ERC proposes cap as power reserve costs rise

PASIG CITY — The Energy Regulatory Commission is proposing a secondary price cap on electricity reserves after spot-market purchases added an estimated PHP 1.29 per kilowatt-hour to Visayas rates in 2025, a cost that could affect consumers if the suspended Reserve Market resumes without safeguards.

The proposed cap would limit prices for a reserve service when its rolling average over 72 hours exceeds a specified threshold, and would operate separately for each reserve type in Luzon, the Visayas and Mindanao.

The ERC’s draft resolution is intended to curb sustained high reserve prices while preserving normal market pricing when prices remain below the triggers.

“Reserves are necessary to keep the grid secure, but consumers should not pay excessive prices for them. We are putting this safeguard on the table now so that it is ready before the reserve market resumes. At the same time, we are awaiting the submissions directed under our suspension Order, which may lead to broader revisions of the ancillary services policy and regulatory framework,” ERC Chairperson and CEO Atty. Francis Saturnino C. Juan said.

The Reserve Market is where the System Operator procures standby capacity not covered by Ancillary Service Procurement Agreements, or ASPAs, with providers.

Those reserves can be called on quickly to balance supply and demand or respond when a power plant or transmission line trips, and the resulting ancillary service costs are passed on to consumers through electricity bills.

The market began full commercial operations in January 2024, with energy and reserves scheduled together to maintain adequate reserve capacity at the least cost.

In December 2024, the ERC set an interim limit on reserve offers of PHP 0 to PHP 25,000 per megawatt-hour.

Reserve prices nevertheless remained high, particularly in the Visayas and Mindanao, even as Wholesale Electricity Spot Market energy prices fell from 2024 to 2025.

In 2025, spot-market reserves added an estimated PHP 1.29 per kilowatt-hour to Visayas rates, while reserves procured under long-term ASPAs added PHP 0.02 per kilowatt-hour, according to the ERC’s review.

On Oct. 12, the ERC suspended commercial dispatch and settlement in the Reserve Market until further notice, citing prices that remained high compared with WESM energy prices and approved ASPA rates.

The suspension took effect Oct. 14, with existing ASPAs continuing to supply reserve needs and additional power plants designated by the System Operator as must-run units.

The ERC is awaiting submissions required under its suspension order that could lead to broader changes in the country’s ancillary services policy and regulatory framework.

Meanwhile, stakeholders have proposed safeguards against sustained high prices, including a separate secondary price cap, which the Reserve Market has not had; the existing WESM energy-market cap expressly excludes reserves.

Under the proposal, the Independent Electricity Market Operator of the Philippines, which operates the market, would track the rolling average price of each reserve type over the previous 72 hours.

If the average exceeds the Cumulative Price Threshold, the applicable secondary price cap would take effect for that reserve type in that grid.

For Regulating Up reserves, the proposed threshold is PHP 15,816 per megawatt-hour and the cap is PHP 14,115 per megawatt-hour.

For Regulating Down, the proposed threshold is PHP 16,104.75 per megawatt-hour and the cap is PHP 14,548 per megawatt-hour.

For Contingency reserves, the threshold is PHP 8,940.89 per megawatt-hour and the cap is PHP 5,187 per megawatt-hour.

For Dispatchable reserves, the threshold is PHP 7,830.07 per megawatt-hour and the cap is PHP 3,216 per megawatt-hour.

The same values would apply in Luzon, the Visayas and Mindanao, but the cap would be triggered independently for each reserve type and grid, so high prices in one grid would not trigger it in another.

The ERC based the proposed values on actual reserve prices from February 2024 to December 2025 and tested them against prices from Aug. 26 to Sept. 25, 2026.

In that simulation, average reserve prices would have fallen by 12% to 50% in the Visayas and 17% to 33% in Mindanao, while Luzon prices would have remained unchanged because they stayed below the trigger levels.

The ERC has posted the draft resolution for public comment until Nov. 13, with a public consultation scheduled for Nov. 27.