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The Energy Regulatory Commission (ERC) has suspended commercial operations of the Wholesale Electricity Spot Market’s Reserve Market after finding that persistently high ancillary service prices increased electricity costs, particularly in the Visayas, and placed an additional burden on consumers.
The suspension, approved on Oct. 8 following consultations with the Department of Energy and announced on Oct. 12, will remain in effect until further orders from the regulator. The ERC said the intervention would give authorities time to review and redesign the market while ensuring sufficient reserves remain available to maintain grid reliability.
“This is a corrective and temporary intervention, not a retreat from the reserves market,” ERC Chairperson and Chief Executive Officer Francis Saturnino C. Juan said.
The commission’s review found that reserve-market purchases were substantially more expensive than capacity secured through long-term Ancillary Service Procurement Agreements (ASPAs) in Luzon and the Visayas in 2025.
Visayas Bears The Heaviest Cost
The Visayas recorded the widest gap between reserve-market purchases and contracted ancillary services. According to the ERC, reserve-market costs reached about ₱19.57 billion in 2025, compared with ₱1.69 billion for ASPAs.
The figures translated into a rate impact of ₱1.29 per kilowatt-hour (kWh) from reserve-market purchases, against just ₱0.02 per kWh from contracted services.
In Luzon, reserve-market costs totaled ₱24.53 billion, nearly twice the ₱12.75 billion spent on ASPAs. Their respective impacts on electricity rates were ₱0.30 per kWh and ₱0.09 per kWh.
Mindanao showed a different cost pattern. Reserve-market spending reached ₱3.71 billion, below the ₱3.90 billion incurred through ASPAs. However, the reserve market’s rate impact was higher at ₱0.21 per kWh, compared with ₱0.13 per kWh for contracted services.
The ERC said its market data showed that reserve prices had remained persistently high, particularly in the Visayas, since the Reserve Market began full commercial operations in January 2024.
Contracted Capacity
Ancillary services, also known as power reserves, help the National Grid Corp. of the Philippines (NGCP) maintain stable electricity transmission when supply and demand become imbalanced. These reserves provide backup capacity when power plants unexpectedly go offline, or electricity demand rises.
NGCP obtains the services through long-term contracts at ERC-approved rates and through the Reserve Market, where additional capacity is procured at spot prices. Both costs are passed on to consumers through the ancillary service charge in their electricity bills.
During the suspension, NGCP must first obtain reserves from existing ASPAs. Any remaining requirements will be met through capacity designated as must-run, with compensation based on an ERC-approved cost-recovery method.
The arrangement is intended to preserve grid reliability while limiting consumers’ exposure to elevated reserve-market prices.
Isidro E. Cacho Jr., vice-president for trading operations at the Independent Electricity Market Operator of the Philippines (IEMOP), said the suspension was expected to lower transmission charges because payments for reserve-market purchases would stop during the intervention.
Transactions covering billing periods before the suspension order will remain unaffected.
Market Redesign
The ERC has directed NGCP to submit within 30 days a regional assessment identifying reserve requirements not covered by existing contracts and explaining how these gaps will be addressed.
NGCP must also pursue contracts covering its full ancillary service requirements through competitive selection and, where permitted, direct negotiation. It was further instructed to publish forward-looking reserve-demand forecasts to help prospective providers, including battery storage developers, assess investment opportunities.
Within six months, NGCP, the Philippine Electricity Market Corp. (PEMC) and IEMOP must jointly submit a proposed redesign of the Reserve Market.
The reforms must account for the growing role of renewable energy and battery storage while preventing spot-market bids from displacing reserves already secured through contracts.
The review will also consider more detailed regional arrangements, particularly in the Visayas, and different price caps based on technology or reserve type. Allowing generators connected to distribution utilities to provide reserve services is another option under consideration.
A proposed reduction in the reserve offer price cap has been put on hold while the broader redesign proceeds. The ERC said it would evaluate the proposed reforms before deciding whether and when commercial dispatch in the market could resume.
Spot-Market Prices Rise
The suspension comes as electricity consumers face wider cost pressures. Article 2 reported that headline inflation rose to 7.2% in September from 6.1% in August, while inflation among households in the lowest 30% income group reached 9%.
Separately, IEMOP data showed that average system-wide Wholesale Electricity Spot Market (WESM) prices increased 3.1% month-on-month to ₱7.43 per kWh in September.
Demand rose 1.8% to 14,188 megawatts (MW), while supply increased 2.4% to 20,209 MW. IEMOP attributed the higher average price partly to generation outages, grid constraints, and changes in high-voltage direct current power flows.
In Luzon, spot-market prices climbed 5.7% to ₱5.18 per kWh. Visayas prices rose 5.2% to ₱12.42 per kWh, while Mindanao prices declined 1.4% to ₱12.61 per kWh as demand in the region fell.
The ERC said the suspension was necessary to address weaknesses in the Reserve Market’s design and ensure that the procurement of backup power remains reliable and affordable for consumers.
Source:
https://www.dailyguardian.com.ph/blog/erc-suspends-reserve-market-to-curb-power-costs