PH Market

Electricity Environment
in the Philippines

One of the fastest growing economies in the world

Average of 6% GDP growth for the past 5 years (Source: PSA)

12th largest power market in the world

Existence of a functioning spot market to balance physical supply and demand

To market data

The Problem

It is hard to efficiently manage, hedge, or transfer forward price risk in the Philippines’ electricity market.

A Cash-Settled
Electricity Forward
Marketplace

An open and transparent marketplace where participants with bi-lateral contracts in place can buy and sell electricity forward contracts for a specified future date. These are cash-settled instruments as the price of a purchased contract is compared to the load weighted average price in the spot market (reference price).

If the contract is more than the reference price, then the buyer pays the seller the difference between these prices.
If the contract is less than the reference price, then the seller pays the buyer the difference between these prices.

Who benefits?

The Philippine Economy

Electricity Suppliers

Electricity Consumers

The Philippine
Economy

A cash-settled electricity forward marketplace can help energize the economic growth of the Philippines by supporting both investment in additional electricity generation capacity and facilitating demand growth in the commercial and industrial sectors. Forward markets have historically helped reduce price volatility. As risk premium comes out of the market, prices generally trend down which will help all electricity consumers in the Philippines.

Investment in additional supply

New and existing electricity suppliers can analyze the forward price for electricity to calculate if it would be profitable to build a new plant. If it is, they can sell cash-settled forward contracts that mimic the generation from the new plant to lock in their exposure to price. The supplier can use these contracts to secure financing to build the new facility.

Growth in the commercial and industrial sectors

Forward markets have historically helped reduce price volatility and prices in general due to the reduction of uncertainty. This reduces the operating costs of commercial and industrial businesses giving them more capital to invest in growth.

Consumers can purchase cash-settled electricity forwards giving them the opportunity to create certainty in their price for electricity for months or years in advance. This allows these companies to more accurately forecast their electricity expenses which can free up capital for growth initiatives.

Electricity Suppliers

Participating in a cash-settled forward marketplace allows Energy Suppliers to easily access capital to invest in more power generation, gain better control over limits of existing generation and rebalance volumes based on changes in forecasted production.

Large Generators

Renewable Energy

Invest in more power generation

By participating in a cash-settled electricity forward marketplace, your organization can sell contracts for electricity months and years in advance that are based on the market’s expectation of the future price of electricity (the forward price curve).

Your organization can sell contracts that mimic the additional capacity of a proposed new plant without having to go through the costly process of marketing preconstruction power. Preselling demonstrates that there is enough demand at a specific price. Hedging reduces uncertainty in your company’s revenue projections for the new plant which will give financial institutions more confidence in supplying capital to build the new plant.

Better hedge existing generation

Your company can better optimize the generation plant’s profitability by comparing the plant’s marginal cost with the forward price curve and hedge accordingly. The company can lock in its profits by selling forward if the market is higher than the plant’s marginal cost.

Rebalance volumes based on forecast

Your company can reduce the impact of scheduled maintenance. By using the forward price curve, your firm can make more informed decisions around the months that are more profitable to run versus conducting scheduled maintenance.

Electricity Consumers

As an Energy Consumer, a cash-settled electricity forward marketplace can reduce electricity price uncertainty so your firm can more accurately forecast costs. The DOE is forecasting tight supply in the future.

Large Commercial and Industrial Consumers

Better forecast your firm’s electricity costs: The cash-settled electricity forward marketplace is a tool to hedge the price fluctuations of the electricity spot market and better manage your company’s operational costs.

In the spot market the price can fluctuate in unpredictable ways. By participating in the marketplace, your organization can buy contracts for electricity for months and years in advance, locking in the company’s electricity expenses for the future.

Retail Energy Suppliers

As a Retail Energy Supplier, your firm may take on additional risk by selling to smaller consumers at a fixed price. By participating in a cash-settled electricity forward marketplace, you can hedge your price risk by locking in prices for months and years in advance.

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Electricity Environmentin the Philippines