US firm Green Tiger Markets (GTM) will be enlisting Philippine generation companies (GenCos) as trading participants in its “forward market platform” in Singapore as a tool to hedge power prices that will in turn enable them to pass on more predictable and competitive electricity rates to consumers even at a future time.

In an exclusive interview with Green Tiger Markets CEO John H. Knorring, he disclosed that there are three types of forward contracts being offered to the Philippine power producers: “round the clock” contract or a “24/7 product” which entails that the committed capacity shall be available for the entire duration of the day; the “peak contract” which shall be made available between 7am to 11pm; and the “solar contract” which is an innovative product that may be availed of by solar power generators, especially those that have been exploring access to project financing and their capacity has to be made available from 8am to 4pm.

Knorring said the offered contracts are also ideal for GenCos opting to hedge on their procurement of replacement power when they will have power plant downtime. That way, they will not be unduly exposed to extreme volatility of prices in the Wholesale Electricity Spot Market (WESM), which had been a recurring headache for power producers and consumers alike particularly on the tight demand-months of summer.

A forward contract is a customized transaction between a buyer and a seller agreeing on a price at present date for the delivery of traded commodity on a specified timeframe in the future.

“We are a trading platform and we operate out of Singapore. What we are doing is really making it easier for sellers and buyers to get certainty on their business – so if a generator would want to sell power for next year; and then there’s consumer that would want to buy power for next year, they can agree on that price today – then both firms know what their economics are for the next year,” Knorring explained.

Currently, the GTM chief executive conveyed that “we are in the process of registering Philippine clients for the platform. We have over 20 large Filipino firms, and several smaller firms that have expressed interest. These firms represent two-thirds of the generation and consumption in the country.”

He said “many of these firms participated in our successful pilot that we ran last year. We expect that the first wave of participants will be ready for live trading in about a month.”

Knorring indicated “Philippine power companies will benefit from the price discovery, transparency and liquidity on the GTM platform by being able to quickly and cheaply hedge their expected future generation.”

He emphasized that entering into a forward contract could be executed easily, “with just two clicks of the mouse due to the fact that we have standardized the terms of trade and the only point of negotiation is price and the period of time over which the hedge takes place.”

On the persisting tight power supply predicament of the country, he noted that power companies trading in the GTM platform can “quickly and cheaply enter into replacement power hedges should they have an unplanned outage.”

The company executive opined that “the main culprit for the strained grid is that there has been insufficient investment in additional generation while demand has increased,” adding that “it is hard for investors in power projects to make an investment unless the price risk of the generation has been mitigated.”

Via the GTM trading platform, he reckoned that “forward prices will become known to market participants and investment decisions will become simple cash flow calculations.”

Knorring expounded “the transparency of forward prices will help reduce the volatility of the spot market. This effect has been seen in a number of other countries upon introduction of a forward market.”