In 2001, the Philippines enacted the Electricity Power Industry Reform Act (EPIRA), mandating the implementation of a sophisticated wholesale electricity spot market called the WESM. Starting in Luzon in 2006, the WESM has now operated for over a decade. Over this time, the WESM has largely traded on its robust initial design, yet, to date, has failed to evolve in several critical areas, including market-traded ancillary services and trading of financial derivatives.
The Philippine Electricity Market Corporation (PEMC), which operates the WESM has recently begun evaluating whether to establish an Electricity Derivatives Market (EDM). In this TLG on, we focus on some of the challenges associated with developing a successful electricity derivatives market. While the focus here has immediate relevance to a possible forthcoming Philippine EDM, the themes and lessons have a wider applicability across the region.