WHY are electricity rates at a five-year low?

Combined effect of oversupply in power generation, cool weather

The wholesale price of electricity hit a five-year low last November, thanks mainly to the combined effects of a surplus in generated power supply and cooler yearend temperatures that temper the need for air-conditioning, according to the operator of the country’s electricity exchange.

In a statement, the Philippine Electricity Market Corp. said the effective settlement spot prices (ESSPs) on the wholesale electricity spot market (WESM) fell to P2.27 a kilowatt-hour (kWh) for the November 2016 billing period—the lowest since January 2011. ESSPs refer to the average price paid by wholesale customers for electricity bought from the spot market.

“Such a sharp decline in market prices is welcome as long as wholesale customers like distribution utilities pass on the historically low market prices to their end-users,” PEMC president Melinda Ocampo said. “The decrease in WESM prices was driven by higher energy volume offers in the market and colder temperature.”

According to the PEMC chief, wholesale customers sourced 19 percent of their power supply requirements in the spot market during the November 2016 billing month, which also represented the highest volume since March 2009.

PEMC data showed that the so-called generation mix remained heavily skewed toward coal-powered generation plants, which accounted for 47.42 percent of all electricity traded on WESM in November 2016. Renewable energy resources—including large hydropower and geothermal sources—contributed 26.25 percent to the total during the month.

PEMC, whose existence had, in the past, been criticized for failing to deliver on the promise of cheaper electricity prices, took the opportunity to stress that market forces were working as promised to deliver more affordable electricity to consumers.

“The recent developments in the electricity market underpin PEMC’s efforts in establishing a competitive, efficient, transparent and reliable market where prices are governed as practicable by commercial and market forces,” Ocampo said. “The coming year will also see PEMC’s involvement in the full implementation of retail competition and the establishment of WESM in Mindanao.”

PEMC is a non-stock, nonprofit corporation incorporated in November 2003 upon the initiative of the Department of Energy with representatives from the various sectors of the electric power industry to be the governance arm of WESM.

WESM began commer-

Such a sharp decline in market prices is welcome as long as wholesale customers like distribution utilities pass on the historically low market prices to their end-users Melinda Ocampo PEMC president

cial operations in Luzon in June 2006 and in the Visayas in December 2010. In June 2013, PEMC launched and integrated the Retail Competition and Open Access scheme into WESM.

WESM is a centralized venue for buyers and sellers to trade electricity as a commodity where its prices are based on actual use and availability.

The electricity spot market was created by Republic Act 9136, or the Electric Power Industry Reform Act (Epira) of 2001. This provided for the establishment of an electricity market that reflects the actual cost of electricity and lowers its price through more efficient production and competition.

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