DOE may lower WESM secondary price cap during Malampaya shutdown

By Lenie Lectura – January 10, 2017

from Business Mirror

THE Department of Energy (DOE) has raised the possibility of further lowering the secondary price cap in the Wholesale Electricity Spot Market (WESM) to cushion the possible impact during the 20-day shutdown of the Malampaya gas facility.

“We are reviewing how to lower the secondary price cap in the Wholesale Electricity Spot Market with the Energy Regulatory Commission [ERC],” the energy department said on Tuesday. When sought for comment, Energy Undersecretary Felix William Fuentebella said this possibility is seriously being considered.

“We are looking at it. At the same time, we also asked to explore the staggered payment application by Meralco [Manila Electric Co.],” the DOE official said.

WESM’s primary offer cap was originally set at P62 per kilowatt-hour (kWh), but regulators lowered it to P32 per kWh starting December 2013, in a bid to prevent excessive price spikes.

Besides the primary cap, the ERC also ordered the implementation of a secondary cap to further protect consumers from excessive price spikes triggered by supply tightening.

Called the price threshold mechanism, the P6.245/kWh secondary cap kicks in the market once an average threshold of P9/kWh is reached over a 168-hour period.

The thresholds were computed based on historical prices, with allowance for three intervals hitting high market clearing prices. The Malampaya shutdown will start on January 28, and will last until February 16.

“We already conducted a series of coordination meetings, simulations, exhausting all possible measures we can implement to ensure supply and avoid price shocks,” Energy Secretary Alfonso G. Cusi said.

The agency, he added, is closely monitoring the readiness and execution of the following activities to ensure power supply:

  • Availability of fuel requirements for the affected natural-gas power plants (NGPP), namely, the 1,000 megawatt (MW) Santa Rita NGPP; the 500 MW San Lorenzo NGPP; and the 97-MW Avion NGPP. These plants will be using alternative fuel to continue operation and generate electricity during the maintenance period.
  • Running of the government-owned 470-MW Malaya Thermal Power Plant in Pililia, Rizal.
  • Readiness of Interruptible Load Program participants with a total of 900-MW enrolled power capacities, which would augment supply during critical periods.
  • Monitoring and securing generation capabilities of renewable-energy facilities, particularly geothermal, hydropower and biomass- power plants. For example, water resources for hydropower plants will be impounded to increase generation output during the maintenance period.
  • Based on the projections, highest demand is projected to reach 8,610 MW on February 9, while the lowest reserve level is projected at 706 MW on February 16, which only poses a possible yellow alert.

Since ensuring supply in this particular situation inevitably increases power rates, the DOE is looking at the following measures to mitigate steep increase and unwarranted market behavior to ensure utmost consumer protection:

  • Staggering payment of additional generation cost from having to use more expensive fuel (diesel and condensate). Natural gas as fuel only costs around P4/kWh hour and replacement fuel, such as diesel, costs around P6 to P8/kWh.
  • Implementation of energy efficiency and conservation measures being the most effective way to avoid price shocks. The public may apply measures as simple as these: Reducing time of watching TV from 10 hours to nine hours, which translates to P19.80 a month; setting to low electric fan from high to save P52.80 a month; or even reducing by an hour the usual time of ironing clothes to save P44 a month. “The DOE assures the public it will exhaust all possible legal options and measures to ensure supply and protect consumers from price shocks, but we cannot do it alone. That’s why we are also asking the public to remain vigilant and cooperative in managing their consumption,” Cusi said.