IEN OCCASIONAL PAPER NO. 10 February 1997 1O Bulk Electricity Pricing in Restructured Markets Lessons for Developing Countries from Eight Case Studies Robin W Bates and London Economics (Consultants) Joint United Nations Developmenl Programme / World Bank g^ ~The World Bank [7 E1 -V , C A P K-> Industry and Energy Department EnergA eto Maa A Pr E-egy S..t.r M-9-emet assistanc . . . -. m- IEN OCCASIONAL PAPER NO. 10 February 1997 Bulk Electricity Pricing in Restructured Markets Lessons for Developing Countries from Eight Case Studies Robin W Bates and London Economics (Consultants) Joint UNDP/World Bank The World Bank ESMAP Industry and Energy Department Energy Sector Management Assistance Programme Bulk Electricity Pricing in Restructured Markets Cover: Power substation, Rajasthan, India. Adaptedfrom a photograph by Curt Carnemark. ii Lessons for Developing Countries from Eight Case Studies Contents Preface v Acknowledgments vi Abbreviations and Acronyms vii 1. Background 1 Why Developing Countries Are Restructuring 1 How Developing Countries Are Restructuring 1 2. Methodology for the Work 3 An Approach Based on Eight Case Studies 3 Characteristics of the Case-Study Systems 3 Institutional Structures of the Case Studies 3 3. Main Issues Illuminated by the Case Studies 5 1. Setting of Bulk Supply Prices for Generation 5 2. Contracts and Economic Efficiency 7 3. Pricing of Transmission Services 9 4. Adequacy of Investment 10 5. Potential Problems with Regard to System Size and Transactions Costs 12 4 Conclusions 15 References 17 Energy Publications 19 iii Preface In November 1992, the World Bank's Board of Directors tralization, and privatization. Bulk electricity pricing ap- approved a single set of"good practice" principles for the pears to be a crucial factor that will determine the success power sector, outlined in two Bank Board papers (World and sustainability of restructuring, since it plays the major Bank 1993a,b). The Bank announced that it would lend for role in the profitability and financing of generation and trans- electric power only where countries had demonstrated a mission and the allocation of economic resources between commitment to effective operation in the sector, as evidenced alternative investments, including their location. by a resolve to achieve six key objectives: (1) transparent regulation; (2) commercialization and corporatization; (3) Recognizing this need for information, the Bank imple- importation of electric power services,both from developed mented a study of the pricing of bulk electricity supplies in and more advanced developing countries; (4) private involve- restructured markets. The work focused on countries where ment; (5) market pricing; and (6) demand management. the reform process has already made substantial advances: the United Kingdom, Norway, the United States, and Chile. In light of the 1992 papers, and given the continuing efforts Field work for case studies was carried out in 1994 under of countries around the world to reform their sectors in line financing from the World Bank and the U.K. Overseas De- with these principles, the Bank saw substantial value in sur- velopment Administration, directly and through the Joint veying and reporting on the experiences of both developed UNDP/World Bank Energy Sector Management Assistance and developing countries with the process. A compilation Programme (ESMAP). of empirical and anecdotal information on the problems, perceptions, and successes of countries that had completed The ESMALP task manager was Robin Bates, principal en- or were still pursuing power sector reforms could be useful ergy economist in the Industry and Energy Department, to countries contemplating or initiating reforms oftheir own Power Development, Efficiency and Household Fuels Divi- development strategies, institutions, and pricing policies for sion, of the World Bank. London Economics was the main the sector. The results of an information-gathering effort, it consultant. The London Economics team was directed by was felt, would also be useful as feedback to World Bank Michael Webb and included Jamie Carstairs, Seabron staff involved in assistance and lending to the power sector. Adamson, Gil Yarron, David Harbord, and Nils Henrik Morch von der Fehr. Umesh Chandra contributed to the An effort to update the documentation of sector reform sections on investment and small systems. efforts-particularly with regard to bulk electricity pricing- was seen as particularly important now. Although electric- The full study is available in three volumes (London Eco- ity pricing is well understood in the context of traditional, nomics 1995). The present paper is intended to highlight monopolistic state-owned enterprises, this is not so where the principal results in briefer and somewhat less technical power utilities are undergoing commercialization, decen- form. v Acknowledgments T he authors gratefully acknowledge the generous sup- through to completion of the final report, including Karl port of many individuals in all the countries covered Jechoutek, Trevor Byer, John Besant-Jones, Hernan Garcia, by the case studies. The assistance they gave freely to the Peter Cordukes, Lazlo Lovei, Manuel Dussan, Jean-Pierre World Bank and London Economics team in carrying out Charpentier, Rafael Moscote, Bernard Tenenbaum, and the field work was literally invaluable. Acknowledgments Henri Bretaudeau. Thanks also go to Paul Wolman for ed- are also made for the advice, support, and comments of nu- iting and managing the production of the paper. merous World Bank staff from inception of the work right vi Abbreviations and Acronyms CFD contract for differences MAPP Mid-Continent Area Power Pool (United CNE Conisi6n Nacional de Energia (National States) Energy Comrmission; Chile) MW megawatt CDEC-SIC Centro de Despacho Econ6mico de Carga - NEPOOL New England Power Pool (United States) Sistema Interconectado Central (Economic NIE Northern Ireland Electric Load Dispatch Center of the Central PPM power procurement manager Interconnected System; Chile) PPP pool purchase price ESMAP Energy Sector Management Assistance PSP pool selling price Programme REC Regional Electricity Companies (U.K.) FCG Florida Coordinating Group (United States) SHE Scottish Hydro-Electric FERC Federal Energy Regulatory Commission SP Scottish Power (United States) SIC Sistema Interconectado Central (Central IPP independent power producer Interconnected System; Chile) kW kilowatt SMP system marginal price LOLP loss-of-load probability SRMC short-run marginal cost LRMC long-run marginal cost UNDP United Nations Development Programme vii 1. Background G overnments in various parts of the world, including Generation projects were not necessarily selected according those in developing countries, are now reforming their to least-cost criteria. Prices were often influenced by politi- power sectors in order to strengthen their performance. The cal considerations. Cross-subsidizations among consumers goals are to improve the extent to which the sector covers and supply functions were common. Thus, despite utilities' its costs, the efficiency with which it produces electricity continuing need for self-sustaining income, average real and delivers it to consumers, and the efficiency with which power tariffi in developing countries were allowed to fal the consumers themselves use the power. Experience in from USą5.2/kilowatt hour (kWh) to USą3.8/kWh between different parts of the world has demonstrated that large per- 1979 and 1988. Financial performance declined commen- formance improvements in the production, delivery, and con- surately: for example, rates of return on assets fell from levels sumption of electricity are difficult or impossible to achieve averaging 9 percent before the mid-1970s to less than 5 without reform. The restructuring of electricity markets is percent by the beginning of the 1990s (World Bank 1993b, an essential ingredient of the reform process. p. 12). Not surprisingly, the quality of service suffered, tech- nical and nontechnical losses and fuel consumption remained Why Developing Countries Are Restructuring high, and poor maintenance persisted. At the same time, the macroeconomic situations in developing countries deterio- Traditionally, the power sectors of developing countries were rated. In particular, it was evident that high-priority social structured as vertically integrated public monopolies-that needs were competing for limited budgets and would se- is, as a single national electric utility operating generation, verely reduce the availability of public funds to finance the transmission, distribution, and supply in a fully integrated mounting need for planned power sector investments. In ("bundled") system. The economic theory underlying this fact, theWorld Bank estimated that about US$1 trillion would model of sector structure posits that the central authority is be needed to finance expansion programs for electric utili- best placed to construct and operate generating plants at ties in the developing countries in the 1990s, and this figure least cost and to ensure that investment takes place on a was seen as approaching US$2 trillion in the first decade of scale sufficient to satisfy final demand. Underlying the op- the next century (Stern 1995). timization process is the assumption that investment deci- sions rely on a discount rate that reflects the opportunity How Developing Countries Are Restructuring cost of capital. Prices at each voltage level are set on the basis of long-run marginal cost (LRMC), taking into ac- More and more governments in developing countries have count time-of-day and seasonal factors as well as geographi- recognized that the traditional model for the market struc- cal variations in cost. A model emphasizing the state's ture of power sectors is essentially unsustainable. Reform overarching role has been attractive to governments in de- and restructuring efforts therefore have focused on the cen- veloped and developing countries because of the highly il- tral institutional deficiency in the traditional model-that liquid nature of investments in electricity plant, the lengthy public sector monopolies are treated as a direct extension of gestation of system planning and construction, the relatively government, preventing distinctions from being made be- long life of assets, the scarcity of technical and managerial tween the functions of ownership, regulation, and manage- skills to operate complex power systems, and the interde- ment. Recognizing that the blurring of these functions has pendence of plant operations in an electrical network. largely subverted competition, governmnents in LatinAmerica, Asia, Africa, and Central Europe have sought to restructure Unfortunately, the traditional model in practice often did their electricity markets. Centers of activity include Chile not live up to its theoretical promise. Problems arose in and Argentina; Malaysia, the Philippines, and the Indian state estimating basic parameters (e.g., demand and fuel prices). of Orissa; Ghana and Morocco; and Turkey, Hungary, and 1 Bulk Electricity Pricing in Restructured Markets Ukraine. Except for Chile, which had completed its re- ers and several distribution entities-can provide electricity forms by 1988 and is regarded as a pioneer in restructuring, to final consumers, at least on a geographical basis. Where the reformers have relied substantially on the experience in the state retains monopoly ownership of the transmission the United Kingdom, the United States, and Norway in and distribution system, independent power producers (IPPs) seeking alternatives to the traditional model. can sell to a state purchasing monopoly. Countries that are restructuring have typically sought two A further dimension of competition achieved through un- fundamental institutional changes: the removal of govern- bundling is that it can foster international electricity trade. ment from key decisionmaking areas; and greater competi- In a public monopoly market, political considerations are tion (Bacon 1995, p.1). The former change can start with likely to overshadow commercial ones, and that tends to the commercialization and corporatization of the vertically eliminate a potential driving force for international inter- integrated public monopoly. Toward that end, management connections-seeking a commercial advantage by buying must be required to establish independent cost and profit and selling electricity on the international market. centers within the company; pay interest and taxes; earn commercially competitive rates of return on equity; and face It should be noted, however, that effective vertical and hori- hard budget constraints. In turn, management must have zontal unbundling are feasible only when systems are of a some independence in personnel policies, notably in hiring certain minimal size. The power systems of many develop- and firing and in setting wages and salaries. Management ing countries may simply be too small to support full un- also must have the autonomy to carry out procurement on bundling. A recent Industry and Energy Department study commercial principles and to set prices, within regulatory noted that 107 countries had total net public capacities be- requirements. The government can remove itself even fur- low 1,000 MW in 1990, including 60 with capacities below ther from the arena by privatizing some or all of the elec- 150 MW and 30 with between 150 MW and 500 MW tricity sector. (Bacon 1995, p. 3). Although commercialization, corporatization, or privatization Of course, effective restructuring of power markets of any of a public monopoly can, in itself, increase efficiency and size cannot take place without proper regulation, and that improve resource allocation, further gains are anticipated from remains an appropriate role for government. It is a the introduction of competition through the unbundling of government's responsibility to protect the interests of con- power system components. Vertical unbundling involves the sumers and to set the rules of the game so that private inves- separation of two or more parts of the integrated system: tors can have sufficient confidence to enter the sector. The generation, transmission, distribution (sometimes called "the government must ensure competition; and, where competi- wires business") and supply (sales to final consumers). Hori- tion is weak or absent, it will need to play some role in zontal unbundling could in principle cover one or more setting prices and conditions of service, such as in distribu- entities in generation, distribution, and supply. Transmission tion and transmission. usually is not included here; it is regarded as a natural mo- nopoly because of the need to preserve integrated electrical Finally, if efficiency and reduced transaction costs are to re- operation and the importance of economies of scale. sult from unbundling, transparent relations must be intro- duced between generation, transmission, and distribution, At the generation level, horizontal unbundling allows power in terms of the pricing of generation and transmission ser- plants to compete with one another for sales, at least to major vices and in terms of mechanisms to ensure the adequacy of consumers. Of course, intermediaries-brokers or suppli- new investments. 2 2. Methodology for the Work A s noted in the preface, the research for this paper was The generation technologies adopted in the systems were motivated first of all by the perceived need to cast more also important, as they affected the costs and operating char- light on the variety of ways in which restructuring and re- acteristics. The smallest case (Northern Ireland) and the vised pricing processes have been implemented in various largest (England and Wales) were effectively all thermal, al- parts of the world. though the latter had some pump storage. The Norwegian power sector was mainly based on hydroelectric generation. An Approach Based on Eight Case Studies Chile also had a high share of hydropower, accounting for 70 percent of capacity, whereas Scotland's share was only The methodology of the study was to select case studies for about 20 percent. The cases in the United States varied eight power systems in four countries: the United King- widely in technology: MAPP had 65 percent coal-fired ca- dom, the United States, Norway, and Chile. These coun- pacity in the United States proper, but 71 percent was hy- tries were chosen partly because their reform processes were droelectric in Canada; NEPOOL had 40 percent nuclear judged to have proceeded far enough to provide an adequate capacity; and the FCG was dominated by thermal capacity empirical basis for conclusions about other countries. Al- that included coal, oil, and gas. though only Chile among the study countries could be char- acterized as "developing," the sample collectively comprises Institutional Structures of the Case Studies a wide range of relatively recent experiences, and the cases are often cited as models of reform in the power sector. In The institutional structures of the power sectors chosen for addition to the systeni in Norway, the cases covered Chile's the case studies were irnportant because they had a profound Central Interconnected System (Sistema Interconectado effect on the approaches to pricing. If power sectors are ver- Central; SIC); three systems in the United Kingdom (En- tically separated, and in particular if generation and transmis- gland andWales, Northern Ireland, and Scotland); and three sion are separated, then some form of commercial arrange- in the United States (the Mid-Continent Area Power Pool, ment is needed for bulk generation. If the generation sector MAPP; the New England Power Pool, NEPOOL; and the is horizontally separated-that is, if several generation com- Florida Coordinating Group, FCG). The analysis was con- panies or cost centers with reasonably similar SRMCs are in fined to bulk pricing issues because experience with market operation-then scope is available for allowing competition restructuring in these countries and elsewhere has been much to govern pricing in generation and supply, as opposed to more limited with regard to small consumers. some more administrative approach to pricing. Characteristics of the Case-Study Systems All ofthe case studies had some degree of unbundling. How- ever, some case studies retained a substantial amount of verti- The sizes of the power sectors chosen for the case studies cal integration, sometimes by design and sometimes not. Scot- were important, because they governed the options for com- land has two vertically integrated utilities, although the gen- petition in bulk generation. The smallest power sector exam- eration, transmission, distribution, and supply businesses were ined was Northern Ireland, with 2,400 MW installed. Chile required to prepare independent regulatory accounts. All the was also relatively small, with 5,000 MW. Scotland had 12,000 U.S. pools also exhibited some degree of vertical integration. MW, although peak demand was only about 5,700 MW The However, in an interesting variation, the FCG had the high- other power sectors were much larger: in the range 25,000 to est degree of vertical integration, with only limited trade at 42,000 MW for the three U.S. systems; 27,000 MW for Nor- the margin. NEPOOL, on the other hand, adopted central- way; and 55,000 MW in England and Wales. ized dispatch, with an important role for trade. Norway had 3 Bulk Electricity Pricing in Restructured Markets a mixed system, including a large number of vertically inte- The power sectors examined were mainly in private own- grated utilities that maintained separate accounts for the dif- ership, although public ownership was not always excluded. ferent functions. England and Wales, Northern Ireland, and Generation was partly publicly owned in Chile, England Chile all had a relatively high degree ofvertical separation. In and Wales, Scotland, and Norway, as was transmission in some cases, concerns arose about the possibility that vertical Norway. Distribution was partly in public hands in Norway reintegration would affect the approach taken to bulk pric- and the United States. The reform process itself was also of ing. For example, in England and Wales, the Regional Elec- interest. Some countries had made major changes in their tricity Companies (RECs), which were responsible for dis- approach to the power sector, whereas others had adopted a tribution, had made investments in generation. In Chile, more gradual approach. The objectives of power sector re- the largest generator also owned transmission. form also appeared to vary. Although the prime goal was usually raising finance, and sometimes increasing efficiency, The degree of horizontal integration also underpins the ap- the United States had a particular focus on reliability. proach to bulk pricing. If several generators with reason- ably similar operating costs are in the market, then the bulk Both Norway and England and Wales introduced "open" price can be set through competition. Within the case stud- pools; that is, they created bulk power trading systems that ies, England and Wales and Norway had gone furthest in allowed customers and traders as well as generators to join. introducing competition in generation. In both cases, con- In Norway, this represented less of a sea change, since its cerns surfaced about undue market power. In England and system developed from a generator trading arrangement Wales, the two largest producers-National Power and designed to optimize energy storage levels within a hydro- PowerGen, with about 47 percent and 32 percent of total electric system. In addition, considerable public ownership capacity, respectively-dominated generation. In Norway, was retained. In England and Wales, market reforms were the largest producer-Statkraft, with about 30 percent of introduced in connection with other changes, including capacity-displayed considerable market power. In Chile, privatization of all generation capacity other than nuclear. 46 percent of generation was owned by one group. In Chile and the United States pursued more gradual reform. none of the cases had horizontal unbundling yielded full competition at the retail level. Nevertheless, in England In all cases, however, the sectors continued to make adjust- and Wales, Chile, and Norway, power producers did com- ments to market structures. These adjustments are probably pete to supply large final consumers (at that time defined occurring most rapidly in the United States at present, as as having loads above 100 kW in England and Wales and 2 increasing competition at the retail level is causing major MW in Chile). changes in market structure and regulation. 4 3. Main Issues Illuminated by the Case Studies T he eight case studies served to cast light on five crucial the margin, it will cost as much to dispatch existing plant issues with regard to unbundled systems: (1) setting of (counting only its operating costs) as new plant (counting bulk supply prices for generation; (2) contracts and their both operating and investment costs),in the sense that at the relationship with economic efficiency in operation; (3) pric- margin the operating cost savings of new plant will just off- ing of transmission services; (4) adequacy of investment on set its investment cost. This section examines how two types the scale required to satisfy demand, given the long gesta- of restructured markets may or may not lead to the eco- tion of projects and the high profile of electricity supply in nomically efficient dispatch of generating plants. Issues re- the political economies of developing countries; (5) poten- lated to investment are considered later. tial problems with regard to system size and transaction costs. Power Pools: The England and Wales System The main findings with regard to these five basic questions are outlined in the subsections below. However, it must be Power pools based on competitive bidding are presumed to emphasized that practices for bulk pricing in competitive lead to optimal dispatch decisions because spot prices should markets are evolving rapidly. The findings reported here be driven down to the level of SRMC. The need for formal were valid in 1995, but important changes are under way- regulation of bulk electricity prices is reduced to a mini- for example, in the U. S. and the U.K. electricity markets. mum and largely replaced by market forces. The system in Valuable experience is also accumulating in other countries, England andWales is frequently cited as a favorable example notably Argentina. These developments may mean that the ofthis type of bulk power pricing (although even there prob- specifics of the descriptions given in the eight case studies lems have arisen). In the pool system, power is sold into the may not apply exactly to those eight systems today, but they pool at half-hourly intervals at the pool purchase price (PPP), should not invalidate the paper's historical findings. which is the main component of generator pool revenues. Power is bought from the pool by suppliers-principally 1. Setting of Bulk Supply Prices for Generation the RECs, but also by large consumers-at the pool selling price (PSP). The PPP has two components: the system mar- As noted, the calculation of LRMCs plays a significant role in ginal price (SMP) and a payment related to the loss-of-load pricing decisions in the traditional model of the power sector. probability (LOLP). The latter is a capacity payment designed However, the prices that would emerge from such a calcula- to cover the capital costs of providing sufficient capacity to tion are essentially theoretical, even where sophisticated simula- maintain system security-that is, to avoid loss of load. Both tion techniques are used. In unbundled systems, in contrast, components of the PPP are paid to each generating unit bulk supply prices for generation result from market forces dispatched and running in any particular half-hour. The and commercial considerations. It should be noted, though, difference between the PPP and the PSP, called the uplift, is that the process varied widely in the case studies. paid to specific generators to cover the costs of (1) transmis- sion losses; (2) any ancillary services, such as frequency con- From an economic point of view, market forces will pro- trol and reactive power, that they may be called on to pro- duce an efficient solution if bulk electricity prices lead to vide; (3) sets scheduled to provide reserve; (4) sets available the least-cost operation of the power system, in terms of the but not scheduled for energy or reserve; and (5) sets run or optimal dispatch of generating plants in the short run and not run as a result of transmission constraints that otherwise the level and mix of power plant investment in the long run. would not or would have been dispatched. In the short run, optimal dispatch should be by merit order, based on short-run marginal cost (SRMC). In a fully opti- Such a bidding system will meet the objectives of least-cost mized power system, SRMCs and LRMCs are equalized: at dispatch, provided that bids are at SRMC and constraints 5 Bulk Electricity Pricing in Restructured Markets on transmission capacity do not prevent generating plants ing to meet demand-mainly because of the threat of ex- from operating according to merit order. However, in En- ceptionally dry years and the consequent lack of hydroelec- gland andWales bids apparently could be lifted above SRMC tric power. Data on hydrological conditions over the past for substantial periods because of the dominance of the two 40 years are used to simulate the range of likely future sys- largest generators. As a result, the regulator intervened in tem operating conditions. Possible SRMCs range between the market in two ways: (1) by introducing an effective price zero (when no thermal plant is run and water would be cap on the pool price for electricity, indicating that com- spillecd) and the cost of anticipated outages (whcn no hydro- petition could not be relied on to minimize costs (the price electric peaking plant could be run). cap was removed in 1996); and (2) exerting pressure on the generators to sell capacity and create a more competitive SRMN4C affects bulk electricity prices in the Chilean elec- market. Inefficient pricing of transmission has also "con- tricity market in three important ways. First, it forms the strained on" high-cost generating plant. basis for the decisions ofthe Economic Load Dispatch Center for the Central Interconnected System (Centro de Despacho An "Intermediate" Approach: The Chilean System Econ6mico de Carga - Sistema Interconectado Central; CDEC-SIC). In operating the pool, CDEC dispatches only A particularly interesting approach that can be character- those generating units with audited costs below the SRMC ized as intermediate between the traditional power sector to meet demand. An important corollary is that, fundamen- model and the highly competitive pool approach has been tally, the optimality of dispatch decisions depends on CNE's implemented in Chile. The Chilean model attempts to set evaluation of the opportunity cost of stored water and the the marginal value of power and energy without the use of accuracy of audited costs rather than on the market test of competitive bidding. Under the model, generators receive competitive costs. Second, generators are permitted to buy separate payments for energy and power, both of which are and sell energy from each other through the pool, at the based on reference costs. Furthermore, the model is based SRMC. Third, the SRMC is a key reference point for the on two types of final consumer: "free clients" (i.e., those regulated bulk price for sales of electricity to distributors. with at least 2 MW of demand) are theoretically permitted to purchase from any generator or distributor; "small cus- The SRMC is used to determine the regulated bulk energy tomers" (i.e., those with less than 2 MW of demand) must price in the following way. The projected four-year weighted buy from their local distributor at a regulated price. The average SRMC is published by the CNE every April and distributor, in turn, purchases from a generator at a regu- October. Within this six-month period it is fixed, unless lated bulk price, the node price, inflation exceeds 10 percent (triggering automatic index- ation). Thus, the regulated bulk energy price is the weighted The key energy pricing mechanism in the Chilean model is average of the projected SRMC over a 48-month period. It a theoretical calculation of the system SR-MC. The calcula- will be apparent that a major determinant of the forecast tion is made, on an hourly basis, by an independent regula- SRMC is the expected availability of water. It is important tory authority, the National Energy Comnmission (Comisi6n to note that the regulated energy price actually paid to a Nacional de Energia; CNE). Computer-based models are generator at any delivery point (or node) is adjusted for the used to identify the SRMC resulting from least-cost system marginal costs of transmission. operation. It depends on three factors: (1) the value of wa- ter stored in Lake Laja (which holds some 30 percent of In addition to receiving a price for energy based on SRMC, annual energy and serves as a replacement for thermal gen- generators are paid a peak power price. The peak power eration); (2) the declared availability of generating units and price is derived from the annualized investment and fixed the audited costs of thermal plant; and (3) the addition of new operating costs of adding a 50 MW gas turbine to the sys- generating capacity to the system to meet growing demand. tem to meet the highest point of peak demand in the previ- ous year. Payment is made on the basis of a generator's firm The optimal system operation over 48 months is calculated capacity (evaluated at the start of the year) and the monthly as that with the minimum present value of operating and availability of this capacity. Evidently, capacity payments rationing costs, using a 10 percent discount rate. Rationing should be related to the probability of capacity shortage, as costs have to be included, as some probability exists of fail- in England and Wales. However, the Chilean system ap- 6 Lessons for Developing Countries from Eight Case Studies pears to overcompensate generators through double-count- The case studies included examples of all these contracts: (1) ing, since the regulated energy price already includes an es- long-term contracts are important in the pools covered by timate of rationing costs. As in the case of the energy price, the study in the United States, in Norway and in Northern the capacity price received by the generator at any node is Ireland; (2) short-term contracts for marginal trade exist adjusted to allow for transmission costs. These payments are between Scottish Hydro-Electric (SHE) and Scottish Power limited by the Electricity Law, which requires that the regu- (SP) and within the studied U.S. pools; (3) contracts for lated price should not differ from the unregulated price to emergency supply are prominent in NEPOOL and MAPP; "free clients" by more than 10 percent. and (4) hedging contracts are widespread in the England and Wales system. The existence of the unregulated market in Chile, like the competitive pool in England and Wales, in theory plays an Long-term contracts are the most likely to interfere with eco- important role in ensuring that bulk prices reflect the SRMC. nomic efficiency in the operation of unbundled systems. Yet On the other hand, the case study found no clear evidence generators need to rnake long-term investments, with low that generators had pursued "free clients" aggressively as resale values, and they may enter "take or pay" contracts for customers. One impediment appeared to be the system of fuel. They face a risk that bulk energy prices will not cover transmission pricing, especially the problem of setting the their costs. On the other hand, suppliers and distribution basic toll. Another obstacle comes from the limited unbun- companies face a risk that bulk energy prices will rise, leaving dling that has in fact taken place in Chile: for example, a them with fixed-price contracts with consumers that are loss- large distributor is also a supplier and a shareholder in a making. Generators, suppliers, and distributiors can hedge major generating company. By and large, information on these risks through long-term contracts for bulk supply. the prices established for "free clients" is confidential, but the limited evidence available suggests that they tended to Hedging contracts should not be confused with contracts pay the regulated price plus a mark-up (as appropriate) to to run a power station. Under the former, purchasers are cover subtransmission and distribution costs. interested in the price and quantity of electricity, as well as in the reliability of supply, but they are not interested in 2. Contracts and Economic Efficiency which power station is running to meet their contract, and indeed cannot tell this when drawing from the grid. They Evidently, any bulk pricing system reflecting SRMCs must therefore enter financial contracts for bulk electricity, not show considerable volatility on an hourly, daily, and seasonal physical contracts to run a power station. Where contracts basis. This volatility is appropriate from an economic stand- exist to operate power stations, they can form the basis of point-it communicates to consumers the fact that the costs dispatch. For example, if the owner of a coal-fired genera- of serving them depend on when they want to be supplied. tor has a contract to supply 200 MW between the hours of In financial terms, however, this volatility poses considerable 8 a.m. and 9 a.m., the plant could be run during those peri- risks for producers and consumers alike. Contracts can re- ods. This does indeed form the basis of dispatch in many duce these risks, but where they influence dispatch deci- systems. For example, in Norway power sold under long- sions, contracts also can be presumed to interfere with the term contracts is dispatched, subject to transmission con- least-cost operation of power systems. straints. Approximately 80 to 90 percent of demand is cov- ered by long-term contracts, so dispatch is largely deter- Contracts play a key role in providing stability in reformed mined by the generators' contractual commitments. power sectors. They take many different forms, although a basic distinction can be made between physical and hedg- However, long-term bilateral financial contracts cannot be ing (financial) contracts. Physical contracts may take several the basis for all dispatch. Dispatch is concerned with ensur- forms, including (1) long-term contracts for supply of firm ing stability and minimizing costs in the short term. It would energy; (2) short-term contracts for marginal trade on an not be possible to write a long-term contract that was suffi- opportunistic basis; and (3) contracts for emergency supply, ciently detailed to cover all combinations of available gen- to provide additional security. Hedging contracts may mir- eration, demand, and transmission capacity for all periods. ror the features of physical contracts but emphasize the sta- As a result, marginal plant dispatch decisions need to be bilization of financial parameters such as prices. separated from contracts. 7 Bulk Electricity Pricing in Restructured Markets One way to do this is through the writing of contracts for traded. In Scotland, and in some of the U.S. pools, trade has diferences (CFDs), as has occurred in England and Wales. been even less-in some cases, less than 1 percent of total These contracts, as their name suggests, cover the difference energy. The case study for FCG found that only 0.1 percent between an agreed (or "strike") price and a reference price, of energy in Florida was traded through that group. for a specified quantity of energy. Thus, all CFDs have three elements: a strike price, a reference price, and a quantity. A Only one of the case studies covered a situation where long- contract may use any component of the PSP as a reference term contracts were the sole basis of dispatch. In Northern price. Most have been written against the PPP and do not Ireland, all generators had bilateral contracts with the power cover uplift. procurement manager (PPM), who dispatched the plant, pur- chased all bulk electricity, and sold electricity to distribution Most of the CFDs originally signed in England and Wales businesses and large consumers under a bulk supply tariff. were "one way" CFDs. Under these contracts, a generator The generators had long term-contracts, covering the life effectively guaranteed price stability to the supplier for a given of the plant, that were two-part contracts-for capacity and volume of energy by making periodic payments to the sup- energy. Capacity payments were made on the basis of avail- plier whenever the pool price exceeded the strike price. The ability. Provided that availability targets were met, they were payments were equal to the difference between the pool price designed to cover fixed operating costs, depreciation, and a and the strike price, multiplied by the contract quantity (in return on assets. Target availability rates were based on past megawatt hours). In exchange, the generator received an performance. An incentive thus existed to improve avail- option fee, fixed annually. These contracts gave suppliers cost ability and gain additional payments. Availability rates have certainty, at least for part of their bulk energy needs, and gave been high, along with a high reserve margin. Energy pay- generators certain revenue, in the form ofthe option fee. Later, ments were designed to cover the SRMC. They were ini- "two way" CFDs became more popular. These contracts in tially set on the basis of the actual SRMC but were later effect fix a price for electricity purchases and sales. Rebates indexed against appropriate fuel prices. Provided that en- from the generator to the supplier are made as before, when ergy payments are correcdy set in the first place and prop- the pool price is above the contract strike price, but the erly indexed, they can form the basis of optimal dispatch supplier also pays rebates to the generator when the pool decisions. price is below the contract strike price. No option fee is typically paid under such contracts. A system of this kind provides good incentives for genera- tors to minimize energy costs either through efficient en- CFDs are often complex. They may have multiple strike prices ergy purchase or through increased thermal efficiency. As for different times of day or periods of the year, and contract a result, it may increasingly diverge from allocative effi- volumes may be "sculpted" over the course of the year. Fur- ciency, since generators will be able to sell energy above thermore, some contracts can only be "called" during certain their cost of production. Providing incentives for produc- periods, such as peak times or night hours. As a result, the tive efficiency through a fixed and indexed energy charge supply businesses may face difficulties in matching the timing needs to be balanced against passing on some of those gains and amount of kilowatt hours and kilowatts in their CFDs to consumers. This is done through periodic resetting of with their own load shapes. A further consequence is that the fuel index. the market becomes relatively illiquid. CFDs may be too complex and too tailored to the needs of particular suppli- In Northern Ireland, concerns have arisen that the fuel price ers to be traded easily. indexes have been inappropriate. Generators have been able to purchase fuel below the indexed price and make high As an alternative to CFDs, structures can be created for gen- profits. Poor indexation could also cause divergences from erators to trade around the contracts, and so to realize opti- productive efficiency. This would happen if one company mum dispatch. All three U.S. pools in the case studies had had a contract energy charge above a second generator, but "hour ahead" markets for short-term trade. The volume of its actual costs were lower. This is unlikely to happen in trade required to achieve least-cost dispatch might be rela- Northern Ireland because power stations are few, and they tively slight. In Norway, only 10 to 20 percent of energy is have very different operating costs. 8 Lessons for Developing Countries from Eight Case Studies 3. Pricing of Transmission Services erators, and an effort was made to price transmission ser- vices to maximize efficient use of the grid, subject to the In an unbundled system, the pricing of transmission services constraint that revenues from transmission tariffs should bal- plays a key role in determining the dispatch of generating ance the costs of operating, maintaining, and extending the plants, according to their location relative to the load. In grid. the traditional power sector model, vertical integration makes it possible to take transmission costs directly into account. The system of transmission charges had four different ele- Bulk consumers only have to face bulk prices, which al- ments: two fixed charges (a connection charge and a power ready include the transmission component. Unbundling fee) and two variable charges (an energy charge and a ca- requires a formal transfer mechanism to mediate between pacity fee). The connection charge was intended to relate producers and consumers. In most of the case studies, trans- to the reliability of the transmission grid and was applied to mission pricing was handled in a much less satisfactory way all available winter power generation capacity and all power than generation. consumption (less interruptible loads) during the hour of maximum consumption. It was estimated that about 15 Two important issues arise with respect to transmission. The percent of the total network cost could be attributed to this first is the need to reconcile efficient pricing with financial heading. The power fee was determined residually, so as to viability; and the second is the need to provide incentives secure the financial viability of the transmission system. It for least-cost expansion of the transmission network. An was applied on the net kilowatt input, or output, from the economically efficient tariff will reflect the marginal costs grid under maximum load conditions. The energy fee was of transmission, which comprise (1) congestion costs-that based on estimated marginal losses, which were generally is, running generating plant out of merit order because of double the average losses. Marginal losses were estimated transmission constraints; (2) marginal losses, which will be for each of six different regions (groups of nodes) and dis- substantially higher than average losses; and (3) marginal ca- tinguished between three tariff periods (light load, heavy pacity cost, reflecting the probability of loss of load in the load during the day, and heavy load during nights and week- transmission network and corresponding to the loss-of-load ends). The fee for compensation of losses was calculated by measure for generation discussed above. Incorporating these multiplying the marginal loss percentage by the relevant spot costs properly in the pricing of transmission services would market price of energy. Finally, the capacity fee was in- lead in principle to economically efficient transmission tar- tended to reflect transmission constraints on the network. iffs. However, sufficient revenue would not normally be In 1993, the variable system charges accounted for less than collected to maintain, operate, and expand the transmission 17 percent of the total revenue earned by the transmission network. As a result, additional funds have to be raised to system operator. The remaining 83 percent came from the cover the substantial fixed-cost element. fixed charges. Many of the case studies had relatively unsophisticated trans- Although the Norwegians have encountered problems in mission pricing mechanisms, which gave poor marginal cost implementing prices to meet the criteria of efficient opera- signals. For example, in England andWales, congestion costs tion and financial viability, so far their system of transmis- and losses were averaged into the pool selling price, which sion pricing seems to have been reasonably successful. The included the cost of generators that are "constrained on" main uncertainty has concerned whether or not the exist- and "constrained off" the merit order, because of transmis- ing regulatory regime provides adequate incentives for the sion limitations. In Norway, on the other hand, a more suc- economically efficient expansion of the grid. On the other cessful effort had been made to account for these costs hand, as transmission capacity is adequate at present, the ef- through the setting of different prices in six regional ficiency of the system with regard to investment incentives "subpools." has not yet been tested. Norway unbundled the transmission system from the main In the U.S. pools examined, losses were accounted for pri- generator and created an independent system operator. Open marily in contracts rather than in the tariff. Investor-owned access to the transmission system was guaranteed to all gen- utilities selling energy beyond state boundaries are subject 9 Bulk Electricity Pricing in Restructured Markets to federal regulation. The Federal Energy Regulatory Com- In addition to paying a charge for marginal energy losses, mission (FERC) must approve all transmission and wheel- generators incur a basic toll for transmission services, calcu- ing charges, and it reviews the activities of investor-owned lated as the difference between the network cost and the utilities buying and selling energy. The basic principle of revenue earned from the charge based on marginal losses. FERC's regulation has been that the price of all energy or Exact figures for each of these items are not available, but a transmission services must be cost-based-that is, based on recent estimate is that the revenue from marginal losses cov- marginal fuel and maintenance costs plus the recovery of ers much less than half (and perhaps as little as 15 percent) historic fixed costs. of the total network cost (Rudnick 1994). Generators are expected to recoup the basic toll from the contracts they Traditionally, FERC's pricing policy allowed transmission negotiate with large users, or "generator free" contracts. charges for firm transactions (i.e., noninterruptible) to yield However, in order to determine which assets to attribute to revenues adequate to cover embedded costs. This was achieved any particular generator-free contract, the "zone of influ- using a "postage stamp" basis-that is,it was not distance sen- ence" of the generator must be defined. In theory, it is that sitive. For nonfirm transactions, rates reflected variable costs part of the primary transmission system where the generator's plus a contribution to the fixed costs of the network, ac- input affects the (electrical) load flow; in practice, however, cording to the degree of interruptibility. Both methods were the calculation may become a subject of contention. based on contract paths rather than on the actual flows of electric power through the transmission system. The Chilean method of transmission pricing has the advan- tage of providing locational incentives by charging genera- FERC later amended its policies to reflect the occasional tors for the marginal power and energy losses between nodes need for utilities to expand their transmission systems be- on the system. The method should also provide the right cause of outside transactions. Utilities were then allowed to signal to add transmission capacity, at the time when the charge customers that were only making use of transmission present value of the additional sales that extra transmission services the higher of the embedded costs (for the system as capacity permits is equal to the present value of the invest- expanded) or the incremental expansion costs, but not both. ment cost. In practice, however, the price signals to add If transmission constraints exist, the transmitting utility can capacity are inadequate. Because the penalty factors that charge the higher of the embedded costs or the "verifiable determine node prices are based on peak transmission losses, and legitimate" opportunity costs, but not both. the revenues produced by these charges exceed the average cost of line losses. However, this effect is dwarfed by the Transmission pricing in Chile is among the most market- "lumpiness" of transmission: that is, new capacity is added oriented in the world. The regulated energy price actually typically in large blocks, and the revenues produced by pay- paid to a generator is adjusted for the marginal costs of ment for marginal losses are not sufficient to cover the aver- transmission. As explained previously, the node price is age cost of the primary transmission system. The regulated the regulated price at different locations in the system, ad- price therefore does not cover all the costs of the primary justed for transmission losses. transmission system. Even so, generators would be able to recoup transmission costs if the regulated price were forced In Chile most electricity generation is in the South of the up by its link with the "free client" price-which should country, whereas the main loads are in the North and Cen- contain the full cost of transmission. In practice, this link is ter. Energy injected into the system in the southern part of not brought into operation, as the free-client price does not the country is penalized for marginal transmission losses: for diverge by more than 10 percent from the regulated price. bulk sales to a distributor in the Center the price received Moreover, it has proved difficult to reach agreement on the by a generator in the South is reduced by the difference basic toll element that generators charge free clients. between the output and input node penalty factors. Mar- ginal transmission losses for the system (evaluated during 4. Adequacy of Investment times of peak demand) are lowered by energy injections in the North. Consequently, generators who add energy in Until recently, it was axiomatic that a strong central govern- the North for delivery to the Center are paid an additional ment role was needed in the electricity supply sector to sum for the benefit this provides to the transmission system. ensure that sufficient investment would take place to satisfy 10 Lessons for Developing Countries from Eight Case Studies demand. Governments noted the strong relationship be- capacity, which would not otherwise be reimbursed through tween GDP growth, on the one hand, and the growing de- rents earned on energy generation. As discussed earlier, in mand for electricity, on the other. Such demand, it was Chile, this payment is based on the annualized investment argued, goes hand in hand with the expansion of industry, and fixed operating costs of a 50 MW gas turbine. In En- commerce, and agriculture and with higher living standards gland and Wales, the PPP includes a payment related to the in households. At the same time, electricity supply is highly LOLP and the cost of rationing. The latter was initially set capital intensive and requires long-term investment plan- at C2,000/MWh (since adjusted by the retail price index). ning, as construction of power stations can take up to a de- The LOLP is recalculated every half-hour-consequently, cade. Also, governments have been keenly aware-even apart the payments are volatile, and few investors depend on spot from the economic consequences-of the political reper- prices when making investments. Rather, investments tend cussions of a failure to supply power. to be made on the basis of long-term contracts, written by distribution companies with captive consumers. It is inter- A problem with restructured power markets is that it is no esting to note that in both Chile and England andWales,the longer obvious who will be responsible for investing in new capacity charges are administered and not market-based so- generation, transmission, and distribution capacity to meet lutions. Hence, they may not provide correct incentives for demand growth and who will have an obligation to supply capacity expansion. electric power. Missing is the "comfort" that the traditional public monopoly model appears to provide-that the state- The small size of the system in Northern Ireland made a owned utility will carry out a least-cost analysis for genera- power pool approach impractical. Instead, power was sold tion investment to meet the projected demand growth and by the generators to the PPM on the basis of contracts linked that transmission and distribution investments will then be to each generating unit. The price paid by the PPM com- made on the basis of the corresponding load-flow analysis. prised an availability fee and an energy payment related to indexed fuel costs. Generators obtained capacity payments On the other hand, experience throughout the world has from the availability fee. Finally, other case studies noted shown that the resources necessary to make the needed ex- that distribution or supply bodies were required, through pansion investments cannot be mobilized in practice with- ownership or contract, to cover the requirements of their out an appropriate enabling environment-in particular for customers. In Scotland, the two vertically integrated utili- the financial arrangements. As noted earlier, the World Bank ties had to show this for their regulated customers. In has estimated that US$2 trillion will be needed to finance NEPOOL, participating utilities were subject to fines if they electric utility expansion through the first decade of the next did not cover their capacity requirements. century (Stern 1995). Developing countries have found it difficult or impossible to find resources on that scale. Coun- It is hard to assess the success of these incentive mechanisms tries such as India are facing significant capacity shortfalls on generation investment, as most of the systems in the case that are attributable in no small measure to the poor finan- studies had excess capacity. However, Chile did provide cial viability of the state electricity boards, exacerbated by evidence that high levels of new investment could be at- inadequate tariff levels. tracted in a growing system. In fact, private investors have shown willingness to construct twice as much capacity as Where electricity markets have been restructured, invest- CNE has specified in its indicative expansion plan. ment in new facilities must be ensured through financial incentives. The power pools examined provided two main The case of transmission investment has been much more incentives for investment in generation. First, three of the problematic. Yet adequate investment in transmission is a systems paid all selected generators the marginal cost (Nor- prerequisite if IPPs are to be incorporated efficiently into a way and England and Wales) or the bid price (Chile), which restructured power system. As we saw earlier, two types of creates a rent for intramarginal plants. The difference be- financial incentive can be provided for investment in trans- tween actual marginal operating cost and the pool payment mission. The first is to impose a congestion fee to reflect the contributes to the reimbursement of capacity costs. A sec- cost of running generating plant out of merit order in re- ond type of payment was made in England andWales and in sponse to transmission constraints. The second is a levy for Chile to provide a financial incentive to maintain reserve capacity costs to provide against the probability that the trans- 11 Bulk Electricity Pricing in Restructured Markets mission system will be unable to deliver all energy where it SP is obliged to set a price for interconnector capacity if is needed simultaneously. approached by a third party, this has not yet been tested. The independent system operator responsible for the trans- As is the case of generation, the high level of transmission mission network in Norway is largely owned by Statnett, a capacity that typified the case studies yielded little evidence state company. Statnett is loosely regulated on a rate-of- on the degree to which unbundling had prejudiced invest- return basis. However, Statnett relies overwhelmingly on ment in transmission. However, the difficulty of covering the power fee to cover its costs. The power fee is deter- total costs through user-related transmission charges strongly mined residually, to secure the financial viability of Statnett, suggested that bulk electricity pricing had been less success- and accounted for some 69 percent of total revenues in 1993. ful in providing the right incentives for transmission invest- Moreover, as Statnett was able to pass on its costs to grid ment. Furthermore, disagreements over the appropriate basic users, the company had no direct financial incentive to re- toll level in Chile (the main component of transmission rev- duce congestion costs or increase capacity in a least-cost enue) led to inadequate investment in the transmission net- fashion. Indeed, the variable part of Statnett's revenue would work. be reduced if it made investments to ease transmission con- straints and reduce transmission losses. Where governments have real concern that adequate levels of investment may not materialize under restructured mar- In Northern Ireland, a privatized company, Northern Ire- kets, a central body can be designated to serve as an "inves- land Electric (NIE), owned and charged for an integrated tor of last resort." Such a body would conduct indicative transmission and distribution ("wires") business. NIE was planning. Where private-sector investment is anticipated to explicitly intended to capture all the costs of providing, op- be deficient, the central body would be able to provide and erating, and maintaining the transmission system through finance capacity. In Chile, the CNE prepares indicative ex- user charges. In fact, this was not achieved. Average losses pansion plans for 10 years and can recommend state financ- and congestion costs were recovered through the bulk sup- ing of generation and transmission projects, if private financ- ply tariff, and the user charges effectively recovered only the ing is unavailable. In Northern Ireland, the PPM was pro- network infrastructure costs. In particular, locational factors posed as the "contractor of last resort" to ensure that essen- were only partly affected by charges to nonfranchise users tial new capacity would be built when it would otherwise and not at all by charges to other users. On the other hand, not be forthcoming. the regulated transmission and distribution revenues were adjusted by an amount, T, and reflect system losses, so that a 5. Potential Problems with Regard to System financial incentive did exist to reduce such losses. Of course, Size and Transactions Costs whether or not the financial incentive is large enough to make the investment worthwhile depended crucially on the The last of the five basic questions arises from the fact that value of T chosen by the regulator for any particular year. restructuring of power sectors is inevitably associated with transactions costs. These costs are not only "one time" costs In Scotland, transmission services are provided by two verti- of the restructuring process itself. They are also recurring cally integrated enterprises- Scottish Power (SP) and Scot- costs, as the restructured system must be regulated and op- tish Hydro-Electric (SHE)-serving their respective fran- erated under transparent pricing rules to integrate the un- chise areas. Both companies are privately owned and treat bundled components. For example, the preceding discus- transmission as separate profit centers. Transmission is not sion of the pricing arrangements for generation and trans- constrained within Scotland under normal operating con- mission and the issue of contracts makes it clear that some ditions, and SP and SHE are required to allow third-party of the benefits of unbundling may be offset by transactions access.AlU system users must pay charges related to transmis- costs. For this reason, as noted earlier, the attainment of a sion assets, but no specific component is provided to cover minimum system size may be critical for developing coun- future transmission investments. Capacity is limited on the tries that are considering whether or not to implement ver- interconnector, which serves only for export to England. It tical and horizontal unbundling ofpower enterprises. How- is owned by SP and has been allocated primarily between ever, although unbundling is an important source of the gains SP and SHE under a cost-sharing arrangement. Although from competition, the removal of government from key 12 Lessons for Developing Countries from Eight Case Studies decisionmaking areas is typically a second fundamental goal vided that energy charges are properly set and indexed. It of restructuring. That goal is not likely to be compromised also contains useful experience on the design of contracts in small power systems. and the regulation of the power purchaser. On the other hand, a major weakness has been the lack of competition in All of the power systems covered in the case studies are large generation, perhaps reflecting the efforts of the government by the standards of most developing countries. The smallest at the time to guarantee a market for the to-be-privatized case was Northern Ireland's 2,400 MW system; next were generators and the intrusive role of the PPM. Chile, at 5,000 MW, and Scotland, at nearly 12,000 MW. The other five exceeded 25,000 MW, with England and The scope for applying the Chilean experience to develop- Wales being the largest, at 55,000 MW. In contrast, as noted ing countries has already been demonstrated in practice, earlier the recent World Bank study of small power systems despite some weaknesses in the model itself. Modified ver- (Bacon 1995) identified 107 developing countries with sys- sions of the bulk pricing model introduced in Argentina tems of less than 1,000 MW Although 90 of the 107 were and Peru, for example, have addressed the issues of transmis- below 500 MW, several in the range between 500 MW and sion ownership. Whereas a single group in Chile controls 1,000 M\,W were considering restructuring. These included nearly 60 percent of generation, owns the majority of trans- Jamaica (500 MW), Bolivia (500 MW),Jordan (800 MW), mission, and has the largest share in the country's main dis- and Costa Rica (900 MW). tributor,Argentina and Peru have separated transmission fully from generation and distribution. Inevitably, the small size of the power system in Northern Ireland makes it a focus of attention, among the present case Considerable caution must be exercised in drawing lessons studies, for lessons of interest to developing countries. At from the Scottish model for developing countries. Notably, the time of restructuring, the four power plants owned by competition between existing utilities is extremely limited, NIE were sold to three private companies through a com- scope for the entry of new generators is minimal, and over- petitive tender. The remainder of NIE was privatized and capacity is substantial. Nonetheless, the Scottish model of- separated into different businesses, among other things, for fers two valuable lessons for smaller systems considering re- transmission and distribution, purchase of all generation, and form. First, although SP and SHE were created as vertically retail supply. The PPM was established, as a substitute for a integrated privatized electricity companies, they were obliged competitive pool, to handle the purchase of electricity from to prepare separate accounts and establish independent profit the three generating companies and its resale to suppliers centers for their generation, transmission, and supply func- under a bulk supply tariff. The PPM's purchases were all on tions. This approach is likely to suit developing countries the basis of contracts that guaranteed the salability of the with very small systems, where unbundling is not practical, existing four power plants. The PPM undertook central- because it facilitates regulation and improves incentives to ized dispatch, with the merit order determined by the en- minimize costs. From the viewpoint of regulation, the price- ergy payments specified in the contracts. Such an approach capping approach used in Scotland has also helped to re- may be a good way to minimize short-run operating costs duce transactions costs arising from the regulatory burden. in a small system. The PPM could also undertake indicative planning for long-term expansion in this type of model by Second, the Scottish experience shows that "lumpiness" of requesting competitive tenders for required capacity addi- station size and generation sets may be tackled through the tions. Eventually, as expansion takes place, it may be pos- writing of long-term contracts rather than through asset sible to move toward a competitive pool-based system. It transfers. In Scotland, SP owned all the coal-fired stations, should be recalled that growth rates are quite high in the whereas SHE owned all the oil- and gas-fired plant and vir- power systems of many developing countries: annual growth tually all of the hydroelectric capacity. In 1990-91, maxi- at 7.2 percent, it should be recalled, leads to a doubling of mum demand was 5,727 MW, and six stations were operat- system size in a decade. ing, each with capacity exceeding 1,100 MW. The largest coal station in fact accounted for 40 percent of maximum Northern Ireland's experience is also of interest to coun- demand, and the one large gas-fired station was able to sat- tries making increasing use of IPPs. It shows how contracts isfy 23 percent of maximum demand. Yet instead of trans- with IPPs can be reconciled with least-cost dispatch, pro- ferring assets between SP and SI-E to balance the owner- 13 Bulk Electricity Pricing in Restructured Markets ship of assets, the solution adopted was to transfer capacity sary condition for competition, but not a sufficient one. The by (1) having SP contract part of its coal-fired generation to key is that the plant operated by these players must be sub- SHE for 15 years and (2) having SHE contract some of its stitutes in the merit order. This additional consideration hydroelectric capacity to SP for 49 years and a portion of its introduces a further hurdle for small systems, especially those oil- and gas-fired plant to SP for 22 years. This approach with mixed hydroelectric and thermal generation. In such may be borne in mind for other systems with "lumpy" ca- systems, it would be difficult to ensure least-cost dispatch pacities relative to maximum demand, provided that con- and competitive pricing, based on SRMC, even with several tracts are enforceable. generators of similar size. However, it is worth bearing in mind that a competitive pool may be feasible even in small Although the England andWales system is substantially larger systems, if international interconnections are a possible factor. than most developing countries, it has attracted a great deal of attention and has lessons of value even for the restructur- Finally, investment in the England and Wales model is the ing of smaller systems. The main problem in England and outcome of free choice exercised by potential investors. Wales has been ownership. The creation of an effective Although this has the advantage of involving less state inter- duopoly provided opportunities for strategic behavior that vention, it also carries the risk that large-capital projects such would be much less likely to exist if the generation sector as hydro schemes may not be funded, even if they are the comprised four or five players of similar size. However, the least-cost means of expanding the system for a developing existence of at least four or five players is, at most, a neces- country with limited access to capital markets. 14 4. Conclusions M ore and more governments in developing countries Ireland was poorly designed and gave inadequate signals on M are implementing or seriously considering restruc- marginal costs at different periods. turing of their power sectors. These governments are striv- ing to address the fundamental deficiencies of traditional The case studies were of more limited value in assessing public monopolies that allow little or no commercial free- the effectiveness of different bulk pricing arrangements on dom or competition. The experience of the case-study coun- investment in restructured markets. They tended to be tries suggests that developing countries can structure un- characterized by overcapacity in both generation and trans- bundled sectors in a variety ways, especially with regard to mission. Nevertheless, Chile showed that fundamental re- the formulation of bulk pricing policies for generation and form can be successfully implemented in a developing transmission. country, and is consistent with the attraction of finance for new generation investments. In that sense, Chile demon- Several of the case studies produced findings that are highly strated the potential for a pool based on costs rather than relevant to the reform of the vertically integrated utilities bids, a strategy suitable for a relatively small power sector. that are typical of developing countries. First, both Norway Chile's use of declared costs, subject to unannounced au- and Scotland have effectively enforced a separation of ac- dits, appeared to incur lower transactions costs than counts between vertically integrated generation, transmis- NEPOOL's use of full cost audits. Transmission pricing, sion, distribution, and supply businesses. This is an impor- on the other hand, was less successful in Chile, as else- tant step toward greater transparency on costs. Second, by where, in providing appropriate incentives for investment reallocating capacity through long-term contracts, Scotland in the transmission system. was able to give companies the flexibility of access to a mix of generation technologies and unit sizes without under- Norway and England andWales have introduced spot mar- taking outright asset transfers. Such contracts may be useful kets for energy and capacity. Several lessons emerge from in power sectors with large unit sizes relative to their total their experience. First, modeling of the England and Wales capacity. Third, Norway illustrated that a change in the in- Pool suggests that four to five generators need to compete centive system can be effected while retaining a high degree at the margin if competition is to be successful. The duopoly of public ownership. However, the finding may be difficult that emerged distorted the market and caused the regulator to replicate in countries where political interference in the to abandon the use of competition and instead to regulate power sector is deeply ingrained. Fourth, if the incentives prices through setting of a cap. Second, despite the devel- to minimize costs are strong, trade between vertically inte- opment of sophisticated pools, energy and capacity are still grated utilities should increase. Trade between England and mainly traded through the contracts market. In England Wales and Scotland provides a clear example of how a change and Wales, all capacity investments had been made against in incentives led to more trade; and commercial induce- long-term contracts, although the situation was changing. ments may be the best way to promote further international Third, the potential inconsistency between long-term con- and inter-regional trade in Africa and India. tracts and optimal dispatch may be offset, to some degree, by mechanisms for generator trading, as achieved by the Nor- Northern Ireland provided an example for developing coun- wegian pool. However, the purely financial contracts traded tries that are making use of IPPs. Long-term contracts with in England and Wales, referenced against the pool price of generators can be reconciled with least-cost dispatch if en- electricity, resolved the problem of efficient pricing and dis- ergy charges are correctly set and indexed. However, the patch, on the one hand, and long-term risk sharing, on the bulk supply tariff for sales to supply businesses in Northern other. 15 Bulk Electricity Pricing in Restructured Markets Finally, experience suggests that restructuring is unlikely to task the studies did not attempt. Still, it must be acknowl- reduce electricity prices across the board. In Norway, greater edged that restructuring may require generators to gain volatility of prices has also become a major concern. Nev- higher revenues to offset risk, although to some extent higher ertheless, the relevant comparison is not between prices be- prices may have resulted from the poor design of some of fore and after restructuring. For that it would be necessary the market structures. In any case, the low existing tariffs in to compare the situation after restructuring with some guess many developing countries are a key cause of inadequate about what might have happened without restructuring-a financial performance and are not sustainable. 16 References Bacon, Robert. 1995. "Appropriate Restructuring Strate- Stern, Richard. 1995. "Effective Financing of Environ- gies for the Power Generation Sector:The Case of Small mentally Sustainable Development." Paper presented Systems." Occasional Paper No.3. World Bank, Indus- at the Third Annual World Bank Conference on Envi- try and Energy Department,Washington, D.C. ronmentally Sustainable Development,Washington, D.C. London Economics. 1995. Bulk Electricity Pricing: Practices World Bank. 1993a. Energy Efficiency and Conservation in the and Policies in Competitive Markets, vol. 1 (Main Report); Developing World: The World Bank 's Role. A World Bank vol.2 (Case Studies for U.K. and Norway); vol.3 (Case Policy Paper. Washington D.C. Studies for U.S. and Chile). World Bank. 1993b. The World Bank's Role in the Electric Rudnick,Hugh. 1994. "Transmission OpenAccess in Chile." Power Sector: Policiesfor Effective Institutional, Regulatory, Paper presented at the fifth plenary session ofthe Harvard and Financial Reform. AWorld Bank Policy Paper. Wash- Electricity Policy Group, John F. Kennedy School of ington D.C. Government, Cambridge, Massachusetts. 17 Energy Publications Industry and Energy Department 9 McKeough, Kay. 1988. "Current International Gas Working Papers Trades and Prices." Energy Series Paper 9. World Energy Series Papers Numbers 1 to 59, 1988 to 1992 Bank, Industry and Energy Department, Washington, D.C. 1 Munasinghe, Mohan, and Robert J. Saunders, eds. 10 Petrou, Basil N. 1989. "Promoting Investment for 1988. "Energy Issues in the DevelopingWorld." En- Natural Gas Exploration and Production in Develop- ergy Series Paper 1. World Bank, Industry and Energy ing Countries." Energv Series Paper 10. World Bank, Department, Washington, D.C. Industry and Energy Department,Washington, D.C. 2 Munasinghe, Mohan,Joseph Gilling, and Melody Ma- 11 Barthold, Lionel 0. 1989. "Technology Survey Re- son. 1988. "A Review of World Bank Lending for port on Electric Power Systems." Energy Series Paper Electric Power." Energy Series Paper 2. World Bank, 11. World Bank, Industry and Energy Department, Industry and Energy Department,Washington, D.C. Washington, D.C. 3 Leitman,J. 1988. "Some Considerations in Collecting 12 Munasinghe, Mohan, and Arun Sanghvi. 1989. "Re- Data on Household Energy Consumption." Energy cent Developments in the U.S. Power Sector and Series Paper 3. World Bank, Industry and Energy De- Their Relevance for the Developing Countries." En- partment,Washington, D.C. ergy Series Paper 12. World Bank, Industry and Ener- 4 Yates, Philip. 1988. "Improving Power System Effi- gy Department,Washington, D.C. ciency in the Developing Countries through Perfor- 13 Vedavalli, Rangaswamy. 1989. "Domestic Energy mance Contracting." Energy Series Paper 4. World Pricing Policies." Energy Series Paper 13. World Bank, Industry and Energy Department, Washington, Bank, Industry and Energy Department, Washington, D.C. D.C. 5 Terrado, Ernesto, Matthew Mendis, and Kevin Fitzger- 14 Churchill,AnthonyA.,andRobertJ.Saunders. 1989. ald. 1988. "Impact of Lower Oil Prices on Renew- "Financing of the Energy Sector in Developing able Energy Technologies." Energy Series Paper 5. Countries." Energy Series Paper 14. World Bank, In- World Bank, Industry and Energy Department, Wash- dustry and Energy Department,Washington, D.C. ington, D.C. 15 Besant-Jones, John. 1989. "The Future Role of Hy- 6 van der Plas, Robert, and A. B. de Graaff. 1988. "A dropower in Developing Countries." Energy Series Comparison of Lamps for Domestic Lighting in De- Paper 15. World Bank, Industry and Energy Depart- veloping Countries." Energy Series Paper 6. World ment,Washington, D.C. Bank, Industry and Energy Department, Washington, 16 Openshaw, Keith, and Charles Feinstein. 1989. "Fuel- D.C. wood Stumpage: Considerations for Developing 7 [McKeough, Kay, Edwin Moore, Jose Escay, and Jean Country Energy Planning." Energy Series Paper 16. Becherer.] 1989. "Recent World Bank Activities in World Bank, Industry and Energy Department, Wash- Energy." [Revision of version originally published in ington, D.C. 1988.] Energy Series Paper 7. World Bank, Industry 17 Crousillat, Enrique 0. 1989. "Incorporating Risk and and Energy Department,Washington, D.C. Uncertainty in Power System Planning." Energy Series 8 McKeough, Kay, Jose Escay, and Sompheap Sem. Paper 17. World Bank, Industry and Energy Depart- 1988. "A Visual Overview of the World Oil Markets." ment,Washington, D.C. Energy Series Paper 8. World Bank, Industry and En- ergy Department,Washington, D.C. 19 Bulk Electricity Pricing in Restructured Markets 18 Sanghvi, Arun, and Robert Vernstrom, with John Be- 28 Gaunt, John, and Neil J. Numark, with Achilles G. Ad- sant-Jones. 1989. "Review and Evaluation of Historic amantiades. 1990. "Decornmnissioning of Nuclear Electricity Forecasting Experience (1960-1985)." En- Power Facilities." Energy Series Paper 28. World ergy Series Paper 18. World Bank, Industry and Ener- Bank, Industry and Energy Department, Washington, gy Department,Washington, D.C. D.C. 19 Teplitz-Sembitzky, Witold, and Gunter Schramrnm. 29 Fitzgerald, Kevin B., Douglas Barnes, and Gordon 1989. "Woodfuel Supply and Environmental Manage- McGranahan. 1990. "Interfuel Substitution and ment." Energy Series Paper 19. World Bank, Industry Changes in the Way Households Use Energy: The and Energy Department,Washington, D.C. Case of Cooking and Lighting Behavior in Urban 20 Teplitz-Sembitzky, Witold, and Gerhard Zieroth. Java." Energy Series Paper 29. World Bank, Industry 1990. "The Malawi Charcoal Project: Experience and Energy Department,Washington, D.C. and Lessons." Energy Series Paper 20. World Bank, 30 Tephtz-Sembitzky,W 1990. "Regulation, Deregula- Industry and Energy Department,Washington, D.C. tion, or Reregulation: What Is Needed in the LDC's 21 Moore, Edwin A., and George Smith. 1990. "Capital Power Sector?" Energy Series Paper 30. World Bank, Expenditures for Electric Power in the Developing Industry and Energy Department,Washington, D.C. Countries in the 1990s." Energy Series Paper 21. 31 Merrow, Edward W, and Ralph E Shangraw, Jr., with World Bank, Industry and Energy Department, Wash- Scott H. Kleinberg, Lisa A. Unterkofler, Richard Mad- ington, D.C. aleno, Edward J. Ziomkoski, and Brett R. Schroeder. 22 Cordukes, Peter A. 1990. "A Review of Regulation 1990. "Understanding the Costs and Schedules of of the Power Sectors in Developing Countries." En- World Bank Supported Hydroelectric Projects." En- ergy Series Paper 22. World Bank, Industry and Ener- ergy Series Paper 31. World Bank, Industry and Ener- gy Department,Washington, D.C. gy Department,Washington, D.C. 23 Escay,Jose R. 1990. "Summary Data Sheets of 1987 32 Energy Development Division, Industry and Energy Power and Commercial Energy Statistics for 100 De- Department. 1990. "Review of Electricity Tariffs in veloping Countries." Energy Series Paper 23. World Developing Countries During the 1980's." Energy Bank, Industry and Energy Department, Washington, Series Paper 32. World Bank, Industry and Energy D.C. Department,Washington, D.C. 24 Butcher, David. 1990. "A Review of the Treatment 33 Besant-Jones,John, ed. 1990. "Private Sector Partici- of Enviromnental Aspects of Bank Energy Projects." pation in Power through BOOT Schemes." Energy Energy Series Paper 24. World Bank, Industry and Series Paper 33. World Bank, Industry and Energy Energy Department,Washington, D.C. Department,Washington, D.C. 25 McKeough, Kay. 1990. "The Status of Liquefied Nat- 34 Suzor, Norland C., and P. E. Bouvet. 1991. "Identify- ural Gas Worldwide." Energy Series Paper 25. World ing the Basic Conditions for Economic Generation of Bank, Industry and Energy Department, Washington, Public Electricity from Surplus Bagasse in Sugar D.C. Mills." Energy Series Paper 34. World Bank, Industry 26 Barnes, Douglas F 1990. "Population Growth, Wood and Energy Department,Washington, D.C. Fuels, and Resource Problems in Sub-Saharan Africa." 35 Moore, Edwin, and Enrique Crousillat. 1991. "Pros- Energy Series Paper 26. World Bank, Industry and pects for Gas-Fueled Combined-Cycle Power Gener- Energy Department,Washington, D.C. ation in the Developing Countries." Energy Series 27 Traiforos, Spyros, Achilles Adamantiades, and Edwin Paper 35. World Bank, Industry and Energy Depart- Moore. 1990. "The Status of Nuclear Power Tech- ment,Washington, D.C. nology: An Update." Energy Series Paper 27. World 36 Adamantiades, Achilles G., and Spyros Traiforos. 1991. Bank, Industry and Energy Department, Washington, "Radioactive Waste Management: A Background D.C. Study." Energy Series Paper 36. World Bank, Industry and Energy Department,Washington, D.C. 20 Lessons for Developing Countries from Eight Case Studies 37 McKeough, Kay, Energy Security Analysis, Inc., and 46 Central Project Team, Energy Development Division, Petroleum Economics, Ltd 1991. "A Study of the Industry and Energy Department. 1991. "Core Re- Transfer of Petroleum Fuels Pollution." Energy Series port of the Electric Power Utility Efficiency Improve- Paper 37. World Bank, Industry and Energy Depart- ment Study." Energy Series Paper 46. World Bank, ment,Washington, D.C. Industry and Energy Department, Washington, D.C. 38 Feinstein, Charles, and Robert van der Plas. 1991. 47 Floor,Willem, and Robert van der Plas. 1991. "Kero- "Improving Charcoaling Efficiency in the Traditional sene Stoves: Their Performance, Use, and Constraints." Rural Sector." Energy Series Paper 38. World Bank, Energy Series Paper 47. World Bank, Industry and Industry and Energy Department,Washington, D.C. Energy Department, Washington, D.C. 39 Crousillat, Enrique, and Spiros Martzoukos. 1991. 48 Ryan, Paul, and Keith Openshaw. 1991. "Assessment "Decision Making Under Uncertainty: An Option of Biomass Energy Resources: A Discussion on its Valuation Approach to Power Planning." Energy Se- Need and Methodology." Energy Series Paper 48. ries Paper 39. World Bank, Industry and Energy De- World Bank, Industry and Energy Department, Wash- partment,Washington, D.C. ington, D.C. 40 Escay, Jose R. 1991. "Summary 1988 Power Data 49 Peskin, Henry M.,Willem Floor, and Douglas F. Bar- Sheets for 100 Developing Countries." Energy Series nes. 1992. "Accounting for Traditional Fuel Produc- Paper 40. World Bank, Industry and Energy Depart- tion: The Household-Energy Sector and Its Implica- ment,Washington, D.C. tions for the Development Process." Energy Series 41 Gaunt, John, and Neil J. Numark, with Achilles G. Ad- Paper 49. World Bank, Industry and Energy Depart- amantiades. 1991. "Health and Safety Aspects of Nu- ment,Washington, D.C. clear Power Plants." Energy Series Paper 41. World 50 Richter, Joerg-Uwe. 1992. "Energy Issues in Central Bank, Industry and Energy Department, Washington, and Eastern Europe: Considerations for the World D.C. Bank Group and Other Financial Institutions." Ener- 42 Minogue, Diane C. 1991. "A Review of Internation- gy Series Paper 50. World Bank, Industry and Energy al Power Sales Agreements." Energy Series Paper 42. Department,Washington, D.C. World Bank, Industry and Energy Department,Wash- 51 Floor,Willem, and Robert van der Plas. 1992. "CO2 ington, D.C. Emissions by the Residential Sector: Environmental 43 C.I. Power Services, Inc. 1991. "Guideline for Diesel Implications of Inter-fuel Substitution." Energy Series Generating Plant Specification and Bid Evaluation." Paper 51. World Bank, Industry and Energy Depart- Energy Series Paper 43. [Reprint of Energy Depart- ment,Washington, D.C. ment Paper No. 9, originally published in 1983.] 52 Teplitz-Sembitzky, Witold. 1992. "Electricity Pricing: World Bank, Industry and Energy Department,Wash- ConventionalViews and New Concepts." Energy Series ington, D.C. Paper 52. World Bank, Industry and Energy Depart- 44 Tudor Engineering Company. 1991. "A Methodolo- ment,Washington, D.C. gy for Regional Assessment of Small Scale Hydro 53 Barnes, Douglas E, and Liu Qian. 1992. "Urban In- Power." Energy Series Paper 44. [Reprint of Energy terfuel Substitution, Energy Use, and Equity in Devel- Department Paper No. 14, originally published in oping Countries: Some Prelimninary Results." Energy 1984.] World Bank, Industry and Energy Department, Series Paper 53. World Bank, Industry and Energy Washington, D.C. Department,Washington, D.C. 45 Moreno, Rene. 1991. "Guidelines for Assessing Wind 54 Crousillat, Enrique, and Hyde Merrill. 1992. "The Energy Potential." Energy Series Paper 45. [Reprint Trade-Off/Risk Method: A Strategic Approach to of Energy Department Paper No. 34, originally pub- Power Planning." Energy Series Paper 54. World lished in 1986.1 World Bank, Industry and Energy Bank, Industry and Energy Department, Washington, Department,Washington, D.C. D.C. 21 Bulk Electricity Pricing in Restructured Markets 55 Besant-Jones, John E., and Lori Hylan, eds. 1992. 3 Bacon, Robert. 1995. "Appropriate Restructuring "Managing Risks of Investments in Developing Strategies for the Power Generation Sector: The Case Countries." Energy Series Paper 55. World Bank, In- of Small Systems." Occasional Paper 3. World Bank, dustry and Energy Department,Washington, D.C. Industry and Energy Department,Washington, D.C. 56 Barnes, Douglas F. 1992. "Understanding Fuelwood 4 World Bank. 1995. "Regional Oil and Gas Workshop, Prices in Developing Nations." Energy Series Paper 56. Tokyo, Japan: Report on Workshop Findings and Fol- World Bank, Industry and Energy Department, Wash- low-up Activities." Occasional Paper 4. World Bank, ington, D.C. Industry and Energy Department, Washington, D.C. 57 Unpublished. 5 Shirazi, Mohsen. 1995. "The Commercialization 58 Jechoutek, Karl G., Sadhan Chattopadhya, Riaz Khan, Process in Exploration and Production Agreements: A Forrest Hill, and Christopher Wardell. 1992. "Steam Study from the Africa Gas Initiative." Occasional Pa- Coal for Power and Industry Issues and Scenarios." per 5. World Bank, Industry and Energy Department, Energy Series Paper 58. World Bank, Industry and Washington, D.C. Energy Department,Washington, D.C. 6 Barry, Mamadou. 1996. "Regularizing Informal 59 Oduolowu,Akin. 1992. "An Evaluation ofWorld Bank Mining: A Sumrnary of the Proceedings of the Inter- Funded Petroleum Exploration Promotion Programs national Roundtable on Artisanal Mining." Occasional 1980-1990" Energy Series Paper 59. World Bank, In- Paper 6. World Bank, Industry and Energy Depart- dustry and Energy Department,Washington, D.C. ment,Washington, D.C. A Note to Readers The Industry and Energy Department (IEN) "pink" Energy Series Papers ends with number 59, the last before theWorld World Bank Technical Papers Bank's 1992 reorganization. Beginning in 1993, IEN is is- Energy Series suing some papers for relatively limited distribution in a new IEN Occasional Papers series. At the same time, IEN is 240 Ahmed, Kulsum. 1994 Renewable Energy Technologies: publishing energy reports of more widespread interest in a A Review of the Status and Costs of Selected Technologies. new Energy Series within the ongoingWorld Bank Techni- World Bank Technical Paper 240. Washington, D.C. cal Papers, which enables the department to take advantage 242 Barnes, Douglas F., Keith Openshaw, Kirk R. Smith, of the World Bank's global distribution network. Note that and Robert van der Plas. 1994. What Makes People the numbering of the Energy Series Technical Papers fol- Cook with Improved Biomass Stoves? A Comparative Inter- lows that of the World Bank Technical Papers Series and national Review of Stove Programs. World Bank Techni- thus may not be continuous. cal Paper 242. Washington, D.C. 243 Menke, Christoph, and P. Gregory Fazzari. 1994. Im- proving Electric Power Utility Efficiency: Issues and Recom- In Ocstrc asiondaEne Dapepartmenmendations. World Bank Technical Paper 243. Wash- Occasional Papers 1993 - ington, D.C. 244 Liebenthal, Andres, Subodh Mathur, and Herbert 1 World Bank and Electricit6 de France UJohn Besant- Wade. 1994. Solar Energy: The Pacific Island Experience. Jones, ed.]. 1993. "Power Supply in Developing World BankTechnical Paper 244. Washington, D.C. Countries: Will Reform Work? Proceedings of a 271 Ahmed, Kulsum. 1995. Technological Development and Roundtable." Occasional Paper 1. World Bank, In- Pollution Abatement: A Case Study of How Enterprises are dustry and Energy Department,Washington, D.C. Finding Alternatives to Chlorofluorocarbons. World Bank 2 World Bank and USAID [Cordukes, Peter, ed.]. 1994. Technical Paper 271. Washington, D.C. "Submnission and Evaluation of Proposals for Private 278 Wijetilleke, Lakdasa, and Suhashini A. R. Karunaratne. Power Generation in Developing Countries." Occa- 1995. Air Quality Management: Considerationsfor Devel- sional Paper 2. World Bank, Industry and Energy De- oping Countries. World Bank Technical Paper 278. partment,Washington, D.C. Washington, D.C. 22 Lessons for Developing Countries from Eight Case Studies 279 Anderson, Dennis, and Kulsum Ahmed. 1995. The 308 Adamson, Seabron, Robin Bates, Robert Laslett, and Casefor Solar Energy Investments. World Bank Technical Alberto Pototschnig. 1996. Energy Use, Air Pollu- Paper 279. Washington, D.C. tion, and Environmental Policy in Krakow: Can Eco- 286 Tavoulareas, E. Stratos, and J.-P Charpentier. 1995. nomic Incentives Really Help? World Bank Technical Clean Coal Technologies for Developing Countries. World Paper 308. Washington, D.C. Bank Technical Paper 286. Washington, D.C. 325 Bacon, Robert W, John E. Besant-Jones, and Jamshid 296 Stassen, Hubert. 1995. Biomass Gas fiersfor Heat and Heidarian. 1996. Estimating Construction Costs and Power: A Global Review. World Bank Technical Paper Schedules: Experience with Power Generation 296. Washington, D.C. Projects in Developing Countrries. WoAd Bank Tech- 304 Foley, Gerald. 1995. Photovoltaic Applications in Rural nical Paper 325. Washington, D.C. Areas of the Developing World. World Bank Technical Paper 304. Washington, D.C. Ordering Information World Bank Technical Papers, Energy Series Copies are available for purchase by writing to World Bank Publications, Box 7247-8619, Philadelphia PA 19170- 8619, USA. For faster service, phone (202) 473-1155. IEN Working Papers, Energy Series Papers I to 59 and IEN Occasional Papers Copies that remain in print of the IENWorking Papers, Energy Series Papers 1 to 59 (1988 to 1992) and copies of the IEN Occasional Papers (1993-) are available by writing to Records Clerk,Joint Energy File Room, G5-100, Industry and Energy Department,The World Bank, 1818 H Street NW, Washington, DC 20433, USA. Phone (202) 473-3616 or Fax (202) 522-3483. 23