Manila Bulletin
by Myrna Velasco
November 12, 2014
Instead of a shorter 72-hour rolling average reference, Energy Secretary Carlos Jericho L. Petilla is proposing a five-day (120 hours) trading interval as a leeway before the P6.245 per kilowatt hour (kwh) secondary cap of the Wholesale Electricity Spot Market (WESM) could be hit and the price threshold be adjusted to a higher level from P8.186 per kwh.
“My take is, the cap’s threshold shall be modified… it should be more than 72 hours…so five (5) days, in other countries they have 5 days,” Petilla said.
He similarly noted that the “the price threshold can be adjusted a little higher or even the same as long as you allow the recovery of capex (capital expenditures) for merchant plants.”
Petilla intimated that the consensus will be to sustain the WESM secondary cap to effect some discipline in pricing at the electricity spot market.
He added that their priority at this point is re-setting the secondary cap, instead of enforcing a new primary price offer cap for WESM-traded capacities.
“If you can fix the secondary cap, then the primary cap will already be immaterial. Even if I would set primary cap at P100 per kWh, that will be hit if the secondary cap won’t be fixed first,” he opined.
Petilla stressed though that his notion of fixing the market caps had been different from how the Energy Regulatory Commission (ERC) would want in their prospective ruling on the matter.
“This is my idea which is different from the ERC. For me, the rolling average shall be more than 72 hours and the threshold should be higher. Now, the secondary cap at P6.245 per kWh should already be okay. However, allow merchant plants to recover capex,” he stressed.
Currently, he noted that the ERC rules just allow recovery of fuel costs, but such will not be enough to entice investments because the capital cost recoveries of project developers are not being factored in – especially if they are just taking chances at the WESM for trading of their capacities.
“Now the recovery is only for fuel, there’s no capex. So the merchant plant must be allowed to adjust and recover the capex once we set the secondary cap,” he said.
He explained further that “under bilateral contracts, the capex is already covered, but if you are a merchant plant, your cost does not cover capex…and the only way you would be able to recover that will be at times that you will operate, and typically it will only be on period of tight supply.”
The discussion with the ERC, he divulged, is on the mode and criteria of capital cost recovery – primarily if all types of technologies shall be covered. source
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