April 21, 2014

Regulators eye new WESM price cap

BusinessWorld today reported that the Energy Regulatory Commission (ERC) is studying the implementation of a secondary price cap on power traded at the spot market. The secondary price limit is set at P6.245/kWh when an average threshold of P7.808/kWh is reached over a 72-hour period. The Wholesale Electricity Spot Market (WESM) currently has a P32/kWh offer limit.

The secondary price cap will be triggered if the three-day average WESM prices breach the threshold and it will continue to apply until the effects of sustained high market prices ease. The clearing price already takes into account the marginal cost of operating the most expensive plant.

Our take: The regulated price is expected to prevent any hefty price spikes in anticipation of heightened demand this summer. Ensuring tempered movements in power prices may benefit consumers and should also bode well for volume sales of Meralco. However, too much regulation may not only limit the profitability of power generation companies but will also discourage prospective investments into the sector. – WealthSec