ERC suspends electricity trading as prices set to surge

The Energy Regulatory Commission (ERC) has temporarily halted the trading in the country’s electricity spot market to curb the impact of rising prices, which is seen hitting PHP 9 per kilowatt-hour (kWh) amid the ongoing energy crisis.

In a statement on Thursday, the ERC ordered the suspension of the operations of the Wholesale Electricity Spot Market (WESM) across Luzon, Visayas, and Mindanao grids starting on Thursday (March 26).

WESM is where energy companies can buy power if their long-term contracted power deals prove inadequate for their needs.

The suspension was triggered by the executive order recently signed by President Ferdinand R. Marcos, Jr., declaring a state of national energy emergency due to global fuel supply disruptions and rising oil prices.

The Department of Energy (DoE) had also recommended the suspension of the WESM operations.

Local pump prices have more than doubled since the US-Israeli war on Iran began last month, causing an unprecedented supply disruption in the Middle East that sent global fuel prices soaring.

While oil only takes up a small portion of the country’s power generation mix, other fuel sources also mirror this volatility, prompting the suspension of the WESM.

The WESM suspension will remain in effect until the ERC, in consultation with the DoE, determines that conditions are “suitable for the safe resumption of normal market operations,” the regulator said.

Amid suspension, the ERC is introducing a new pricing mechanism wherein the regulator sets prices depending on the type of power plant.

Under the modified administered pricing mechanism, prices will be based on prevailing fuel costs, replacing the use of historical market prices that do not reflect current conditions marked by geopolitical tensions and fuel supply constraints.

The ERC said that the modified approach seeks to “strike a balance between protecting consumers from excessive price spikes and ensuring that generators remain financially viable to sustain a reliable electricity supply.”

“The temporary suspension of the WESM and the implementation of a modified administered pricing mechanism are necessary measures to cushion the impact of volatile fuel prices and safeguard the integrity of our power system,” ERC Chairperson and Chief Executive Officer Francis Saturnino C. Juan said.

The Philippine Independent Power Producers Association (PIPPA) said that the proposed pricing mechanism is intended to work during “extraordinary circumstances” such as a national energy emergency.

“We support the ERC’s proposed modified administered pricing mechanism since per our initial evaluation, it is an equitable solution to protect the public and the energy stakeholders in this extraordinary situation,” PIPPA Executive Director Anne E. Montelibano told BusinessWorld.

Ms. Montelibano said that power generators will comply with the directive to ensure energy reliability and security.

The ERC chief confirmed to BusinessWorld that the WESM suspension is also intended to optimize available resources and temper any rate increase.

Initial simulations conducted by the Independent Electricity Market Operator of the Philippines (IEMOP) show that the average cost of procuring supply from the WESM could reach as high as PHP 9 per kWh.

This represents a significant jump from the pre-Middle East conflict average price of around PHP 5 per kWh or less.

IEMOP also observed that the costs of power supply from bilateral contracts are likely to increase as prices of fuel escalate.

In line with this, the DoE has called for the increased use of renewable energy, coal, and other indigenous energy sources.

In a separate statement, the department said that the full dispatch of indigenous sources and coal-fired power plants can reduce the increase in WESM prices by up to PHP 2 per kWh.

“As a net importer of oil, coal, and liquefied natural gas, we are acting with heightened discipline to preserve power system reliability in the face of escalating global fuel market volatility,” Energy Secretary Sharon S. Garin said.

“This is a decisive intervention to protect the grid, manage fuel use responsibly, and ensure that essential electricity services remain uninterrupted,” she said.

To further cushion the upward pressure in electricity rates, the DoE also directed power generators to explore feasible fuel alternatives that can help reduce costs and maintain supply. This includes higher biodiesel blends for oil-based plants and coal blending.

For off-grid areas, which are heavily affected by rising fuel prices due to their reliance on diesel generation, the DoE told utilities to optimize available generation, secure adequate fuel supply, and implement demand-side management measures.

The DoE said it will closely monitor compliance, coordinate with key agencies, and take further action as needed to ensure system reliability, orderly market conditions, and consumer protection. — Sheldeen Joy Talavera, Reporter