ERC Approves New Price Determination Methodology for the WESM
The Energy Regulatory Commission (ERC) approved with modification, the Philippine Electricity Market Corporation’s (PEMC) application for a new Price Determination Methodology (PDM) for the Wholesale Electricity Spot Market (WESM). “The new PDM provides amended features with regard to price determination and settlement in the WESM and consolidated the various pricing mechanisms which are currently contained in several issuances of the Commission”
, said ERC Chairperson and CEO Agnes VST Devanadera.
The key features of the enhanced WESM design and operations as embodied in the new PDM provide for the following: (a) Shortening of scheduling and pricing intervals from one (1) hour to five (5) minutes; (b) Adoption of ex-ante only pricing; (c) Automatic re-runs when prices reflect constraint violations to provide timely disclosure of settlement-ready prices ; and (d) Hour-ahead projections, in addition to the week-ahead and day-ahead projections, to facilitate commitment decisions of trading participants.
The adoption of the enhanced WESM design and operations provides, among others, a shorter dispatch interval of five (5) minutes which will result to better pricing signals as it instantly reflects the changes in supply and demand, and potentially reduce the requirement for frequency regulation reserve which is beneficial to consumers.“Projecting possible conditions in the next five (5) minutes will result in a more accurate picture of the actual conditions as compared to projecting the possible market conditions in the next one (1) hour. Since regulating reserves are needed to address the fluctuations in supply and demand, lesser fluctuation brought about by better projection would mean lesser requirements for regulating reserve. Also, considering that customers pay for the procurement of regulating reserve, this would translate to lower costs for the customers”
ERC Chair Devanadera averred.
Meanwhile, the adoption of an automatic pricing re-run provides for a more efficient process to have settlement-ready prices which are produced in real-time, with approximately the same as the dispatch schedule. The Commission recognizes the importance of having the correct pricing signals and timely publication of settlement-ready prices in real-time for efficiency and transparency in prices.
With better pricing signals, congested areas that need additional local generation and transmission improvements and enhancements are identified and improved. As such, lower congestion cost will result to lower resulting market prices which will redound to the benefit of the consumers.
Lastly, the new PDM will also be used for the upcoming commercial operations of WESM in Mindanao.
The new PDM shall continue to adhere with the basic principles of the existing PDM for the WESM, such as the gross pool design concept, adoption of net settlement for bilateral contract quantities, use of Locational Marginal Pricing (LMP), and the concept of self-commitment where trading participants manage their respective technical operations, unit commitment decisions and other market risks through the submission of bids and offers to the WESM.