFTPP 26.8% 0.1% 0.0%
GN POWER 12.6% 0.1% 0.1%
12.4%
MASIWAY HEP 1.2% 0.0% 0.0%
PAGBILAO CFTPP 42.1% 0.5% 0.2%
PANTABANGAN HEP 0.5% 0.0% 0.0%
QUEZON POWER 4.5% 0.0% 0.0%
SAN ROQUE POWER 1.8% 0.0% 0.1%
STA RITA FGPP 2.7% 0.1% 0.0% 75.4%
SUAL CFTPP 40.5% 0.1% 0.0%
SUBIC POWER CORP 0.1% 25.9% 3.0%
TIWI GPP 3.1% 0.0% 1.9%
TRANS ASIA 0.1% 22.0% 3.4%
52
The WESM
Actual Operations: LWAP Analysis
 The WESM
The Reserve Market

Capacity in Outage

Excess Capacity

Dispatchable Reserve Next largest unit NORMAL STATE

• Sufficient Operating Margin

System Capacity
Capacity Largest unit • Within limits for frequency, voltage, transmission loading

Contingency Reserve
4% of Demand
YELLOW ALERT
Regulating Reserve
• Contingency Reserve is less

System Demand

Available Capacity
RED ALERT than capacity of largest
synchronized unit
Plants in • Contingency Reserve is zero
Energy Merit Order Table • Generation deficiency
dispatched for exists
energy • There is Critical Loading
• Imminent overloading of
Trans. Line or equipment
 The WESM
The Reserve Market

Rationale for the Reserve Market

 Energy and Reserve Co-optimization (WESM Rules 3.6.1.1 )
• Widen competition and supply base for Energy and  Simultaneous determination of schedules and prices
Reserves
 Other Markets with Energy and Reserve Co-Optimization
• Lower overall cost from Co-optimization of Energy and
 Singapore
Reserves
 New Zealand
• Transparency in pricing and dispatch scheduling  Australia (AEMO)
• Incentive for new generation investment and  US (PJM, CAISO, NYISO, MISO)
customers with dispatchable (interruptible) loads  Canada (IESO)

Scheduling Pricing Settlement

Gross Locational Ex Ante & Ex

Pool Concept Marginal Price Post
ENERGY Settlement
MARKET WESM Rules
WESM Rules 3.5 WESM Rules
3.5.5 3.10.1

Gross Zonal Reserve Ex Ante Pricing

Pool Concept Price Settlement
RESERVE
MARKET WESM Rules WESM Rules
WESM Rules 3.10.10 3.10.10
3.5.7
 The WESM
Price & Cost Recovery Mechanism for the Reserves Market
• The application for the approval of the PCRM was filed with the
ERC on Jan 8, 2007;
• Approved by the ERC on Jul 7, 2008:
• Gross Pool concept
• Zonal reserve pricing
• Ex-ante settlement
• Co-optimization of energy and reserves
• Administered reserve prices
• Re-filed with the ERC on Feb 26, 2013; hearing by ERC on Jan 28,
2014. PEMC recommends 2-stage implementation:
• Interim Phase (Mar 26, 2014): Operate Reserve Market
based on current design
• Completion Stage (24 Months after Interim Phase): Full
compliance to all ERC directives
• On Jul 7, 2008, the ERC also directed compliance to directives:
• Implement an Ex-Ante Reserve Effectiveness Factor
• Realign Specifications of Reserve Services to create a Fast
Contingency Service
• Set up new Lower Reserve Service
• Introduce Interruptible Load Dropping (ILD) as a fully
functioning reserve service
• Set up interim arrangement for ILD
• Set up appropriate changes in the Philippine Grid Code
• Submit plans for future enhancement and develop Interim
Plans
• Establish appropriate mitigating measures in the Energy
and Reserve Market to curb misuse of market power or
occurrence of anti-competitive behavior
 The WESM
Market Dispatch Optimization Model (Co-optimization)

Sequential Clearing
Schedules, MW
A B C D
GENERATOR Maximized for Maximized
Energy Reserve for reserves
reserves
A 400 -
4000

Results in more B 200 100 1000

Reserve
expensive marginal price C 150 100
(200 MW)
of P 12,000/MWh for D 50 -
energy Total 800 200

70000
Energy only
Total Cost 3000 3000
5000

800 MW x 12 K = 9,600 K Energy

Energy Reserve Offer 200 MW x 4 K = 800 K Remaining Balance for Balance of Energy (800 MW)
GENERATOR Pmax, MW Offer, Total 10,400 K scheduled for energy requirement
P/MWh Quantity, Price, energy
MW P/MWh
A 400 - - -
B 300 3,000.00 100 1,000.00 Simultaneous Clearing
C 250 5,000.00 250 4,000.00 Schedules, MW
GENERATOR
D 300 12,000.00 300 7,000.00
Energy Reserve A B C D
A 400 - Maximized for Backed off for Balance of reserve
Requirement: B 200 100 reserves reserves requirement

7000
Energy = 800 MW C 200 50

4000
Reserve = 200 MW D - 50
1000
Reserve
Total 800 200 (200 MW)
Co-optimized solution dispatches a Total Cost
more expensive resource for reserve 800 MW x 5 K = 4,000 K Energy only
(P 7000/MWh) 200 MW x 7 K = 1,400 K 3000 3000
5000 5000

Energy
Total 5,400 K
Overall cost is lower as a result of Remaining So that more can (800 MW)
cheaper marginal energy price of P scheduled for be provided for
energy energy
5000/MWh
The WESM
Energy and Reserve Market Co-optimization

Reserve Price in the WESM

 A reserve region shall have only one market price per type of reserve per trading interval
 Regulating,
 Contingency,
 Dispatchable, and
 Interruptible load).

 The market price shall be the zonal reserve price

Zonal Reserve Price = Reserve Clearing Price + Opportunity Cost

 Clearing Price is the reserve offer price of the last resource to satisfy the reserve
requirement plus the concept of opportunity cost.
 Opportunity Cost is defined as the economic loss suffered by generating resource from
losing an opportunity to sell in the energy market as a result of being scheduled in the
reserve market