DoE wants more merchant plants to boost spot market

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THE Department of Energy (DoE) is encouraging investors to put up more merchant plants so that the power they produce can be traded on the Wholesale Electricity Spot Market (WESM), a top energy official said.

DoE Secretary Alfonso Cusi said in a chance interview on Friday that he would like to see more merchant power plants since their prices will not be set by a power supply agreement (PSA) but “based on the spot market. That’s why it’s very important for us.”

Merchant plants are independent power plants competing to sell power in wholesale power market. Since a merchant plant is not required to serve a specific set of retail consumers, consumers are not obliged to pay for the construction, operation, or maintenance of the plant, resulting in lower power rate rates from such plants.

Cusi said he is talking to the operator of the country’s WESM, the Philippine Electricity Market Corporation (PEMC), regarding this issue.

The Energy chief said that many Chinese investors are bullish on the country’s energy sector.

“There’s a lot of intent but what I’m asking for all these Chinese investors is to put up merchant power plants,” Cusi said.

“We said that for new power plants who want to enter the market, we are encouraging them to put up merchant power plants, no PSA, no bilateral contract at all. You have to do the spot market,” he said.

Currently, 90 percent of the country’s power supply is under PSAs which are long-term contracts and only 10 percent is being traded, and the DoE is looking to increase the share of supply from merchant plants to 20-30 percent.

“That’s what we want but we’re still in the analysis period. We don’t like to just shoot the numbers from the hip. We are benchmarking it. But we can’t have all merchant plants. But for now, I want [more]merchant power plants,” Cusi said.

“We want real investors, real investors willing to take the business, and they will cater to the spot market with the intent to, of course, later on being able to enter a contract,” he said.

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1 Comment

  1. not a realistic wish and no business sense… WESM spot electricity rate is currently below P3.00/KWh and going down. a new power plant built as merchant plant will have a long investment recovery period as the current spot market price is not enough to keep the plant afloat…. <P3.00/KWh is barely enough to pay for the fuel and O+M expenses.

    most of the operating power plants (base load) have already recovered their investments, so they can offer lower WESM rates to the detriment of new power plants still recovering investments.

    WESM spot market is still controlled by the big players who are dumping the rates so no new power developers can enter the very lucrative power market. the big players have big power generation capacity portfolio and have the luxury of manipulating their generation mix dynamic.

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