Power spot market price spike anomaly?
October 26, 2020by Orlando Oxales originally published in The Manila Standard
“As consumers, we must be vigilant against all forms of market abuse.”
An unexpected surge of electricity prices brought about by high charges in the Wholesale Electricity Spot Market (WESM), has resulted in increased generation charges. This prompted consumer advocacy group CitizenWatch Philippines—where I am convenor—to ask the Energy Regulatory Commission for an investigation. Specifically, we asked the ERC for a probe on these spot market price spikes during the lockdown months. No “yellow” alerts, or public warnings on thinning power supply, were issued.
The following are the salient points of our communication sent to ERC on this odd occurrence that we feel merits public attention.
Based on news reports, there were a series of unscheduled power plant outages early September and a gas output restriction at the Malampaya field that triggered spikes in prices at the WESM. This will inevitably be passed on as rate hike in the consumers’ electric bills for October.
According to the Daily Significant Variations Report by the Independent Electricity Market Operator of the Philippines (IEMOP), market operator of the WESM, the wave of power plant outages happened on September 5, 2020 which identified forced outages in power plants: Cebu Energy Development Corporation coal plant; GNPower Mariveles coal plant; Limay coal-fired plant; Makiling-Banahaw geothermal plant; Pagbilao coal plant; San Buenaventura coal plant; San Gabriel gas-fired power plant; and the Southwest Luzon Power Generation Corporation coal plant.
At the same time, power plants on scheduled maintenance shutdown were the Masinloc coal-fired plant; Santa Rita gas plant; Kepco-SPC coal-fired power plant; and the Panay Energy Development Corporation generating facility.
Yet, despite all these outages, there were no Yellow Alerts issued by the National Grid Corporation of the Philippines (NGCP). In fact, the last Yellow Alert issued was in June 2020. Without this warning, energy stakeholders would be blind to what is happening within the grid. Even more suspicious is why there was even a spike when, in the absence of a yellow alert, there is supposed to be adequate power supply that distribution utilities can draw to deliver to their service areas.
The lack of alerts or warnings casts doubt on the monitoring and computation of prices in the spot market. Consider this – based on the same report, on September 5 the WESM price shows that load weighted average price reached P33/kWh at 9PM, which is the nighttime peak. Ironically, the actual peak demand for that day was supposedly at 3PM where the price was at P18/kWh. The Daily Significant Variations Report by the Independent Electricity Market Operator of the Philippines (IEMOP) dated September 5, 2020 clearly shows this fact.
When a Yellow Alert was issued last June, unplanned outages of power plants were the main driver for the upticks in prices. Correspondingly, due to thin reserves, prices in the spot market reached P33/kWh. As such for the month of July, Meralco reported that the overall generation charge increased by P0.0799 per kWh, from P3.8586 per kWh in June to P3.9385 per kWh for this month mainly due to higher IPPs and WESM charges.
In stark contrast, during the month of September, the lack of the issuance of a Yellow Alert and the high price of P33/kWh signifies an anomaly in the spot market. In contrast with the June situation, there was no notice that reserves were thin due to unplanned and forced outages. Because of the high WESM charges, there was corresponding increase in the generation charge. Based on Meralco reports, from P4.0860 per kWh in September, the generation charge increased by P0.1373 per kWh to P4.2233 per kWh this October.
This brings back the near crisis scenario in the months of November and December 2013 where the sudden spike in generation costs sparked several allegations of collusion by some power generators and market abuse. Since then several regulatory reforms have been instituted including the price caps in the WESM which thankfully stopped this strange price spike during the September 5 outages.
This health and economic crisis is far from over. We need responsible and supportive behavior from everybody. We are all part of this eco-system that must work to rebuild our economy to pre-pandemic conditions. “Bayanihan” is a culture of cooperation and community and not of dependence and mendicancy. Government must enable and sustain a conducive, secure environment that inspires productivity and not fear or divisiveness that tends to paralyze.
The economic recovery that we are hoping for will be driven by the private sector and consumers. As consumers, we must be vigilant against all forms of market abuse and to compensate the parties that have satisfactorily delivered the products we acquired and services we consume. Given crisis conditions, we must be open to innovations that can flank the pandemic barriers and accelerate the cycle of economic growth.