Basic of Wesm

The Basic Concepts of the Philippine

Wholesale Electricity Market Spot (WESM)

January 21-22, 2004

Wholesale Electricity Market Spot (WESM) is an innovation in market trading of electricity between generators and suppliers, as well as wholesale consumers. The whole idea of WESM is that the market is price-driven, therefore, competition in electricity production and supply is assured.

Basically, WESM will work as an intermediary to ensure that the demand bids of the wholesale buyers of electricity will be met by the generators who will be dispatched at a certain period of time. The generator who could offer the lowest price will be the first one to be dispatched, yet, accordingly, the nodal price will be based on the marginal clearing price.

This is a game of strategy - bidding, location, production costs, and unforeseen events. A generator could actually offer a zero or negative price, and have a 100% chance of being dispatched first - but should be open to the risk that it could actually generate electricity without being paid or worst, will be the one to pay the buyers instead. A generator could also offer a higher price to cover all its costs yet has a minimal chance of being dispatched - a lost opportunity, lost probable revenue. In the hands-on-training that served as our practice-ground for bidding, we were able to have the highest profit although our full energy capacity was not always fully dispatched. This is because we offer higher price than our competitors plus the fact that we have a local load in our location. We took advantage of this local load, as we strategically offer energy capacity less than or equal to the local load at a low price. So, even if there are unavoidable circumstances such as another generator's power outage or transmission line outage, we still made profit through the load. Thus, strategic location could also serve as an edge.

This is also a game of efficiency. Obviously, big-time generators who can operate efficiently could offer lower price since they could operate at a lower cost. They could also easily ramp-up their engines without harming their regular operations. They could also put-up power plants in the north and in the south which could make it easy for them to indirectly control and manipulate the energy transmission. Hence, they are the ones who could have higher chances of being dispatch first, or