WESM firming up derivatives, RE certificates trading and FTR

Published December 29, 2016, 10:01 PM By Myrna M. Velasco

http://business.mb.com.ph/2016/12/29/wesm-firming-up-derivatives-re-certificates-trading-and-ftr/ 

The operator of the Wholesale Electricity Spot Market (WESM) is working on further enhancements for trading layers that may eventually cover multiple sellers and buyers in the market.

Among the system and trading improvements currently being studied by the Philippine Electricity Market Corporation (PEMC) are those on: Electricity derivatives market, renewable energy certificates (REC) market; financial transmission rights (FTR) and demand-response programs.

PEMC president Melinda L. Ocampo noted that once they finish the warranted studies on the following market enhancements, they will elevate it to their Board and then to the Department of Energy (DOE) for final go-signal.

The derivatives market, in particular, will reinforce the interplay of financial and energy commodity trading activities in the spot market.

Patently, derivatives market deals with financial instruments like futures or forwards contracts as well as options and swaps that can be transacted either as exchange-traded derivatives or over-the-counter derivatives.

For the RE certificates trading, Ocampo noted that the main intent of this would be to serve as support to the Renewable Portfolio Standards (RPS) being set for the renewable energy sector.

Via the spot market, power utilities or companies can trade for RE certificates  (RECs) so they can comply with their required RE portfolio. This is already a growing practice in many energy markets – and these RECs are also dubbed as “green tags” or RE credits.

The certificates are often categorized as “commodity,” hence, they can be sold or traded in the market accordingly.

The demand-response program, on the other hand, will be preparatory to the bigger goal of eventually integrating a demand-side bidding in the spot market. In that, distribution utilities like the Manila Electric Company (Meralco) can already bid for volume and price for capacity that they intend to purchase from the WESM.

Additionally, the FTRs will enable market participants to offset potential financial losses resulting from the wheeling of energy capacity. FTR holders will be entitled to corresponding charges relating to transmission line congestion when power is delivered to the grid.