Market Development

The Independent Electricity Market Operator of the Philippines, committed to its role in providing sustainable and innovative market solutions and services to its stakeholders, constantly strives to formulate new services that will enhance the operation of the WESM and provide value to the electricity market. IEMOP continuously delivers long-term market development plans that aim to address new challenges, seek new solutions, and set new goals, products, and services in the country’s power market sector. Given this, IEMOP’s pursuit of potential market innovations for a more sustainable, competitive, efficient, fair, transparent, and reliable electricity market for the Filipino people resulted in the following on-going and succeeding market advancements:

WESM ENHANCEMENTS

This refers to the addition of new features to enhance competition in the spot market.

• Enhanced design – This refers to the implementation of the enhancements to WESM design and operations under Section 2 of DOE DC2015-10-0015. The enhancements include removal of Pmin constrain in the MDOM, shorter trading and dispatch interval of five (5)-minute, ex-ante pricing only for every five (5)-minute trading and dispatch interval, and automated pricing corrections, among others. The commercial operations of the implementation of the enhanced design is set to December 26, 2020.
• Demand-side bidding – This refers to possible mechanisms to encourage the participation of demand resources in WESM trading. Demand-side bidding allows electricity consumers to offer a specific change to their normal pattern of consumption, at a given time, in return for a specified incentive. The implementation of demand-side bidding is planned after the establishment of the ancillary services market to improve the viability of investing in wholesale demand-side management. This enhancement is targeted on 2024.
• Financial transmission rights – This refers to the implementation of financial transmission rights in the WESM as provided under Clause 3.12 of the WESM Rules. Financial transmission rights are a financial instrument that allows market participants to hedge price risk of delivering energy to the grid. It is a method to avoid congestion charges associated with the WESM’s Locational Marginal Pricing or LMP.  They are proposed to be implemented after the transition to full retail competition due to the complexity of FTR trading and minimize regulatory requirements around 2026.

ANCILLARY SERVICES

Clause 3.3.3.2(a) of the WESM Rules provides for the competitive tendering process for the procurement of ancillary services to be administered by the Market Operator. This set of activities refer to the implementation of the ancillary services market.

• Reserve market – This refers to the start of implementation of the ancillary services market in the WESM. Enhanced WESM design is indicated as a precursor since the reserve market is part of the current ERC filing for the revisions to the price determination methodology.In December 2019, the Department of Energy (DOE) promulgated DC 2019-12-0018 entitled “Adopting a General Framework Governing the Provision and Utilization of Ancillary Services in the Grid”. Under Section 1 of the circular, DOE established that energy and reserves shall be co-optimized in the WESM through the commercial operation of the Reserve Market. Section 11 of the circular required the Market Operator to undertake activities for the preparation and implementation of the Reserve Market. There are on-going Ancillary Services Technical Working Group (AS-TWG) meetings for the implementation of the ancillary service market. The implementation of ancillary service market in the WESM is targeted to be launched on 2021.
• Demand response – This refers to the review and possible rules enhancements to allow the effective and efficient participation of demand-side resources in the reserve market. Demand response provides an opportunity for consumers to reduce or shift their electricity consumption to better match the electricity demand to supply with response to time-based rates and other forms of financial incentives. This is planned for development after retail aggregation to increase the number of potential participants in this program around 2023.

MINDANAO

Besides introducing and enhancing markets, IEMOP also aims to expand the geographical reach of its markets – the major of which is Mindanao.

• WESM MINDANAO – DOE DC2017-05-0009 provided for the launch of the WESM in Mindanao. IEMOP is in full participation with several efforts in preparation of the implementation of WESM in Mindanao. These efforts include the active registration drives to encourage trading participants to commence registrations in the WESM for Mindanao. Several WESM overviews, hands-on trainings and consultations to different entities in Mindanao were conducted. An on-going trial operations with participant and active interfacing of system and data exchange coordination with the Mindanao System Operator is being facilitated. The implementation of WESM in Mindanao is being targeted for commercial operations with the start of the implementation of the enhanced WESM design on December 26, 2020.
• Retail competition in Mindanao – One of the criteria for the implementation of retail competition is the operations of the WESM. With the start of WESM operations in Mindanao by 2019, preparations for the implementation of retail competition in the region should commence soon. The DOE has mentioned that implementation of retail competition in Mindanao will be assessed one (1) year after the start of WESM operations. It is planned that retail competition in Mindanao be implemented after the proposed changes in the rules to reduce barriers to entry are completed to avoid re-learning of Mindanao participants of the retail competition design, targeted on 2021.

RETAIL MARKET

In addition to being the Market Operator, IEMOP also performs the function of the Central Registration Body (CRB) of the retail electricity market. Developments to enhance the services of the retail market include the following activities:

• Reduce barriers –In view of the continuous reduction in contestability threshold, proposed amendments to the WESM and Retail Rules and Manuals were submitted in 2018 to the Rules Change Committee (RCC) to reduce barriers for retail market entry. The proposal aims to encourage participation in retail participation and enhance competition through process improvements. The proposal was also designed with an eye towards the implementation of household-level retail competition. The proposed amendments have undergone public consultations on October 2019, posted for comments and awaiting the DOE approval.
• Aggregation – This refers to the development necessary to allow the participation of entities that aggregate contestable customers that are below the threshold and facilitate their energy procurement from retail suppliers. Aggregation in the retail market is targeted on 2022.
• Full retail competition – This refers to the review and enhancement of CRB procedures for the efficient participation of households in retail competition, hopefully to be implemented on 2024.

ELECTRICITY DERIVATIVES MARKET (EDM) 

An EDM is a market for trading standardized financial contracts for electricity that will augments the risk management and hedging capaility of all WESM stakeholders from uncertainty and rikss due to the volatility of electricity prices. In addition, an EDM will establish the determination of forward price signals for investors, which will help in realizing more competitive wholesale and retail markets. A fully developed electricity derivatives market will bring potential benefits to the Philippine electricity market and economy.

During the 1st quarter of 2020, IEMOP and the Philippine Electricity Market Corporation (PEMC) established a joint technical working group for the development of the EDM in the Philippines.

The EDM Technical Working Group (EDM-TWG) is proactively performing their tasks to make this commitment a reality. The team has formulated the EDM work plan that contains activities and timelines that will guide them to achieve their goal of establishing an electricity derivatives market in the Philippines.

Implementation of EDM includes the following activities:

• Capacity building – Since there is no active derivatives market in the Philippines, it is necessary to capacitate both IEMOP employees and potential trading participants on the concept. This refers to the development and implementation of a capacity building program. An overview on the Fundamentals of Futures and Forwards Market was spearheaded by IEMOP and attended by IEMOP employees and DOE key personnel on January 21, 2019. EDM-TWG Capacity building activities for the stakeholders may be conducted on 2021
• Centralized platform – This refers to IEMOP’s possible offering of a centralized platform for over-the-counter (OTC) traded derivatives targeted on 2021.
• System Design and Development of Philippine EDM – This refers to the development of the system design of the Philippine EDM by a consultant. Along with this is the registration of interested participants and other Go-Live preparations which may commence on 2022.

NEW MARKETS

Part of IEMOP’s progressive exploration for market development initiatives is keeping a hawk-eye perspective on different factors transforming the electric power system. Continuous evaluation of the feasibility of other markets commonly implemented in other countries is included.

• Study on Distributed Energy Resources. The cognizance of the growing trend of distributed energy resources (DERs) in the Philippines and their corresponding benefits to the electricity market and the grid has inspired IEMOP to spearhead a study on the integration of the distributed energy resources in the WESM.The study provides a review of the current trend in DER, existing regulations and policies, and the DER participation models in other electricity markets. After the review, the study presents a possible participation model in the Philippine WESM for DERs and additional policy, regulatory, and technical that may be required for the successful integration of DERs in the electricity market.A brief overview of the content of IEMOP’s study on the integration of DERs in the WESM was published in the 2019 IEMOP Q1 Report.
• Study on Day-Ahead Market.  To provide day-ahead certainty in operations, other countries implement a financial or physical day-ahead market where generation schedules are fixed the day before implementation. In the Philippines, generation schedules are fixed in real-time through the spot market. This study will assess if a day-ahead market would be beneficial in the Philippine setting. The study is to be conducted on 2020.
• Study on Capacity Market. As a complement to pricing signals in the energy market, capacity markets have been utilized to ensure the entry of additional capacities to meet the demand of a market. In the Philippines, capacity investments are private-sector initiated based on their individual views of the power market. This study will evaluate if a capacity market would be beneficial in the Philippines and the results may be available on 2023.

RENEWABLE ENERGY

The DOE DC2019-12-0016, entitled “Promulgating the Renewable Energy Market (REM) Rules” stated that no later than one (1) year from the start of commercial operations of the REM, the functions, assets and liabilities of PEMC in performing the RER functions shall be transferred to the entity performing market operations. IEMOP, as the market operator, is gearing towards its role to serve as the Renewable Energy Registrar (RER) of the Renewable Energy Market (REM).

• RE Registrar – This refers to the establishment of the RER that will issue and track Renewable Energy Certificates (REC) as well as report to the DOE the number of RECs of each mandated entity. IEMOP’s RE Registrar functions may commence on 2020.
• Centralized platform – This refers to the possible operation of a platform for the centralized trading of RECs among mandated entities. It is targeted on 2022.

RULES CHANGES

IEMOP remains firm in its pursuit for excellence in market operations services by being remarkably dynamic by catering to the needs of the electric industry, innovating through the myriad of changes and technological advancements in the electric power system, and constantly developing to better serve and benefit the stakeholders. IEMOP ceaselessly spearheads and proposes reforms to ensure fulfilment of the Wholesale Electricity Spot Market (WESM) objectives. In line with this, IEMOP has submitted several rules change proposals to the WESM Rules Change Committee (RCC). The list below are IEMOP’s proposed changes and their status are as follows: