Philippines needs electricity futures market, says energy merchant

Cooling towers at Drax power station

The next step forward for the development of trading in electricity in the Philippines is the establishment of a futures market, according to energy merchant LDH Energy.

The Wholesale Electricity Spot Market (WESM), established in the Luzon (the administrative capital of the Philippines) grid in 2006, five years after the ground-breaking Electric Power Industry Reform Act (EPIRA), provides transparent, real-time data and trading options for market players.

However, in order to attract more liquidity, there needs to be futures contract trading, said Andrew Koscharsky, director, Asian power markets, at LDH Energy at the Energy Risk Asia conference in Singapore last week.

"The regulators have provided us with everything that's required in terms of the spot market but there's no futures market yet," he said. "Not every company wants to spend $1 billion building a power station, but they do want to get involved in power. As a trader, I'd really like to see a futures market where I can turn up without a physical asset. As such, the futures market is the natural next progression for the Philippines."

Koscharsky used developments in Australia as an example of why the futures market has been beneficial overall to the power market.

"We are seeing more and more commodity funds, merchant traders and banks enter the power market in Australia. There are wide-ranging participants," he said. "You don't need to have a physical position, you can just use exchange trading to get to know the market before you choose to enter physically, which is something we are trying to do."

However, other delegates speaking anonymously at the sidelines of the conference doubted that the Philippines regulatory bodies would be able to fashion a framework for the futures market for quite a while, pointing to the delays currently seen in the latest power market legislation as an example of the country's slow bureaucracy.

Indeed, the full implementation of the power market open access and retail competition scheme, which was designed to allow more participants into the market and mandated by the EPIRA in 2001, has been much delayed. After promises from the government that the scheme would be fully operational in 2010, then 2011 and most recently by the end of this year, the government recently announced yet another delay and said that the scheme may be fully in place early next year.

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