Philippine Wholesale Electricity Spot Market

APEx Regional Meeting Perth, Western Australia March 2010

Presentation Outline
WESM Overview Luzon WESM Operations Results Market and Industry Outlook Challenges Ahead

WESM Overview
Goals and Strategies
Wholesale Competition IPPA Reserve Market Integration of RE Law Privatization

Market Derivatives

Visayas WESM

Open Access/ Retail Competition

Demand Response

WESM Overview
Governance
Oversight Regulation
Department of Energy (DOE) Policy Making Planning
Energy Regulatory Commission (ERC) Energy Regulatory Commission (ERC) Enforcement Enforcement Pricing Pricing

Governance
PEMC
Market Assessment Group

PEM Board

PEM Auditor Rules Change Committee Dispute Committee Market Surveillance Committee Technical Committee

Market Operator

Enforcement and Compliance

Generators/ Generators/ Reserve Providers Reserve Providers Suppliers/ Suppliers/ Aggregators Aggregators

GROSS POOL / LMP MARKET

Distribution Utilities Distribution Utilities Electric Cooperatives Electric Cooperatives Bulk Customers Bulk Customers

Network Service Providers Network Service Providers (NGCP & DUs/ECs) (NGCP & DUs/ECs)

Metering Metering Services Services

Market Overview
Market Design
Gross pool/Net Settlement Locational Marginal Pricing (LMP) Reserve Co-Optimization Demand Bid Mandatory Market

Market Product
Energy Reserve (regulating, contingency, dispatchable and interruptible load)

Designed to operate Luzon and Visayas regions as a single market Energy market operating in Luzon only since June 2006

WESM Overview
Trading Participants: GENERATORS NIA-BALIGATAN NWPDC TAPGC AHPI SNAP-BENGUET FGHPC SNAP NPC SPDC QPPL FGP Corp PANASIA MPPCL SCPC APRI TLI PSALM ETD 3 PSALM ETD 2 FGPC SMEC PSALM ETD 1 CUSTOMERS KAELCO MOPRECO SORECO I CASURECO III NEECO II AREA I TARELCO I TARELCO II INEC DECORP CELCOR CASURECO II ISELCO I BENECO ALECO BATELEC I PENELCO MERALCO I/U Registered Capacity (MW) 11,331 6 27 50 76 100 122 380 396 400 459 526 620 640 660 730 763 769 875 1,043 1,294 1,395 6,686 4 4 6 14 21 22 29 30 31 32 35 39 41 45 46 52 4,855 1,380

H ydro
PSALM ETD 1 SMEC FGPC PSALM ETD 2 PSALM ETD 3 TLI APRI SCPC MPPCL PANASIA FGP Corp QPPL SPDC NPC SNAP FGHPC SNAP-BENGUET AHPI TAPGC NWPDC NIA-BALIGATAN

G eo

C oal

N G at as

D /O

W ind

200

400

600

800

1000

1200

1400

2,015

MW
70 60 50

4,855 1,380

MW

40 30 20 10 0

Operational Results
7-Day Moving Averages - Supply, Demand & LWAP
8000 7000 6000 5000 30000 25000 20000 15000 10000 5000 0 -5000 -10000 D J F M A M J J A S O N D J F

MW

4000 3000 2000 1000 0

2009
Generation Offers Actual Demand Hourly LWAP

2010

P/MWh

Operational Results
Monthly Peak Demand
February 2010 Peak demand 6,877 MW 2009 Luzon Peak demand 6,932 MW

7000 6500 6000 5500 5000 4500 4000 3500

J

7.1% 5.6%

3.8%

Increased electricity requirement (load-growth) El Nio climate phenomenon (hot weather condition)

MW

M
2008

J
2009

J
2010

Operational Results
Generator Average Offers
7500 7000 6500 6000
3.7% 6.3%

MW

5500 5000 4500 4000 3500 J F M

Reduce Energy Offer resulted to Tight Supply Condition El Nio climate phenomenon (Low dam water levels) Natural gas supply facility maintenance Maintenance outages Forced outages Turn-over of Gen asset to new owners

M
2008

J
2009

A
2010

Operational Results
Effective Settlement Prices
Effective Buying Price
20,000 18,000 16,000 14,000

Effective Selling Price

Cumulative Ave. Buying Price

Price, P/MWh

12,000 10,000 8,000 6,000 4,000 2,000 J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

P4,209/MWh (US$91.5/MWh)

2006

2007

2008

2009
Effective Buying Price with 100% surplus Effective Selling Price without surplus

2010

PhP / MWh
10000 20000 30000 40000 50000 60000 0 -10000

Operational Results

Jan Feb 2010 Daily Market Clearing Price

AVE PRICE MAX PRICE MIN PRICE

P55,000/MWh

Dec-26 Dec-27 Dec-28 Dec-29 Dec-30 Dec-31 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 Jan-25 Jan-26 Jan-27 Jan-28 Jan-29 Jan-30 Jan-31 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18

Operational Results
Customer Market Transaction Volumes
4,000 3,500
Energy Volumes (GWh)
13% 10% 15% 13% 16%

4,000 3,500
13% 14%

3,000 2,500 2,000 1,500 1,000 500 0

17% 11% 13% 14% 12%

11% 12%

11% 14% 14% 16% 17% 21% 23% 17%

12%

13% 15%

3,000 2,500 2,000 1,500 1,000 500 0

Spot Transaction Value

J 2008

J J 2009

J 2010

Average Spot Quantity Jan - Dec 2009 Jan - Dec 2008 15% 14%

(Millions)

Spot Market Volume

Bilateral Contract Volume

Spot Market Value

Operational Results
Generation Mix

Year 2008 2009 Jan-10 Feb-10

Hydro 12.5% 12.7% 9.6% 8.2%

Geo 10.3% 9.1% 9.8% 8.0%

Coal 28.8% 29.8% 30.5% 42.7%

Nat Gas 45.3% 45.3% 45.9% 32.7%

D/O 2.9% 2.9% 4.0% 8.3%

Wind 0.1% 0.1% 0.3% 0.1%

2008
D/O Nat Gas Coal Geo Hydro Wind

2009

2010

Operational Results
Transmission Congestion
Peak Demand Luzon MERALCO Franchise Area MW 6,877 4,490 (65% of Luzon demand) Land-area (sq km) 105,000 9,337 (9% of Luzon land area)

San Jose Substation

MERALCO Interchange Substations

Congestions due to N-1 Contingency requirement Subject to Pricing Error Notice Market Re-run Price Substitution Methodology (PSM)

Market Outlook
Supply and Demand Situation
Luzon Power Outlook
12000

Tight Supply Condition

Capacity on Maintenance Outage

Supply Improvement

10000

8000

Hydro Limitations Capacity De-ratings

MW

6000

4000

2000

Demand

Supply improvement beginning April 2010 Completion of Malampaya natural gas supply facility maintenance Completion of maintenance outages Registration and active trading of new plant owner

Reserve Requirement

Gross Reserve

Market Outlook
Long-Term Pricing Impact
12 11 10

Generation Price, PhP / KWh

9 8 7 6 5 4 3 2 1 0 Jan-03 Jan-04 Jan-05 Simulated Blended Rates Jan-06 WESM ESP Jan-07 NPC Effective Rate Jan-08 Price Trend Jan-09 Jan-10

* - Preliminary Feb2010 Effective Settlement Price (ESP) Rate with 19% Spot exposure

Industry Outlook
Privatization of Assets and Contracts
Independent Power Producer Administrator
NPC Generation Assets sold Power Plant
3,952 MW

4500 4000 3500 3000

Capacity, MW

Contracted Winning Winning Bid Cap. (MW) Bidder Price (US$)

Amlan Power $145 Million Holdings Corporation Strategic Power $450 Million Devt. Corp. San Miguel Energy $1.07 Billion Corporation Therma Luzon Inc.

Year 2009 2008 2007 2006 2004 Total

MW 1,949.30 747.5 1,135 112 8.5 3,952.30

Million US$ 632.34 446.9 1,785 129 5.21 2,998.45 Bakun-Benguet Hydro plants San Roque Multipurpose Hydro Sual Coal-Fired Power Plant Pagbilao CoalFired Power Plant 2009 Total 100.75

345

2500 2000 1500 1000 500 0

2004 2005 2006 2007 2008 2009

1,000

700 2145.75

$691 Million $2.356 Billion

Industry Outlook
System Planning and Operation
On-going Projects: San Jose Substation upgrading Transmission line reinforcement/upgrading projects Proposed Projects (2010-2015) US$ 1,955.22 M Generation Associated Load Growth-driven Projects Reliability and Power Quality Projects Indicative Projects (Beyond 2015) Load Growth-driven Projects Power Quality and Reliability Projects Island Interconnection

Industry Outlook
System Planning and Operation- Impact of El Nio
Current Reserve Levels Yellow Alert
Insufficiency due to plant maintenance, forced outages and reduced Hydro capability Ample reserves due to the energization of Unit 1 (82 MW) of the 246 MW CEDC Coal plant in Cebu. Deficit generation due to unavailability of Hydro plants which accounts for 52% of the generation capacity

Red Alert

Industry Outlook
Renewable Energy Act of 2008
Paves way for development of alternative energy sources Provide fiscal and non-fiscal incentives for RE investors
7 year Income Tax Holiday 10% Corporate tax (upon termination of tax holiday) Duty free importation of RE machinery Priority for the purchase, grid connection and transmission

On-grid Renewable Energy Development

Establishment of Renewable Portfolio Standard (RPS) Feed-in Tariff (FIT) Renewable Energy Market Green Energy Option Net-Metering

PhP90 billion worth of Renewable Energy contracts signed with at least 18 groups of foreign and local investors in 2009

Market Challenges (2010-2011)

Expansion of WESM in Visayas
Operational readiness by 3RD Quarter of 2010

On-going compliance to Market Audit Results and better practice recommendations Migration of Market Management System (MMS) Enhancement of MMS to address Audit issues Operation of Reserve Market
On-going Regulatory hearings on phased-in implementation

Transition to Independent Market Operator

On-going Study expected to be completed by September 2010

Integration of Interruptible Load program

End of Presentation
Thank You!