Electricity Reforms

1
Electricity Reforms

• Impacts on Renewables

Second Presentation to Bio Energy Association,
7th September 2005
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Topics of this presentation

• Summary of the 1st presentation
• Impacts of electricity reforms on renewables
• Role of the state and the civil society in the
  process of reforms
  
• Conclusion
• Advocacy issues
• The role of GATS An introduction

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Summary of the 1st presentation

• There has been a serious deterioration of
  performance (Techno-economic, Policy, Planning
  and Governance) of the state electricity boards
  in many developing countries from 1980s.
• Market-led reforms have improved the financial
  health of the sector.
  

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Summary of the 1st presentation

• Reforms, however, has proved to be detrimental to
  the poor in access and affordability.
  
• Regulators role is decisive in safeguarding the
  interests of the sector, society, environment and
  the country

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Impacts of electricity reforms on renewables

• Reform experience in general is shown to
  discourage the role of renewable energies and
  hence sustainability.

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Impacts of electricity reforms on renewables

• References
• Agbemabiese L et al (2003). Stakeholder roles in
  promoting equity and environmental protection
  In Wamukonya (ed.). Electricity Reform Social
  and Environmental Challenges. United Nations
  Environment Programme. Denmark
• Martinot E (2003). Towards socially and
  environmentally accountable reform In Wamukonya
  (ed.). Electricity Reform Social and
  Environmental Challenges. United Nations
  Environment Programme. Denmark

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Impacts of electricity reforms on renewables

• Aspects under investigation
• Introduction of IPPs
• Commercialization of utilities
• Unbundling
• Self-generation by end-users

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Introduction of IPPs

• General case Promotion of dirtier and cheaper
  fossil fuel plants e.g. morocco, Kenya, Thailand,
  etc.
  
• Older fossil fuel plants are in the strongest
  position to compete
  
• In some instances Entry of renewables. e.g.
  India (wind), Sri Lanka (mini-hydro)
  
• California encouraged - Martinot (2003)
• discouraged - Agbemabiese et al
  (2003)
  
• continued

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Introduction of IPPs

• Elimination of mandates leaves renewable energy
  behind
  
• e.g. Californian utilities are no longer be
  required to purchase power from IPPs who are
  mostly co-generational and renewable
  
• Reliability and dis-patchability of generation
  sources assign explicit or implicit economic
  values that may penalize renewable energy sources
  

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Commercialization of utilities

• Incentives or regulatory mechanisms for utilities
  to do demand-side management get eliminated
  
• e.g.
• a) USA Spending on energy efficiency programmes
  dropped from 2.7 billion in 1994 to 1.6 billion
  in 1997 as a result of reforms.
  
• b) NorwayDeregulated utilities slashed their
  energy-efficiency programme staff after reforms.
  
  
• c)Thailand The development of highly capable
  DSM office as a joint venture with GEF is in
  crisis since the privatization
  
• 
  continued

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Commercialization of utilities

• Financing for renewables reduces as a result of
  shorten time horizons, increase borrowing costs
  and increase requirements for high rates of
  return
• All of this would limit investments in more
  capital-intensive projects, in favour of
  lower-capital-cost, higher-operating-cost forms
  of energy.
• R D in renewable energy development get
  seriously discouraged
  

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Unbundling

• Greater consumer incentives to self-generate as a
  result of consumers facing the full costs
  
• If renewables have to pay transmission charges on
  a capacity basis even when the capacity is not
  being used then the result may be an abnormally
  high transmission cost per kWh

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Self-generation by end-users

• Greater shares of cogeneration and as a result
  higher efficiency achievements
  
• Self generation is more likely to employ natural
  gasses and gas turbines
  
• Reduction of transmission and distribution losses
  per unit of load
  

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After-Reform State Involvement to Incorporate
Social, environmental National Concerns

• Establishment of national/rural electrification
  funds. e.g. Philippines, Zimbabwe, South Africa,
  Uganda, Kenya and China
  
• Government sponsored rural electrification
  programmes e.g. Philippines, Thailand, Vietnam,
  South Africa and India
  
• Establishment of semi-autonomous Rural
  Electricity Agencies e.g. Thailand, Udanga,
  Senegal, Mali, Vietnam
  

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After-Reform State Involvement to Incorporate
Social, environmental National Concerns

• Introduction of cross-subsidies (to minimize the
  cost of electricity among low-income domestic
  consumers) e.g. Senegal, India, Brazil
  
• Providing free electricity to poor. e.g. South
  Africa
  
• Absorbing hiked-tariffs by IPPS e.g. Dominican
  Republic (absorbed 42 of the increase, leaving
  customers with 9 to pay)
  
• Introduce amendments to Acts to safeguard service
  to poor in access and life-line tariff e.g.
  Brazil, Philippines, Karnataka-India

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After-Reform State Involvement to Incorporate
Social, environmental National Concerns

• Interference of court to freeze price hikes e.g.
  Uganda, Argentina, Philippines
  
• Providing incentives such as tax breaks and value
  added tax security to attract the private sector,
  despite having implemented privatization. e.g.
  Uganda, Argentina
• Government taking control over privatized
  companies when they failed to perform e.g.
  Senegal

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Strengthening of Civil Society Involvement to
Mitigate Negative Impacts of Reforms

• California Recovered from the failure of power
  sector reforms by following a new approach that
  emphasized policy based partnerships and
  consultation.
• a) Public capacity was enhanced to intervene in
  the regulatory process.
  
• b) Information about utility planning was made
  available.
  
• 
  continued

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Strengthening of Civil Society Involvement to
Mitigate Negative Impacts of Reforms

• c) Regulatory proceedings were held in an open
  and transparent manner.
  
• d) In order to counter balance the resources and
  expertise available to utilities and business
  sectors, moreover, financial and analytical
  support was made available to public interest
  groups.
• e) The creation of public advocates on energy
  issues ensured an institutional voice for
  ordinary citizens and small businesses who,
  otherwise, would not have been represented in the
  planning process

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Strengthening of Civil Society Involvement to
Mitigate Negative Impacts of Reforms

• Karnataka, India Key decisions, such as tariff
  increases, were subjected to extensive
  multi-stakeholder dialogues involving the
  Karnataka State Regulatory Commission and
  Electricity Consumers Network, an independent
  citizens organization.

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Beyond Market-Led Reforms.

• Policy commons approach Proposes re-adjustment
  to market-led reforms by based on the following
  principles.
  
• a) energy is a commons rather than the commodity
  
  
• b) policy rather than markets to be the key
  factor in advancing the environmental and social
  benefit agenda
  
• c) public sector cannot be divorced from the
  operations of electricity sector.

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Beyond Market-Led Reforms.

• Civic market approach Proposes re-adjustment to
  market-led reforms by based on the following
  principles.
  
• a) a more limited reduction of regulatory
  control
  
• b) consumers are given real choices rather than
  a free market.
  
• c) increased public participation in regulation

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Conclusion

• Parallel to market-led reforms, it is with the
  re-introduction of state role and promotion of
  strong civil society role the social, environment
  and national interests are safeguarded.

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Advocacy Issues

• Develop a national policy for energy with the
  widest participation of the stakeholders.
  
• Improve mechanisms within Public Utility
  Commission so that there is a structural
  guarantee that
  
• a) social issues are addressed in the process of
  regulation.
  
• b) environmental issues are addressed in the
  process of regulation.
  
• 
  continued
  

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Advocacy Issues

• Create a special fund and establish a separate
  state owned institute to handle the aspects of
  electrification, distributed energy, renewable
  energy research, development and promotion,
  demand side management, monitoring energy /
  electricity needs and the use of poor (since
  poverty eradication tops the development agenda
  in the world)
• Design institute in such a way that it is
  structurally possible and necessary to work with
  CSOs specializing in energy provision.
  
• 
  continued
  

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Advocacy Issues

• Define poor in the Electricity Act and provide
  special subsidies
  
• Identify, introduce and promote community-owned
  energy generation and service delivery, against
  the state-owned and privately-owned electricity
  utility, as a viable alternative path in
  electricity reforms.
• Remove legal barriers to stand-alone energy
  systems in the Reform Act
  

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The role of GATS An introduction

• With market access and national treatment
  commitments, offering energy sector under GATS
  erases the national policy space currently exists
  to safeguard social, environmental and national
  interests.

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The role of GATS An introduction

• National interventions done world over to
  mitigate negative impacts of market-led
  electricity reforms stay in conflict with the
  principles of GATS

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to be continued..