A Decade of Reforms in the Philippine Power Sector: A Price-Concentration Analysis on the Whole Sale Electricity Spot Market

John Lourenze  S. Poquiz,

A Decade of Reforms in the Philippine Power Sector: A Price-Concentration Analysis on the Whole Sale Electricity Spot Market

Discipline: Economics, Business, Political Science

Abstract:

The Philippines has one of the highest power rates in Asia, second only to Japan. This remains true even though it has been more than ten (10) years since the country engaged in a comprehensive liberalization of the power industry, through the legislation of the Electric Power Industry Reform Act (EPIRA). The rationale for the EPIRA is to introduce competition in power sector by selling the assets of the National Power Corporation (Napocor). It was expected that competition would bring about efficiencies in the power industry and ultimately ease the price of electricity. Majority of the Napocor assets have been sold to private firms since the signing of the EPIRA but whether or not privatization was able to lower power rates remains questionable. This paper uses the structure-conduct-performance paradigm to evaluate the price effects of privatization. Regression analysis was used to determine whether changes in market concentration had a significant effect of the price of power in the Whole Sale Electricity Spot Market (WESM) from 2006 to 2010. The Herfindahl-Hirschman Index (HHI) was estimated for each month covered by the time period of the studied and the market concentration was assessed using the HHI. The results suggest that the changes in market concentration had no significant effects on electricity prices from 2006 to 2010. The study also concludes that situations wherein the supply of power is tight could allow prices in the WESM to rise.