Market Evolution:
The Situation in Asia Pacific
Allan Dawson
Chief Executive Officer
Energy Market Company
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Agenda
 Asia - hot spot of global growth, energy investment
and change
 Australia and New Zealand more mature electricity
markets
 Regional overview
 China, India
 Japan, Korea
 Philippines, Indonesia, Singapore
 Australia and New Zealand
 Summary of key themes
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Asia - Overview
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Asia: Hot spot of growth
 Asia (especially India and China) are key global
growth areas
 Total energy consumption is high but per capita
consumption is low
 Developmental disparities within the region
 Electricity sector reform is progressing … slowly
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Investment Requirements
2001-2010
2011-2020
2021-2030
Total
2001-2030
OECD North America
OECD Europe
OECD Pacific
1,062
650
381
1,179
717
333
1,247
697
287
3,488
2,064
1,000
Total OECD
2,903
2,228
2,231
6,552
Russia
Other transition economies
269
168
391
221
389
233
1,050
622
Total transition economies
438
612
622
1,672
China
Other Asia (including India)
Middle East
Africa
Latin America
578
489
268
248
339
787
689
332
392
440
888
876
444
567
558
2,253
2,055
1,044
1,208
1,337
Total developing countries
1,923
2,641
3,332
7,897
Inter-regional transportation
97
129
134
360
4,551
5,610
6,320
16,481
455
561
632
549
Regions
Total World
Annual Average
Source: International Energy Agency (IEA) World Energy Investment Outlook 2003
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Electricity Investment
Source: International Energy Agency (IEA) World Energy Investment Outlook 2003
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Electricity Market Reform
 Diversity in regional development reflected in:
 Level of electrification
 Quality and reliability of supply
 Level of subsidies
 Most nations are somewhere along the reform path:
 Reforming legislation
 Establishing new institutions and markets
 Introducing competition to supply and demand
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Electricity Market Reform
 Main driver for liberalisation is encouraging private
sector participation and attracting investment
 Another driver is improving country’s competitiveness
by introducing competition into a key sector of
economy
 There is also desire to reform state-owned
incumbents to improve efficiency
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China
Industry overview
 Large and growing economy
 Electricity market is second largest after US
 Installed generation capacity in excess of 350GW but
per capita consumption low
 Facing supply shortage and associated blackouts
 Transmission system is fragmented
 Surplus supply cannot be moved to where it is needed
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China
Investment requirements
 US$1.9 trillion investment required for electricity
generation by 2030
 Significant investment to build transmission corridors
to move electricity to energy-hungry regions
 Major supply reliability issues
 Central government has put in measures to help
taper investment in high energy consuming industries
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China
Reforms: Pilots
 Trial market project in 1999
 5 provinces + Shanghai
 Objective to allow separation of generation and
grid interests and encourage competitive supply
 The experiment was short lived in all pilot areas
because:
 Increased demand in 2001 that absorbed excess
supply
 Monopoly utilities created unfair competition
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China
Reforms: Next wave
 State Power Corp was broken up in 2002 into 5
generation companies and 2 grid companies
 State regulator established in 2003 – State Electric
Regulatory Commission
 Recent unexpected power shortages have led
government to consider market orientated policies to
attract new investment
 The measures the government is pursuing or has
implemented include:
 Regulatory changes
 Electricity pricing reform
 Investment reform
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India
Industry overview
 100GW of generation capacity by 2012
 Private participation is essential if growth targets to be
met
 Quality, access, theft and subsidies are big issues
 Industrial consumers pay the bulk of the money collected
 Little price signals or incentives for efficient production
and transmission or investment
 State corporations dominate the sector
 They are in various stages of being disaggregated and
will provide building blocks for a market
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India
Reforms: Corporatisation
 1990s – Corporatisation of State Electricity Supply
Boards
 Structured so they could be broken up into potentially
competing generation, transmission and distribution
companies
 Private sector participation in supply
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India
Reforms - Electricity Act 2003
 Eases requirements for private entry into generation
 Opens transmission and distribution to private
participation
 Requires all transmission utilities to provide nondiscriminatory open access
 Proposes a new tariff framework based on
competitive bidding
 Designed to encourage competition in electricity
supply but basic framework for power markets is yet
to be determined
 Requires contracts for new projects to be determined
by competitive bidding
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Japan
 Sector dominated by 9 regional franchises
 J-Power only major player that operates in multiple
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regions
Large consumers are contestable
Mid-sized consumers will become contestable in
2005
Full deregulation is scheduled for 2008
New energy exchange will be established so
generators can price electricity sold onto the national
grid
IPO of J-Power is the biggest in Japan for 6 years
(US$3.4b)
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Korea
 KPX established in 2001 to operate the one-way
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bidding pool based on marginal costs and capacity
payments
Marginal costs are determined by a committee, so
generators can submit only capacity offers, not price
offers
A two-way bidding pool (TWBP) has not yet been
established as planned
Government is rethinking plan to introduce
competition in the power distribution sector
Genco privitisation programme well behind schedule
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Philippines
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Legislation passed in 2001
Renegotiation of PPAs
Regulator and market operator established
Market rules written and systems currently being
developed and implemented
Net pool with distributed utilities required to trade at
least 10% of its total demand from spot market
Locational marginal pricing methodology
Expect market trials to commence in June/July 2005
and commercial operations in December 2005/
January 2006
Process to sell transmission operator and gencos
continues
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Indonesia
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Legislation passed 2002
Tariffs to be increased to economic levels by 2005
Requirement to establish a trial market by 2007
Renegotiation of PPAs
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Singapore
 Market liberalisation programme began in 1995
 Reform designed to promote the supply of
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competitively-priced electricity
New arrangements for wholesale trading commenced
on 1 January 2003
Prices established every half-hour for approximately
400 locations
Recent participation of demand side in reserves
market
Retail contestability for large and medium sized
customers
Full retail competition deferred at this stage
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Key themes in Asia
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Investment requirements are astonishing
Electricity market reform is progressing …slowly
Reform delays in most jurisdictions
About face by Thailand and Malaysia
Investment climate for asset sales yet to improve
Attention also focused on energy security and
diversification due to oil price increase
 If oil prices and shortages bite, focus on reform likely
to resume
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Australia
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NEM operating since 1998
Zonal market but now considering nodal pricing
Bass link will allow participation by Tasmania in 2005
Reform underway in Western Australia
FRC - 5.5m customers are contestable
Likely changes to regulatory structure
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New Zealand
 NZEM operating since 1996
 Establishment of Electricity Commission represents a
major regulatory shift
 Minister and Commission have strong involvement
now whereas before it was a voluntary self-regulated
market
 Implications:
 Mandatory pool
 ‘Dry-year’ supply contracted by Commission
making it a regulator and market participant
 Commission likely to adopt new approaches for
transmission investment and transmission pricing
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