Survey of Barriers to Regional Power Trade and Connectivity

SHI Xunpeng, PhDSuzhou, China 7-9; November 2015

Workshop on Energy Connectivity and Transboundary Power TradeIn Asia and the Pacific: Concept, Barriers and Opportunities

Purpose

• identify political, regulatory, financing and technical barriers and challenges

o commonly faced by ESCAP member-States o multilateral projects for RPTC• for an analysis that addresses these issues and

recommends areas for action. • Outcomes will be integrated into the work of ESCAP • in the creation of a standardized methodology and

framework o to facilitate the acceleration of energy generation and

transmission projects by reducing risks and soft costs

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Overview of the literature survey

• Identify barriers in the literature and propose scope for future survey

• More than 100 barriers were identified and they are aggregated into more than 40 groups.

• The literature review not only focuses on material that is relevant to the Asia Pacific countries, but also presents research findings and key issues from other parts of the world.

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Scope of barriers to be studied

• Barriers that are general and can be addressed by energy policy makers

• Not include barriers that are significant only：• at advanced connected stage• when there are full integrated competitive markets

• In the consideration that AP region is still far away

• And to avoid burden respondents• Not include barriers that are• beyond energy policy intervention• Or project specific (optional)

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Barriers to be studied (1)Barriers Barrier elements

Political1 Lack of

political support

Lack of political will (ECA, 2010) or political support (APEC, 2002): domestic focused national priorities (World Bank, 1999)

2 Self-sufficiency policy

Self-sufficient, national focused energy security paradigm (Shi, 2014; Shi and Kimura, 2014), national security strategies (ECA, 2010)

3 Insufficient public support

Lack of public support (investment or guarantee) (RECI, 2000)

Social4 Lack of

public Public fears (APEC, 2002)

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Barriers to be studied (2)Regulatory5 Investment

restrictionLimitation on foreign ownership (Bannister et al., 2008)

6 General trade barriers

Import monopolies and state-trading (exclusive rights) (ECT, 2003), import restrictions on electric good and services (ECT, 2003)

7 Lack of competition

Monopoly market structures, predominantly state-ownership (ECT, 2003)

8 Lack access to transmission

Lack of open access to (cross-border transmission) grids (ECT, 2003),no Third party access (SEETEC Consortium, 2006; World Bank, 1999), capacity allocation issues (SEETEC Consortium, 2006) or monopoly

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Barriers to be studied (3)

Economic and Financial

9 Electricity subsidies

Electricity subsidies or tariff issues (SEETEC Consortium, 2006)

10 Unfriendly investment environment

Instability of economy-wide investment conditions (APEC, 2002), An insecure and unstable legal framework for investors (APEC, 2002; World Economic Forum, 2014), uncertain taxes and royalties (World Bank, 1999), ,

11 Lack of access to capital

Country risks (World Bank, 1999), Poor performance of the state-owned utilities (Mercados Energy Markets et al., 2007),

12 Perception of higher risks

Perception of high risks (Bunn et al., 2006). Risk-aversity of bankers (APEC, 2002)

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Barriers to be studied (4)

Technical13 Uncoordina

ted planning

Uncoordinated (transmission) Planning (World Bank, 1999)/ lack of coordination (ECT, 2003), Lack of an overall (regional transmission development) plan (APEC, 2002), Lack of common policies (APEC, 2002)

14 Incompatible technical standards

Incompatible technical codes, specifications and standards (APEC, 2002), Lack of harmonized technical codes (Mercados Energy Markets et al., 2007; Shi, 2014; World Economic Forum, 2014) or aligning different standards or operating requirements (World Economic Forum, 2014)

15 Lack of expertise

Human resources shortage (World Economic Forum, 2014)

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Barriers may be studied (5)Optional16 Different

cost-benefits framework

Get agreements on sharing the risks, costs and benefits (World Economic Forum, 2014)

17 Insufficient, inappropriate or incompatible framework

Insufficient or inappropriate regulations (Battaglini et al., 2012), Lack of a (commercial/legal/regulatory) framework for transactions to take place or lack of a common legal framework for energy trade (Mercados Energy Markets et al., 2007) / inflexible and incompatible Laws, Regulations and Contracts (World Bank, 1999),or no common framework (World Economic Forum, 2014)

18 Inappropriate enforcement

Enforcement of legal agreements (World Economic Forum, 2014) , cumbersome regulatory/administrative procedures (SEETEC Consortium, 2006), Lack of regulatory capacity and safeguard conditions (Kessides et al., 2008)

19 Lack of regional institutions

Lack of regional institutions or lack of coordination (MercadosEnergy Markets et al., 2007) ,Lack of supranational authority (World Economic Forum, 2014), poor institutional infrastructure (ECA, 2010), lack of Independent Regulators (World Bank, 1999), or lack of transmission organizer (Oseni and Pollitt, 2014)

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InherentProject specific or operational

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Significant only under full integrated markets

20) Lack of trading mechanisms (Mercados Energy Markets et al., 2007) or Incompatible electricity trading systems (APEC, 2002)

21) A lack of competitive market (Yun and Zhang, 2006)

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Incompatible market design: Different market structure and market strategies of power suppliers (Lytvyn and Hewitt, 2003) /Differences in gate-closure times (Bahar and Sauvage, 2013b) / Market Concentration and Vertical Foreclosure (SEETEC Consortium, 2006)

23) Access to (domestic) markets/ access to (domestic) transmission and distribution networks (ECT, 2003)

24) access to consumers or the freedom of consumers to choose suppliers (ECT, 2003) or Access to foreign customers (ECT, 2003)

25) Existing of old long term commercial contracts (Bakonyi and Grabner, 2008)

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Inherent

26)Challenging geographical and natural environment (UN-DESA, 2006), Non-adjacent regions (ECT, 2003)

27) National rivalries and related distrust, powerful interest groups, corruption (UN-DESA, 2006), Corrupt practices (APEC, 2002)

28) Disparity in the countries’ power sector size (Mercados Energy Markets et al., 2007)

29) Weaknesses of the national grids (Mercados Energy Markets et al., 2007)

30) Risks of political changes (World Economic Forum, 2014)

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Project specific or operational （1）

31) Overcome national interests in staffing regional organizations (World Economic Forum, 2014)

32) Different (commercial) procedures (World Economic Forum, 2014)

33) Build trusting relationships, regardless of political or historical differences (World Economic Forum, 2014)

34) Overcome language barriers (World Economic Forum, 2014)

35)Coordinate a large number and variety of stakeholders with diversified interests (World Economic Forum, 2014)

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Project specific or operational （2）

36) Non-payment dispute (ECT, 2003)

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Align the distinctive national agendas, and ensure all participating countries have appropriate ownership of the program (World Economic Forum, 2014), Coordinate responsibilities within and between the participating countries (World Economic Forum, 2014)

38) Lack of feasibility of interconnection of transmission lines (Shi, 2014)

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Lack of (cross boarder transmission) infrastructure (MercadosEnergy Markets et al., 2007) / insufficient transmission capacity (World Bank, 1999) /Insufficient Transmission Facilities (World Bank, 1999), Cross-border transmission congestion (APEC, 2002)/ lack of Interconnections (ECT, 2003)

40) Poor transmission capacity management (Oseni and Pollitt, 2014) or lack of compatibility between the systems (ECT, 2003)

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Project specific or operational （3）

41)

Lack of agreement on the transmission tariffs (MercadosEnergy Markets et al., 2007) or Incompatible transmission pricing systems (APEC, 2002) / different transmission-tariff policy (Bahar and Sauvage, 2013b) or undeveloped transmission tariffs (World Bank, 1999), or Cross-border fees (Bahar and Sauvage, 2013a)

42)Difficulty in obtaining project financing for cross–border transmission interconnections (Mercados Energy Markets et al., 2007)

43) Structure a supranational business unit (World Economic Forum, 2014)

44) Establish an optimal financing structure (World Economic Forum, 2014)

45) Structure the financing when different currencies are involved (World Economic Forum, 2014)

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About the survey

Component• Basis information • Quantitative assessment (identify top barriers)• Qualitative assessment (identify understanding

of each barrier)

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Basis information (1)

• 01. Social economic characteristics o Population, GDP; Energy demand, production, Electricity demand

(by Sector); Electrification rate and adequacy of electricity supply

• 02. Resource endowment, electricity installed capacity and generation

• 03. Power infrastructure o (a) Grid capacity, voltage level and length of transmission lines.o (b) Growth trends in transmission line constructiono (c) Power Outrage Frequency (year of data, definition of outrage

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Basis information (2)

• 04. Interconnectivityo (a) Current interconnections to other countries, and their

importing/exporting capacity o (b) Current agreements regarding energy and power trade and

their challenges, if any.

• 05. Policy and institutions, investment environments, organizational restructuring

o （a） Laws and regulations, and institutional arrangemento -governing the power sector.o (b)----relevant to investment environmental in general and to

electricity in particular.o (c) The organizational structuring power sector

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Basis information (3)

• ! Please kindly help us identify official national sources of these data points so that we can continuously update our publications with the most recent official data on our own.

• ! You may provide us with relevant annual report sources (link) so we can research for ourselves.

• !Please kindly provide contact information of focus persons for further communication at the national level. More contact points are better.

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Quantitative assessment (1)

• 1. (a) Please list the top 5 barriers in descending order: , , , , .

•• (b) Please rate the following barriers on a scale

of 1 to 5, with 1 being the lowest barrier and 5 the highest barrier.

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Barriers in the literature-Political and social

Barriers Explanation or examples ScalePolitical1 Lack of political

supportLack of political will or political support to promote interconnections; government policy does not support interconnections;national priorities are on domestic issues and have not considered RPTC

2 Self-sufficiency policy

Existing of self-sufficient targets to pursue national energy security

3 Insufficient public support

lack of support measures, such as tax exemption, credits or rebates, fiscal incentives, and government guarantee to improve the financial feasibility.

Social4 Lack of public

acceptancePeople may have fears of being unfairly treated by the economic arrangements related to interconnectionOther stakeholders (utilities, unions, etc) may not welcome them for vested interests.

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Barriers in the literature-RegulatoryRegulatory5 Investment

restrictionLimit foreign ownership into the mining and energy sector. Restriction on foreign or private investment into the electricity sector

6 General trade barriers

Import monopolies and state trading, will affect both electricity imports and trade in electricity-related servicesdiscriminatory treatment of foreign countries in electricty trade and services

7 Lack of competition

High degree of national market monopolization, such as vertical integration of generation and retailing

8 Lack access to transmission

bundled transmission without TPAor unbundled transmission without transparent and reasonable tarriff

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Barriers in the literature-Economic and Financial

Economic and Financial9 Electricity

subsidiesElectricity subsidies

10 Unfriendly investment environment

Private sector investment is not welcomepolicy is retrospective, such as revoking past favorable policy to renewable energylack of trustable depute settlement mechanisms

11 Lack of access to capital

Low creditability in the international financial marketsPoor performance of utilitiesLimit domestic financial resources

12 Perception of higher risks

Bankers often perceive the risk of TRPC projects at higher level than they actual have

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Barriers in the literature-Technical

Technical13 Uncoordinat

ed planningUncoordinated planning with other countries in RPTC

14 Incompatible technical standards

Incompatible standards, specifications and protocols , and even consumer protection policy with other countries in the potential RTPC

15 Lack of expertise

Lack of qualified human resources or institutions to manage integration of “regional market”

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Barriers in the literature-Optional

Regional common issue matter only in advanced stage stage

16 Different cost-benefits framework

Quantifying the costs and benefits, valuing externalities, and distributing them fairly across the countries involved are controversial and often lead to underdevelopment of transnational projects Different scope/boundary of defining the costs and benefits

17 Insufficient, inappropriate or incompatible framework

lack of a framework to overcome barriers from differences in the countries’ commercial frameworks regarding exporting/importing electricity, such as taxation.

18 Inappropriate enforcement

An absence of law enforcement and dispute settlement mechanism for international trade mechanisms

19 Lack of regional institutions

Lack of institutions to give regional trading political legitimacy and to play the coordinating and energy trade enhancement role Exist several institutions with overlapping interests and fields of intervention that require coordination

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Quantitative assessment (2)

• Please rate the following categories of barriers on a scale of 1 to 5, with 1 being the lowest barrier and 5 the highest barrier.

Barriers Examples/Explanation scalePolitical Views of top leaders; self-sufficiency policySocial Public acceptanceTechnical barrier

Incompatible standards; uncoordinated planning, etc.

Regulatory barrier

Investment limitations, lack of competition, trade barriers

Economic and Financial

Electricity subsidies, lack of aces to capital, uncertain laws and regulations, insufficient public support.

Geological barrier

(e.g., remote/archipelago/ mountainous location / site selection)

Others (please specify):____________________________________

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Qualitative assessment –Political• Lack of political support• What do you think your government’s polity and/or leaders’

attitude towards RPTC: supportive, neutral or negative? Please give example and cite evidence (policy, speech or regulation) when appropriate.

• Self-sufficiency policy• (a) Do you have any targets for self-sufficiency of energy and/or electricity?

• (b) Do you have any other policy, regulations and practice that may limit import

electricity?

• Insufficient public support • (a)Does the government try to manage risks in order to encourage private

investment with lower rate of return?• (b)What kinds of fiscal, legal or policy support in your country could be applied to

RPTC? • (c) What other fiscal and tax support should be set to support RPTC？

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Qualitative assessment-Social

Social• Lack of public acceptance • Are there any public discussions on RPTC? If not, why?

• If yes, what are the opinions on RPTC among key stakeholders: electricity industry (divided into sub groups if they are difference, for example, between state unities and private investors), academy, government and the public?

• Is the public informed of RPTC? If applicable, what would think is the attitude of mainstream attitude?

•

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Qualitative assessment—Regulatory (1)

Regulatory • Investment restriction • (a) Do you have any restrictions on foreign investment that may

apply to the electricity sector? Such as limitation to investment in electricity production, transmission, distribution, limitation of foreign ownership, etc.

• (b) Is private equity investment actively being restricted? being sought?

• General trade barriers• (a) Where are there exclusive rights (limitation) for electricity

import?• (b) If no, what kinds of who are allowed to import electricity? • (c) What are the requirements for a foreign companies to provide

services to the electricity sector, if there are not prohibited to do so?

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Qualitative assessment– Regulatory (2)

Regulatory • Lack of competition • (a) Is the electricity sector unbundled (any separation among

production, transmission, distribution, retailing)?• (b) If yes, what is the ownership structure (state, private

(domestic, foreign) by segment (production, transmission, distribution, and retailing)?

•• Lack access to transmission • (a) if the transmission is integrated, do you have regulations on

Third Party Access? • (b) Whether this is transmission tariff? If yes, how was that

determined?

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Qualitative assessment–Economic and Financial• Electricity subsidies• (a) Do you have electricity subsidies? If yes, please briefly summary your subsidy

policy (who are eligible and at which level of subsidies).• (b)Do you have cross subsidies? Please briefly explain, if yes?

• Unfriendly investment environment• (a) What are the barriers to private sector investment, including risks?

• (b) Whether significant political or policy changes have happened in the past ten years? In particular, have there been past retroactive energy generation tariff changes that would scare away renewable energy IPPs?

• (c) Is there are dispute settlement mechanism (including arbitration and litigation) that is generally trust by investors?

• Lack of access to capital• (a) What are the credit ranking of your country? What are the debt-GDP ratio? Any

challenges in your national fiscal condition?• (b) What are the challenge in financing RPTC projects in your country? • (c) Have you had any PPP projects? If yes, please provide brief information. • (d) Whether your utilities are in financial loss? Please provide a brief explanation?

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Qualitative assessment–Technical

• Uncoordinated planning• (a) Do your country have potential to develop RPTC given current technical and

economic conditions? • (b) IF yes, has your country been discussed this with potential partner (s)? • (c) Any regular channel (such as policy dialogue or meetings of utilities) to

exchange information about interconnection plan?

• Incompatible standards• Are they any different in technical standards between your country and

neighboring countries that will create barriers for RPTC? What are they, if applicable?

• Lack of expertise• Assuming there is a RPTC project, whether you think shortage of skilled personnel

would be a challenge in your country? If yes, please list three examples of skill personnel in shortage.

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Qualitative assessment–Optional

• Lack of a legal/regulatory framework• Are you aware the legal/regulatory framework that is needed for

RTPC? If yes, what essential parts are missed for a bilateral trade? For trade in more than two countries?

• Inappropriate enforcement• Where kinds of enforcement issues of laws and regulations will be

a barrier for RPTC in your country? Brief explain reasons.

• Lack of regional institutions• What are the regional institutions (such as office meetings,

regional integration architecture) that can be used to build up RPTC? Are they sufficient? Or too much?

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Thank you!

Energy Studies Institute29 Heng Mui Keng TerraceBlock A, #10-01Singapore 119620

For enquiries:Dr Xunpeng SHI

Tel: (65) 6516 5360Fax: (65) 6775 1831Email: shi@nus.edu.sg

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