From the Market to the State: New Lessons from Regional Experiences with Power Sector Reform

Abstract

Develo** 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.

Appendix: Country Case Summaries

Electricity market trends in Latin America also generally demonstrate the increasing involvement of governments. Some examples are briefly highlighted below (Hammons et al. 2011; Balza et al. 2013):

• Argentina—The electricity sector in Argentina faced a long period of uncertainty over the revision of tariffs and the pricing system, both at the wholesale and retail levels, after the financial crisis of 2002. Private investment in new generation capacity has ceased since 2000. Once at the forefront of reform, the country is now curbing the role of markets in its electricity sector (Littlechild 2013). New rules for the wholesale market have involved increasing subsidies for new forms of power generation and setting new rules for contracts and operations at the regional level.

• Brazil—The rules of the power sector were reviewed in Brazil after the change in government in 2003 in response to investment and operational constraints. The regulator, which is not autonomous from the government, has a reinforced role in the functioning of the market. The new regulations obligated distributors to contract 100% of their forecasted distribution, while the regulatory body led the simultaneous bidding on behalf of all distributors. The electricity market exhibits both private participation and public intervention, given that it includes many state-owned generators, private distributors, and large customers in the auctions.

• Bolivia—The government that entered office in 2006 introduced reforms to re-establish state control in the electricity sector by including the participation of the Empresa Nacional de Electricidad (ENDE) in three subsectors in 2008. The government nationalised assets favouring ENDE to ensure that the Bolivian government’s ownership was nearly 72% of the generation sector. The government renationalised most of the transmission and distribution sector in 2012.

• Venezuela—The nationalisation of the main energy company, the Electricidad de Caracas, was announced in 2007. The government created the National Electricity Corporation (CORPOELEC) to reorganise the national electricity sector in 2007. CORPOELEC is responsible for generating, transmitting, distributing, and commercialising electricity. The government created the Ministry of Energy and designated its minister as the president of CORPOELEC in 2009.

• Dominican Republic—The government introduced significant changes to the General Law of Electricity (eventually enacted in 2001) in 2000. These changes led to the creation of the Corporación Dominicana de Empresas Eléctricas Estatales, Empresa de Transmisión Eléctrica Dominicana, and Generación Hidroeléctrica Dominicana. The regulatory body of the state, Superintendency of Electricity, was tasked with regulating the sector, while the Comisión Nacional de Energía was put in charge of establishing overall electricity policies. A fuel subsidy for electricity generation was also authorised in 2000. The government also purchased 50% of the shares in the private company Empresa Distribuidora de Electricidad del Este, SA, also regaining control of the distribution sector in 2009.