Spot market operator: Expect electricity rates to go up further in 2019, 2020

Electricity consumers are expected to see greater price hikes caused by tax reforms—estimated at 11 centavos per kilowatt-hour in 2019 on top of the 9 centavos per kwh already in place this year.

According to the Independent Electricity Market Operator of the Philippines (IEMOP), operator of the wholesale electricity spot market (WESM), the impact of the Tax Reform for Acceleration and Inclusion (TRAIN) Act was also estimated to rise even further to 13 centavos per kwh in 2020.

The law hiked excise taxes on fuel and coal and adjusted the value-added tax on the transmission and universal charges.

IEMOP president Francis Saturnino Juan said the projections provided were based mainly on the assumptions of Manila Electric Co. related to its sourcing mix or the spot market purchases vis-a-vis contracted supply.

“There is not a strong correlation between WESM prices and inflation,” Juan said. “In 2017 and 2018, we are enjoying fairly stable WESM prices, notwithstanding that inflation continues to rise to above 6 percent,” he said.

He said a better determinant of the movement of WESM prices was the volume of transactions.

He said that currently, with stable trading and prices, distribution utilities were buying 17.5 percent of their total supply needs at the spot market. Previously, distributors bought only 7.5 percent of their supply needs as the market was relatively volatile.

“A better correlation is shown through interaction of supply and demand, if there’s a comfortable cushion between the offered [power generating] capacity and demand, the price will be lower,” Juan said. “But every time there is an increase in demand and the buffer reduces, there is a corresponding increase in spot prices.”

The IEMOP chief said that in the Luzon grid, spot prices may increase if the buffer supply went lower than 1,500 megawatts and if there was no additional generating capacity introduced by 2022.

He said this projection took into account supply and demand only, and does not yet consider a rise in fuel costs.

“In the Visayas, capacity should be increased by 2019 or 2020 or the supply margin will be gone,” Juan said.

“While building power plants can take years, we can take advantage of the excess capacity in Mindanao, but only if the grid interconnection between the Visayas and Mindanao happens as promised by end-2020,” he added.

According to Juan, a good measure to help mitigate the impact of inflation is to accelerate the implementation of retail competition or allowing consumers to choose their suppliers.