The Energy Regulatory Commission (ERC) has commenced the review of the secondary price cap (SPC), a mechanism that puts a ceiling on traded power whenever prices shoot up in the Wholesale Electricity Spot Market (WESM).
While the secondary price cap is being implemented to protect consumers from higher WESM prices, the imposition of the cap curtails new investments in the energy sector.
The agency said Monday it is already conducting a review of the price cap. However, ERC initial analysis showed that, with SPC in place, price signals are distorted and actual market results do not necessarily reflect the true cost of generation. This blurs planning exercises on energy security and dampens investors’ interest in the Philippine power generation sector.
“The ERC needs to do a balancing act, as is the role of the regulator in our system. We need to ensure that the regulatory framework incentivizes investors to pour in more capital by building additional power plants to bolster the country’s supply requirements.
At the same time, we cannot discount the fact that the price cap is a preventive measure to protect the consumers from the immediate impact of high market prices,” ERC Chairperson Monalisa Dimalanta said.
Earlier, Energy Secretary Raphael Lotilla identified the SPC as one of the “stumbling blocks” that prevent the entry of new investors in the Philippine power sector.
“The secondary price cap has been imposed way back in 2013, but this has been difficult to lift at this time because of the impact on prices. But we will have to deal with this if we want to attract more investments down the line,” Lotilla had said.
The Philippine Independent Power Producers Association (PIPPA) had said the cap is not reflective of the real situation of the energy sector.
“As early as 2014, PIPPA has been advocating the removal of the SPC to provide proper price signal for additional investments in the generation sector.”