Distribution utilities (DUs) as well as retail buyers of electricity can soon opt for demand-side bidding at a price that they prefer once that is introduced as a new trading mechanism in the Wholesale Electricity Spot Market.
According to Julius Bunyi, manager for Corporate Strategy and Program Management of the Independent Electricity Market Operator of the Philippines (IEMOP), demand-side bidding will be the next feature that will be innovated on at the WESM in the next two years.
With demand-side bidding, the buyers of electricity from the WESM can already dictate on the price and volume that they intend to procure, hence, that is seen taming pricing volatilities in the spot market.
In simple terms, the DUs or the customers under the Retail Competition and Open Access (RCOA) policy can become active participant in the WESM auction by setting at what price they are willing to purchase and what is the scale of capacity they would have to source.
Currently, trading in the WESM is only done on the supply side; meaning, it is just the power generation companies (GenCos) that have been making capacity offers at corresponding prices in the spot market.
This early, however, the DUs are batting for harmonization of policies relative to the implementation of demand-side auction in the spot market, so this will not end up contradicting the mandate of DUs on providing sufficient power supply to their customers.
Lawrence S. Fernandez, vice president of Manila Electric Company (Meralco), has indicated that one possible policy complication lies on the fact that if the DUs will set the price on capacity they will be procuring, there are GenCos that might not be willing to sell at a particular cost.
Hence, the resulting dilemma for the DUs could be lack of capacity that they can purchase to satiate their supply portfolio.
“The buyers can say up to what price they’re willing to buy from the spot market. But if the price is higher than that, then they will not buy from the spot market, they get power from the grid,” Fernandez explained.
He thus qualified further that in events when GenCos would not sell at the preferred price of the DU, then the latter may renege on its responsibility to provide sufficient supply to customers.
That is one of the dilemma then that Meralco has been wishing to be addressed in the rules relating to the demand-side bidding that will be set in motion as added layer of trading in the spot market.
Fernandez noted such concern must be addressed in the trading mechanism to be crafted by IEMOP and in the rules and policies to be subsequently approved by the Department of Energy and the Energy Regulatory Commission.