Forward contracting of power reserves pushed as a policy

By Myrna M. Velasco – May 27, 2019
from Manila Bulletin

To improve electricity service reliability in the country, a “forward contracting” arrangement for power reserves is being advocated for system operator National Grid Corporation of the Philippines.

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“As far as ancillary services are concerned, they (power generators) are willing to contract forward with NGCP,” Emmanuel V. Rubio, chief operating officer of Aboitiz Power Corporation has noted.

A forward contract is a customized deal between parties to buy and sell certain commodity that shall be delivered still within specified timeframe in a future date.

Rubio explained that “forward contracting’ can be done by advancing negotiations and firming up an ancillary services procurement agreement (ASPA) with system operator NGCP even prior to the commercial operation of a power plant.

He qualified such method of contracting is already done in energy supply between generation companies (GenCos) and off-taker distribution utilities, hence, this is now being pushed similarly in terms of the ancillary services procurements of NGCP.

Ancillary services would refer to the array of reserves that NGCP will be needing to reliably and efficiently operate the country’s transmission system and the overall wheeling of power capacity to load customers – including operating and spinning reserves, the power supply it will need for frequency regulation and blackstart, among others.

With sufficiently contracted power reserves, an electricity system is expected to operate prudently and can also prevent extremities in supply tightening that a power system could run into.

A forward contracting strategy is feasible, according to Rubio, because these signed contracts are often dangled to lenders to justify the commercial viability of projects – and more importantly, they go through the evaluation and approval processes of the Energy Regulatory Commission.

As the Aboitiz Power executive explained, in ancillary services contracting, the power plant-suppliers would often go through rigorous testing because their scale of generation and offer of capacity must be compliant with what NGCP strictly requires.

“As an example for generators, the delivery could still be in 2023, but all the contracts may have been signed 2 or 3 years ahead and submitted to the ERC for approval and then the GenCo will build the plant,” he said.

Reserve requirements of the power system had been one of the concerns being prodded for firm solution – primarily by the Department of Energy (DOE) and also the proposed ‘reserve market” that is still pending for approval by the ERC.

If there is a well-functioning reserve market, power generators can co-optimize their capacity offers for both energy and ancillary services via trading platform that may be added as a layer in the country’s Wholesale Electricity Spot Market.