Updated September 23, 2019, 11:14 AM
By Myrna M.
Velasco
To reinforce interplay of financial
transactions in the country’s electricity spot market, the integration of
derivatives market and financial transmission rights (FTR) is now being
advanced in the Wholesale Electricity Spot Market.
These are among the future plans
laid down by Philippine Electricity Market Corporation (PEMC) President Oscar
E. Ala, that will set the pathway for more mature and complex types of
financial transactions in the power spot market.
“To allow electric power industry
participants to manage the price movements in the WESM, PEMC will follow
through the development work on electricity derivatives market and financial
transmission rights,” he said.
PEMC, which is the governing entity
of the WESM, as well as spot market operator Independent Electricity Market
Operator of the Philippines (IEMOP) are currently assessing the legal and
technical facets of implementing a derivatives market and are also strategizing
on phased-in market development that will be appropriate to the Philippine
context.
Derivatives could take the form of
financial instruments – such as futures contract or options contract – which
may be anchored on the whole range of commodities that could be incorporated
into the power spot market.
Taking cue from the experiences of
other highly liberalized power markets, PEMC indicated that electricity market
derivatives could help in the management of risks due to price movements in the
spot market through structured hedging strategies.
The market operator added that if an
electricity derivatives market is viably managed, this would turn out
“beneficial to the sharing and controlling of undesired risks” that in turn
could result in better economic efficiencies for trading participants.
Adjunct to the derivatives market
would be the WESM’s bid to introduce financial transmission rights (FTR) as a
consolidated feature of the new market management system (NMMS) – or the
enhanced trading platform of the spot market that is targeted to finally be set
in commercial operations this year.
FTR is a type of financial
instrument that entitles the holder to receive compensation from congestion
costs that arise when power transmission grids are snarled up as a result of
the dispatch of power plants.
With FTRs, trading participants in
the WESM could countervail potential losses relative to price risks inherent in
the wheeling of energy capacity into the grid.
As envisioned, such financial
instrument “will address the volatility of prices associated with power supply
due to transmission congestion costs.”
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