Challenges for engineers in the electric power industry

In pace with the worldwide trend, the Japanese electric power industries are being deregulated and entering into competitive markets. Generation and a large size retail market are open to competition. The transmission system is open for use by new power suppliers, while utilities get the freedom of new business expansion. Traditional electric power utilities and new players are actively preparing for the new environment. This article discusses the challenges and opportunities for engineers in the electric power industry created by the changes occurring in the industry today.     

Profitability and productivity changes in the Korean electricity industry

The Korean electricity industry saw significant changes following the reform in April 2001. Until the last decade, the industry was monopolized by the Korea Electric Power Corporation (KEPCO), a state-owned, vertically integrated company. The 2001 reform divided KEPCO's power generation division into six power generation companies (GENCOs), with the aim of improving efficiency and introducing competition in the electricity industry. In this study, we used capital total factor productivity (KTFP) to analyze profit changes from fixed input capital, and an index number profit decomposition (INPD) to examine the sources of the profit changes. We investigate the industry thoroughly from three points of view: the overall industry over time; the power generation sector by company; and the transmission and distribution sectors of the Korea Electric Power Corporation (KEPCO). Next, we measured how the profits from productivity growth were distributed to consumers, fuel suppliers, employees, and company owners. The results suggest that a more reasonable price system for both wholesale and consumer prices needs to be implemented prior to the privatization and deregulation of the Korean electricity industry.     

The effectiveness of different policy regimes for promoting wind power: Experiences from the states

Governments at the state (and to a lesser extent, local) level in the United States have adopted an array of policies to promote wind and other types of “green” energy, including solar, geothermal, low-impact hydropower, and certain forms of biomass. However, because of different regulatory environments, energy resource endowments, political interests, and other factors, there is considerable variation among the states in their green power policies. This paper analyzes the contribution to wind power development of several state-level policies (renewable portfolio standards (RPS), fuel generation disclosure rules, mandatory green power options, and public benefits funds), along with retail choice (RET) facilitated by electricity restructuring. The empirical results support existing anecdotal and case studies in finding a positive relationship between RPS and wind power development. We also found that requiring electricity suppliers to provide green power options to customers is positively related to development of wind energy, while there is a negative relationship between wind energy development and RET (i.e., allowing retail customers to choose their electricity source).     

Reenergizing the grid: greater regulatory, legislative certainty needed

The North American Electric Reliability Council's (NERC) new reliability standards are an important milestone for the council and the electric power industry. They clarify existing NERC reliability standards, and they create the foundation for adopting enforceable standards. The grid ensure that the nation's retail electricity customers enjoy reliable and affordable electricity service, and it enables the country's evolving wholesale electricity markets. To support both functions in the future, the grid will require more investment. The nation's shareholder-owned electric utilities recognize this need and are building transmission facilities. Even with this new spending, the continually growing demand for electricity, coupled with the expanding number of wholesale market transactions, means that more investment will be necessary. To encourage it, a number of regulatory and legislative policies should be adopted at both the federal and the state level to improve investor certainty and cost recovery.     

Consumer switching in retail electricity markets: Is price all that matters?

We model consumer switching in retail electricity markets in New Zealand to identify important determinants of switching and estimate willingness to pay (WTP) for six non-price attributes of electricity services, namely, call waiting time, length of fixed rate contract, renewable energy, loyalty rewards, supplier ownership, and supplier type. The results provide important insights into residential consumer switching, which inform policy and enable suppliers to differentiate their products. The analysis is based on 2688 choice responses generated using an online choice experiment administered to a sample of 224 residential bill-payers. A latent class model is used to distinguish important determinants of switching and preference heterogeneity. We find that non-price attributes of electricity services are significant determinants of consumer switching. Three latent classes with distinct preferences for the attributes are identified. The first class (40%) is mainly concerned about power bills and would switch supplier to save at least NZ$125 per year in power bills, ceteris paribus. This value mainly captures the status quo effect or preference for incumbent traditional suppliers. The second class (46%) exhibits no status quo preference, values all attributes, and particularly dislikes entrants from other sectors. These suppliers must charge NZ$135 per year less than traditional suppliers for a 50% chance of attracting customers. The third class (14%) consists of captive and loyal customers who are unlikely to switch supplier for any realistic power bill savings.     

Economic analysis of coal price–electricity price adjustment in China based on the CGE model

In recent years, coal price has risen rapidly, which has also brought a sharp increase in the expenditures of thermal power plants in China. Meantime, the power production price and power retail price have not been adjusted accordingly and a large number of thermal power plants have incurred losses. The power industry is a key industry in the national economy. As such, a thorough analysis and evaluation of the economic influence of the electricity price should be conducted before electricity price adjustment is carried out. This paper analyses the influence of coal price adjustment on the electric power industry, and the influence of electricity price adjustment on the macroeconomy in China based on computable general equilibrium models. The conclusions are as follows: (1) a coal price increase causes a rise in the cost of the electric power industry, but the influence gradually descends with increase in coal price; and (2) an electricity price increase has an adverse influence on the total output, Gross Domestic Product (GDP), and the Consumer Price Index (CPI). Electricity price increases have a contractionary effect on economic development and, consequently, electricity price policy making must consequently consider all factors to minimize their adverse influence.     

How competition might affect electric-utility DSM programs

This paper discusses competition in the electricity industry and how it might affect utility DSM programs. The roles that state regulatory commissions could play to affect retail competition and DSM programs are examined. Commissions could set exit or reentry fees for customers who want to buy electricity from an entity other than the local utility. Or they could ‘tax’ the use of the local distribution system to discourage uneconomic wheeling and to pay for DSM programs. The effects of DSM programs on retail electricity prices and how utilities might redesign their DSM programs for a more competitive environment are considered. In the future, utility DSM programs may

1. (1) focus more on customer service and less on system-resource benefits,

2. (2) emphasize capacity reductions more and energy savings less as utilities seek to minimize the lost revenues associated with DSM,

3. (3) become more cost-effective as utilities identify better ways to deliver DSM services at lower cost, and

4. (4) involve fewer inter- and intraclass transfers as utilities increasingly have individual customers pay for their own DSM services. While DSM programs in the future may be different from what they are today, they will continue to be important to utilities as powerful marketing tools and to society because of their environmental and economic-productivity benefits.

     

Buying and selling power in the age of competition

The American electric power industry is currently in the throes of striving for workable competition. Driven by the converging forces of deregulation, technological revolution, and evolving customer expectations, electric utilities are having to compete as never before at both the wholesale and retail levels. At times, the transition has been particularly wrenching, with some utilities going through painful internal restructuring and others being caught up in external consolidation. Increasingly, the key to success in this more competitive environment is anticipating and actively responding to the forces that are shaping the new markets for electric power. Here, the author describes how such market management is the subject of pioneering research being conducted in EPRI's Utility Resource Planning and Management Program. On the wholesale side, this research centers on the development of powerful analytical methods to support utility decisions regarding new opportunities in the bulk power market. Research on retail market management is concentrated on developing innovative price-differentiated services that can enhance the value of electricity to customers and also foster a utility's long-term financial competitiveness     

Some thoughts on the Turkish electricity distribution industry

Over the past decade or so, the electricity industry of the Republic of Turkey (and indeed the world) has undergone profound reform in its structure, ownership and mindset. Increasing public concern about efficiency in the sector has led Turkey to discard the traditional model of a vertically integrated industry subject to cost-based regulation in favor of the unbundling of activities and the introduction of competition where it is possible. The industry has been structurally separated into generation, transmission, distribution and retail segments. The competitive segments of the industry (generation and retail) are planed to progressively expose to competition; the monopoly segments (especially, distribution) are to be reoriented to foster competition. Further, the ownership of the industry is under increasing pressure to move away from the public domain into the private one. The present article not only presents an analysis of the Turkish distribution sector and proposed privatization process but also provides some guidelines for policy makers.     

Effects of regulatory reforms in the electricity supply industry on electricity prices in developing countries

Electric power sector reforms in the electricity supply industry have had an impact on industrial and household prices in developing countries in Latin America, the former Soviet Union, and Eastern Europe. Using original panel data for 83 countries during the period from 1985 to 2002, we examine how each policy instrument of the reform measures influenced electricity prices for countries in the above regions. We found that variables such as entry of independent power producers (IPP), unbundling of generation and transmission, establishment of a regulatory agency, and the introduction of a wholesale spot market have had a variety of impacts on electricity prices, some of which were not always consistent with expected results. The research findings suggest that neither unbundling nor introduction of a wholesale pool market on their own necessarily reduces the electric power price. In fact, contrary to expectations, there was a tendency for the price to rise. However, coexistent with an independent regulator, unbundling may work to reduce electricity prices. Privatization and the introduction of foreign IPP and retail competition lower electricity prices in some regions, but not all.     

Regulatory reform of the electricity industry in Japan: What is the next step of deregulation?

In Japan, competitive bidding for new generating capacity (IPPs) is in progress since 1996. Retail competition was introduced for large customers (contract demand over 2 MW) after March 2000. Although the liberalization is limited in part by the fact that the retail power market has only about 30% share of total electricity demand, the eligible customers now have a choice among the nine major utilities and ten new entrants. Since November 2001, the electricity industry committee has been discussing the next step of liberalization, including the opening of the market for medium-size industrial and commercial high voltage (6 kV) customers from 2004 and 2005 on. This paper presents the experiences so far acquired and the technical issues for further deregulation. The process includes the creation of nationwide power exchange and of a neutral organization to coordinate the transmission system by 2005. The paper deals with the characteristics of the new regulatory reform of the electricity supply industry in Japan during the period of 2003–2007. We show that it is important to understand the complexity of market behavior and design the market reform carefully.     

Measuring the competitiveness benefits of a transmission investment policy: The case of the Alberta electricity market

Transmission expansions can increase the extent of competition faced by wholesale electricity suppliers with the ability to exercise unilateral market power. This can cause them to submit offer curves closer to their marginal cost curves, which sets market-clearing prices closer to competitive benchmark price levels. These lower wholesale market-clearing prices are the competitiveness benefit consumers realize from the transmission expansion. This paper quantifies empirically the competitiveness benefits of a transmission expansion policy that causes strategic suppliers to expect no transmission congestion. Using hourly generation-unit level offer, output, market-clearing price and congestion data from the Alberta wholesale electricity market from January 1, 2009 to July 31, 2013, an upper and lower bound on the hourly consumer competitiveness benefits of this transmission policy is computed. Both of these competitiveness benefits measures are economically significant, which argues for including them in transmission planning processes for wholesale electricity markets to ensure that all transmission expansions with positive net benefits to electricity consumers are undertaken.     

Deregulation of ESI and privatization of state electric utilities in Thailand

In Thailand, electric supply services have all been taken over by the state and operated under state enterprises since 1968. Under a law empowering its monopoly, state utilities accumulated assets and built up their manpower to expand and operate the power system to serve the whole country. During the time of high growth in power demand in early the1990 s, the government initiated a move to privatize state electric utilities, the pace of which was firmed up after 1997, the year of the financial crash. Engagement of independent power producers (IPPs) through the use of long-term power purchase agreements (PPAs) for supply of electric power into the system operated by state electric utilities was also initiated from the mid 1990s. Total capacity of IPPs and Small Power Producers (SPPs) that sell excess power from cogeneration on to the system) rose and by the late 1990s started to create a constraint on system economic dispatch. In 1999 the National Energy Policy Council (NEPC) approved a recommendation of international consultants to transform the electric supply industry into a structure similar to the system in the United Kingdom. The transformation was proposed to precede corporatization and privatization of state electric utilities. The objectives of deregulation were to revoke the monopoly in ESI, to improve transparency in electricity pricing, to reduce debts of state enterprises, and to improve economic efficiency. Industry participants have voiced strong objection to the industry model proposed. With the change of market structure in UK to the New Electricity Trading Arrangement (NETA), the secretariat of NEPC also proposed a new structure similar to NETA. More acceptance from industry participants have been received for the new structure. However, it has been assumed that the proposed structure would bring improvement in system reliability, drawing investment into power generation in a manner that would be efficient. Tariff has also been expected to become lower because of the competition in power generation and retail trading. The authors argue that, for developing countries, issues of timely investment in new generation and delivery capacity, stable and reasonable price of electricity, reliability of power supply, fuel diversity and security, equitable access of supply and promotion of social equity are important. Maintaining a functioning ESI that meet the broad objectives of providing reliable power supply to serve social and economic development needs could be prioritized over introduction of complete competition in wholesale generation and retailing. The authors examine the present situation of the industry and propose a transitional model that would serve the broad objectives and introduce gradual competition in the industry. The proposed design would unbundle generation from transmission and retailing. It would aso eventually promote intra-regional interconnection and electricity trading.     

考虑收益共享契约的电力供应链协调分析

为缓解煤电冲突,通过研究从燃料供应、发电、输电、售电至用电的电力供应链协调问题,提出了基于收入共享契约的电力供应链协调模型,以实现链上成员的个体理性决策达到供应链整体绩效最优,从而缓解煤电供需矛盾。在考虑输电网约束条件下,在电力供应链中引入收入共享契约,耦合链上燃料商、发电商、用户、独立系统调度员的优化决策问题,构建起带等式和不等式约束的多层优化数学模型。借助非线性互补函数方法将模型转化为代数方程组求解,可求得供应链系统最优解及链上个体理性决策达到供应链整体绩效最优的收入共享利益分配因子。     

Liberalisation of the UK energy market: An opportunity for green energy

1998 is a year of considerable change and opportunity for the energy sector in the UK, with government policy reviews of generation, renewables, utility regulation and climate change. In addition, the UK electricity market and gas markets will be opened up to full competition. This could boost renewable energy and the formation of Energy Services Companies as environmentally-aware consumers become able to choose ‘green’ energy from more progressive suppliers. Friends of the Earth has researched the environmental performance of the main electricity suppliers in the UK and the potential for consumer pressure. However, competition must exist within a framework of government regulation and additional support mechanisms if environmental and social objectives for the energy sector are to be met     

Simulation of current pricing-tendencies in the German electricity market for private consumption

The German electricity market for private consumption is characterized by increasing prices and low participation of the consumers. This prompts us to investigate the interdependencies between the customers’ engagement in the market and the suppliers’ pricing strategies. Based on an analysis of the German retail market, an agent-based simulation model is developed. Whereas the behaviour of private customers is calibrated on field data, the suppliers learn to maximize profits with a feedback-learning heuristic. The simulation results show a tendency of rising prices, which are created without the assumption of tacit collusion among suppliers. We conclude that in Germany the current market pressure of private customers may not be a sufficient incentive for suppliers to lower electricity prices.     

过渡时期发电企业竞价模式研究

自2002年国家提出建立竞争性的电力市场的目标以来,多个采用不同竞价机制的区域电力市场试点已初步形成。但是由于我国的电力产业自身条件的特殊性和电价衍变过程的复杂性,决定了竞价机制改革必须在充分考虑历史遗留因素的条件下稳步推进。本文通过分析电价的衍变过程和电力市场化改革的区域试点工作,针对向市场化过渡的特殊时期所必须面临的问题,提出了一种新的发电企业竞价模式。该模式采用了新的两部制电价计算方法和电力市场运营模式,在有效解决电力产业的一些历史遗留问题的条件下,为不同技术类型、不同时期建设的发电机组提供了一个统一的竞争平台,同时为该模式提供了一些配套的政策建议。     

Market and welfare effects of renewable portfolio standards in United States electricity markets

This study analyzes the market and welfare effects of the introduction of Renewable Portfolio Standards (RPS) while considering the empirically relevant (a) interaction of compliance with voluntary green power markets, (b) differences in consumer preferences, and (c) imperfect competition among electricity suppliers. The study accounts for both the supply and demand effects of RPS — i.e., increased costs and a higher consumer valuation for regular power. Our analysis shows that the regular power price always increases after the introduction of RPS, while the effect of RPS on the equilibrium price of green power, the quantities of regular and green power, the welfare of consumers, and suppliers' profits is case-specific and dependent on the relative magnitude of the cost and utility effects, the strength of consumer preference for green power, the suppliers' costs before RPS, the impact of RPS on green power costs, and the degree of competition among power suppliers. While the introduction of RPS aims at increasing the use of green energy in electricity production, our analysis shows that the introduction of the policy can end up reducing the total quantity of green power used. Intriguingly, this adverse policy impact will occur under seemingly optimal conditions for the green power sector; i.e., a high consumer valuation of green energy and/or low cost difference between the green power and its conventional counterpart. Finally, the analysis shows that the policy design can play a key role in determining the incidence of RPS, while the identification of the winners and losers of the policy can provide insights on the political economy of RPS and the positions held by different groups in policy negotiations.     

Australian retail electricity prices: Can we avoid repeating the rising trend of the past?

After a stable or declining real trend that persisted for more than half a century, Australian retail electricity prices have experienced a substantial increase, in real terms, since 2007. This has mainly been driven by increases in the cost of electricity distribution and to a lesser degree in the cost of electricity generation. Reducing greenhouse gas emissions, which is a bipartisan political goal in Australia, will likely deliver further increases in generation costs due to the expected higher cost of low emission technology. Participating in global negotiations on emission reduction targets and designing efficient policy mechanisms have been a major focus of governments over the last several decades. In contrast, managing distribution system costs has received less attention. While there were a number of factors which drove historical increases in distribution costs, management of peak demand growth could help contain or reduce the extent to which consumers, particularly households, experience further increases in distribution costs. The paper demonstrates how different combinations of carbon price and peak demand scenarios could impact future residential and industrial retail electricity prices to 2050 and discusses some behavioural and technological solutions to manage peak demand and potential barriers to their deployment.     

Testing viability of cross subsidy using time-variant price elasticities of industrial demand for electricity: Indian experience

Indian electric tariffs are characterized by very high rates for industrial and commercial classes to permit subsidized electric consumption by residential and agricultural customers. We investigate the viability of this policy using monthly data for 1997–2003 on electric consumption by a few large industrial customers under the aegis of a small distribution company in the state of Uttar Pradesh. For a given price/cost ratio, it can be shown that if the cross-subsidizing class’ electricity demand is sufficiently elastic, increasing the class’ rates fail to recover incremental cross-subsidy necessary to support additional revenues for subsidized classes. This suboptimality is tested by individually estimating time-variant price-elasticities of demand for these industrial customers using Box-Cox and linear regressions. We find that at least for some of these customers, cross-subsidy was suboptimal prior to as late as October 2001, when rates were changed following reforms.