Like many emerging economies worldwide, the Philippines is set to benefit from a young, working-age population, strong economic growth, and a rapidly growing middle class. However, one of the factors preventing it from achieving its full growth potential is the high and volatile cost of energy among the highest in Asia. Solving this problem is imperative, with peak energy demand projected to grow four-fold between 2020 and 2040 and infrastructure lagging behind.
The absence of a stabilized forward market in the Philippines hinders potential investment in new energy projects. Seeking to solve this, Green Tiger Markets (GTM) has created a standardized electricity marketplace that helps solve the problem of extreme price volatility and creates an opportunity to stabilize power prices. GTM's forward market platform provides a much-needed mechanism for hedging and risk management in underserved markets.
According to GTM chief executive John Knorring, one of the main barriers to contracting energy is high transaction costs (in time and effort) driven by the complexity of negotiation. By standardizing the terms of contracts, it becomes easier to reduce transaction costs and accelerate commerce, thus stimulating investment and economic growth.
"In the Philippines' energy market, transaction costs are really high and there's very little transparency," Knorring says. "Our goal is to take best practices from established markets, such as the US and Europe, and apply them in a local context to unlock market efficiency. By making it easier for buyers and sellers to find each other, we can drive transaction costs down and more mutually beneficial transactions will happen."
One of GTM's missions is to educate stakeholders by sharing knowledge about advanced market mechanisms and providing insight and understanding that empowers marketplace users to make informed decisions. It aims to inform both electricity generators and distributors about how hedging can help manage energy-related risks, and why not participating in the marketplace exposes them to more risks. Adopting financial hedging as a solution for price volatility creates an opportunity for the Philippines' electricity market to streamline its energy supply chain. It also expedites the addition of new generation capacity to serve a rapidly growing domestic economy.
Since launching the Philippines electricity market in 2023, GTM has made significant progress. It has been able to register around two-thirds of energy generating capacity in the Philippines and around one-third of consuming capacity. It also recently announced the completion of the first Midday Hours trade on its hedging platform. This innovative type of trade is targeted at solar energy producers, simplifying the contract down to a single page. The contract references the hours of 8:00 AM to 4:00 PM, which are the hours when the sun is shining and solar farms are generating power. By selling at a fixed price during these hours, solar energy producers are hedged from losses caused by episodic low prices. Given the Philippines' tropical climate, these are also the hours when demand is highest due to the increasing use of air conditioning. The Midday Hours Contract enables distributors to hedge during periods of high demand, giving them a new tool to manage highly volatile spot prices.
"Entering this project, our thesis was: if we could make it easier for buyers and sellers to find each other, then the market will become more efficient, and we've seen progress in that regard," Knorring says. "The Philippine regulators and market players have expressed interest in having a forward market, and they have laid excellent groundwork. However, the lack of local expertise in price risk management has made it hard to realize. Our unique combination of experience in global commodity and financial trade and deep understanding of the Philippine energy market made us well-positioned to create this marketplace that the sector really needs. By having a stable, efficient, and modern energy marketplace, the Philippines and other emerging economies around the world can take steps towards a more resilient energy future."
