Electricity Sector Deregulation in the Asia Pacific, - Expert Group on ...

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Electricity Sector Deregulation in the Asia Pacific, - Expert Group on ...

ELECTRICITY SECTOR DEREGULATION IN

THE ASIA PACIFIC AND THE FUTURE OF

FOSSIL FUELS FOR POWER GENERATION

David Cope

ABSTRACT

In 1998, ong>theong> ong>Asiaong> ong>Pacificong> Energy Research Centre undertook a project to ong>inong>vestigate ong>theong> extent to which

electricity sector reform was occurrong>inong>g ong>inong> ong>theong> ong>Asiaong> ong>Pacificong> region. This study confirmed that a general regional

trend of reform is occurrong>inong>g, and this is beong>inong>g promoted by a number of important forces for change.

A major drivong>inong>g force for ong>theong> rapidly ong>inong>dustrialisong>inong>g economies is ong>theong> fast expandong>inong>g demand for energy,

especially for electricity, to underpong>inong> economic growth. For example, over ong>theong> next twenty years, barrong>inong>g any

major extended economic dislocations, energy demand worldwide is projected to grow by over 50 percent. The

growth will be unevenly distributed however, with only about 25 percent growth ong>inong> ong>theong> ong>inong>dustrialised world,

and about 100 percent growth ong>inong> ong>theong> developong>inong>g world, with ong>Asiaong> accountong>inong>g for ong>theong> bulk of ong>theong> ong>inong>crease.

To meet ong>theong> demand for electricity ong>inong>frastructure growth, developong>inong>g economies need capital and need to

optimise ong>theong> economic efficiency with which ong>theong>y utilise existong>inong>g ong>inong>frastructure. Supportong>inong>g ong>theong>se forces for

change are factors such as: technological ong>inong>novation, most notably ong>inong> terms of ong>theong>rmal power generation

technologies; a growong>inong>g demand by consumers for greater choice ong>inong> products and services, and ong>theong> fong>inong>ancial

constraong>inong>ts brought on by ong>theong> recent ong>Asiaong>n economic crisis.

ong>Deregulationong> of ong>theong> electricity supply ong>inong>dustry has important ramifications for generation fuel markets.

This is particularly so for fuels which can compete strongly ong>inong> a competitive generation market. For example,

demand for coal and gas as generation fuels has undergone significant change post-reform ong>inong> some economies.

Coal wong>inong>s out ong>inong> economies where it can be mong>inong>ed cheaply and locally – Australia, Chong>inong>a and some states ong>inong> ong>theong>

US. Natural gas is very competitive ong>inong> economies with abundant local supplies, or where it can be transported

by pipelong>inong>e across borders. It also competes for peak load ong>inong> situations where it must be imported as LNG (for

example ong>inong> Korea and Japan).

The major factor likely to impong>inong>ge on ong>theong> competitiveness of ong>theong>rmal fuels of ong>theong> mid-term is ong>theong>

environmental externalities factor. For example, coal has tended to compete ong>inong> situations where ong>theong>

environmental impact of emissions of sulphur and nitrogen oxides, carbon dioxide and particulates has not been

paid for directly by eiong>theong>r producers or users. These costs have tended to be borne by society as a whole, or

even by neighbourong>inong>g economies. However, because consumption of ong>theong>rmal fuels are growong>inong>g exponentially

ong>inong> some rapidly ong>inong>dustrializong>inong>g economies - trackong>inong>g exponential growth ong>inong> power supply - and because of

ong>inong>creasong>inong>g public debate about ong>theong> effects of greenhouse gases and oong>theong>r pollutants on ong>theong> environment, this

issue must be addressed.

This paper looks at ong>theong> effects of reform on ong>theong>rmal fuel markets ong>inong> a number of economies, and discusses

ong>theong> extent to which environmental externalities are likely to impong>inong>ge on ong>theong> future workong>inong>gs of those markets.

INTRODUCTION

In 1998, ong>theong> ong>Asiaong> ong>Pacificong> Energy Research Centre began examong>inong>ong>inong>g ong>theong> extent to which electricity

sector reform was occurrong>inong>g ong>inong> ong>theong> ong>Asiaong> ong>Pacificong> region. At that time, it was evident that reform policies

and measures were well advanced ong>inong> some APEC member economies, most notably New Zealand and

ong>inong> some states ong>inong> Australia and ong>theong> USA. It was not clear, ong>inong> ong>theong> absence of some ong>inong>vestigation, if a

trend of ong>inong>creasong>inong>g deregulation of electricity markets was likely to catch on across ong>theong> region ong>inong>

comong>inong>g years, or wheong>theong>r ong>inong> ong>theong> aftermath of ong>theong> 1997 ong>Asiaong>n economic crisis, policy-makers would

refraong>inong> from pursuong>inong>g policy goals that might encourage furong>theong>r economic and social uncertaong>inong>ty.

The APERC report was published ong>inong> March

2000. It looks at various ways ong>inong> which ong>theong>

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electricity supply ong>inong>dustry (ESI) can be structured, considerong>inong>g a number of ong>theong>oretical reform models.

Historically, ong>theong> most popular way ong>inong> which to structure ong>theong> ESI was as a vertically ong>inong>tegrated

monopoly. Goong>inong>g back as far as Thomas Edison, early ong>inong>dustry leaders and politicians alike shared ong>theong>

view that vertically ong>inong>tegrated monopolies were ong>theong> most efficient way of supplyong>inong>g electricity. At ong>theong>

time, ong>theong>re were valid reasons for this way of thong>inong>kong>inong>g, given ong>theong> growong>inong>g importance of electricity to

ong>theong> functionong>inong>g of rapidly ong>inong>dustrialisong>inong>g societies and it’s unusual characteristics.

In ong>theong> United States, ong>theong> supply monopolies were largely privately owned and operated, with ong>theong>

government playong>inong>g a role as regulator. In many oong>theong>r nations around ong>theong> globe, ong>theong> state assumed ong>theong>

primary responsibility for ong>theong> development and operation of ong>theong> electricity ong>inong>frastructure. There were a

number of historical and practical reasons for this, chief among ong>theong>m beong>inong>g ong>theong> ability of ong>theong> state to

raise ong>theong> capital required, and ong>theong> widespread view that such a strategic asset must be under ong>theong> control

of central government. Economies of scale could be achieved by buildong>inong>g larger and larger generation

plants, ong>inong> tandem with transmission and distribution networks that gradually extended to even ong>theong>

most remote consumers. Furong>theong>r economies were achieved through additional vertical ong>inong>tegration ong>inong>to

ong>theong> upstream energy resources sector especially oil, coal and gas.

Given a reasonably long history, over which state or private monopolies have ensured adequate

and secure supplies of electricity to modernisong>inong>g economies world-wide, it might seem strange to

learn that both regionally and globally, existong>inong>g monopolistic electricity supply ong>inong>frastructures are

beong>inong>g dismantled and restructured to promote greater competition ong>inong> ong>theong> sector. However, ong>theong>re are

valid reasons for ong>theong> growong>inong>g trend of electricity sector reform, and it is becomong>inong>g clear that ong>inong> ong>theong>

aftermath of this process, some profound changes are likely to occur, and ong>theong>se changes will have

important future impacts on power supply fuel markets, electricity generation and distribution

technologies, and ong>theong> range and variety of services available to consumers.

Even so, electricity sector reform is only one element ong>inong> a changong>inong>g landscape. Such reform

precedes, is accompanied by, or follows on from oong>theong>r economic, social and environmental reform

ong>inong>itiatives. To understand what is goong>inong>g on ong>inong> ong>inong>dividual electricity supply ong>inong>dustries across ong>theong> ong>Asiaong>

ong>Pacificong>, and what developments are likely to occur ong>inong> ong>theong> future, it is necessary to consider ong>theong> wider

upstream and downstream energy sector, and oong>theong>r social and environmental policy developments. It

is ong>theong> ong>inong>tention of this paper to ong>inong>vestigate ong>theong> possible impacts of electricity sector reform on ong>theong>

market for ong>theong>rmal fuels, but to do this withong>inong> ong>theong> context of oong>theong>r events and mitigatong>inong>g factors.

ASIA PACIFIC ELECTRICITY DEMAND GROWTH

Over ong>theong> next twenty years, barrong>inong>g any major extended economic dislocations, energy demand

worldwide is projected to grow by over 50 percent. The growth will be unevenly distributed however,

with only about 25 percent growth ong>inong> ong>theong> ong>inong>dustrialised world, and about 100 percent growth ong>inong> ong>theong>

developong>inong>g world, with ong>Asiaong> accountong>inong>g for ong>theong> bulk of ong>theong> ong>inong>crease. (CSIS, 1999). This trend will be

stimulated by ong>theong> dynamics of current technological development (which ong>inong>cludes semiconductors,

telecommunications and ong>inong>formation technologies.).

Rapid economic expansion ong>inong> ong>theong> ong>Asiaong> ong>Pacificong> region over recent years has led to a large growth

ong>inong> demand for electricity. In much of ong>theong> APEC region, demand growth has put a severe straong>inong> on ong>theong>

ability of ong>inong>dividual economies to expand ong>theong> electricity ong>inong>frastructure capacity rapidly enough to meet

ong>theong> surge ong>inong> demand.

The proportion of ong>theong> population with access to electricity varies widely throughout ong>theong> APEC

region. The per capita consumption of electricity also varies tremendously. For example, at one end of

ong>theong> spectrum, ong>theong> US is almost 100 percent electrified and per capita electricity consumption is nearly

14,000 kWh/year, while Indonesia is only about 55 percent electrified and per capita electricity

consumption is under 400 kWh/year.

Growth ong>inong> demand for electricity is outstrippong>inong>g demand for oong>theong>r types of energy ong>inong> ong>theong> ong>Asiaong>

ong>Pacificong> region, as ong>theong> region becomes ong>inong>creasong>inong>gly electrified and per capita consumption rises. This

trend is particularly marked ong>inong> ong>theong> developong>inong>g economies. How this rapid growth ong>inong> electricity demand

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will be satisfied is possibly one of ong>theong> most critical issues facong>inong>g ong>theong> region over ong>theong> medium term.

The ong>Asiaong> ong>Pacificong> Energy Research Centre (APERC) has projected that electricity consumption ong>inong>

ong>Asiaong> ong>Pacificong> Energy Cooperation (APEC) economies will grow by 65 percent between 1995 and 2010

(an annual growth rate of 3.4 percent) (APERC, 1998). This compares to a 74 percent (3.8 percent

annual) ong>inong>crease for ong>theong> five-year period 1980 – 1995. (Figure 1).

Souong>theong>ast ong>Asiaong> is expected to have ong>theong> fastest growth ong>inong> electricity demand over ong>theong> forecast

period with 7.8 percent per annum, contributong>inong>g 11 percent of ong>theong> total APEC ong>inong>crease. East ong>Asiaong> will

have ong>theong> next fastest growth ong>inong> electricity demand (5.2 percent per annum).

Demand for electricity is driven mostly by ong>theong> projected economic expansion ong>inong> ong>theong> region. For

example, GDP ong>inong> Souong>theong>ast ong>Asiaong> is expected to ong>inong>crease by 6.1 percent annually, leadong>inong>g to 7.8

percent growth per annum ong>inong> electricity demand. As argued by Hansen (1998), ong>inong>dustrial production is

becomong>inong>g ong>inong>creasong>inong>gly reliant on electricity ong>inong>tensive technologies, so that electricity demands tracks

GDP growth more closely.

Figure 2 shows electricity generation fuel trends for APEC member economies projected out to

2010, and is based on ong>theong> APERC Demand and Supply Outlook published ong>inong> 1998. The projections

suggest that coal will maong>inong>taong>inong> its position as ong>theong> domong>inong>ant fuel for electricity generation, with natural

gas and hydropower demonstratong>inong>g more modest growth. The relative share of fuel oil used for power

generation is expected to declong>inong>e.

Most economies ong>inong> ong>theong> ong>Asiaong> ong>Pacificong> region are richly endowed with natural energy resources

except Japan, South Korea and Chong>inong>ese Taipei. These all lack significant natural energy resources,

apart from (limited) hydropower potential. As a result ong>theong>se economies import a high percentage of

ong>theong>ir fuel requirements for power generation. The lack of natural resources is one of ong>theong> strong

motivatong>inong>g forces behong>inong>d ong>theong> push by ong>theong> respective governments of ong>theong>se three economies to promote

nuclear generation.

FORCES FOR CHANGE

A number of important factors have contributed to ong>theong> far-reachong>inong>g changes ong>inong> global electricity

markets we are now seeong>inong>g. The history of recent economic reform ong>inong> general, and of electricity sector

reform ong>inong> particular, can be traced back to ong>theong> OPEC oil embargo ong>inong> ong>theong> mid 1970s. This led to a sharp

rise ong>inong> ong>theong> price of oil, which had many social and economic ramifications. In ong>theong> early and mid 1980s,

ong>inong> reaction to high oil prices and fears about economic scarcity, a large effort was made by oil

exploration companies worldwide to discover new reserves. For ong>theong> electricity ong>inong>dustry, ong>theong>

importance of this lay not ong>inong> discoveries of new reserves of oil, but ong>inong> ong>theong> discovery of enormous

amounts of natural gas. This ong>inong> turn has led to ong>theong> development of high efficiency turbong>inong>es that allow

natural gas to compete strongly with oong>theong>r power generation fuels, such as coal.

One of ong>theong> key ramifications of ong>theong> oil embargo was its global economic impact. In ong>theong> early

1980s, even highly developed nations were ong>inong> economic crisis, leadong>inong>g to a widespread wave of

economic reform. States were faced with ong>theong> realisation that ong>inong> ong>theong> face of a need for ong>inong>frastructure and

oong>theong>r ong>inong>vestment, limited state fong>inong>ancial resources were ong>inong>sufficient to meet this need, as well as ong>theong>

oong>theong>r demands on ong>theong> state purse. The New Neo-classical economic ong>theong>ory emergong>inong>g ong>inong> ong>theong> early

1980s ong>inong>sisted that free and competitive markets were more efficient than government agencies at

deliverong>inong>g basic services, and that divestiture of state-owned assets would have flow-on social benefits

ong>inong> terms of improved resource allocation, ong>inong>novation, and ultimately greater employment

opportunities. (Becker and Becker, 1997).

TECHNOLOGICAL INNOVATION

Next to ong>theong> drive to achieve greater economic efficiency, ong>theong> greatest force for change is quite

probably ong>theong> ong>inong>exorable advance of technological ong>inong>novation. In ong>theong> electricity sector, two important

areas of ong>inong>novation are havong>inong>g a major impact on ong>theong> ong>inong>dustry. The first is ong>theong> development of ong>theong>

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natural gas combong>inong>ed cycle turbong>inong>e (CCGT). In comparison with ong>theong> 30–40 percent efficiencies

achieved by ong>theong> old song>inong>gle cycle turbong>inong>es ong>inong>stalled 20 years ago, today’s turbong>inong>es are runnong>inong>g at 50–60

percent efficiency, and still improvong>inong>g over time. High ong>theong>rmal efficiency means low emission levels,

and this ong>inong> turn means that power plants can now be situated closer to demand centres.

CCGT generation plants also have low capital costs and rapid construction times when compared

with oong>theong>r options. Fuel costs may ong>inong> many places still be higher, but ong>theong> low capital costs and rapid

ong>inong>stallation offset this disadvantage, especially for peakong>inong>g plants that may run at low capacity factors.

However, because modern CCGT plants run at high levels of reliability, ong>theong>y are ong>inong>creasong>inong>gly beong>inong>g

used for base load, and because ong>theong>y come ong>inong> small sizes, addong>inong>g extra capacity matches ong>inong>crements ong>inong>

demand more closely than was possible ong>inong> ong>theong> past when additional capacity was likely to cause

considerable “lumpong>inong>ess” ong>inong> ong>theong> match between supply and demand.

The second ong>inong>novation likely to have a major impact on ong>theong> electricity sector is ong>theong> electronic

ong>inong>formation revolution. Markets, such as wholesale power pools can now be operated largely through

electronic means such as ong>theong> Internet, with buyong>inong>g and sellong>inong>g designed to match demand on a five

mong>inong>ute basis throughout ong>theong> day and night. With ong>theong> ability of market players to have access to real

time ong>inong>formation on all aspects of ong>theong>ir operations, and on constantly changong>inong>g market prices for

electricity, it is now feasible to operate a disaggregated ong>inong>dustry structure with high levels of

economic efficiency. This has been an underpong>inong>nong>inong>g argument supportong>inong>g ong>theong> view now widely held

(Spicer et al, 1991) that competitive markets lower transaction costs over ong>theong> old vertically ong>inong>tegrated

bureaucracies of ong>theong> past.

Anoong>theong>r way, ong>inong> which ong>inong>formation technology is likely to shape ong>theong> ong>inong>dustry, is through ong>theong> use

of power distribution networks to carry ong>inong>formation as well as bulk electricity. For example, ong>theong>

German company Veba plans to launch, by ong>theong> end of ong>theong> year 2000, a technology that will allow

consumers to gaong>inong> Internet access through power long>inong>es (The Domong>inong>ion, 2000).

CONSUMER CHOICE

As ong>theong> power to choose between supplier’s reaches down to smaller busong>inong>esses and residential

consumers, this will act as a furong>theong>r spur to ong>theong> development of even more goods and services tailored

to meet ong>inong>dividual needs. Although ong>theong>re are barriers to switchong>inong>g suppliers, ong>theong>re is evidence to

suggest that new meterong>inong>g technology and a better understandong>inong>g of ong>theong> market by small consumers

will ong>inong> time lead to true retail competition, and ong>theong>n to furong>theong>r stimulation of electricity markets as

retailers compete to provide a more diverse and higher quality range of goods and services.

FINANCIAL CONSTRAINTS

The pace of electricity reform ong>inong> ong>Asiaong> has been ong>inong>fluenced strongly over ong>theong> last few years by a

general shortage of capital to fund ong>inong>frastructure growth, and ong>inong> particular by ong>theong> 1997 fong>inong>ancial crisis.

Despite ong>theong> heavy capital squeeze caused by this crisis, with one outcome beong>inong>g a precipitous declong>inong>e

ong>inong> ong>inong>frastructure ong>inong>vestment, a spong>inong>-off of ong>theong> crisis has been to promote ong>theong> process of electricity

sector restructurong>inong>g. The International Monetary Fund and oong>theong>r multi-lateral development banks have

applied strong pressure for reform, but many governments now see that economic efficiency ong>inong> ong>theong>

electricity sector is vital ong>inong> economies strapped for cash. With demand for electricity over ong>theong> next

decade measured ong>inong> ong>theong> tens of thousands of megawatts, governments have found it impossible to

fong>inong>ance additional capacity ong>theong>mselves at ong>theong> rate of ong>inong>vestment needed.

Self-fong>inong>ancong>inong>g ong>inong> ong>theong> energy sector is low ong>inong> most developong>inong>g APEC economies. In combong>inong>ation

with severe budget constraong>inong>ts ong>inong> ong>theong> public sector, an option is to allow a substantial degree of private

participation ong>inong> ong>theong> power supply system, and this is happenong>inong>g.

DEREGULATION AND ELECTRICITY GENERATING FUEL MARKETS

In virtually every economy ong>inong>cluded ong>inong> ong>theong> APERC study, ong>theong> drivong>inong>g forces for reform were ong>theong>

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perceived benefits ong>inong> terms of improved economic efficiency, lower electricity prices, and access to

much needed capital to fund ong>inong>frastructure growth. In terms of fuel markets, ong>theong> general assumption is

that ong>theong> emphasis will be on competitiveness, with plants fuelled by ong>theong> most readily available and

cost effective fuels attractong>inong>g ong>theong> most ong>inong>vestment. If one ignores environmental externalities, ong>theong> fuels

most likely to benefit from a competitive market for generation fuels are coal and gas. Coal wong>inong>s out

ong>inong> economies where it can be mong>inong>ed cheaply and locally – Australia, Chong>inong>a and some states ong>inong> ong>theong> US.

Natural gas is very competitive ong>inong> economies with abundant local supplies, or where it can be

transported by pipelong>inong>e across borders. It also competes for peak load ong>inong> situations where it must be

imported as LNG (for example ong>inong> Korea and Japan).

The environmental impacts of power systems, and ong>theong> potential impacts of ong>inong>dustry reform on ong>theong>

environment, have tended not to be major considerations at ong>theong> time of first implementation of reform

measures. Usually, it is assumed that improvements ong>inong> economic efficiency will naturally lead to

environmental benefits, as less resource will be needed to produce ong>theong> same amount of power.

Unfortunately, it is not that simple. The dynamics of ong>theong> electricity supply ong>inong>dustry are reasonably

complex, and ong>theong> environmental impacts of reform will depend on a number of key factors, ong>inong>cludong>inong>g

ong>inong>digenous resource endowments, economic growth patterns, social attitudes and ong>theong> existence and

effectiveness of environmental laws.

Because consumption of ong>theong>rmal fuels are growong>inong>g exponentially ong>inong> some rapidly ong>inong>dustrializong>inong>g

economies - trackong>inong>g exponential growth ong>inong> power supply, and because of ong>inong>creasong>inong>g public debate

about ong>theong> effects of greenhouse gases and oong>theong>r pollutants on ong>theong> environment, it is useful to discuss

ong>theong>se issues ong>inong> ong>theong> light of ong>theong> rapidly expandong>inong>g trend of electricity market liberalization. The

importance of this topic is underscored by ong>theong> fact that ong>theong> generation of electricity is one of ong>theong> major

contributors to localized and regional urban pollution, and to growth ong>inong> GHG emissions. The sector,

with its limited number of localized poong>inong>t sources, is also more amenable to emission control than

some oong>theong>r sectors.

Below, a number of regional economies are spotlighted, to discuss ong>theong> effects that reforms have

had on fuel markets, and impact that various factors might have on possible future power generation

options.

AUSTRALIA

Current demand for electricity ong>inong> Australia is just under 160 TWh (GWh*10^3) and is expected to

ong>inong>crease to 200 TWh by 2010, requirong>inong>g an ong>inong>crease ong>inong> generation capacity from 45 000 MW to 55

000 MW over ong>theong>y same period.

The predomong>inong>ant fuel used to generate electricity is coal, which accounts for 80 percent of

capacity. Natural gas, with an ong>inong>creasong>inong>g share (now over 10 percent), and hydropower account for ong>theong>

rest. Despite large deposits of uranium, Australia has no nuclear power plants. New ong>inong>vestment is

beong>inong>g driven by Independent Power Producers (IPPs), which currently contribute 14 percent of total

electricity supply capacity. In 1997, electricity generation was 169 million kWh from an ong>inong>stalled

capacity of 42,547 MW.

The NEM is an ong>inong>tegrated competitive wholesale market for ong>theong> tradong>inong>g of electricity, which

operates across ong>theong> eastern and souong>theong>rn maong>inong>land states of New South Wales, Victoria, ong>theong> Australian

Capital Territory and South Australia. The same system was concurrently implemented ong>inong>

Queensland.

Despite ong>theong> high dependence on coal for power generation, and ong>theong> fact that a significant amount

of it is low-grade brown coal (mostly ong>inong> ong>theong> state of Victoria), environmental considerations were not,

ong>inong> 1990, one of ong>theong> foremost policy considerations when electricity reform was undertaken. 1 Of most

concern was ong>theong> desire to ong>inong>crease ong>theong> efficiency of ong>theong> sector through vertical separation of generation

1 The brown coal burned ong>inong> Victoria contaong>inong>s relatively low sulphur levels, and until recently, greenhouse gas emissions have not been

a major concern.

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and retail from ong>theong> natural monopoly elements of transmission and distribution, corporatisation of

former government utilities, ong>theong> ong>inong>troduction of competition, and enhancement and extension of ong>theong>

network.

Insofar as greenhouse emissions were considered, it was anticipated that improvements ong>inong>

economic efficiency would be sufficient to actually lower GHG emission levels ong>inong> a deregulated

ong>inong>dustry. (John Howard, 1997).

The National ong>Electricityong> Market (NEM) has been successful ong>inong> drivong>inong>g down generation costs, as

reflected ong>inong> ong>theong> trend ong>inong> wholesale electricity prices. (Tucker, 1999) Such a system favours ong>theong> most

efficient operators, and if this case has favoured ong>theong>rmal plant ong>inong> Victoria burnong>inong>g low-grade brown

coal. The coal is close to ong>theong> surface and relatively cheap to mong>inong>e, generatong>inong>g stations are mostly mong>inong>e

mouth so transportation costs are low, and are also reasonably close to major centres of demand.

Although policy-makers expect ong>theong> reforms to open up opportunities for new technology, such as

combong>inong>ed cycle gas, wong>inong>d and solar, this has not been ong>theong> outcome ong>inong> ong>theong> short-term. One factor

workong>inong>g agaong>inong>st new technologies at this stage is an over-capacity of generation capability. Postreform,

no new plants have been commissioned, load switchong>inong>g has occurred to favour ong>theong> plants able

to bid ong>inong>to ong>theong> NEM at ong>theong> lowest prices – plants ong>inong> Victoria burnong>inong>g low-grade brown coal.

A study undertaken by ong>theong> Allen Consultong>inong>g ong>Groupong> has found “ong>theong>re is not a simple relationship

between market driven efficiencies and GHG benefits; competition can and does have unexpected

impacts” (The Allen Consultong>inong>g ong>Groupong>, 1999). In this ong>inong>stance, ong>inong>creasong>inong>g ong>theong> ong>theong>rmal efficiency of

brown coal generators reduced ong>theong>ir GHG emissions, and also raised ong>theong>ir competitiveness. This

tended to displace supply from less competitive and less GHG ong>inong>tense options, resultong>inong>g ong>inong> a net

ong>inong>crease ong>inong> GHG emissions.

The Allen ong>Groupong> report predicts that ong>theong> predomong>inong>ance of large, cheap coal fired ong>theong>rmal

generation capacity will contong>inong>ue to domong>inong>ate ong>theong> outcomes of ong>theong> reform process. With growth ong>inong>

generation capacity likely to remaong>inong> sluggish ong>inong> light of ong>theong> current supply overhang, ong>theong> pattern of

supply favoured by pre-reform energy planners (reflectong>inong>g an abundance of cheap ong>theong>rmal fuel and ong>theong>

efficiencies afforded by economies of scale), will shape market outcomes for years, if not decades.

The Federal Government is now seekong>inong>g to ong>inong>tegrate wider energy and environmental objectives

ong>inong>to ong>theong> NEM. For example, a greenhouse ong>inong>tensity measure for electricity tradong>inong>g pools was

developed ong>inong> late 1999 and is currently beong>inong>g implemented by ong>theong> NEM Management Company. This

ong>inong>itiative was partially ong>inong> response to, and is expected to reverse, ong>theong> trend of ong>inong>creased electricity

production from cheaper and more environmentally damagong>inong>g brown coal power stations at ong>theong>

expense of cleaner natural gas fired power stations.

Whilst ong>theong> ong>inong>troduction of new gas fired generation is likely to happen ong>inong> Victoria, South Australia

and new South Wales, new coal-fired plants are beong>inong>g ong>inong>troduced ong>inong>to ong>theong> fast growong>inong>g Queensland

markets. (The Allen Consultong>inong>g ong>Groupong>, 1999).

NEW ZEALAND

After a decade of reform measures, New Zealand now arguably has ong>theong> most deregulated

electricity sector ong>inong> ong>theong> ong>Asiaong> ong>Pacificong> region (see figure 3). The sector is not completely privatised, but

government analysts argue that ong>theong> three States Owned Enterprises still domong>inong>ant ong>inong> ong>theong> generation

sector must all compete with each oong>theong>r, and with private sector competitors on a level busong>inong>ess

footong>inong>g.

The environmental impacts of reform have been decidedly positive ong>inong> ong>theong> short-term, and could

remaong>inong> so ong>inong> ong>theong> longer-term. For example, ong>theong> potential exists for New Zealand, over time, to become

a world leader ong>inong> terms of ong>inong>stalled wong>inong>d capacity as a percentage of ong>theong> total load. Although ong>theong>

reforms have promoted a significant ong>inong>crease ong>inong> ong>inong>vestment ong>inong> fossil fuel fired generation, ong>theong> new

plants are CCGT units, and have led to ong>theong> decommissionong>inong>g and sidelong>inong>ong>inong>g of older, higher cost,

6


song>inong>gle cycle fossil fuel powered plants.

Post reform, two wong>inong>d farms have been commissioned. The first was a 3.5 MW plant at Hau Nui

ong>inong> ong>theong> Wairarapa, and ong>theong> second a 35 MW plant near Palmerston North. A second phase of ong>theong>

Palmerston North facility was ong>inong>itially planned, but ong>theong> current generation over-capacity and a change

of ownership resulted ong>inong> ong>theong>se plans beong>inong>g put on hold temporarily (Trustpower has announced an

ong>inong>tention to complete ong>theong> full project as soon as possible). The strikong>inong>g feature about this wong>inong>d farm is

an average wong>inong>d speed of over 10 m/sec and a load factor, which exceeds 50 percent (very high by

ong>inong>ternational standards).

The percentage of renewables as a percentage of total capacity is high ong>inong> New Zealand, with

hydro accountong>inong>g for 66.7 percent of total capacity (March year 1999) and geoong>theong>rmal 6.5 percent.

New geoong>theong>rmal stations have been commissioned post-reform, but significant new (especially large

scale) hydro ong>inong>creases are unlikely. From an environmental perspective, a moratorium on large-scale

hydro construction may be considered desirable. There has been substantial public resistance to at

least two large-scale hydro schemes (Manapouri and Clyde), and ong>theong>re is now a strong feelong>inong>g that

enough wild waterway and lakes have been significantly impacted by power schemes.

Official government power requirement projections to 2020 suggest that after 2010, coal fired

generation will begong>inong> to assume a growong>inong>g role ong>inong> ong>theong> electricity supply ong>inong>dustry (see figure 4). This

view is predicated on ong>theong> assumption that natural gas reserves will be largely depleted by 2010, and no

new reserves of sufficient magnitude to supply a significant percentage of ong>theong> total power supply will

be found. Obviously, this projection does not take ong>inong>to account ong>theong> ong>inong>creased ong>inong>centives that will exist

to discover new gas resources once ong>theong> production from existong>inong>g fields begong>inong>s to declong>inong>e markedly, but

also does not account for political commitments to ong>theong> Kyoto protocol. In March of this year, a new

Labour Government announced it would move to ratify ong>theong> Kyoto Protocol next year, and ong>theong> new

Mong>inong>ister of Energy demanded new projections – without ong>theong> coal option (Mong>inong>istry of Economic

Development, 2000).

USA

In ong>theong> US, reform has tended to be piecemeal, reflectong>inong>g ong>theong> political landscape and nature of ong>theong>

electricity supply ong>inong>dustry (predomong>inong>ance of private ownership, exclusive franchise agreements, heavy

regulatory oversight, political ong>inong>fluence, state versus federal laws and regulations), reform was always

goong>inong>g to be piecemeal and more difficult to implement. Consequently, it is as yet quite difficult to

ascertaong>inong> what impacts electricity sector reforms have had on electricity generation fuel markets to

date. Future impacts will depend on ong>theong> pace and modalities of reform ong>inong> ong>inong>dividual states.

Figure 5 shows net generation data by fuel type for ong>theong> whole of ong>theong> USA for ong>theong> period 1987 to

1999, with projected data to 2001. What is most notable is ong>theong> lack of any major changes ong>inong> fuel mix

over time. Currently, electric utilities and ong>inong>dependent power producers generate more than 55 percent

of all electricity via coal-fired technology and account for approximately 89 percent of domestic coal

consumption. Net generation by natural gas has remaong>inong>ed relatively constant over ong>theong> period at around

280-300 TWh, or around 9 percent of total generation ong>inong> 1999.

Although this diagram shows a fairly tranquil scene for ong>theong> US electricity supply ong>inong>dustry, a

scenario that could be projected far ong>inong> ong>theong> future, if ong>theong> US were to ratify ong>theong> Kyoto Protocol and to

implement policy measures ong>inong> an effort to meet ong>theong> Kyoto target of 7 percent reduction below 1990

levels, ong>theong> impacts on ong>theong> electricity supply ong>inong>dustry, and on ong>theong>rmal fuel markets, would be

substantial.

The EIA estimates that meetong>inong>g ong>theong> Kyoto target could result ong>inong> a carbon price of around US$350

per tonne. This would impact fuel prices, and also electricity tariffs, depressong>inong>g demand not only for

high carbon fuels, but also for electricity. ong>Electricityong> generators are expected to respond more strongly

than end-use consumers to higher prices because ong>theong> ong>inong>dustry has traditionally been cost-mong>inong>imisong>inong>g,

factorong>inong>g future energy price ong>inong>creases ong>inong>to ong>inong>vestment decisions (EIA, 1998). For this reason, ong>theong> EIA

predicts that reductions ong>inong> carbon emissions from electricity generation could account for up to 75

percent of ong>theong> total carbon reductions, assisted by ong>theong> availability of a number of more efficient and

7


lower-carbon technologies that become available as ong>theong> cost of generatong>inong>g electricity from fossil fuels

ong>inong>creases.

If this scenario were played out, coal prices would rise dramatically, and coal-fired generation

would declong>inong>e to as low as 12 percent of ong>theong> total by 2010 – replaced by new gas and renewables

generation, and extension of ong>theong> lives of many current nuclear power plants.

In ong>theong> UK, a “dash for gas” post-reform came about as a result of ong>theong> ready availability of large

quantities of North Sea gas at competitive prices, ong>theong> existence of a gas ong>inong>frastructure, and ong>theong> uncompetitiveness

of coal ong>inong> a liberalised market. This was a case where ong>theong> rate of change was greatly

accelerated by environmental policy pressures, commercial realities and public opong>inong>ion.

In ong>theong> US, ong>theong> situation is somewhat different. Coal contong>inong>ues to be very cost competitive as a

generation fuel, and gas supplies are currently constraong>inong>ed by a very tight market. Accordong>inong>g to a

recent report by CERA, ong>inong> ong>theong> short-term ong>theong>re is no surplus capacity at all, little recent exploratory

activity to prove furong>theong>r reserves, and prices are risong>inong>g on ong>theong> back of ong>theong> risong>inong>g world price of oil. The

politicians have not yet made any commitments with respect to ong>theong> Kyoto Protocol, so any major

swong>inong>gs ong>inong> electricity generation options remaong>inong> unrealised. The likely absence of any major changes ong>inong>

ong>theong> US electricity generation fuel mix ong>inong> ong>theong> near future is furong>theong>r reong>inong>forced by a current national

supply overhang (exceptong>inong>g ong>theong> recent localised supply shortages ong>inong> California).

Even with ong>inong>creasong>inong>g political commitment to meetong>inong>g ong>theong> Kyoto target, coal is expected to

remaong>inong> ong>theong> domong>inong>ant fuel for power generation. This will come from efficiency improvements and

greater capacity utilisation. Accordong>inong>g to ong>theong> EIA, ong>inong> 1995 ong>theong> average operatong>inong>g cost of coal-fired

plants was 1.8 cents/kWh. Only 66 percent of ong>theong>ir maximum potential output was needed to meet ong>theong>

1996 level of demand. Over ong>theong> next twenty years, as demand for electricity grows, ong>theong> utilisation of

coal-fired plants is expected to approach 80 percent.

Despite a current tight gas market, ong>theong> vast majority of new generation plants are likely to be gas

combong>inong>ed cycle facilities.

MALAYSIA

ong>Electricityong> ong>inong>frastructure growth - which has been regarded as ong>inong>dispensable to economic

development - is now ong>theong> impetus and stimulus for greater growth and ong>inong>dustrialisation ong>inong> Malaysia.

The electricity sector is undergoong>inong>g substantial change, from a monopolistic, vertically ong>inong>tegrated

ong>inong>dustry managed by government utilities, to a sector comprisong>inong>g government owned utilities as well

as private sector players. In long>inong>e with ong>theong> government privatisation policy of ong>theong> mid 1980s, ong>theong>

electricity sector is beong>inong>g privatised, begong>inong>nong>inong>g with ong>theong> largest utility, ong>theong> National ong>Electricityong> Board,

servong>inong>g Penong>inong>sular Malaysia (more than 80 percent of ong>theong> total population of Malaysia).

The rapid electricity demand ong>inong>crease due to high economic growth ong>inong> ong>theong> late 1980s and early

1990s has led to acute power shortages. In recognition of ong>theong> severity of this situation, ong>theong> government

passed ong>theong> ong>Electricityong> Supply Act (1990) and subsequently created ong>theong> Department of ong>Electricityong> and

Gas Supply to deal with ong>theong> problem.

Between 1987 and 1997 Malaysian electricity demand grew at around 12-15 percent per annum.

Peak demand ong>inong>creased from 3,000 MW ong>inong> 1986 to about 9,200 MW ong>inong> 1997, and is expected to grow

at a modest rate durong>inong>g ong>theong> fong>inong>ancial crisis period and pick up agaong>inong> when ong>theong> economy recovers.

Overall electricity consumption ong>inong>creased from 21 TWh ong>inong> 1990 to 49.1 TWh ong>inong> 1997, representong>inong>g a

growth of 8-15 percent per annum. ong>Electricityong> consumption per capita ong>inong>creased from 1,120 kWh to

2,320 kWh durong>inong>g ong>theong> same period.

Government policy objectives are that: energy prices shall reflect ong>theong> economic cost or true cost of

supply; adequate revenues shall be generated to allow for ong>theong> development of ong>theong> power sector; ong>theong>

competitiveness of Malaysia’s ong>inong>dustries and services will be assured; diversification of energy

resources will be encouraged - with greater use of ong>inong>digenous resources; and reform will be aligned

8


with ong>theong> social and economic objectives of ong>theong> government.

As shown ong>inong> figure 6, most of ong>theong> growth ong>inong> electricity demand has been met with gas-fired

generation, mostly combong>inong>ed cycle. Coal has shown some modest growth, but use of coal is unlikely

to expand greatly given ong>theong> limited quantities of domestic reserves, and ong>theong> need to import steam coal.

To date more than 214 natural gas fields have been discovered ong>inong> Malaysia, with only 10

developed and producong>inong>g (PETRONAS website). Malaysia’s proven reserves have risen from 1,270

BCM on 1 January 1994, to 2,310 BCM on 1 January 1999, despite an ong>inong>crease ong>inong> production capacity

over this period. At ong>theong> 1998 production capacity level of 41.3 BCM, Malaysia’s supply of natural

gas would last for ong>theong> next 56 years.

Over a period of ten years from 1989 to 1998, Malaysia’s natural gas production has ong>inong>creased at

a rate of 9 percent per year - from 17.5 to 41.3 BCM. With no new export commitments, most of ong>theong>

extra production capacity has been used to meet domestic demand, especially as fuel for new power

plants operated by ong>inong>dependent power producers (IPPs). The corporatised national utility company,

Tenaga Nasional Berhad is also contong>inong>uously upgradong>inong>g its oil-fired power plants to gas CCTs to

ong>inong>crease its generation efficiency and to remaong>inong> cost competitive with ong>theong> new emergong>inong>g IPPs.

There is a government policy (ong>theong> Renewable Portfolio Standard), newly announced, to ong>inong>crease

ong>theong> share of renewable energy to 5.0 percent of total net generation by 2005. This renewable share is

expected to come maong>inong>ly from biomass co-generation, usong>inong>g wastes from ong>theong> palm oil ong>inong>dustry.

However, despite ong>theong> government desire to ensure diversification of fuels for power generation,

market economics will ensure that gas-fired generation remaong>inong>s ong>theong> most preferred option ong>inong>to ong>theong>

foreseeable future.

KOREA

The Republic of Korea has ong>inong> recent years experienced rapid economic growth, a trend that should

contong>inong>ue for ong>theong> comong>inong>g decade, despite ong>theong> 1997/1998 fong>inong>ancial crises. This has been accompanied by

a substantial ong>inong>crease ong>inong> energy demand - at a rate unsurpassed by most economies ong>inong> ong>theong> world.

Much of ong>theong> energy demand growth is focused on electricity – with electricity demand growong>inong>g

from 32.7 TWh ong>inong> 1980 to 200.8 TWh ong>inong> 1997 (exceedong>inong>g ong>theong> GDP growth rate of 8.5 percent). To

meet this demand ong>inong>crease, generation capacity ong>inong>creased from 9,391 MW ong>inong> 1980 to 41,041 MW ong>inong>

1997. Korea is poorly endowed with ong>inong>digenous energy resources, so apart from a modest hydro

resource, most power is generated with imported fuels.

Until 1980, oil was ong>theong> major fuel for power generation, accountong>inong>g for 77 percent of ong>theong> total for

that year. Song>inong>ce ong>theong>n, oil fired generation has declong>inong>ed substantially (to 18.4 percent of ong>theong> total ong>inong>

1997). The first bitumong>inong>ous coal-fired power plant was completed ong>inong> 1983. Song>inong>ce ong>theong>n, coal-fired

generation has grown strongly, accountong>inong>g for 26.7 percent of ong>theong> total ong>inong> 1997. Nuclear power is now

also a major source of electricity, accountong>inong>g for 37.0 percent of total power generated ong>inong> 1997 (see

figure 7).

Song>inong>ce its first commercial operation ong>inong> 1978, nuclear power has played an important role ong>inong>

electricity generation, particularly for base load generation. Durong>inong>g ong>theong> period 1980-97, nuclear

generation ong>inong>creased from 3.5 TWh to 77.1 TWh, and its share ong>inong> Korea's total primary energy

consumption ong>inong>creased from 2.0 percent ong>inong> 1980 to 11.0 percent ong>inong> 1997.

Until now ong>theong> amount of natural gas consumed for power generation has been coordong>inong>ated partly

through government long-term supply and demand plans. The government has ong>inong>fluenced KEPCO’s

fuel mix decisions to achieve energy security and environmental policy objectives. Without ong>theong>

environmental benefits of natural gas fully reflected ong>inong> ong>theong> price, natural gas is ong>theong> most expensive fuel

ong>inong> Korea. As a result, gas fired plants tend to have a low load factor. However, many believe that as

ong>theong> load factor improves, gas-fired plants will become more competitive agaong>inong>st oong>theong>r types of plant

and technology development ong>inong> ong>theong> ong>theong>rmal efficiency of gas turbong>inong>es will also ong>inong>crease ong>theong> economic

feasibility of this type of power plant. The high price of gas limits ong>theong> competitiveness of gas-fired

9


plants ong>inong> a fully deregulated market ong>inong> ong>theong> near future, as ong>inong>vestors are likely to choose dirtier but

cheaper fuels. This outcome will lead to greater environmental damage and less overall benefits to

consumers. Once true competition has been ong>inong>troduced ong>inong> ong>theong> generation sector, it will be neiong>theong>r

desirable nor possible for ong>theong> government to dictate ong>theong> types of fuels to be used for power generation.

Anoong>theong>r ong>inong>terestong>inong>g issue concerns ong>theong> time frame and ong>theong> manner ong>inong> which ong>theong> natural gas

ong>inong>dustry will be restructured. It is probable that ong>theong> privatisation and ong>inong>troduction of gas-to-gas

competition will come far later than competition ong>inong> power generation. In this case, effective

competition ong>inong> generation will be harder to achieve ong>inong> ong>theong> foreseeable future. At ong>theong> core of

competition ong>inong> generation lies ong>theong> ability of ong>inong>vestors to compete on fuel price.

CHINA

From ong>theong> perspective of someone ong>inong> ong>theong> coal ong>inong>dustry, Chong>inong>a must be one of ong>theong> more ong>inong>terestong>inong>g

economies to contemplate. As shown ong>inong> figure 8, growth ong>inong> power demand, and growth ong>inong> coal

consumption for power generation has been exponential over most of ong>theong> last two decades. Net

generation experienced over 400 percent growth from 1980 to 1998, averagong>inong>g about 8 percent per

annum.

With net generation likely to contong>inong>ue growong>inong>g at a similar rate over ong>theong> next decade, a major

question looms concernong>inong>g generation fuels. Most of ong>theong> recent growth has been met by ong>inong>digenous

ong>theong>rmal coal, some quite low grade. As shown ong>inong> ong>theong> diagram, coal consumption for power generation

actually declong>inong>ed slightly ong>inong> 1998. This was partly a result of ong>theong> economic slowdown, but also as a

consequence of ong>theong> closure of a significant number of small uneconomic mong>inong>es.

Accordong>inong>g to one source, a current supply overhang may result ong>inong> no new plants beong>inong>g

commissioned for a couple of years, and a three-year moratorium has been declared on ong>theong>

construction of new coal-fired power plants (CERA, 1999).

Chong>inong>a was not one of ong>theong> economies ong>inong>cluded ong>inong> ong>theong> APERC deregulation study, so it is difficult to

comment with much authority. However, it does appear that ong>theong> Chong>inong>ese Government is focused on

electricity sector reform to ong>inong>crease competitiveness and efficiency levels ong>inong> ong>theong> ong>inong>dustry.

Although Chong>inong>a’s recent ong>inong>dustry growth has been impressive, it has been accompanied by rapidly

worsenong>inong>g environmental conditions, especially withong>inong> ong>theong> major urban areas. It is argued that

environmental problems have now reached ong>theong> poong>inong>t at with ong>theong>y are seriously affectong>inong>g overall social

and economic development (WRI, 1999). The economic costs associated with ecological destruction

and environmental pollution are now said to be as high as 14 percent of GNP. Coal-fired power

stations with ong>inong>adequate emissions controls are a major contributor to ong>theong>se problems, as are ong>inong>dustrial

coal-fired boilers ong>inong> urban centres.

New regulations to restrict ong>theong> use of “dirty” coal-fired facilities will undoubtedly begong>inong> to have a

substantial impact on urban air quality, encouragong>inong>g clean coal technologies and natural gas. To date,

natural gas has nor been promoted for power generation, and has suffered from low, regulated prices,

lack of ong>inong>frastructure, and uncertaong>inong>ty regardong>inong>g resource levels. There are ong>inong>dications, however, that

changes ong>inong> government policy will see ong>inong> ong>theong> future much more emphasis on development of natural

gas ong>inong>frastructure (CERA 2000).

If so, ong>theong> power generation fuel market ong>inong> Chong>inong>a may undergo major changes over ong>theong> next one or

two decades, and growth ong>inong> natural gas power generation may rival growth ong>inong> plants usong>inong>g clean coal

technology.

CONCLUSIONS

ong>Electricityong> sector reform has lowered ong>theong> costs of generatong>inong>g and distributong>inong>g electricity ong>inong> most

economies where deregulation is well advanced. In ong>theong>se cases, ong>theong> lowered sectoral cost structure is

expected to lead to lower electricity bills for consumers, although this has tended to depend on ong>theong>

10


extent of tariff subsidies and cross-subsidies.

Certaong>inong>ly, ong>inong>creased competition ong>inong> ong>theong> generation sector has lead to ong>inong>creased ong>inong>ter-fuel

competition, both with respect to existong>inong>g facilities and for green-field developments. Generally, ong>theong>

most competitive fuels have benefited from this competition, and ong>theong>se have tended to be gas and coal.

There is a place for oong>theong>r generation options ong>inong> deregulated markets, often for niche applications or

where local conditions confer a competitive advantage for a particular fuel or technology, or where

government policy still promotes certaong>inong> options, such as expanded nuclear or large-scale hydro

capacity.

In Australia, deregulation has resulted ong>inong> greater base-load generation by brown coal fired plants.

In ong>theong> USA, coal remaong>inong>s competitive ong>inong> some states, but gas is becomong>inong>g ong>theong> fuel of choice for new

plant, as is ong>theong> case ong>inong> New Zealand and Malaysia. In economies like Korea with few ong>inong>digenous

resources, and government policies that mandate a mixture of plants for energy security reasons, one

particular fuel has not domong>inong>ated ong>theong> scene. The Korean electricity sector is as yet largely unreformed,

so generation choices may change radically ong>inong> ong>theong> future.

The most important factor likely to ong>inong>fluence ong>inong>ter-fuel competition over ong>theong> next decade or two is

ong>theong> environmental impact of energy supply. For an economy such as Chong>inong>a, serious air pollution

problems ong>inong> urban areas will demand a move towards greater use of smokestack scrubbong>inong>g and clean

coal technologies, or natural gas CCT generation. Greenhouse gas emissions will be ong>theong> most

important environmental impact issue for most economies ong>inong> ong>theong> region, and if current UNFCCC

negotiations succeed ong>inong> precipitatong>inong>g concrete actions to limit greenhouse gas emissions, ong>theong> effects on

ong>theong> electricity sector, and on ong>inong>ter-fuel competition for generation, ong>theong> impacts on future electricity

supply options will be dramatic.

REFERENCES

! APERC. (1998). Energy Demand and Supply Outlook. ong>Asiaong> ong>Pacificong> Energy research Centre.

Tokyo. Japan

! APERC. (2000). “ong>Electricityong> ong>Sectorong> ong>Deregulationong> ong>inong> ong>theong> ong>Asiaong> ong>Pacificong> Region”. ong>Asiaong> ong>Pacificong>

Energy Research Centre. Tokyo, March 2000.

! Becker and Becker (1997), “The Economics of Life”, p. 13-29, McGraw-Hill

! CERA. (1999). “Chong>inong>a’s Power Market: “Is That Light at ong>theong> End of ong>theong> Tunnel Really an

Oncomong>inong>g Traong>inong>”. Private Report. Cambridge Energy Research Associates.

! CERA. (2000). “Onshore Gas Opportunities ong>inong> Chong>inong>a: A New Era”. Private Report. Cambridge

Energy Research Associates.

! CSIS. (1999). “The Geopolitics of Energy ong>inong>to ong>theong> 21 st Century.” Centre for Strategic &

International Studies. Washong>inong>gton.

! EIA. (1998). “Challenges of Electric Power Industry Restructurong>inong>g for Fuel Suppliers”. Energy

Information Admong>inong>istration/Department of Energy. Washong>inong>gton.

! Hansen, U. (1998). “Technology options for Power,” Energy Policy, Vol. 25, No. 2.

! Howard, John (1997). “Safeguardong>inong>g ong>theong> Future: Australia’s Response to Climate Change”.

The Prime Mong>inong>ister. 20 November.

! New Zealand Mong>inong>istry of Economic Development. March 2000. “New Zealand’s Future CO 2

Emissions: Excludong>inong>g Coal-Fired Generation”. Departmental policy paper.

! PETRONAS website. www.petronas.com.my

11


! Spicer, B., Bowman, R., Emanuel, D., Hunt, A. (1991). “The Power to Manage: Restructurong>inong>g

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Experience”. Oxford University Press.

! The Allen Consultong>inong>g ong>Groupong>. (1999). “Energy market Reform and Greenhouse Gas Emission

Reductions”. A Report to ong>theong> Department of Industry, Science and Resources.

! The Domong>inong>ion. 28 February 2000. Wellong>inong>gton. New Zealand.

! Tucker, C. (1999). “ong>Deregulationong> and Privatisation of ong>theong> ong>Electricityong> ong>Sectorong> – Issues and

Lessons”. Proceedong>inong>gs of ong>theong> APERC Mid-Year Workshop on Current Research Themes. ong>Asiaong>

ong>Pacificong> Energy Research Centre. September 30 – October 01. Japan.

! WRI. (1999). Regional Profile: Chong>inong>a’s Health and Environment”. World Resources Institute.

12


Figure 1 Growth ong>inong> demand for electricity by region

1000

900

800

700

600

TWh

500

400

300

200

100

0

1980 1995 2000 2005 2010

Americas East ong>Asiaong> SE ong>Asiaong> Oceania

Source: APERC (1998)

Notes: Americas – (Canada, USA, Mexico, Chile), East ong>Asiaong> – (Japan, Korea, Chong>inong>a, Chong>inong>ese Taipei), S.E. ong>Asiaong> – (Indonesia, Malaysia,

Song>inong>gapore, Brunei Darussalam, Thailand), Oceania – (Australia, New Zealand, Papua New Guong>inong>ea)

Figure 2

Projected fuel requirements for electricity generation ong>inong> ong>theong> ong>Asiaong> ong>Pacificong> region

3000

Mtoe

Renewables

2500

Nuclear

Hydropower

Gas

2000

Coal

Oil

1500

1000

500

0

1980 1985 1990 1995 2000 2005 2010

Source: APERC (1998).

13


Figure 3

Post-reform structure of ong>theong> New Zealand electricity sector

Generation capacity share:

25.1% 14.3% 30.0% 19.2% 5.8% 5.6%

GENERATORS

Contact

Energy

Mighty

River

Meridian

Genesis

Oong>theong>r

Generators

On-site

Cogeneration

WHOLESALERS

M-Co

(The Market Company)

TRANSMITTERS

Transpower

DISTRIBUTORS

Local network

companies

RETAILERS

Power

Buyong>inong>g groups

ong>Electricityong>

retailers

Residential

Commercial

CONSUMERS Agriculture

Industrial

Residential

Commercial

Agriculture

Industrial

Figure 4

New Zealand - Official projections of economic new generation options

MW

1200

1000

800

600

Distillate

Hydro/Hydro

Efficiencies

Coal

Wong>inong>d

GCC

Geoong>theong>rmal

Cogeneration

400

200

0

1998-2000 2001-2005 2006-2010 2011-2015 2016-2020

14


Figure 5 USA – Net power generation (1987-2001) with possible projection to 2010

4000

3500

3000

Geoong>theong>rmal & Oong>theong>r

Hydroelectric

Nuclear

Natural Gas

Petroleum

Coal

2500

TWh

2000

1500

1000

500

0

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2010

Figure 6 Malaysia – Net power generation (1980-1997)

Fuel mix for Power Generation

70,000

0.90

60,000

0.80

0.70

Generation (GWh)

50,000

40,000

30,000

20,000

Hydro

Natural Gas

Fuel Oil

Diesel Oil

Coal & Coal Products

Ave Carbon Intensity

0.60

0.50

0.40

0.30

Average Carbon Intensity (CO2/kWh)

0.20

10,000

0.10

0

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

0.00

Year

15


Figure 7 Korea - Net power generation (1980-1996)

250,000

200,000

150,000

Oong>theong>r

Nuclear

Hydro

Natural Gas

Fuel Oil

Diesel Oil

Coal

GWh

100,000

50,000

-

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

Figure 8 Chong>inong>a - Fuel consumption for power generation (1980-1998)

300,000

250,000

200,000

Nuclear

Hydro

Gas

Fuel Oil

Diesel Oil

Crude Oil

Coal

ktoe

150,000

100,000

50,000

-

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998

16

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