The Energy Regulatory Commission (ERC) imposed an interim price cap of P25 per kilowatt-hour (kWh) for the reserve market to be recalculated after a year.
It said that after careful deliberation, the commission resolved to adopt actions relating to the proposed reserve offer price floor and cap for the reserve market. The value of reserve offer price floor and cap was set at 0 per megawatt-hour (MWh) and P25,000 per MWh, respectively.
The reserve market, now integrated into the WESM, aims to optimize energy and reserve procurement. This integration is expected to promote competition and affordability while ensuring grid security and reliability.
The ERC said it would review and recalculate the interim offer price floor and cap a year after implementation, contingent on the collection of sufficient data from the annual submissions of generation companies.
It would then start its review of the existing offer price floor and cap every five years from the implementation of the revision in the interim rules adopted, or when otherwise deemed necessary by the regulator.
“Upon collection of sufficient reportorial requirements and data from generation companies, the commission will initiate a review,” it said.
The ERC proposed in June 2024 an interim price cap of P19 per kWh for the reserve market, subject to consultations and additional data from power generators.
During the initial commercial operation of the reserve market, the Department of Energy temporarily implemented a price cap of P32,000 per MWh, equivalent to P32 per kWh, and a price floor of 0 pesos per MWh.
The ERC, however, rejected the DOE’s proposed P32 per kWh cap, deeming it excessive.
The ERC said it aimed to “set a reasonable offer ceiling that will limit excessive pricing in the market and prevent windfall profits for ancillary service [AS] providers, with the end view of protecting consumer interest.”
It drafted a resolution setting an interim offer price cap as mitigating measure for the trading of reserves in the Wholesale Electricity Spot Market (WESM).
Simulations conducted on the proposed P19,000 per kWh cap showed that it would result in an annual net revenue requirement (ANRR) greater than the computed annual market revenue.
“This is enough to compensate AS providers for all reserve types, which already considers the recovery of the ANRR of peaking generators as well as its short-run marginal cost [SRMC] of operating on an hourly basis, permitting cost recouperation and effective resource allocation over both long-term and short-term market participation. Thus, the recommended proposed level of offer price cap for the reserve market is 19,000 pesos per MWh,” the ERC said.
The ERC said the move is part of its mandate to protect consumer welfare while ensuring that investments in the WESM and the reserve market are not discouraged.
The DOE said the successful implementation of the reserve market aligns with the President’s eight-point agenda, particularly in providing investment opportunities for generation companies, supporting infrastructure development and creating potential for local employment..
