Recent postings of Wholesale Electricity Spot Market (WESM) electricity spot prices showed remarkable increases due to the damage of one 600MVA 500kV/230kV transformer at San Jose substation in Bulacan. The damage 600MVA transformer is one of four 600MVA 500kV/230kV power transformers in the power substation. The San Jose 500kV substation delivers power generation from north side of the Luzon grid to the load center in Metro Manila, see figure below with San Jose substation inset. The “cheap” generation output in north of Luzon flows thru this transmission highway together with the 230kV in Central Luzon (Mexico and Concepcion substations). Technically, the 500kV lines along San Jose has greater capacity than the 230kV lines in Central Luzon. As a 600MVA transformer is being replaced, power transmission from upnorth of Luzon will be congested thus “cheap” power generation can not be availed in the load center.

As a result, the WESM prices soared. Figure below shows comparison between a Friday summer day with a Friday rainy day. Usually demand is higher during summer season than rainy season, which is given in the illustration. But the load weighted average price (LWAP) between the two days in comparison shows the impact of the damage transformer in the San Jose 500kV substation.

The interaction of the electric power system and the electricity market prices brings us into the following initial conclusions:

  • Transmission system capacity is needed for competition of generation in an electricity market. Even if there is a good amount of margin between generation and demand without ample transmission capacity, electricity spot prices have no direction but to go up.
  • A power system, like the Luzon grid, with a load center (Metro Manila) away from “cheap” generation will surely experience electricity market price spikes when transmission capacity is limited.
  • The need for bilateral contracts for generation procurement plays an important part in a restructured power industry. To be hedged with high electricity market prices, energy buyers must lock into these contracts, considering stated conclusions above, to cushion their energy companies from impacting their financial standing.
  • Demand side management, which has not taken its place in the Philippines, must be considered in an electricity market with a transmission system as described above. Peak shaving and other demand side resources will surely avert electricity price spikes by postponing usage of a congested transmission system.

Let’s leave this discussion for now with those initial conclusions. Bottomline is this, less transmission capacity equals high electricity market prices.