Efficient Model for Electricity Industry

Electricity always be the interesting topic in terms of how to promote more efficient industry. I already collected materials from reputable authors and presented in this blog.

• Power generation processes

All of the restructuring proposals hope to encourage a competitive generation sector that is largely free from price and entry regulation. Accordingly, issues associated with diagnosing and mitigating horizontal market power at the generation level are attracting a lot of attention.

Creating a reasonably competitive generation market is certainly an important policy goal. However, creating a perfectly competitive generation market is not a realistic goal. The spatial attributes of generation markets and changing network conditions virtually assure that generation markets will never be perfectly competitive under all system conditions. Clearly, policymakers will have to make some judgment about when there is enough competition so that any remaining costs of imperfect markets are less than the costs of continuing regulation.

• Transmission processes

The business model for transmission must be a single company to control the physical operation of a control area, coordinate generator schedules, balance demand for and supply of generation services flowing over the network in real time and coordinating with neighboring control areas. This process is significantly important and sometimes making difficulties in restructuring power sector. Three approaches can be offered to set up business model in transmission processes:

(i) Complete structural separation of generation, transmission, and distribution by creating separate transmission or grid companies through vertical divestiture of generating plants.

(ii) Functional separation of generation, transmission, and distribution within existing vertically integrated firms-essentially, separating the regulated and competitive portions of the firms into separate divisions. Also combined with open access obligations and access pricing rules for use of the transmission and distribution networks approved and enforced by regulators.

(iii) Embodies the open access and unbundling requirements of the second approach while responding to residual self-dealing concerns without waiting for generation (firm) divestiture to be accomplished.

• Distribution processes

Two basic models that already discussed by Joskow in 1997 for promoting competition in electricity sector are the first is the “portfolio manager model” and the second is the “customer choice”. I summarized those models as follows.