Electricity regulation and electricity market reforms in China

The electricity industry of China has been in a process of reforms since the 1980s. This paper gives a review on the three main stages of reforms in China so as to trace out key features of various reform measures including those for power investment financing, the separation between government and power enterprises, and the division between power generation firms and power grids. The findings suggest that further regulatory change in China's electricity market reform is necessary when integration of the electricity markets and increased competition are paving the way ahead for a market-oriented structure. Prospective electricity regulation in the form of a strong legal system and effective institutions that protect market competition and promote appropriate incentives for efficiency are suggested in the paper.     

Political institutions of electricity regulation: The case of Turkey

Turkey has been going through a liberalization process in its electricity market over the last decade. So far, the regulatory content of the market reforms has been in the center of attention in the literature, to the negligence of regulatory governance. However, recent studies, which applied the theoretical insights of new institutional economics to utilities regulation, have demonstrated that political endowments of the country draw the boundaries to which extent such regulatory content can be effectively implemented. In line with these studies, this paper adopts an institutional approach and attempts to identify the political endowments of Turkey in order to further analyze whether the market reforms succeeded in bringing about sufficient checks to cure the institutional problems. In other words, the paper takes a picture of the overall regulatory arena. The results show that the current regulatory structure, especially government–regulator relations, yet fails to meet good regulatory governance criteria. The paper also provides some policy suggestions.     

Investment incentives: regulation of the Finnish electricity distribution

Investments into the electricity distribution network are needed to support competition and to guarantee the security of supply as well as a good quality of electricity. The aim of this paper is to study the ex post regulatory system in Finland in context of investment incentives. The second objective is to study how the investments in the sector have developed after the liberalisation and what seem to be the most important factors influencing investments in light of empirical information and how regulation affects them. The investment volumes vary much between years but on average, no drastic developments have taken place.     

Incentive regulation of electricity distribution networks: Lessons of experience from Britain

This paper reviews the recent experience of the UK electricity distribution sector under incentive regulation. The UK has a significant and transparent history in implementing incentive regulation in the period since 1990. We demonstrate the successes of this period in reducing costs, prices, and energy losses while maintaining quality of service. We also draw out the lessons for other countries in implementing distribution sector reform. We conclude by discussing the place of incentive regulation of networks within the wider reform context, the required legislative framework, the need for appropriate unbundling, the importance of quality of service incentives, the regulatory information requirements, and the role of sector rationalisation.     

Reference models and incentive regulation of electricity distribution networks: An evaluation of Sweden's Network Performance Assessment Model (NPAM)

Electricity sector reforms across the world have led to a search for innovative approaches to regulation that promote efficiency in the natural monopoly distribution networks and reduce their service charges. To this aim, a number of countries have adopted incentive regulation models based on efficiency benchmarking. While most regulators have used parametric and non-parametric frontier-based methods of benchmarking some have adopted engineering-designed “reference firm” or “norm” models. This paper examines the incentive properties and related aspects of the reference firm model—NPAM—as used in Sweden and compares this with frontier-based benchmarking methods. We identify a number of important differences between the two approaches that are not readily apparent and discuss their ramifications for the regulatory objectives and process. We conclude that, on balance, the reference models are less appropriate as benchmarks than real firms. Also, the implementation framework based on annual ex-post reviews exacerbates the regulatory problems mainly by increasing uncertainty and reducing the incentive for innovation.     

International benchmarking and regulation: an application to European electricity distribution utilities

Due to a shortage of data and increased international mergers, national energy regulators are looking to international benchmarking analyses for help in setting price controls within incentive regulation. We present an international benchmarking study of 63 regional electricity distribution utilities in six European countries that aims to illustrate the methodological and data issues encountered in the use of international benchmarking for utility regulation. The study examines the effect of the choice of benchmarking methods using DEA, COLS and SFA models. We discuss what problems of international benchmarking are highlighted by the study and how they can be overcome.     

Competition policy and regulation in hydro-dominated electricity markets

This paper discusses the main competition issues that arise in electricity systems dominated by hydro generation, arguing that technological differences between hydro and thermal plants may allow hydropower producers to exert market power in different and subtler ways compared to thermal generators. The key for market power in hydro-based systems is the strategic allocation of a given amount of output across periods, rather than a straightforward reduction of total output. The paper examines the interaction between strategic hydro reservoir operation and transmission capacity constraints, and summarizes the implications of market power for system reliability. A review of recent relevant literature is included. Finally, possible interventions to mitigate market power are analysed.     

The politics of regulation in the Turkish electricity market

Turkey began reforming the electricity market in 2001. The regulatory reform aimed to liberalize the market. However, the institutional and political structure was not ready for creating an efficiently working competition. The independent regulator did not have both experience and will to direct the industry to a more competitive environment. Currently, the reform has slowed down and political preferences drive the industry. This paper studies the reasons for the slowdown in the reform efforts by focusing on the relationships between the government, judiciary and the independent regulator. We conclude that strategic behaviors of players in the market, including the judiciary, the government, and the regulator, have made the introduction of competition to the market more costly.     

Ownership unbundling in electricity distribution: The case of The Netherlands

This paper addresses the merits of ownership unbundling of distribution networks, as exemplified in the case of The Netherlands. In essence, this problem concerns the question of whether the operation and management of electricity distribution networks in this country will evolve into a market-driven commodity business or remain a genuine public utility task. In order to deal with this problem, a framework is developed that enables the classification of different institutional regimes. Depending on the nature of the institutional regime, this case of the Netherlands illustrates how certain aspects of the liberalisation of the electricity sector can become vitally important to the continuing process of restructuring.     

High-tension electricity network expansions in Argentina: decision mechanisms and willingness-to-pay revelation

This paper describes the procedures established by the present regulation for high-tension network expansions, studies its optimality and points its main problems. According to the present regulatory scheme, the decision to expand the high-tension network system is on the hands of the private sector. A simple model of the Argentine electricity system and its regulation allowed the simulation of cases in which the present ‘Public Contest’ method could result in the rejection of socially desirable projects and the acceptance of undesirable ones. Three main reasons for the existence of wrong incentives to investment are found. First, since consumers are not included in the mechanism, they have no way to reveal their willingness-to-pay for the investment. Second, the approximation of the future use of the line is done in such a way that it leaves important nodes under represented, thereby affecting the optimality of the mechanism. Third, the profit agents obtain from a line may not be related to their use, e.g. the generators profits depend also on generation costs.     

Communications on energy: Economic evaluation of investments for electricity systems

Much attention has been paid recently to the question of whether or not the proposed Sizewell ‘B’ PWR nuclear station would make a profit, if the outcome of the public inquiry results in its being built. Rather less attention has been focused on the question of whether that profit, if it is expected to exist, is worthwhile pursuing. Mere profitability is not a sufficient economic criterion for going ahead with a scheme — there might be a still more profitable scheme which might be embarked upon instead.     

Productivity growth and deregulation of Japanese electricity distribution

Deregulation of Japanese electric power industry began in 1995. After the amendment of Electricity Utility Industry Law in 1995, competition was partially introduced in a generation sector and retail competition started from 2000. Eligibility to choose suppliers was gradually extended from larger to smaller customers. As of 2008, almost all customers except households can choose their electricity suppliers. Based upon both previous implementation result of competition policy and review on their achievement, Japanese government will begin new policy debate in 2013 to assess further retail competition which includes household customers. To prepare for policy suggestion on the future electric power industry, this study examines the cost structure of Japanese electricity distribution. For the purpose, we estimate a multi-product translog cost function of Japanese electricity distribution from 1983 to 2003. Using the estimated cost function, we calculate several economic measures such as productivity growth, technical change and economies of scale and scope. The empirical results of this study indicate the improvement in productivity growth after deregulation.     

Forecasting weekly electricity consumption : A case study

This paper describes the application of time-series modelling techniques to electricity consumption data for a particular power board. Modelling is performed on total consumption, the data being available on a weekly basis with exact measurements for approximately the past 11 years. Both unforced and forced models are considered. An initial data analysis is performed to ascertain the influence of temperature and rainfall inputs on the model, and later on, a spectral analysis is used to investigate the frequency components present in the time-series data. A significant component of the determination of time-series models is the selection of an appropriate model order. Both low and high order models are evaluated, and their properties compared. For the unforced case, both AR (autoregressive) and ARMA (autoregressive moving average) models are considered. For the forced case, these model structures are extended to include ARX and ARMAX models which have one or more exogenous inputs. Such models are further extended by considering the possibility of predicting the inputs to the models, when a forecasting approach is required. Simulation results are provided for all cases together with a measure of the prediction accuracy. Comparisons are made for the various model structures, as well as models based on short and long data records and models which are driven with an external noise sequence or merely released from appropriate initial conditions.     

Incentives of carbon dioxide regulation for investment in low-carbon electricity technologies in Texas

This paper compares the incentives a carbon dioxide emissions price creates for investment in low carbon dioxide-emitting technologies in the electricity sector. We consider the extent to which operational differences across generation technologies – particularly, nuclear, wind and solar photovoltaic – create differences in the incentives for new investment, which is measured by the operating profits of a potential entrant. First, astylized model of an electricity system demonstrates that the composition of the existing generation system may cause electricity prices to increase by different amounts over time when a carbon dioxide price is imposed. Differences in operation across technologies therefore translate to differences in the operating profits of a potential entrant. Then, a detailed simulation model is used to consider a hypothetical carbon dioxide price of $10–$50 per metric ton for the Electric Reliability Council of Texas (ERCOT) market. The simulations show that, for the range of prices considered, the increase in electricity prices is positively correlated with output from a typical wind unit, but the correlation is much weaker for nuclear and photovoltaic. Consequently, a carbon dioxide price creates much stronger investment incentives for wind than for nuclear or photovoltaic technologies in the Texas market.     

Economic impacts of power electronics on electricity distribution systems

To achieve more efficient energy use, power electronics (PEs) may be employed. However, these introduce nonlinear loads (NLLs) into the system by generating undesired frequencies that are harmonic in relation to (multiples of) the fundamental frequency (60 Hz in Brazil). Consequently, devices using PEs are more efficient but also contribute significantly to degradation of power quality. Besides this, both the conventional rules on design and operation of power systems and the usual premises followed in energy efficiency programs (without mentioning the electricity consumed by the devices themselves) consider the sinusoidal voltage and current waveforms at the fixed fundamental frequency of the power grid. Thus, analysis of electricity consumption reductions in energy efficiency programs that include the use of PEs considers the reduction of kWh to the final consumer but not the additional losses caused by the increase in harmonic distortion. This article contributes to a better understanding of this problem by reporting the results of a case study of the ownership and use of television sets (TV sets) to estimate the economic impacts of residential PEs on a mainly residential electricity distribution system.     

Large-scale integration of renewable and distributed generation of electricity in Spain: Current situation and future needs

Similar to other European countries, mechanisms for the promotion of electricity generation from renewable energy sources (RESs) and combined heat and power (CHP) production have caused a significant growth in distributed generation (DG) in Spain. Low DG/RES penetration levels do not have a major impact on electricity systems. However, several problems arise as DG shares increase. Smarter distribution grids are deemed necessary to facilitate DG/RES integration. This involves modifying the way distribution networks are currently planned and operated. Furthermore, DG and demand should also adopt a more active role. This paper reviews the current situation of DG/RES in Spain including penetration rates, support payments for DG/RES, level of market integration, economic regulation of Distribution System Operators (DSOs), smart metering implementation, grid operation and planning, and incentives for DSO innovation. This paper identifies several improvements that could be made to the treatment of DG/RES. Key aspects of an efficient DG/RES integration are identified and several regulatory changes specific to the Spanish situation are recommended.     

Potential for reducing electricity demand for lighting in households: An exploratory socio-technical study

Illuminance data were collected from 18 UK dwellings during 1-week periods in spring 2007, to establish when luminaires were used and to calculate electricity consumption for lighting. Householders were also interviewed about lighting use and choices. The potential for reducing lighting electricity consumption by replacing incandescent bulbs with compact fluorescent lamps (CFLs) is assessed. Mean weekly electricity consumption for lighting was 3.756 kW h and mean proportion of total electricity consumption used for lighting was 6.55%. It is notable, however, that participants generally expressed high levels of environmental awareness and that electricity consumption figures for less environmentally-aware households may differ. On average, households could have reduced lighting electricity consumption by 50.9% if all incandescent bulbs were replaced with CFLs. Even householders making extensive use of efficient lighting technologies expressed concerns about these technologies’ performance, but seemed willing to tolerate perceived shortcomings for environmental reasons. However, the study raises questions about whether people without strong environmental motivations can be convinced that efficient lighting technologies will meet their needs. It also raises questions about the effectiveness of policies phasing out general lighting service incandescent bulbs, as there is a risk that householders may switch to tungsten halogen bulbs rather than low-energy options.     

Characteristics of the prices of operating reserves and regulation services in competitive electricity markets

In this paper, characteristics of the prices of reserves and regulation services in the Ontario, New York and ERCOT electricity markets are studied. More specifically, price variability, price jumps, long-range correlation, and non-linearity of the prices are analyzed using the available measures in the literature. For the Ontario electricity market, the prices of 10-min spinning, 10-min non-spinning, and 30-min operating reserves for the period May 1, 2002 to December 31, 2007 are analyzed. For the New York market, prices of the same reserves plus regulation service are studied for the period February 5, 2005 to December 31, 2008. For the ERCOT market, we analyze the prices of responsive reserve, regulation up and regulation down services, for the period January 1, 2005 to December 31, 2009. The studied characteristics of operating reserve and regulation prices are also compared with those of energy prices. The findings of this paper show that the studied reserve and regulation prices feature extreme volatility, more frequent jumps and spikes, different peak price occurrence time, and lower predictability, compared to the energy prices.     

A CGE analysis for quantitative evaluation of electricity market changes

Risk and uncertainty entailed by electricity industry privatization impose a heavy burden on the political determination. In this sense, ex ante analyses are important in order to investigate the economic effects of privatization or liberalization in the electricity industry. For the purpose of fulfilling these quantitative analyses, a novel approach is developed, incorporating a top-down and bottom-up model that takes into account economic effects and technological constraints simultaneously. This study also examines various counterfactual scenarios after Korean electricity industry reform through the integrated framework. Simulation results imply that authorities should prepare an improved regulatory system and policy measures such as forward contracts for industry reform, in order to promote competition in the distribution sector as well as the generation sector.     

Upstream vs. downstream CO2 trading: A comparison for the electricity context

In electricity, “downstream” CO₂ regulation requires retail suppliers to buy energy from a mix of sources so that their weighted emissions satisfy a standard. It has been argued that such “load-based” regulation would solve emissions leakage, cost consumers less, and provide more incentive for energy efficiency than traditional source-based cap-and-trade programs. Because pure load-based trading complicates spot power markets, variants (GEAC and CO₂RC) that separate emissions attributes from energy have been proposed. When all generators and consumers come under such a system, these load-based programs are equivalent to source-based trading in which emissions allowances are allocated by various rules, and have no necessary cost advantage. The GEAC and CO₂RC systems are equivalent to giving allowances free to generators, and requiring consumers either to subsidize generation or buy back excess allowances, respectively. As avoided energy costs under source-based and pure load-based trading are equal, the latter provides no additional incentive for energy efficiency. The speculative benefits of load-based systems are unjustified in light of their additional administrative complexity and cost, the threat that they pose to the competitiveness and efficiency of electricity spot markets, and the complications that would arise when transition to a federal cap-and-trade system occurs.