The European Chamber of Commerce of the Philippines (ECCP) has been proposing a more drastic measure of totally scrapping the price caps for the country’s Wholesale Electricity Spot Market (WESM) as it labeled such to be of “manipulative nature" to a free market.

In a letter to Energy Secretary Carlos Jericho L. Petilla, the European business chamber pointed out that “while installing power price caps may seem like a good idea to ensure fair and reasonable power for the Philippine electricity consumer, it may actually raise power prices in the long run.”

The ECCP opined that “in the short term, price caps will dampen the effects of higher prices in the electricity market… however, such artificial market manipulation is a disincentive for the private sector to invest in future power generation development.”

Currently, the WESM has a price offer cap of P32 per kilowatt hour (kWh); and a secondary price cap of P6.245 per kWh as hinged on a 72-hour rolling price threshold of P8.186 per kWh.

The ECCP, in particular, has noted that the price cap “is a disincentive to invest in the higher priced avoided cost (marginal cost) types of generation such as peaking power plants that run on higher priced diesel fuel, and perhaps LNG (liquefied natural gas) in the future.”

For the primary cap of P32 per kWh, the Department of Energy (DOE) and WESM operator Philippine Electricity Market Corporation (PEMC) had already undertaken consultations as to the level that can be set as a more permanent offer cap.

It must be culled that since the establishment of the WESM in June, 2006, the original price cap was at P62 per kWh, and was only reduced to the P32 level following last year’s rate hike controversies because of the cost-impact to consumers of the November-December Malampaya gas production facility shutdown.

The subsequent step undertaken by the ERC was the imposition of the secondary cap, which it proffered as a “mitigating measure” to anticipate price shocks in the electricity spot market.

The ECCP propounded that “the most effective and sustainable policy to lower prices for the Filipino electricity consumer is to utilize basic economic supply-demand forces and create competition.”

The business chamber added that for a deregulated electricity industry to work effectively, it must “allow market forces to dictate the price of power.”

It further stressed that “more attractive electricity prices will incentivize the private power sector to invest in the development of greenfield and brownfield power plants.”

Source: Manila Bulletin, 23 August 2014