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2022 | Book

Revisiting Electricity Market Reforms

Lessons for ASEAN and East Asia

Editors: Han Phoumin, Rabindra Nepal, Fukunari Kimura, Gazi Salah Uddin, Farhad Taghizadeh-Hesary

Publisher: Springer Nature Singapore


About this book

This book combines the fundamentals of industrial organization theories based on microeconomic foundations, applied econometrics and environmental and natural resource economics in undertaking a comprehensive review of reforms of the power sector and its impact on industrial and socio-economic performance. The book provides the reader with the intellectual groundwork necessary for understanding the workings and interactions of today’s reforming power markets such as in the ASEAN and East Asia that are striving to achieve the energy policy trilemma of affordability, energy sustainability and energy security. The topics addressed in this book include application of welfare theorems such as competition in and for the market in the electricity sector, market failures such as lack of electricity access, analysis of forecasting models under volatility, energy resource allocation such as renewable energy and competitive market designs of energy markets. Country-specific and region-specific case studies are used to analyze the progress and outcomes of market-driven electricity reforms across the reforming and advanced electricity markets. Therefore, the book derives policy lessons and provides policy recommendations in reforming power markets for the ASEAN and East Asia taking stock of more than three decades of global experience with power sector reforms. The electricity markets case studies are carefully chosen and supported by extensive data analyses as appropriate. This book on energy economics and policy is highly recommended to readers who seek an in-depth and up-to-date integrated overview about the evolving literature and status on electricity market reforms with a particular reference to Asia.

Table of Contents

From the Market to the State: New Lessons from Regional Experiences with Power Sector Reform
Developing economies and emerging markets worldwide are set to experience a significant increase in their electricity system financing needs as their electricity demand expands alongside their ambitions for increased regional electricity trade—all of which is underpinned by an ongoing process of power sector reform. However, in this context, they face the dual challenge of decarbonising their electricity systems and ensuring the security of supply to their economies. This chapter revisits the status of power sector reforms in non-OECD Asia and Latin America. It draws new policy lessons from recent experiences, focusing on the re-emerging role of the state in electricity provision, highlighting how government involvement in the sector continues despite the pursuit of wholesale electricity market restructuring and liberalisation, which has thus far failed to meet the financing and investment needs of the electricity sector. Electricity market reforms can involve private and public sector financing using approaches based on ‘competition in the market’ and ‘competition for the market’. We argue that underdeveloped institutional capacity and a lack of effective governance remain impediments to any reform process, requiring effective regulation and an institutional framework that evolves alongside the pursuit of market-oriented reforms in the era of climate change.
Rabindra Nepal, Anupama Sen, Tooraj Jamasb
What Have Reforms Delivered So Far?—A Quantitative Analysis of Power Sector Reform Impacts in the ASEAN Economies
The importance of the power sector to the ASEAN economies in delivering improved socio-economic prosperity is undeniable. Therefore, reforms in the power sector and their role in guiding the energy policy trilemma of affordability, sustainability, and security of supply should be studied properly. This chapter quantitatively examines the socio-economic and technical impacts of power sector reforms in the 10 ASEAN member countries, relying on the novel data set spanning 1990–2018. We capture the effects of power sector reforms across the economic, technical, and welfare dimensions. Our findings suggest that the impacts of power sector reforms are mixed and heterogeneous even though reforms successfully improved the technical performance of the power sector by minimising network losses. Furthermore, the absence of proper institutions supporting market-based reforms meant that reforms also did not generate the anticipated effects across the economic, technical, and welfare dimensions. We also find that the ASEAN economies should not solely rely on power sector reforms to boost electricity consumption in the region but accelerate policies to improve electricity access. Our results are insightful since we control for the effects of cross-sectional dependence, which many prior empirical studies on power sector reforms failed to do so.
Rabindra Nepal, Han Phoumin, Hammed Musibau
Electricity Market Development in Viet Nam: Historical Trends and Future Perspectives
This study discusses the process of electricity market development in Viet Nam with a focus on key achievements and future perspectives. The empirical analysis attempts to construct a composite indicator for the security of electricity supply. Specifically, principal component analysis (PCA) is performed based on eight normalised variables representing four aspects of electricity security. The Electricity Supply Security Index (ESSI) trends of Viet Nam and other ASEAN + 6 countries in 1996–2019 are reviewed and compared. This research finds that except for Brunei, the ESSI of ASEAN + 6 (including Viet Nam) has been rising. The findings are robust to different normalisation techniques. Some policy implications are then proposed.
Thai-Ha Le, Phoumin Han, Ha-Chi Le
Australia’s National Electricity Market: An Analysis of the Reform Experience 1998–2021
Australia’s National Electricity Market (NEM) commenced in 1998. The centrepiece of NEM reforms was the restructuring of vertical monopoly electricity utilities and the creation of an energy-only, gross pool wholesale market and associated forward market. For most of the past 20+ years, NEM has displayed consistent economic and technical performance. But missing policies relating to climate change, natural gas and plant exit produced results that tested political tolerance in 2016–2019. However, as with prior episodes of high prices, market participants responded—most recently—with a renewable investment supercycle. Prices have since reverted, but power system security remains challenging as the plant mix changes.
Paul Simshauser
Analysis of Forecasting Models in Electricity Market Under Volatility: What We Learn from Sweden
Understanding short-term electricity price forecasting has received considerable attention in recent years. Despite this increased interest, the literature lacks concrete consensus on the best-suited forecasting approach. This study conducts an extensive empirical analysis to evaluate the short-term price forecasting dynamics of different regions in the Swedish electricity market (SEM). We utilise several forecasting approaches ranging from standard conditional volatility models to wavelet-based forecasting. In addition, we perform out-of-sample forecasting and back-testing, and evaluate the performance of these models. Our empirical analysis indicates that the ARMA-GARCH model with the Student’s t-distribution significantly outperforms other frameworks. Wavelet-based forecasting is only performed based on the mean absolute percent error (MAPE). Our results of the robust forecasting methods can display the importance of proper forecasting process design, policy implications for market efficiency, and predictability in SEM.
Gazi Salah Uddin, Ou Tang, Maziar Sahamkhadam, Farhad Taghizadeh-Hesary, Muhammad Yahya, Pontus Cerin, Jakob Rehmea
Modelling and Forecasting the Volatility of the Nordic Power Market: An Application of the GARCH-Jump Process
Although extreme jumps in electricity prices are a common phenomenon, investigating the jump behaviour in the power market does not receive significant attention in earlier studies. The present study aims to conceal this void in the existing literature. To do so, we employ the autoregressive conditional jump intensity (ARJI) model, combined with the generalised autoregressive conditional heteroskedasticity (GRACH) method, to describe the volatility process and the jump behaviour in Nordic electricity prices. The empirical findings reveal that the Nordic power market is highly volatile, and time-varying jumps exist in the electricity prices. In addition, the GARCH-jump models produce more accurate out-of-sample volatility forecasts than the GARCH and EGARCH models. In summary, the results demonstrate that energy economists, energy policymakers, and market analysts should consider the existence of time-varying jumps in the Nordic power market because the GARCH-jump model provides the best forecasts for electricity prices.
Anupam Dutta
An Econometric Assessment of the Effects of Electricity Market Reform on Bangladesh Economy
The supply of reliable and affordable electricity has become imperative in most production and household activities in modern society. No country has progressed after subsistence extent without guaranteeing the least electricity level. Many developing and emerging countries have started implementing reform initiatives around the electricity market since the 1990s. The major developments in reforming countries are structural changes and privatisation of electricity and energy utilities. Bangladesh is also no exception to this trend. Realising the significance of the electricity sector as the lifeblood of industrial and economic development, the country also took multiple strides towards developing the sector by restructuring key power companies, creating independent regulatory bodies, and promoting private sector firms to enter the electricity market. However, to our knowledge, no literature focuses on the impact of the electricity market reform (EMR) in Bangladesh through the lens of privatisation, competition, and regulation. Addressing the research gap and discussing the reform initiatives critically, this chapter aims to empirically analyse the effects of the EMR on the energy sector development and macroeconomic stability of Bangladesh with the help of a time-series data set covering 1980–2019. We use standard and robust unit root and cointegration tests for empirical analysis. For the long-run estimation purpose, we use the dynamic OLS method. The results of our study can help policymakers adopt effective policies for sustainable development in Bangladesh.
Sakib Amin, Rabindra Nepal, Han Phoumin
The Role of Electricity Market Reform and Socio-economic Conditions in Electricity Consumption in India
Does a reform in the electricity market enhance energy consumption? To what extent do the complex layers of socio-economic and demographic fabric moderate the positive externalities of reform on consumption behaviour? To answer these questions, the current study models and estimates the mediating role of the socio-economic-demographic fabric of intra- and interregional consumption patterns to elicit significantly heterogeneous electricity consumption behaviour in India’s energy market. The study also aims to offer predictive insights into the speed at which a fully reformed energy market would produce equivalent Pareto optimal welfare consequences in terms of electricity consumption. Policy implications are drawn given our empirical findings.
Mamata Parhi
Have Competitive Electricity Markets Rewarded Flexible Gas-Powered Generation? Australia’s Lessons for ASEAN
The presence of a competitive electricity market, which allows high prices to reflect generation shortage, is often assumed to be a beneficiary factor for gas-powered generation, but the actual impact of a competitive electricity market on gas generation is yet to be examined. Using Australian daily gas and electricity data, this paper investigates whether Australia’s competitive electricity markets have promoted the development of gas power generation (GPG). Considering the significant renewable energy penetration and increasing GPG in Australia and Australia’s highly transparent competitive electricity market, the Australian case offers future scenarios that developing countries may face. The empirical tests fully support the hypothesis, namely GPG is negatively related to generation from VREs and positively related to electricity demand gap and electricity price. The findings suggest that ASEAN should boost gas use, continue electricity market liberalisation and regional electricity market integration.
Xunpeng Shi, Lequan Zhang, Keying Wang, Wen Chen, Han Phoumin
Decarbonizing Emissions in the Electricity Sector of the Mekong Subregion: Policy Implications
The Mekong subregion faces tremendous challenges regarding the future energy landscape and how the energy transition will embrace a new architecture. This includes sound policies and technologies to ensure energy access, affordability, energy security, and energy sustainability. Fossil fuels (oil, coal, and natural gas) comprise almost 80% of the region’s current energy mix. Moreover, the region will continue to rely on fossil fuels for economic growth in the foreseeable future. Thus, decarbonising emissions in the Mekong subregion is critically important to redirect the energy trajectory of fossil fuel–based energy system to low-carbon and green energy systems. This chapter discusses the energy landscape, including the rising electricity demand in the region, explores the potential of renewables in replacing fossil fuels in the electricity sector, and examines the possibility of carbon capture, utilisation, and storage for remaining emissions from coal and natural gas power generation. It also examines the power generation sector’s market structure and policy challenges to embrace electricity market liberalisation in the region. Finally, the chapter will provide policy recommendations to stakeholders, such as electricity authorities and business players in this market.
Han Phoumin
Sustainable Energy Policy Reform in Malaysia
The global energy system must be reformed. Energy supply systems largely based on fossil fuels must be replaced with those based on renewable energy (RE) to achieve at least 66% in limiting global temperature increase to below 2° C in the present century. The world remains below the 2° C climate objective and is even farther from attaining the aspirational target of limiting global warming to 1.5° C. Energy efficiency (EE) and RE are the pillars of the energy transition. They can provide more than 90% of the required energy-related CO2 emission reduction by using safe, reliable, affordable, and widely available technologies. Similarly, Malaysia is also transforming fossil-based energy into sustainable energy, such as RE. Malaysia is endowed with abundant resources. Solar, hydropower, and biomass are amongst the most popular sustainable energy forms available in Malaysia. Therefore, beginning sustainable energy growth for the current and future generations without policy intervention is critical for the country. This chapter aims to provide the readers with an overview of Malaysia’s commitment to facilitate sustainable energy policy reforms. It discusses RE development, including the key focus areas, policies, achievements, targets, existing initiatives that the government and the private sector are undertaking, and upcoming initiatives wherein relevant government entities are committed to fulfilling their roles. A study on policy performance and transition is also conducted using data envelopment analysis. The study identifies the effects of policy implementation on RE growth and the policy landscape in Malaysia. This chapter also highlights the roles of energy policy reform players and existing barriers. Finally, it concludes that some lessons learned from Malaysia’s experience in driving sustainable energy policy reforms may be critical if the projected development is realised without incurring substantial economic, social, and environmental consequences.
Norasikin Ahmad Ludin, Han Phoumin, Fairuz Suzana Mohd Chachuli, Norul Hisham Hamid
Digitalisation in the Context of Electricity Market Reforms and Liberalisation: Overview of Opportunities and Threats
Digitalisation enabled by advances in technology has an enormous potential to create value for electricity market reforms by helping promote competition, security of supply, and sustainability. It contributes to the growth of the electricity sector and changes the electricity market and the way consumers can engage in it. However, besides the opportunities emerging with digitalisation, the threats of emerging digital technologies are increasing. While digitalisation can bring many positive benefits, it can also make electricity systems more vulnerable to cyberattacks. This chapter investigates digitalisation in electricity market reforms and liberalisation worldwide, specifically in ASEAN. It also discusses the potential opportunities and threats of digitalisation for electricity market reforms.
Besma Glaa
Revisiting Electricity Market Reforms
Han Phoumin
Rabindra Nepal
Fukunari Kimura
Gazi Salah Uddin
Farhad Taghizadeh-Hesary
Copyright Year
Springer Nature Singapore
Electronic ISBN
Print ISBN