There had been downtrend in overall electricity tariffs for traded capacities in the Wholesale Electricity Spot Market (WESM), and that had been attributed partly by the Energy Regulatory Commission (ERC) to the entry of new capacities from the renewable energy (RE) sector.

“It appears that the entry of new capacity in 2023 contributed to this positive development,” the regulatory body stipulated.

According to the figures released by the ERC, the average effective spot settlement price (ESSP) for capacities procured from the WESM across grids stood at P6.505 per kilowatt hour (kWh) as of end-2023; markedly showing a reduction of more than P1.00 per kWh from 2022 average of P7.885 per kWh.

The ESSP is the effective price that buyers from the spot market – primarily the large end-users as well as distribution utilities (DUs) – would be paying every time they will purchase part of their supply requirements from the WESM.

Nevertheless, the regulatory body has not specified what percentage of the cost downtrend accounted for the new RE capacities in particular; vis-à-vis the substantial reduction in fuel prices used by other power plants – primarily coal and gas fuel commodities.

It is worth noting that as an upshot of the Russia-Ukraine war in 2022, global fuel prices – including coal and gas – surged to historic highs, but these were already tracking precipitous slide in 2023, or within the same timeframe that the spot market prices also declined.

Apart from the new RE capacities, the 1,200MW Ilijan gas-fired power plants also recommenced operations last year; and that eased supply concerns that could have triggered run-up in WESM prices.

The ERC indicated that 749 megawatts of capacity addition into the power system had been greenfield plants brought on commercial stream by sponsor RE generation-companies, hence, that beefed up overall supply in the country’s power system.

“The entry of more RE sources in the energy landscape posed a significant impact on the increase in average supply for 2023, reaching 15,645 MW or a 17% increase from the 13,375 MW average supply in 2022,” the Commission qualified.

In the economic merit order of dispatch in the country’s electricity system, RE capacities are given ‘priority dispatch’ and ‘must dispatch’ stature; and the general outcome based on the analysis of the ERC had been that, these green technologies were able to push out the plants that are utilizing more expensive fuels.

Additionally, many of the completed RE projects are being subsidized with feed-in-tariff (FIT) incentives, thus, they have the luxury of putting up zero or very low bids in the spot market and that could have an overall softening effect also on spot prices.

The ERC further stated that “while there was 9% increase in demand in 2023, the additional supply appears to have met such demand and resulted in a substantial 18% decrease in average prices compared to 2022.”

The industry regulator similarly conveyed that the recent completion of the P53 billion Mindanao-Visayas Interconnection Project (MVIP) project of the National Grid Corporation of the Philippines (NGCP) - which finally connected the three major grids in the country - emerged as an added factor to the decline in spot market prices.

It stressed that “although the MVIP was still in the testing and commissioning phase last year with limited capacity flowing from Mindanao, the operation of WESM in Mindanao allowed the trading of supply to be integrated in the Luzon-Visayas WESM. As a result, the supply margin increased while monthly average prices decreased compared to the previous year when MVIP or WESM Mindanao was not yet operational.”