Learning from Developing Country Power Market Experiences: The Case of Philippines 5,549 PhP/kWh **Spot electricity price** (2005‐2017)<sup>**2**</sup> <u>(114 USD/MWh)</u> Source: Worldbank, Department of Energy. 1 As share of 2017 energy generation.

2 Average spot electricity prices from 2006 to 2017, expressed in 2015 currency.

The objective of this paper is to document and analyze the experience of the Philippines with power markets, regarding design, implementation and outcomes of the market. Ultimately, the analysis in this paper is expected to be useful for developing countries which are currently developing or considering the development of a power market. However, the paper does not aim at providing policy or market recommendations for improving the performance of the Philippines power market. Furthermore, the scope of this paper is limited to assessing competitive power markets, with an emphasis on the generation and supply segment. Hence, retail competition, as well as the transmission and distribution segments, are not the primary focus of this paper. Moreover, the paper does not directly address several power sector reform issues, such as regulation, privatization, and political economy. These and other subjects are addressed elsewhere for each country, as part of the wider project.

This case study is structured as follows. First, section 2 describes the basic pre‐conditions for power markets, referring to both power system infrastructure and ownership (section 2.1), and to fuel supply (section 2.2). Section 3 describes the power market design. Section 4 describes the implementation of the power market, referring to both the governance of the market (section 4.1) and the transitional process towards a power market (section 4.2). Section 5 assesses the performance of the power market, from the perspective of prices and efficiency (section 5.1), investment and security of supply (section 5.2), and sustainability (section 5.3). Section 6 concludes this case study.

# 2 Context and conditions for power markets

## 2.1 Power System

As the 12th‐largest nation in the world, the Philippines has a population of more than 100 million people spread over 7,000 islands, presenting several electricity infrastructure challenges. Luzon (which includes Manila), Visayas and Mindanao are the three main Philippine islands, of which Luzon and Visayas are currently interconnected. The transmission grid in these three major islands is operated by the National Grid Corporation of the Philippines (NGCP). The island of Luzon accounts for 75% of Philippine’s energy demand and 73% of installed capacity, with Visayas and Mindanao accounting for 13% and 12% of power demand, respectively (see Figure 2‐1). It is worth noting that about 70% of Luzon’s demand is concentrated in the franchise area of the major Disco Meralco.

The major transmission grid addressed in this case study comprises Luzon and Visayas, which are interconnected via a submarine HVDC link since 1997. The Visayas grid is in turn composed of five sub‐ grids in different islands, interconnected via submarine AC lines (NGCP, 2015). Besides the three major islands, there are more than 120 small island and isolated power grids. These smaller systems are not addressed in this case study, since the focus is on wholesale markets and therefore focus on the main power grids.

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