Electricity Market Liberalization Developing Countries, the ASEAN, the Philippines
Non-OECD countries about to surpass OECD countries economically Development of Population and Gross Domestic Product (GDP) 8,000,000,000.00 7,000,000,000.00 6,000,000,000.00 5,000,000,000.00 4,000,000,000.00 3,000,000,000.00 2,000,000,000.00 1,000,000,000.00 World Population World GDP, 1990-2040 (trillion 2005 dollars) - 2000 2005 2010 2013 OECD Non-OECD World Source: U.S. Energy Information Administration, International Energy Outlook 2013 Population of non-oecd countries 6 times higher than OECD countries GDP of Non-OECD countries about to overtake OECD countries Slide 2
Non-OECD countries about to surpass OECD in energy consumption Development of Energy Consumption World energy consumption, 1990-2040 (quadrillion Btu) World energy consumption by fuel type, 1990-2040 (quadrillion Btu) 1000 History Projections 800 600 400 200 0 1990 2000 2010 2020 2030 2040 OECD Non-OECD Source: U.S. Energy Information Administration, International Energy Outlook 2013 Energy consumption in Non-OECD countries will also overtake OECD countries Non-OECD energy market growing while OECD energy market stagnates Slide 3
Guiding Questions Drivers for market liberalization? Barriers for market liberalization? Lessons learned from experience? Slide 4
Drivers for market liberalization in the ASEAN Motivation for market liberalization considerations Loan conditions of the IMF Lower government debt burden Lower electricity prices Increasing rate of electrification Source: Wikimedia, GNU Free Documentation License https://commons.wikimedia.org/wiki/file:asean_and_east_ Timor.svg Slide 5
Barriers for market liberalization in the ASEAN Scepticism towards market liberalization Resistance of EPCO and/or labour unions (Indonesia, Thailand, Viet Nam) Source: Wikimedia, GNU Free Documentation License https://commons.wikimedia.org/wiki/file:asean_and_east_ Timor.svg Slide 6
Barriers for market liberalization in the ASEAN Scepticism towards market liberalization Resistance of EPCO and/or labour unions (Indonesia, Thailand, Viet Nam) Rates of electrification considered too low (Cambodia, Myanmar) Source: Wikimedia, GNU Free Documentation License https://commons.wikimedia.org/wiki/file:asean_and_east_ Timor.svg Slide 7
Barriers for market liberalization in the ASEAN Scepticism towards market liberalization Resistance of EPCO and/or labour unions (Indonesia, Thailand, Viet Nam) Rates of electrification considered too low (Cambodia, Myanmar) Political Environment (Lao PDR, Thailand) Source: Wikimedia, GNU Free Documentation License https://commons.wikimedia.org/wiki/file:asean_and_east_ Timor.svg Slide 8
Barriers for market liberalization in the ASEAN Scepticism towards market liberalization Resistance of EPCO and/or labour unions (Indonesia, Thailand, Viet Nam) Rates of electrification considered too low (Cambodia, Myanmar) Political Environment (Lao PDR, Thailand) Size of the country (Brunei Darussalam) Source: Wikimedia, GNU Free Documentation License https://commons.wikimedia.org/wiki/file:asean_and_east_ Timor.svg Slide 9
Original state of the power sector in the ASEAN Vertically integrated monopolies Generation Transmission & Distribution Government Traditionally the electrical sector in the ASEAN countries consisted of state owned utilities In the 1980s and 1990s, deregulation of the sector was motivated by the increasing electricity demand of the industry: Relief of the governments financial burden Reduction of power shortages Consumption Introduction of Independent Power Producers (IPPs) Electric Power Flow Slide 10
First steps towards liberalization in the ASEAN The IPP Experience Generation IPPs IPPs are providing electric power to the national power company based on Power Purchasing Agreements (PPAs) Transmission & Distribution Government PPAs PPAs are usually long term, contain Take-or-Pay agreements and exchange rate indexing Reducing market risks for investors, making investment attractive Consumption Critical contract design during Asian financial crisis in 1997 Electric Power Flow Contract Slide 11
Electricity market liberalization process in the Philippines 1987 1994 1997 2001 2006 Beginning of independent power producers (IPP) as a response to costly and chronic blackouts Signature of more than 40 IPP contracts (take or pay single buyer model) Asian financial crisis leading to the Philippines having the 2 nd highest electricity prices in the World Full market liberalization (Electricity Power Industry Reform Act) with unbundling and privatization Launch of wholesale electricity spot market (WESM) trading Slide 12
Full market liberalization in the Philippines to reduce prices 33 28 ct/kwh 23 18 13 8 Jan 10 May 10 Sep 10 Jan 11 May 11 Sep 11 Jan 12 May 12 Sep 12 Jan 13 May 13 Sep 13 Jan 14 May 14 Sep 14 Jan 15 May 15 Sep 15 Jan 16 Based on and converted into from: Global Benchmark Study of Residential Electricity Tariffs -The Lantau Group (HK) Limited, 2013 Electricity prices more or less stable but still high Existing PPA contracts are still being honoured (phase of transition) Wholesale prices despite liberalization still impacted by PPAs Slide 13
Full market liberalization in the Philippines to increase electrification 1990 2014 OECD 98.8% OECD 99.9% Non-OECD 67.0% 12.0% Non-OECD 79.0% ASEAN 61.2% 30.4% ASEAN 91.6% Philippines 62.0% 27.1% Philippines 89.1% 0% 50% 100% Access to Electricity No Access to Electricity 0% 50% 100% Access to Electricity No Access to Electricity Source: World Bank Group, data.worldbank.org (2016) Electrification very successful in the ASEAN Comparable results for Philippines despite full market liberalization Results probably also retraceable to previous PPAs Slide 14
Conclusions and lessons learned ASEAN with different motivation for liberalization than OECD Rapid growth in electricity demand vs. Staggering demand and overcapacities Requirements for international loans vs. Increase of economics efficiency Combination of IPPs with PPAs in the ASEAN successful in attracting investors and securing supply Too early for final assessment of the Philippines full market liberalization because of significant number of PPAs still in place Slide 15
Conclusions and lessons learned ASEAN with different motivation for liberalization than OECD Rapid growth in electricity demand vs. Staggering demand and overcapacities Requirements for international loans vs. Increase of economics efficiency Combination of IPPs with PPAs in the ASEAN successful in attracting investors and securing supply Too early for final assessment of the Philippines full market liberalization because of significant number of PPAs still in place Final question for ASEAN and Germany Do the price signals of energy only markets offer enough incentives for investment in additional capacities? Slide 16
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