Integrating Independent Power Producers into Emerging Wholesale Power Markets
Many developing and industrial countries have sought to open their electricity industries to competition. In both contexts, policymakers and investors have to deal with the consequences of earlier, more partial sector liberalization measures. Forem...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2001/11/1631745/integrating-independent-power-producers-emerging-wholesale-power-markets http://hdl.handle.net/10986/19499 |
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okr-10986-194992021-04-23T14:03:43Z Integrating Independent Power Producers into Emerging Wholesale Power Markets Woolf, Fiona Halpern, Jonathan BIDDING CHIPS COMPETITIVENESS CONSUMERS DAMAGES DEBT DECISION MAKING DEMAND GROWTH ECONOMIC CONDITIONS FINANCIAL RISK FINANCIAL VIABILITY FIXED COSTS FIXED PRICES GAME THEORY INFLATION INNOVATIONS IPP LEGISLATION LESS DEVELOPED COUNTRIES LIQUIDITY MARKET MARKET DISCIPLINE MARKET FORCES MARKET INTEGRATION MARKET LIBERALIZATION MARKET POWER MARKET RISK MONOPOLIES NETWORKS OPERATING COSTS PENALTIES PRESENT VALUE PRICES PRIVATIZATION PUBLIC POLICY PURCHASING RETAIL SALES SUNK COSTS SUPPLIERS SURPLUS VARIABLE COSTS WELFARE ECONOMICS WHOLESALE TRADE ENERGY PRODUCTION ELECTRICITY TRADE INDEPENDENT POWER PRODUCERS COMPETITION (ECONOMIC) LIQUIDITY CONTRACTS FINANCING PROGRAMS LIBERALIZATION SECTORAL REFORMS CONTRACT NEGOTIATION PRIVATIZATION MONOPOLIES PURCHASE TRANSACTIONS POWER GENERATION MARKET INTEGRATION CONTRACTING WELFARE ECONOMICS WHOLESALE TRADE Many developing and industrial countries have sought to open their electricity industries to competition. In both contexts, policymakers and investors have to deal with the consequences of earlier, more partial sector liberalization measures. Foremost among these is the existence of long-term contracts with independent power producers (IPPs). The long-term nature of these contracts has complicated the introduction of more far-reaching sectoral reform designed to harness competitive market forces for the benefit of consumers. In developing countries, introducing competition is often coupled with breaking up and privatizing state-owned electricity monopolies. In this context, discussion of renegotiation of power purchase agreements has tended toward the polemical. At one end are those who resist any change, arguing that the "sanctity of contracts" precludes modification of contract terms. At the other end are those who favor governments taking coercive measures to modify existing contracts in the name of maximizing economic welfare and minimizing the burden of sector reform on consumers and on the state. Drawing on recent country experiences, the authors analyze alternative approaches to restructuring contracts and designing power markets to reduce rigidities and incentivize IPPs to participate more fully in wholesale power markets and to take on greater market risk. The authors conclude that forced market integration or forced contract negotiation have failed and are counterproductive. Conversely, in countries where IPPs provide a sizable proportion of generation capacity, ignoring market integration may result in insufficient market liquidity and discourage new entry, attenuating the scope for market forces to act for the benefit of consumers. Failure to adapt power purchase contracts and market rules imposes huge resource costs on the economy beyond the financial obligations consumers and taxpayers must bear. Based on recent experience, a combination of measures, including adaptation of specific market rules, contractual alternatives for enhancing market liquidity, contract buyout provisions, transitional financing mechanisms, and characteristics of the successor entity to the power purchaser, offer promising approaches for reconciling preexisting IPP contracts with new market structures and reducing the magnitude of above-market costs associated with such contracts. 2014-08-20T18:07:36Z 2014-08-20T18:07:36Z 2001-11 http://documents.worldbank.org/curated/en/2001/11/1631745/integrating-independent-power-producers-emerging-wholesale-power-markets http://hdl.handle.net/10986/19499 English en_US Policy Research Working Paper;No. 2703 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
BIDDING CHIPS COMPETITIVENESS CONSUMERS DAMAGES DEBT DECISION MAKING DEMAND GROWTH ECONOMIC CONDITIONS FINANCIAL RISK FINANCIAL VIABILITY FIXED COSTS FIXED PRICES GAME THEORY INFLATION INNOVATIONS IPP LEGISLATION LESS DEVELOPED COUNTRIES LIQUIDITY MARKET MARKET DISCIPLINE MARKET FORCES MARKET INTEGRATION MARKET LIBERALIZATION MARKET POWER MARKET RISK MONOPOLIES NETWORKS OPERATING COSTS PENALTIES PRESENT VALUE PRICES PRIVATIZATION PUBLIC POLICY PURCHASING RETAIL SALES SUNK COSTS SUPPLIERS SURPLUS VARIABLE COSTS WELFARE ECONOMICS WHOLESALE TRADE ENERGY PRODUCTION ELECTRICITY TRADE INDEPENDENT POWER PRODUCERS COMPETITION (ECONOMIC) LIQUIDITY CONTRACTS FINANCING PROGRAMS LIBERALIZATION SECTORAL REFORMS CONTRACT NEGOTIATION PRIVATIZATION MONOPOLIES PURCHASE TRANSACTIONS POWER GENERATION MARKET INTEGRATION CONTRACTING WELFARE ECONOMICS WHOLESALE TRADE |
| spellingShingle |
BIDDING CHIPS COMPETITIVENESS CONSUMERS DAMAGES DEBT DECISION MAKING DEMAND GROWTH ECONOMIC CONDITIONS FINANCIAL RISK FINANCIAL VIABILITY FIXED COSTS FIXED PRICES GAME THEORY INFLATION INNOVATIONS IPP LEGISLATION LESS DEVELOPED COUNTRIES LIQUIDITY MARKET MARKET DISCIPLINE MARKET FORCES MARKET INTEGRATION MARKET LIBERALIZATION MARKET POWER MARKET RISK MONOPOLIES NETWORKS OPERATING COSTS PENALTIES PRESENT VALUE PRICES PRIVATIZATION PUBLIC POLICY PURCHASING RETAIL SALES SUNK COSTS SUPPLIERS SURPLUS VARIABLE COSTS WELFARE ECONOMICS WHOLESALE TRADE ENERGY PRODUCTION ELECTRICITY TRADE INDEPENDENT POWER PRODUCERS COMPETITION (ECONOMIC) LIQUIDITY CONTRACTS FINANCING PROGRAMS LIBERALIZATION SECTORAL REFORMS CONTRACT NEGOTIATION PRIVATIZATION MONOPOLIES PURCHASE TRANSACTIONS POWER GENERATION MARKET INTEGRATION CONTRACTING WELFARE ECONOMICS WHOLESALE TRADE Woolf, Fiona Halpern, Jonathan Integrating Independent Power Producers into Emerging Wholesale Power Markets |
| relation |
Policy Research Working Paper;No. 2703 |
| description |
Many developing and industrial countries
have sought to open their electricity industries to
competition. In both contexts, policymakers and investors
have to deal with the consequences of earlier, more partial
sector liberalization measures. Foremost among these is the
existence of long-term contracts with independent power
producers (IPPs). The long-term nature of these contracts
has complicated the introduction of more far-reaching
sectoral reform designed to harness competitive market
forces for the benefit of consumers. In developing
countries, introducing competition is often coupled with
breaking up and privatizing state-owned electricity
monopolies. In this context, discussion of renegotiation of
power purchase agreements has tended toward the polemical.
At one end are those who resist any change, arguing that the
"sanctity of contracts" precludes modification of
contract terms. At the other end are those who favor
governments taking coercive measures to modify existing
contracts in the name of maximizing economic welfare and
minimizing the burden of sector reform on consumers and on
the state. Drawing on recent country experiences, the
authors analyze alternative approaches to restructuring
contracts and designing power markets to reduce rigidities
and incentivize IPPs to participate more fully in wholesale
power markets and to take on greater market risk. The
authors conclude that forced market integration or forced
contract negotiation have failed and are counterproductive.
Conversely, in countries where IPPs provide a sizable
proportion of generation capacity, ignoring market
integration may result in insufficient market liquidity and
discourage new entry, attenuating the scope for market
forces to act for the benefit of consumers. Failure to adapt
power purchase contracts and market rules imposes huge
resource costs on the economy beyond the financial
obligations consumers and taxpayers must bear. Based on
recent experience, a combination of measures, including
adaptation of specific market rules, contractual
alternatives for enhancing market liquidity, contract buyout
provisions, transitional financing mechanisms, and
characteristics of the successor entity to the power
purchaser, offer promising approaches for reconciling
preexisting IPP contracts with new market structures and
reducing the magnitude of above-market costs associated with
such contracts. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Woolf, Fiona Halpern, Jonathan |
| author_facet |
Woolf, Fiona Halpern, Jonathan |
| author_sort |
Woolf, Fiona |
| title |
Integrating Independent Power Producers into Emerging Wholesale Power Markets |
| title_short |
Integrating Independent Power Producers into Emerging Wholesale Power Markets |
| title_full |
Integrating Independent Power Producers into Emerging Wholesale Power Markets |
| title_fullStr |
Integrating Independent Power Producers into Emerging Wholesale Power Markets |
| title_full_unstemmed |
Integrating Independent Power Producers into Emerging Wholesale Power Markets |
| title_sort |
integrating independent power producers into emerging wholesale power markets |
| publisher |
World Bank, Washington, DC |
| publishDate |
2014 |
| url |
http://documents.worldbank.org/curated/en/2001/11/1631745/integrating-independent-power-producers-emerging-wholesale-power-markets http://hdl.handle.net/10986/19499 |
| _version_ |
1764439888572186624 |