Taking Stock of Wholesale Power Markets in Developing Countries : A Literature Review
Although many developing countries have yet to meet the considerable prerequisites for establishing wholesale power markets, a significant minority of larger middle-income countries have introduced diverse markets in the past 25 years. Cost-based p...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2018
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/992171531321846513/Taking-stock-of-wholesale-power-markets-in-developing-countries-a-literature-review http://hdl.handle.net/10986/29992 |
| Summary: | Although many developing countries have
yet to meet the considerable prerequisites for establishing
wholesale power markets, a significant minority of larger
middle-income countries have introduced diverse markets in
the past 25 years. Cost-based pools proved particularly
popular in Latin America and look to be a more
straightforward starting point than the bid-based pools
adopted in some other jurisdictions. Successful design of
power markets involves paying careful attention to four
guiding principles. First, trading arrangements must ensure
efficient and reliable operation of the market, efficiently
employing available resources not only to balance aggregate
supply and demand, but also to allow congestion management
and supply ancillary services. Second, market design should
ensure strong participation of the demand side of the
market, by allowing large customers to participate directly
in the market, and medium ones to see spot market prices
through time-of-use tariffs. Third, open access to the power
grid should be guaranteed through industry restructuring,
removal of barriers to entry of different players, and
establishment of a neutral system operator. Fourth, a
workable framework for supply adequacy is required to ensure
capacity meets demand without imposing supply constraints.
This may entail complementing efficient energy price signals
with other mechanisms (such as auctions and capacity
obligations) to provide adequate incentives for investment
in new generation capacity. Experience demonstrates that the
early stages of establishing power markets can be
challenging and necessitate the creation of regulatory
mechanisms for market monitoring that can identify and
address emerging design flaws, particularly for abuses of
market power. Countries not yet ready to introduce wholesale
power markets may still benefit from several emerging
regional power markets. Looking ahead, the design of power
markets is becoming increasingly complex due to the
challenges posed by disruptive technologies such as variable
renewable energy, large-scale storage, and increasingly
sophisticated demand-side participation. |
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