Philippines ERC Halts Reserve Power Market Indefinitely
The Energy Regulatory Commission cited persistently high prices in its decision, impacting earnings for power generators like Aboitiz Power, SMC Global Power, and First Gen.
Market Suspension to Address High Prices
The Philippines' Energy Regulatory Commission (ERC) has indefinitely suspended trading in the nation's reserve power market. This decision, effective 14 October 2026, aims to curb persistently high prices for ancillary services, which are crucial for maintaining grid stability.
In 2025, procuring reserves through this market added P1.29 per kilowatt-hour (kWh) to electricity rates in the Visayas region. This contrasted sharply with the P0.02/kWh cost under long-term Ancillary Services Procurement Agreements (ASPAs), according to AB Capital Securities.
Generator Earnings and Pricing Uncertainty
The suspension removes a significant source of earnings upside for power generation companies (gencos) with exposure to the reserve market. AB Capital Securities noted that firms such as Aboitiz Power (AP), SMC Global Power, and First Gen (FGEN) are particularly affected. Visayas reserve prices recently climbed above P20/kWh, considerably higher than ASPA rates of P5–6/kWh.
While displaced capacity can still generate revenue from the Wholesale Electricity Spot Market (WESM) energy sales, must-run arrangements, or existing ASPAs, these options may offer potentially lower returns.
Interim Measures and Market Redesign
The National Grid Corporation of the Philippines (NGCP) must now rely on its current long-term contracts for ancillary services. Over the next 30 days, NGCP will procure its full reserve requirements, a process expected to establish new ASPA rates.
Concurrently, NGCP, the Philippine Electricity Market Corporation (PEMC), and the Independent Electricity Market Operator of the Philippines (IEMOP) are tasked with proposing a comprehensive market redesign within six months. This redesign will be crucial in determining future pricing mechanisms for reserve power.
The indefinite suspension introduces uncertainty for investors in Philippine power generation, particularly regarding future earnings and pricing models. AB Capital Securities highlighted that Aboitiz Power, with ancillary services contributing an estimated 9% of its sales, faces a direct impact.
Conversely, Meralco (MER) is considered less exposed to commodity price volatility due to its regulated distribution business and highly contracted generation portfolio. The upcoming market redesign and new ASPA rates will be key indicators for assessing the sector's stability and profitability over the medium term.
This article is journalism, not investment advice; consult a licensed professional before making financial decisions. Market data is indicative, may be delayed, and should be verified with your broker or exchange before use.
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