Electricity is already elevated as a basic need. It powers our daily life and we depend on it not only for survival but for growth as a nation. In the Philippines, the supply of electricity is produced by the power generation sector. Since it is private sector driven, if there is demand for X megawatts of electricity, then the amount would ideally be met by competition in supply, provided it receives the proper signals. The keyword here is “signals.”
How do we spot these “signals” that our investors can use for their investment decisions? Our energy market, the Wholesale Electricity Spot Market or WESM, is where buyers and sellers trade electricity as a commodity. All the market exchanges in the WESM result in “market signals” in the form of prices. When the prices are higher, it signals that demand exceeds available supply, necessitating more electricity vis-a-vis the need for more investments in new power plants.
The same logic applies to the reserves market. Launched last January, it is one of the best mechanisms to ever happen this year for the generation sector. It has contributed to grid stability and, eventually, will spell long-term savings in energy prices. But, like the WESM, higher prices in the reserves market are a signal telling investors that demand for ancillary services exceeds available supply, hence the need for competitive new capacities or even battery storage technologies.
Aside from these market signals, there are signs that we generators look for as well and these are signals coming from the government, whose mandate is to set goalposts and provide regulations. The government’s policy decisions serve as indicators that affect the options available or attractive to the private sector.
An example would be government-initiated incentives like the Green Energy Auction Program and the Renewable Portfolio Standards, both of which attract investors to construct more renewable energy capacities in the country. Another instance — this time directed to foreign investors — was the Department of Justice saying that the 40% foreign equity limitation imposed by the Constitution should not apply to the exploration, development, and utilization of inexhaustible renewable energy resources. This is a breakthrough in welcoming investors to our shores making it possible to increase the number of generators in the country.
Aside from the market and regulation, power producers also look to the transmission sector for signals since power plants are reliant on the power grid to deliver electricity to their end-users. After all, how can power plants operate, earn, and upgrade if the highways of energy are absent, incomplete, delayed, or incapable of handling new technologies?
Be it from market, regulation, infrastructure, geopolitics (that is another story), or a mix of these factors, signals are very important to independent power producers. These serve as indicators if a project can be sustainable or profitable enough to operate for decades. Signals can also give the sense of whether or not the time is right to invest in or scale a new technology.
However, let us not forget that signals can also go the other way. For instance, red tape and even price caps that distort market prices send mixed or, at worse, unattractive signals to investors. In the Philippines, there is certainly more room for improvement in the ease of doing business and strengthening an investor-friendly climate. For the industry’s regulators, for example, a major challenge is how to properly signal to investors while deploying their policy tools to help consumers. That is a tall order that requires more nuanced conversations and open communication with the generators.
In this regard, I invite the public to watch the new episodes of Rappler’s roundtable series coming out soon. European Chamber of Commerce in the Philippines president Ruth Yu-Owen returns as moderator, engaging academics and industry leaders to help the public have a better understanding of what they hear in the news, what they see in their electric bills, and what it means to have an “energy crisis.” Hopefully, this will enable everyone to understand how the energy sector works and from this, form their own takeaways, conscious of all forces — political and economic — that are at play. – Rappler.com
Attorney Anne E. Montelibano is the president of the Philippine Independent Power Producers Association, Inc.
The views expressed by the writer are his/her own and do not necessarily reflect the views or positions of Rappler.
