**2. ESI Liberalisation in the Philippines**

Liberalisation of the Philippines' ESI began in 2001. Prior to the liberalisation, the state-owned monopoly National Power Corporation (NPC) was the vertically integrated power utility engaged in the production, transmission and distribution of electricity and used to be the largest provider and generator of electricity in the Philippines. The efforts towards energy restructuring in the Philippines started to materialise with the change in government in 1986. The Energy Regulatory Board (ERB) constituted in 1987 assumed the responsibility to regulate the energy sector, overseeing the power rates and services of the private electric utilities in the country. The year 1988 saw the beginning of independent power producers (IPPs) in response to an executive order from the then President, driven by the need to address the looming electricity shortages in the island [14]. By 1994, more than 40 IPP contracts were accumulated, a number that is more than any other developing countries [15]. Table 1 shows the current generation market share in the Philippines. The Asian financial crisis in 1997 led to the Philippines having the second highest electricity prices in the world that was putting more pressure for reform. Thus, a more serious move towards deregulation of the industry began in 2001, when the Republic Act 9136, known as the Electric Power Industry Reform Act (EPIRA) was enacted after almost eight years on the table. It was regarded as the most comprehensive piece of legislation of its kind in Asia by the Asian Development Bank. Being comprehensive, it is also the most complicated with the involvement of many parties [16]. The EPIRA called for the following [17].



**Table 1.** Key generation players' share in the Philippines [18].

TransCo was created immediately in the same year and started operating and managing the power transmission system that links power plants to the electricity distribution utilities nationwide in 2003. The ERC, an independent, quasi-judicial regulatory body that promotes competition, encourages market development, ensures customer choice and penalises abuse of market power, replaced the ERB. The EPIRA also resulted in the creation of the Power Sector Assets and Liabilities Management (PSALM) Corporation in 2001, a wholly-owned and -controlled government entity to take over the ownership of all existing generation assets of the NPC, IPP contracts, real estate, and all other disposable assets including the transmission assets of the TransCo. By the same token, PSALM assumed all outstanding obligations of NPC arising from loans, issuance of bonds, securities, and other instruments of indebtedness. The principal purpose of PSALM is to manage the orderly sale and privatisation of these assets with the objective of optimally liquidating all of the NPC's financial obligations. The Small Power Utilities Group (SPUG), which provides electricity to the off-grid customers and has been in existence since 1996, was put under the NPC and will absorb the remaining unsold assets of the NPC. Under this new structure, the Philippines' ESI is constituted of the following key players [19].


• National Electrification Administration (NEA): Government agency mandated to develop and implement programs to prepare and strengthen electric cooperatives for the deregulated electricity market.

The EPIRA also mandated the WESM to be established within one year of the Act. As a result, rules and regulation with regards to the conduct of the WESM were announced in 2002. In November 2003, the Philippine Electricity Market Corporation (PEMC) was incorporated as a non-stock, non-profit corporation tasked to establish and govern an efficient, competitive, transparent, and reliable market for the wholesale purchase of electricity and ancillary services. In August the following year, PEMC was designated as the MO to undertake the preparations for and the initial operations of the WESM until an independent market operator (IMO) is established and ready to take it over. The system operator (SO), TransCo, is responsible for operating the power system in accordance with the WESM Rules, Grid Code or any instruction from the MO or the ERC to ensure security and reliability of the power system. On 28 February 2008, NGCP was granted the right to take over and operate the whole of TransCo's regulated transmission business while the ownership of all transmission assets and related real properties remained with TransCo. A congressional franchise to operate the transmission network was granted to NGCP on 8 December 2008.

Figure 1 shows the governance of the Philippines' WESM. From the figure, it can be seen that there are four trading participants in WESM; generators (GenCo), distribution utilities (DU), retail electricity suppliers (RES) and directly connected customers (DCC) [20]. GenCos are at the supply side, comprising the privatised GenCos and the IPPs. As at April 2018, there were 113 generation companies in the Luzon-Visayas grid alone and all of them are WESM participants [21]. At the demand side, there are DUs, RESs and DCCs. DUs are responsible to provide open and non-discriminatory access to its system and provide wheeling services to the end users (captive customers (Monthly usage of less than 750 kW)) within its franchise area. Suppliers/aggregators engage in the supply of electricity to the contestable customers (Monthly usage of at least 750 kW) after securing an RES license from the ERC. They are allowed to supply electricity to the contestable customers within a contiguous area. The DCCs are industrial or bulk electricity customers who are connected to the transmission grid and directly supplied with electricity by a GenCo, PSALM or NPC [22]. The respective functions of the MO, SO and WESM participants are summarised in Table 2.

**Figure 1.** Wholesale Electricity Spot Market (WESM) governance.


**Table 2.** Key players in WESM.

After several months of trial operations, the WESM commenced commercial operations in the Luzon grid on 26 June 2006. Four years into the commercial operations in Luzon, the Visayas grid was integrated into the WESM and commenced commercial operations on 26 December 2010. In June 2017, WESM in Mindanao was officially launched but until now, it is yet to begin its commercial operation. It was expected to be commercially operational in January 2020, after a number of revisions. However, in a more recent news, further delay is expected [23]. Beginning 26 September 2018, the Independent Electricity Market Operator of the Philippines, Inc. (IEMOP) becomes the operator of the electricity market to manage the registration of market participants, receive generation offers, come out with market prices and dispatch schedules of the generation plants, and handle billing, settlement, and collections, among other functions [24]. This is an important milestone towards more independent and transparent operation of the WESM.

At the retail market level, the EPIRA also provides for the implementation of the retail competition and open access (RCOA) upon the fulfilment of the five pre-conditions, which were achieved in 2011 [25]. Thus, the RCOA was launched in June 2013 for contestable customers. The threshold for customer contestability began with 1 MW, which means that consumers whose power usage reach a monthly average of at least 1 MW are required to choose and buy their electricity from the retail electricity suppliers (RES). The threshold for contestability is gradually decreased. In May 2016, customers with an average monthly peak demand of at least 750 kW are mandated to enter into a retail electricity contract with a RES by June 2017. If it is not due to the temporary restraining order (TRO) by the Supreme Court resulting from the petition submitted by a few contestable customers [26,27], the contestability level would have been lowered further to include customers with an average peak demand between 500 kW and 749 kW [28]. At the time of writing, the high court has yet to lift its order. The number of customers enrolled in the open access scheme of the electricity retail market, as reported by the PEMC, reached 940 in November 2017 [26], nearly four times the number of contestable customers when it was launched in 2013. From the 940 customers, 862 are contestable customers with an average monthly peak demand of 1 MW and 78 with an average monthly peak demand of between 750 kW and 999 kW. This represents 23% of the energy share in the market, while DUs and bulk users have the remaining 77%. As at December 2019, there is a total of 1408 contestable customers from Luzon (1264) and Visayas (144) regions [29]. There are also 33 licensed RES, 25 local RES and 44 Supplier of Last Resort (SOLR) in the RCOA system. Table 3 shows the retail electricity market concentration of the Philippines. SOLR is an entity that provides last resort supply to contestable customers who suddenly find themselves without a RES. In spite of the TRO, more and more contestable customers who were earlier issued certificates of contestability by the ERC are opting to voluntarily migrate. The remaining customers, know as the captive customers, continue to be served by the DUs in respective areas.

**Table 3.** Retailers' market share in the Philippines based on the number of contestable customers [29].


Concerning RE, the Philippines has set to triple the RE capacity than that achieved in 2017 to 15,304 MW by the end of 2030 [30]. In the Philippines, RE is traded separately in WESM. The Renewable Energy Act (R. A. 9513) or the RE Act provides for the establishment of the RE Market (REM). Pursuant to Section 8 of the RE Act, the DOE shall establish the REM and shall direct the PEMC to incorporate changes to the WESM to accommodate RE trading. The Philippines Renewable Energy Market System (PREMS), a platform to facilitate market competitiveness, efficiency, and transparency in the trading of RE certificates (REC) based on the REM Rules should have been in operation by now [31]. DUs have also been mandated to source a minimum portion of energy from renewable sources to guarantee a market for RE generators. Beginning with 1% in 2020, this portion will be increased on a yearly basis and this will be monitored via PREMS.
