Table Of ContentHan Phoumin · Rabindra Nepal ·
Fukunari Kimura · Gazi Salah Uddin ·
Farhad Taghizadeh-Hesary Editors
Revisiting
Electricity Market
Reforms
Lessons for ASEAN and East Asia
Revisiting Electricity Market Reforms
· · ·
Han Phoumin Rabindra Nepal Fukunari Kimura
·
Gazi Salah Uddin Farhad Taghizadeh-Hesary
Editors
Revisiting Electricity Market
Reforms
Lessons for ASEAN and East Asia
Editors
Han Phoumin Rabindra Nepal
Economic Research Institute School of Business
for ASEAN and East-Asia (ERIA) Faculty of Business and Law
Jakarta Pusat, Indonesia University of Wollongong
Wollongong, NSW, Australia
Fukunari Kimura
Economic Research Institute for ASEAN Gazi Salah Uddin
and East-Asia (ERIA) Linköping University
Indonesia and Faculty of Economics Linköping, Sweden
Keio University
Tokyo, Japan
Farhad Taghizadeh-Hesary
Tokai University
Shonan Campus
Hiratsuka, Japan
ISBN 978-981-19-4265-5 ISBN 978-981-19-4266-2 (eBook)
https://doi.org/10.1007/978-981-19-4266-2
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Preface
The United Nations (UN) climate change conference in Glasgow (COP26) where
almost 200 countries gathered to discuss all facets of climate change underscored
the importance of accelerated global decarbonization. The decarbonization of the
electricity sector is central toward meeting this COP26 agenda since the sector offers
ample opportunities for the earliest and steepest cuts in global greenhouse gas emis-
sions. Intertwined with the decarbonization agenda are the affordability and sustain-
ability objectives that the electricity sector also has to deliver. Effective electricity
sector reforms design and implementation ensures that these interrelated energy
policy objectives of affordability, environmental sustainability, and energy security
can be achieved.
The Association of Southeast Asian Nations (ASEAN) underwent an electricity
market reforms experimentation in the early 1990s for the purpose of achieving the
energy policy trilemma of affordability, environmental sustainability, and security
of supply. Reforms have both progressed and stalled in the region after more than
three decades since the initiation of power sector reforms. Singapore became the first
country in Southeast Asia to launch a competitive power market in 2001. Philippines
followed suit by establishing a wholesale electricity market in 2006. South Korea
introduced competition in the electricity generation segment in 2001. Vietnam is also
keen on establishing an efficient and competitive power market since 2012. However,
the ASEAN got exposed to the vulnerability of liberalized electricity markets when
electricity prices spiked in Singapore in 2021 causing electricity retailers to exit the
market. Around 95% of electricity in Singapore is generated from imported natural
gas. The rising price of natural gas led to skyrocketing wholesale electricity prices
and crippled the market since electricity retailers locked in contracts with consumers
but did not sufficiently hedge against a big wholesale price spike. In many ways,
the energy crisis in Singapore was a timely reminder of the 2000–2001 Californian
electricity crisis.
v
vi Preface
Several questions are now raised in the ASEAN in the context of electricity market
reforms and energy policy objectives. Are the existing electricity markets fit for
purpose of delivering the trio goals of energy affordability, sustainability, and supply
security? What market designs are necessary in the ASEAN to avert a crisis as
experienced by Singapore? What can the ASEAN policymakers learn from the global
reform experience including the ASEAN economies? The purpose of this book is
to revisit and reflect on the electricity market reforms globally with the objective of
providing valuable lessons and guidance for the ASEAN and East Asia as electricity
reform deepens in addressing their energy policy objective. The book consists of 12
chapters and is segmented into three distinct but interrelated sections.
The first section is based on the ASEAN experience and comprises three chapters
that qualitatively and quantitatively captures the reform experiences in the ASEAN
region including a country-specific case study on Vietnam. The chapter “From
the Market to the State: New Lessons from Regional Experiences with Power Sector
Reform” by Sen et al. revisits the status of power sector reforms in non-OECD Asia
and Latin America by focusing on the re-emerging role of the state in electricity provi-
sion. This chapter highlights how government involvement in the sector continues to
meet the financing and investment needs of the electricity sector in liberalized and
restructured wholesale electricity markets. Electricity market reforms can involve
both private and public sector financing using approaches based on ‘competition in
the market’ and ‘competition for the market’ in meeting environmental objectives.
The chapter “What Have Reforms Delivered So Far?—A Quantitative Analysis
of Power Sector Reform Impacts in the ASEAN Economies” by Nepal et al. exam-
ines the socio-economic and technical impacts of power sector reforms in the ten
ASEAN member countries from 1990 to 2018 relying on econometric techniques.
This is one of the limited studies in the reform literature to control for the effects
of cross-sectional dependence. The impacts of power sector reforms were found to
be mixed and heterogeneous despite reforms being successful in improving tech-
nical performance by reducing network losses. The absence of proper regulatory
institutions supporting market-based reforms has led to reforms not generating the
anticipated impacts across the economic, technical, and welfare dimensions. One
of the major messages from this chapter is that the ASEAN economies should not
solely rely on power sector reforms to boost electricity consumption in the region
but rather accelerate policies to improve electricity access.
The chapter “Electricity Market Development in Viet Nam: Historical Trends
and Future Perspectives” by Thai-Ha et al. discusses the process of electricity market
development in Vietnam with a focus on key achievements and future perspectives.
Security of electricity supply trends is studied for Vietnam and other ASEAN+6
countries for the period 1996–2019 based on principal component analysis (PCA).
The study finds that security of electricity supply in Vietnam has been rising over
the past 25 years. However, Vietnam should expand the national electricity grid
and install a smart power system that integrates different power sources to meet
the country’s fast-growing electricity demand in the future and not solely rely on
electricity market reforms.
Preface vii
The second section consists of three chapters that quantitatively and qualita-
tively captures the electricity market reform experiences in some of the early and
advanced reforming countries, namely, Australia, Sweden, and Norway. The chapter
“Australia’s National Electricity Market: An Analysis of the Reform Experience
1998–2021” by Simshauser studies Australia’s National Electricity Market (NEM)
reform experience between 1998 and 2021. The highlights of the NEM reforms
were the restructuring of vertical monopoly electricity utilities and the creation of an
energy-only, gross pool, real-time wholesale market, and associated forward market.
The chapter argues that the NEM and associated forward markets could not navigate
market failures associated with sudden coal plant divestment and climate change
policy discontinuity. A number of market design options are proposed such as a
rethink of the ancillary markets FCAS markets, and volumes, in order to deal with
rising intermittency as renewables in the wholesale market increase.
Chapter “Analysis of Forecasting Models in Electricity Market Under Volatility:
What We Learn from Sweden” by Salah Uddin et al. examines wholesale price
volatility which is an inherent feature of a liberalized wholesale electricity market
focussing on the case of Sweden. Sweden deregulated its electricity market in 1996.
This chapter conducts an extensive empirical analysis based on time-series econo-
metrics to evaluate the short-term price forecasting dynamics of different regions in
Swedish electricity market. The chapter showcases that wholesale electricity markets
should rely on robust forecasting methods for proper forecasting-process design that
will enable effective policy implications for market efficiency and wholesale price
predictability.
The chapter “Modelling and Forecasting the Volatility of the Nordic Power
Market: An Application of the GARCH-Jump Process” by Datta focuses on modeling
and forecasting price volatility in the Nordic power market. The deregulation of the
power markets in the Nordic countries occurred in the early 1990s and eventually
led to the establishment of Nordpool in 1996 with Finland and Sweden joining the
Nordpool in 1998 and 2000 respectively. Nord Pool is Europe’s leading and efficient
power market owing to its simple market design. The chapter relies on time-series
econometrics to describe the volatility process and the jump behavior in Nordic
electricity prices. The findings reveal that the Nordic power market is highly volatile
with existing time-varying jumps which energy economists, energy policymakers,
and market analysts should consider in designing electricity markets.
The third section consists of two chapters capturing the reform experience in
the South Asian economies of Bangladesh and India. Chapter “An Econometric
Assessment of the Effects of Electricity Market Reform on Bangladesh Economy”
by Sakib et al. provides the reform perspectives from Bangladesh as the nation
undertaking electricity sector restructuring, creating independent regularity bodies,
and promoting the private sector firms to enter the electricity market. The effects
of electricity market reform on the energy sector development and macroeconomic
stability in Bangladesh are studied based on a time-series dataset for the period 1980–
2019. Bangladesh government should continue with energy price reform to attract
increased private participation.
viii Preface
Chapter “The Role of Electricity Market Reform and Socio-economic Condi-
tions in Electricity Consumption in India” by Parhi study the role of electricity
market reform and socio-economic conditions in electricity consumption in India.
The Government of India (GoI) started power sector reform initiatives in 1991. This
chapter models and estimates the mediating role of intra-and inter-regional electricity
consumption patterns to elicit significantly heterogeneous electricity consumption
behavior in Indian electricity market. One of the major messages from this study is
that the reform itself requires a deeper and strategic interactions with the political
will to be successful when implemented.
The fourth section consists of four chapters studying varied dimensions of elec-
tricity market reform impacts on sustainability and security. Chapter “Have Compet-
itive Electricity Markets Rewarded Flexible Gas-Powered Generation? Australia’s
Lessons for ASEAN” by Shi et al. investigates the role of the electricity market
reforms on flexible gas generation capacity that is needed to mitigate variable
renewable energies especially in the context of coal plant closures as in the case of
Australia. One of the major contributions of the chapter is undertaking a rare study on
the relationship between electricity and natural gas markets in Australian National
Electricity Market (NEM). The Australian experience suggests that ASEAN should
continuously liberalize its electricity markets and establish a merit-order competitive
electricity market while leveraging the flexible role of natural gas.
Chapter “Decarbonizing Emissions in the Electricity Sector of the Mekong Subre-
gion: Policy Implications” by Phoumin focusses on decarbonizing emissions in the
electricity sector of the Mekong Subregion and draws policy implications for the elec-
tricity market. The challenges of market structure and policy in the power generation
sector in moving forwards to embrace electricity market liberalization in the region
should not be undermined. The chapter recommends that the ASEAN electricity
markets should embrace unbundling of ownerships in the electricity market segments
and ensure non-discriminatory third-party access for transmission and distribution
networks. The gradual removal of subsidies in fossil fuels based power generation is
also necessary are to ensure the pre-conditions for market competition by bringing
a level playing field to new technologies and renewables into the energy mix.
In chapter “Sustainable Energy Policy Reform in Malaysia”, Ludin et al. study
Malaysia’s commitment to facilitate sustainable energy policy reforms and the impli-
cation to the electricity market. The study recommends that liberalization of the elec-
tricity market will be required as part of an energy transition to lower reliance on
carbon-based energy sources. Market liberalization will ensure the energy sector’s
viability by attracting market players who can offer better quality of service and
pricing. The establishment of an independent regulator will also protect the interests
of both the industry and the consumer.
The chapter “Digitalisation in the Context of Electricity Market Reforms
and Liberalisation: Overview of Opportunities and Threats” by Glaa and Uddin
discusses digitalization as an enabler of electricity market reforms and thereby
promotes competition, security of supply, and sustainability. The chapter argues
that digitalization also makes electricity systems more vulnerable to cyber-attacks
especially in the context of liberalized electricity markets. One of the important
Preface ix
recommendations from the chapter is that international cooperation among liberal-
ized electricity markets can help governments and the electricity industry to build up
digital resilience capabilities.
Electricity markets in the ASEAN have transitioned from the vertically integrated
state ownership to a single-buyer model in which state-owned utility remains the
‘single buyer’ but the private sectors participate in electricity generation as ‘Inde-
pendent Power Producers’ (IPPs). Except Singapore and Philippines, wholesale and
retail competition is absent in other markets. These markets will have to undergo
further restructuring and reforms while being exposed to the supply security risks
associated with decarbonization and digitalization of the sector. This book contains
important empirical studies providing pragmatic policy recommendations that will
enable the ASEAN and other reforming electricity markets around the globe as
lessons to carry forward in implementing reforms for provisioning of an afford-
able, secure and sustainable electricity supply. The book is also an equally valu-
able resource for researchers and graduates students with a specialized interest in
electricity markets and energy policy.
Jakarta Pusat, Indonesia Dr. Han Phoumin
Wollongong, Australia Assoc. Prof. Rabindra Nepal
Tokyo, Japan Prof. Fukunari Kimura
Tokyo, Japan Assoc. Prof. Farhad Taghizadeh-Hesary
Linköping, Sweden Assoc. Prof. Gazi-Salah Uddin
Acknowledgments
This study is a joint effort by the working group members that included selected
outstanding researchers working on ways to achieve sustainable electricity markets
in the Association of Southeast Asian Nations (ASEAN) and the East Asia region.
The book is a result of the project titled: “Electricity Market Reforms in ASEAN,
India and China (2021–2022)”. We would like to acknowledge the support provided
by the project participants involved, including the many people whom the authors
met and interviewed to obtain country data and information. Special thanks go to
Hidetoshi Nishimura, President of the Economic Research Institute for ASEAN
and East Asia, who provided encouragement, support, and advice to ensure that
this project addresses contemporary energy issues in ASEAN and East Asia. We
are very grateful to the Economic Research Institute for ASEAN and East Asia’s
publication department—Stefan Wesiak, Fadriani Trianingsih, Rachmadea Aisyah,
and their team of editors—for helping to edit this book.
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