Wholesale Electricity Spot Market

(WESM)

AN OVERVIEW

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Electricity Market Experience
‰ Countries that have developed successful
wholesale electricity markets include:
ƒ Australia
ƒ Canada
ƒ Chile
ƒ New Zealand
ƒ Denmark, Finland, Sweden, and Norway
ƒ England and Wales
ƒ USA
ƒ Singapore
ƒ Argentina

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The Electric Power System

Power Generators

Transmission System

Bulk Substation
Subtransmission System

Distribution Substation Feeder Line

Service Transformer

Consumers
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 REPUBLIC ACT 9136
RA 9136, better known as the Electric Power
Industry Reform Act of 2001 (EPIRA), mandates
among others, the deregulation of the electric
power industry ; that there shall
be free competition in the supply and sale of
electricity;
and that the industry is to be structured and
operated as:
1. Generation Sector
2. Transmission Sector
3. Distribution Sector
4. Supply Sector

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 REPUBLIC ACT 9136
RA 9136, better known as the Electric Power
Industry Reform Act of 2001 (EPIRA), mandates among
others, the deregulation of the electric power industry ;
that there shall
be free competition in the supply and sale of
electricity;
and that the industry is to be structured and operated
as:
1. Generation Sector
2. Transmission Sector
3. Distribution Sector
4. Supply Sector
Section 30 of EPIRA, envisions the establishment of the
WESM the market where trading of electricity is made
or transacted, through a privatized and competitive
Electric Power Industry. 5
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 The New Structure by Industry Sectors

e r ation
e g e n
m p e titiv
Co
r s sion
secto t rans mi
e gulated
R
s e c tors
ƒ GENCOS ution
is tr ib
and d r s S e ctor
r icity
l i e l e c t
Supp etitive e a rket
ƒ Unbundling of electricity p m
Com testable
n
rates for transparency on co m ers:
on su
d U ser/C
ƒ Opening up of high voltage En e and arket
p t iv m
Ca table
transmission lines for open access of n t es
co
distributors and bulk/large end users

ƒ Opening up of distribution lines for Retail Competition

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WHAT IS THE WESM?

The Venue or Market-Place where

electricity is being offered by generation
companies and bidded by distribution
utilities, suppliers, bulk-end-users, etc;
and the spot market is operated by an
Independent Market Operator.

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 WHAT IS THE WESM?

The Venue or Market-Place where electricity is

being offered by generation companies and
bidded by distributors, suppliers, bulk-end-
users (directly connected), etc; and the spot
market is operated by an Independent Market
Operator.
Generators WESM Utilities and Large Users

Offers Bids

Market Operator
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THE MARKET
‰ A centralized venue for sellers and buyers to
trade electricity as a commodity.

¾ Wholesale market - it is open to generators,

distribution utilities, directly connected customers and
eventually suppliers/aggregators.

¾ Spot market - electricity is traded in Real Time, because it

cannot be stored for future use. Electricity is difficult to store.
Battery technology does not allow efficient storage for any
but minimal uses.

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How does the WESM work?
‹ Trading participants submit to the Market
Operator (MO) the hourly energy offers and
demand bids stating the price and quantity of
electricity they are willing to trade.

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 How does the WESM work?
‹ Trading participants submit to the Market
Operator (MO) the hourly energy offers
and demand bids stating the price and
quantity of electricity they are willing to
trade.

¾ Energy Offers come from Generation

Companies (GENCOs), the electricity
producers.
¾ Demand Bids come from Distribution Utilities,
Electric Cooperatives, Large Customers and
Suppliers/Aggregators (any person or entity
licensed by the ERC to sell, broker, market or
aggregate electricity to end-users and
registered with the MO as a Customer).
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 What is being traded in the Market?
Usually the Generation cost is being offered and may consist of
fuel, operating and maintenance costs, and among others.

P/MWh Demand

P/MWh

Generation Cost

Generation Cost

MW

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 How Competition Works at Supply Side?
Supply Side
Demand Side
(GenCos) The Marketplace for (End Users, etc)
Offer of Genco A
Electricity
P/MWh Industry Demand
Q = 100 MW
P = P 1,000/MWh
Requirement:
600 600 MW
Offer of Genco B

Q = 350 MW
P = P 2,000/MWh 3,000 With the entry of
GENCO C at P3000 /
2,000 MWhr, the industry
Offer of Genco C demand requirement of
1,000
Q = 200 MW 600MW has been filled
P = P 3,000/MWh up.

Offer of Genco D
MW
Q = 250 MW 100 350 150
P = P 3,500/MWh
A
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B C 13
 Market Clearing Price: The Pay-Off

P/MWh

600

3,000 Market Clearing

Price is set at
2,000 P 3,000/MWh
1,000

100 350 150 MWh

A B C

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 Market Clearing Price: The Pay-Off

P/MWh
‰ Offer prices of
generators in the
600
WESM are
transparent.
3,000 Market Clearing ‰ Only competitively
2,000
Price is set at priced plants are
P 3,000/MWh called to run.
1,000
‰ High price offers of
plants causes them to
be priced out of the
market.
100 350 150 MWh
Bottomline: Price in the
A B C Market of Electricity is
driven by market
forces. 15
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 IPP’s with Bilateral Contracts
‹ Pursuant to Sec. 9 (e) of EPIRA : Subject
to technical constraints, Transcos’ Grid
Operator shall provide Central Dispatch of
all generation facilities connected to the
transmission system in accordance with the
dispatch schedule submitted by the Market
Operator, taking into account outstanding
Bilateral Contracts.
■ Per Sec 3.5.5.1 of the WESM Rules : Each scheduled
generation company including Generation Companies
with Bilateral Contracts shall submit a standing
generation offer for each of its scheduled generating
units for each trading interval in each trading day of the
week……… page 1 16
 Cost of Marginal Loss

Generator C Transmission Line losses at 10% Customer

Supply= 150+150*(0.10)
=165 MW Demand=150MW

Sending Receiving

■The Generator C generates 165MW to include the line losses

■The market clearing price should then be adjusted for losses found in the system.

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Locational Marginal Pricing (LMP)
Cost of supplying next MW of load at a specific
location, Considering generation marginal cost, cost
of transmission congestion, and cost of marginal
(line) losses

Generation
Generation Costof
Cost of Transmission
Transmission
LMP = Marginal + Marginal + Congestion
LMP Marginal Marginal
Losses
Congestion
Cost
Cost
Cost Losses Cost

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 Market Network Model (MNM)

A Mathematical representation of the power

system, which will be used for determining
dispatch ( generator ) schedules and energy
prices, and preparing market projections.

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Market Network Model (MNM)

A Mathematical representation of the power

system, which will be used for determining
dispatch ( generator ) schedules and energy
prices, and preparing market projections.
E
600 MW (LMP) B 150 MW
6 P1547.51/MWh P1559.19/MWh
3
1 3

400 MW 500 MW

2 P1550.00/MWh
C 400 MW
A 300 MW
5 P1555.99/MWh 1
2 P1552.42/MWh 600 MW
D
300 MW
4
E Generator P1541.47/MWh
4
1 Load 200 MW
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 LUZON GRID SIMPLIFIED
SINGLE LINE DIAGRAM
3 0 1 M A G A T A M B U K B IN G A
M S L C S U A L

3 1
2
5 0 1
L o a d L o a d

B A K U N
2 3
B P P C L o a d
S U B IC M A S 2 2 P A N T A 2 1 5

C A S E R O Q U L o a d
4 6 C E
7 0 1
L o a d L IM A Y E D S N L o a d
2 5 7

1 0 A N G A T L o a d
8
L o a d 9
D U R A N A V N A V 4
L o a d
1 3
M A L 1
M E T R O L o a d
M A L 2
M A N IL A

L o a d
1 2

M K B N
1 4 0 1 2 4 1 7

1 6
C B K L o a d
1 4
L o a d
L o a d 1 8 0 1

1 8

L o a d
P B L Q P P L
1 3
1 1 L o a d

IL IJ N
1 5
L o a d 1 9
2 0
C L C 1 C L C 2 R IT A L O R E N M A G E N L o a d

T IW I B A C M N L E Y T T O N G

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E
 MDOM and Trading Interval

‰ Market Dispatch Optimization Model

(MDOM)
¾ Is a mathematical optimization algorithm or step by
step procedure to determine hourly dispatch (
generator )schedule, energy price at all trading nodes
(bus), and reserve allocation for the trading interval,
etc.
‰ Market Trading Interval
● For trading in energy and ancillary services, trading
interval is one (1) hour, commencing on the hour (real
time)

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THE MARKET OPERATOR AND
THE MDOM
MO matches offers of generators with demand bids of
customers. It determines the dispatch schedule and the
market clearing volume/price using the Market Dispatch
Optimization Model (MDOM), which takes into account market
requirements and physical system conditions (status). In
general, the MO schedules generators with the lowest offers first.

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 THE MARKET OPERATOR AND
THE MDOM
MO matches offers of generators with demand bids of customers. It
determines the dispatch schedule and the market clearing
volume/price using the Market Dispatch Optimization Model
(MDOM), which takes into account market requirements and
physical system conditions (status). In general, the MO schedules
generators with the lowest offers first.
Input Process
Offers
Generators Output

Bids
ƒ Dispatch Schedule
Customers
MDOM ƒ Market Clearing Prices (MCP)
ƒ Market Clearing Volumes (MCV)
Status
System
Operator NOTE:
Dispatch Schedule SO
Market Operator MCP & MCV IP
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 POST-OPTIMIZATION
PROCESSES
‹ The MO Submits the dispatch ( generator
)schedule to the System Operator (SO) for
central dispatch, and publishes MCP & MCV for
the Trading Participants.

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 POST-OPTIMIZATION
PROCESSES
‹ The MO Submits the dispatch ( generator )
schedule to the System Operator (SO) for central
dispatch, and publishes MCP & MCV for the
Trading Participants.
System Operator (SO)
Dispatch
Instructions
Dispatch ( Generator )
Schedule
Market
Operator
Power System

MCP & MCV

Internet
Internet Trading
Participants
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 The Changing Industry
The Electric Power System
SUPPLIERS /
TRANSMISSION DISTRIBUTION AGGREGATORS
GENERATION
Electricity Flows
Electricity Flows

Industrial Customers

Electricity Flows TransCo Distribution

ƒHigh-Voltage Utilities Electricity Flows
Transmission Power
Distributors
Commercial Customers

Electricity Flows
Electricity Flows

Residential Customers

END-USERS
System Operator (S.O.)
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The Flow of Information
Utilities, Large Users and Consumers
Generators

Generator Offers Demand Bids

WESM Metered Data

Market Operator

Network Status and Dispatch

Required Reserves Schedule

Dispatch Orders Dispatch Orders

System Operator
(TRANSCO) Meter Service
Providers

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The Financial Flows Under the WESM

Bilateral Contracts
Generators Utilities and Large Users

Energy Energy
Charges Charges

Ancillary Ancillary
Service Service
Fees WESM Fees

Market Operator

Transmission
Transmission
Charges
Charges

System Operator
(Transco)
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 INTERFACE AMONG EFT, MMS, MARKET PARTICIPANTS (MP)
AND THE MPs BANKS RELATIVE TO FUNDS TRANSFER

Generator instructs its bank to remit funds to

cover market fees.

Generator/Seller
Generator’s Bank
Genco bills MO MO bills Genco (seller) EFT transmits funds
Genco Bank remits
for energy sold. for Market fees. To Genco’s bank based
Payment for market
Sends transaction summary on MO’s instruction.
Fees.
For energy sold.
Debit and Credit
MO sends payment Instructions to EFT via Amounts entered
MMS to settle account to seller. By EFT bank.
Market Operator

EFT provides transaction records of funds transfer EFT Facility

to MMS Distributor’s bank
MO sends billing
transmits funds to
to MP (buyer) for:
MO’s EFT
• Energy purchased
Facility
• Market fees.

Buyer instructs its bank to remit funds to EFT.

Customer/Buyer Customer’s Bank

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 Duties / Responsibilities………
‹ Department of Energy (DOE) – supervises the restructuring
of the electricity industry. Jointly with the industry
participants establish the WESM to include the formulation
of the WESM Rules governing the operation thereof. It shall
set criteria and guidelines for membership in the WESM.
‹ Energy Regulatory Commission (ERC) – shall promote
competition, encourage market development, ensure
customer choice, penalize abuse or anti-competitive
behavior of market participants in the electric power
industry, promulgate a Gride Code and Distribution Code
and among others.
‹ Philippine Electricity Market Corporation (PEMC) – the
governing body of the WESM, enforcing and modifying rules
to safeguard the WESM mechanism and its participants. It
manages the system to ensure it meets standards and
targets, registers participants and resolves their disputes,
and monitors unfair monopoly and abusive trading
practices.

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GOVERNANCE AND REGULATORY STRUCTURE
FOR THE PHILIPPINE ELECTRICITY MARKET

Oversight Regulation

DOE ERC
ERC
•Policy making •Enforcement
•Enforcement
•Planning •Pricing
•Pricing

Governance PEM
Auditor
PEMC Board Rule Change
Committee
Disputes
Committee
Market
Surveillance
Philippine
Philippine Electricity
Electricity Market
Market Corp.
Corp. Committee
Market Operator
Market Operator
Technical
Committee

WESM Members
Generators/
Generators/ Network
Network Service
Service Providers
Providers Suppliers/
Suppliers/
A/S End-Users
End-Users
A/S Providers
Providers (Transco
(Transco &
& DUs)
DUs) Aggregators
Aggregators

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Who are the WESM Trading Participants

Non-NPC IPP = 22 NPC Owned Generation Directly Connected

Facilities= 121
(1901 MW) Customers = 90 (1273 MW)
(11361 MW)

Electric Cooperatives = 119 Distribution Companies = 16

(2494 MW) (4930 MW) Suppliers/
Aggregators=
=?

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Who are the WESM Trading Participants

Non-NPC IPP = 22 NPC Owned Generation Directly Connected

Facilities= 121
(1901 MW) Customers = 90 (1273 MW)
(11361 MW)

Electric Cooperatives = 119 Distribution Companies = 16

(2494 MW) (4930 MW) Suppliers/
Aggregators=
=?

‰ At the start of operation of the spot market, the above

Trading Participants, except Suppliers/Aggregators, shall be
the trading players
‰Upon the declaration of open Retail Competition,
Suppliers/Aggregators shall compete in the supply of electricity for
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the Contestable Market end users. 34
 When will Retail Competition
commence?
‰ Pursuant to Sec 31 of the EPIRA, Retail Competition and
open access on distribution lines shall be implemented
subject to the following:
● Establishment of the WESM by the Department of
Energy
●Approval of unbundled transmission and distribution
wheeling
charges by the Energy Regulatory Commission
●Initial implementation of the cross subsidy removal
scheme;
●Privatization of at least 70 % of NPC generation assets
in
Luzon, Visayas and;
●Transfer of management and control of at least 70 % of
NPC
contracts with IPP to an IPP administrators.
 When will Retail Competition
commence?
‰ Pursuant to Sec 31 of the EPIRA, Retail Competition and
open access on distribution lines shall be implemented
subject to the following:
● Establishment of the WESM by the Department of Energy
●Approval of unbundled transmission and distribution wheeling
charges by the Energy Regulatory Commission
●Initial implementation of the cross subsidy removal scheme;

●Privatization of at least 70 % of NPC generation assets in

Luzon, Visayas and;
●Transfer of management and control of at least 70 % of NPC
contracts with IPP to an IPP administrators.
‰ And having complied Sec. 31, ERC will declare the Spot Market
open for Retail Competition, and
● End-users with monthly average peak demand of one (1) MW
and above shall be classified as a contestable market. Two (2)
years thereafter, the peak demand level shall be 750KW, and so
on….
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Unbundled Rates on Retail
Competition
‰ Generation Charges (competition)
‰ Transmission Charges
‰ Distribution Charges
‰ Suppliers Charges (contestable market)
‰ Lifeline Rate subsidy
‰ Universal Charges
•Missionary
•Environmental Funds
•NPC Stranded Debts
•NPC Stranded Contract Costs
•DUs stranded Contract Costs
•Equalization Taxes and Royalties
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Final
Notes:
‰ As envisioned, the WESM will provide an efficient and transparent
venue for trade and investment in the power industry

‰ The WESM is aimed to:

¾ Provide cost-efficient dispatch of power plants through an

economic merit order;

¾ Create reliable price signals to assist participants in weighing

investment options;

¾ Provide a fair and level playing field for sellers and buyers of
electricity as prices are driven by market forces.

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Final
Notes:
‰ As envisioned, the WESM will provide an efficient and transparent
venue for trade and investment in the power industry

‰ The WESM is aimed to:

¾ Provide cost-efficient dispatch of power plants through an

economic merit order;

¾ Create reliable price signals to assist participants in weighing

investment options;

¾ Provide a fair and level playing field for sellers and buyers of
electricity as prices are driven by market forces.

‰ Expectations on the WESM:

¾ In light of the country’s overall energy reform, the WESM will

create a fair, transparent and reliable trading environment that
will encourage investments and protect healthy competition,
ultimately leading to electricity pricing which will be
affordable to all end-users particularly the residential
consumers. page 1 40
End of Presentation

Thank You

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