World Energy Transition

Transcription

1 World Energy Transition Reforming Subsidies for Electricity Markets in GCC 4 th Roundtable Meeting for Power Trading Abu Dhabi (17 th December 2015) Jomar Eldoy M-co (the Marketplace Company) Pte Ltd

2 Global electricity markets have evolved, with increased efforts to undertake reform in the last 20 years. 2

3 The evolution and reform of these markets usually operate within a greater energy policy framework. Security Policy Objectives Policy Tools Affordability Structural (Market reform) Regulatory (legislations, mandates) Fiscal (subsidies & taxes) Sustainability Trade-offs in simultaneously meeting energy policy objectives of affordability, security and sustainability Emphasis on objective evolves as an economy develops; Emerging economies often focus on affordability and security Combination of tools used to achieve policy objectives 3

4 Developing economies tend to prioritise electricity affordability and accessibility as a policy objective under which subsidies is a common tool. GDP per Capita versus Electricity Subsidies per Capita GDP per Capita (USD) 120, ,000 80,000 Luxembourg Norway Switzerland Advanced economies Australia Singapore 60,000 Sweden United States Germany United Kingdom 40,000 Hong Kong Japan Developing Korea economies Taipei Argentina 20,000 Egypt Malaysia Mexico Russia Libya China Thailand Iraq Algeria Iran 0 Vietnam Indonesia 0India Electricity Subsidy per Capita (USD) Source: IEA, IMF for GDP numbers Note: Subsidy = (Reference price - End-user price) Units consumed Resource-rich countries UAE Saudi Arabia Trinidad and Tobago Qatar Kuwait Bahrain 4

5 These subsidies tend to decrease as markets advance Market-based Hybrid Pricing Regime Long-term Contracts (e.g. PPA) Administered Pricing (often subsidized) Vertically Integrated Utility Single Buyer Structure Wholesale Competition Retail Competition Market Structure 5

6 These subsidies tend to decrease as markets advance Market-based Pricing Regime Hybrid Long-term Contracts (e.g. PPA) Qatar UAE (Abu Dhabi) Saudi Arabia Oman Bahrain Administered Pricing (often subsidized) UAE (Other Emirates) Kuwait Vertically Integrated Utility Single Buyer Structure Wholesale Competition Retail Competition Market Structure 6

7 Overall, subsidies and taxes distort market pricing Price/Cost Taxed Sales Price Subsidies artificially lower prices that consumers pay below actual supply costs or prevailing market value. Producer 1 Producer 2 Subsidy bill Producer 3 Producer 4 Producer 5 Producer 6 International Market Price Subsidised Sales Price Taxes create the converse effect by increasing prices consumers pay above the prevailing market value. In the context of cross-border trade, such government policies create unintended distortionary effects subsidized product given artificial comparative advantage. Tax revenue 7

8 Beyond political and social issues, subsidies create impediments to trade flows. Mounting government subsidy bills Political opposition during subsidy removal Political Economic Distorts trade flows Under-investment in infrastructure (particularly with subsidized utilities) Diverts resource from other potentially more profitable (and less energy-intensive) sectors. Social Sustainability Although often set-out to promote energy accessibility for poorer households, energy subsidies often benefit the more affluent socio-economic population due to the relatively larger share of energy consumption Inefficient consumption in subsidized sectors Environmental issues in subsidized fossil fuel sectors 8

9 These distortionary trade flows occur in the energy value chain Taxed Fuel Source Higher wholesale prices Fuel Source at Market Prices International trade Fuel Source at Market Prices Taxed or subsidized sectors Subsidised Fuel Source Lower wholesale prices Trade flows Country Boundary 9

10 But subsidies still take up an significant component of GDP in many developing countries Data unavailable No subsidies < 1% of GDP 1%-5% of GDP 5%-10% of GDP >10% of GDP Source: 2013 IEA Fossil-fuel Subsidy Database 10

11 Governments need to consider a proper framework as they undertake energy reform plans. Objectives Affordability Sustainability Security Achieved by Possible Tools Market-based pricing (ensures tariffs keep pace with fuel price trends) Targeted Cash Subsidies, Grants (lifeline rates, vouchers to lower income groups) Promote fuel switching/alternate fuel sources Implementation Considerations Timing and communication (e.g. low oil price environment, elections, educating public on price increases) Supported by Target group (subsidy removal should not result in lower welfare for poorer households) Guiding Principles Transparency Efficiency Practicality Enforceability Must be harmonized with other longer-term energy policies (fuel-mix targets, market reform) 11

12 International Experience in Energy Subsidy Programs Germany Renewables subsidies support programs have led to mounting power bills and impacted competitiveness Indonesia Fuel subsidies resulted in Indonesia moving from an oil-export country to a net import country in Government has since made efforts to increase fuel prices gradually Vietnam Electricity price reform still underway, but has undertaken a gradual approach, coupled with longer-term energy plans to move to cheaper alternative fuel sources e.g. coal, nuclear Philippines Poorer households supported with lifeline subsidies during reform process 12

13 Regional Electricity Trade and Integration Internal Electricity Market in Europe On-going efforts to integrate 6 European regional electricity markets into a single market. Beyond infrastructure, regulations and operations must be developed together and harmonized to ensure successful integration Relatively easier given that most of these regional markets are in similar stages of market development Asean Power Grid Initiative that begun in 1997 with the end goal of achieving supply security and availability. While infrastructure efforts have accelerated, but the differing market structures, regulations and policy frameworks among member states remain impediments for complete integration e.g. Singapore and Philippines are the only non-subsidized countries. Source: Asean Power Grid Red Electric De Espana(REE) 13