Power rates seen to go up next month

MANILA, Philippines - Electricity users can expect higher billing rates next month as prices at the wholesale electricity spot market (WESM) continue to surge.

In a statement, the Philippine Electricity Market Corp. (PEMC), the operator of WESM, said after over a year of effective settlement prices (ESP) ranging from P1.25 per kilowatt hour to P4.55 per kwh, preliminary prices for the period Feb. 26 to March 25, 2010 jumped significantly to an ESP of P12.96 per kwh, higher than the previous month’s P11.29 per kWh.

Based on WESM’s settlement data, about 22 percent of total market transactions for the March billing period were actual purchases from the market, while about 78 percent was reported to have been sourced from bilateral power supply contracts, which were settled outside the WESM.

“Bilateral power supply contract transactions are not affected by the prices at the WESM. For the March settlements, the prices in the WESM only affected about 22 percent of the total energy consumption for Luzon,” PEMC executive vice president Mario R. Pangilinan said.

He noted that during March, there were scheduled outages of natural gas-fired plants such as the Ilijan, Sta. Rita and San Lorenzo, as well as the low output from hydroelectric power plants brought about by the El Niño weather phenomenon.

“These factors have increased the contribution of coal as well as diesel and oil-based generators in the generation mix,” Pangilinan said.

An unexpected increase in demand in the first quarter caused by the relatively high temperature during the period was also observed.

The continued maintenance shutdown of natural gas-fired power plants is due to the scheduled maintenance of the Malampaya platform and pipelines. This reduced the contribution of natural gas in the generation mix from 32.69 percent in February to 28.7 percent in March, thereby forcing natural gas-dependent distribution utilities (DUs) to find other sources of electricity for their customers.

Low output from hydroelectric plants from 8.19 percent in February to 6.45 percent in March also contributed to the shortage in supply, increasing the diesel/oil-based plant contribution to 9.3 percent from 8.27 percent in February, as well as coal-fired plant usage from 42.71 percent to 46.90 percent.

Due to the volatility of spot prices, DUs are encouraged to establish mitigating measures such as entering into bilateral contracts to lessen the impact of volatile prices in the WESM to their consumers. This would also be consistent with their obligations under Section 23 of the Electric Power Industry Reform Act (EPIRA), which states that a distribution utility has the obligation to supply electricity at the least cost to its captive market.

“WESM is a market that also acts as a clearing house providing settlement services for the trading of electricity. The market prices you see now only reflects the interaction of supply and demand,” PEMC president Melinda Ocampo said.

The WESM began commercial operations in Luzon in June 2006. It is a centralized venue for buyers and sellers to trade electricity as a commodity where prices are based on actual use (demand) and availability (supply).

This provided for the establishment of an electricity market that reflects the actual cost of electricity and lowers its price through more efficient production through competition.