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Asian Electric Competition Custom Tailored For Success

Taking the anti-FERC approach to the grid.

Fortnightly Magazine - August 2007

entire country.

Since trading on the exchange is targeted around optimizing excess power, and the vertically integrated utility structure is still intact, this market model is very much like a cost-based pool.


In India, the government initiated a policy of power-sector reform and liberalization in 1991 to support economic growth, and consequent amendments in the Electricity (Supply) Act have provided opportunities for private investment in the electricity industry within a market-driven framework. The regional states have endeavored to overhaul the state electricity boards (SEBs) and improve their financial and operational performance. Substantial progress has been made in several states on one of the first important steps in reform, unbundling the SEBs. This commitment to power-sector reform culminated in the passage of the Electricity Act of 2003, which enables private generators to market power directly to consumers or distribution companies, with open access to the transmission system.

As the retail sector grows, the wholesale-power trade also is developing in India. The Power Trading Corp. (PTC) was established in 1999, and has been brokering transactions on a small but increasing scale with five additional trading companies licensed in 2005, setting the stage for a power-trading market to develop in support of private investment in generation.

Although cost-based pools are not viewed by market-design experts as the ultimate competitive solution, there are many benefits to starting with a simpler pool model. As the generators are allowed only to compete on a variable-cost basis, it inherently provides more safeguards against excessive market power than in a bid-based spot market where generators likely would offer high prices to reflect underlying scarcity in supply compared with demand (as was the case with California). The cost-based pool is simpler to implement and minimizes price volatility. The generators will seek to maximize their profits by operating their plants more efficiently and minimizing their overall fleet operating costs.

Philippine’s String of Pearls

Another recently deregulated market, the Philippines, demonstrates how the local market design reflects a unique electric topology and generation mix. The Philippines is an archipelago of 7,107 islands, only 2,000 of which are inhabited, stretching from the south of China to the northern tip of Borneo. The high-voltage grid for the country spans 20,949 circuit kilometers across the major islands of the country. The transmission system remains under the control of the national transmission company (TRANSCO), and is currently split into three major grids for the major islands: Luzon, Visayas, and Mindanao. Connection includes a 440-MW HVDC link that runs undersea, making it the first submarine cable system in all of Asia. The three grids eventually will be integrated into a single grid through an interconnection project that is underway. The interconnection will allow the three grids to share excess power with one another

On June 8, 2001, Philippine President Gloria Macapagal-Arroyo signed into law Republic Act 9136, or the Electric Power Industry Reform Act of 2001. This act triggered the implementation of a series of reforms in the Philippine Power Industry, most notable of which is the establishment of a competitive electricity market.

The primary goal of