Review of Retail Electricity Tariffs - k-learn.adb.org households to 4 million ... , PT PLN...

ReviewofRetailElectricityTariffs

September5,2016CeciliaLee

Supervisor:Mr.Yongping ZhaiSDAS/SDCC

AsianDevelopmentBank

Azerbaijan,China,India,Indonesia,Myanmar,Philippines,Thailand,Vietnam

ConcernsoverretailelectricitypricingintheDevelopingMemberCountries(DMCs)

1.FinancialLosses

2.EnergyInefficiency

3.Fossilfuelsubsidyfor

electricitygeneration

2Photocredit:ADBPhotoLibrary

Source:Enerdata

Japan

US

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54% 18%

13%

10%

5% Philippines-Meralco's RetailTariffin2015

Generation

DistributionCharges

Taxes,Subsidies

Transmission

SystemLoss

78%

13%

9%

Thailand-EGAT'sRetailTariffin2012

Generation

Distribution&RetailTransmission 61%

26%

13%

BreakdownofGenerationforEGAT'sRetailTariffin

2012PowerPurchasingPriceFuelCost

InvestmentCapital,etc.4

Cross-SubsidybetweenIndustrialandResidentialUsers

• Industrial=Residential– Azerbaijan

• Industrial>Residential– China,India,Myanmar,

Indonesia

• Residential>Industrial– Thailand,Philippines,Vietnam

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Azerbaijan

• Industry=Residential:US$0.059/kWh(2015)-generation&transmission:US$0.046/kWh(78%)-distribution:US$0.013/kWh(22%)

• Limitedunbundlingforaseparatedistributioncompany(butin2006,returnedtostatehands)->now,largelyverticallyintegratedmonopoly

• Energyutilitiesdonotfullyrecoverthecost• Untargeteduniversalsubsidy fromtheverylowinput

priceofgas(83%ofinstalledcapacity)– unabletoefficientlyhelpwhoneedsthesupportmost

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Azerbaijan

• ADBProject,ApprovedinAugust2016– PreparingaPowerSectorFinancialRecoveryPlan

-TechnicalAssistanceSpecialFund($1.2m)

<ProjectOutputs>1. Realcostofelectricitysupplycalculation2. Newtariffstructure3. Financialrecoveryroadmap4. Publicinformationcampaign

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• Industry (US$0.10/kWh)>Residential(US$0.077/kWh)in2013

• Cross-subsidizationforresidential (industrialsectorpaysathigherelectricityrate)

• Significantdiversityofratesandratestructuresacrossprovinces

• Nolifelinetariff– Butthelowestincomehouseholdgroup(~US$3/daypercapita)receives10-15kWhfreepermonth

=40millionhouseholds,equalto10%ofthetotalnationalpopulation(NDRC,2012)

China

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China• StrictregulationbytheNationalDevelopmentandReformCommission(NDRC),partoftheCentralGov’t

• Retailpricessettocontrolinflationandasdevelopmentpolicy

• October2010:athree-tierelectricitypricingsystemfortheresidentialsectorintroduced,transitioningfromtheflatpricingsystem– Sofar,itisnotclearwhethertheincreasedpricefromthereformisabletorecoverthecost,andifitisnot,towhatextentthesurplusordeficitexists(IISD,2015)

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India

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India• Industrial (US$0.091/kWh)>Residential (US$0.07/kWh)in2015

• Heavysubsidizationtoagricultureandresidentialusers-mainobstacletorapiddeploymentofdistributedrooftopsolar

• Tariffandsubsidyreformneeded-poorfinancialhealthofthedistributionsector(operatinglosses:overUS$10bnannually)impactstheentirepowersectorsustainabilityinIndiae.g.PPAshavelimitedbankability

• Highlevelsofnontechnicallosses(theft)isaseriousproblem:aUS$4bnsmart-metercapitalinvestmentprogramapprovedinNov2014(inNewDelhi,nontechnicallosses45%->7%inthe1st yearofimplementingtheSmartMeter)

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Indonesia

Source:IEA,EnergyOutlookIndonesia.2015.OriginalSource:Directorate-GeneralofElectricity(2014b),“ElectricitypolicydevelopmentinIndonesia”,presentationtoIEA,MinistryofEnergyandMineralResources,Jakarta.

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• Indonesiahasbeenbringingtheelectricitytariffupwithperiodicaladjustmentsaccordingtoapredeterminedtimetablesince2013

Indonesia• Industrial(US$0.073/kWh)>Residential(US$0.057/kWh)in

2015• UnbundledPowerSector• Majorelectricitysubsidyreformpostponed– InJuly2016,PTPLN(Indonesia’sstateownedelectricitycompany,monopolyondistribution)estimatesUS$1.3bn coststokeepprovidingelectricitytoenduserswithoutthereformuntiltheendof2016

– Thereformisexpectedtoexcludenon-poorhouseholdsinthe900VAconnectionclass,whichwouldreducesubsidyrecipientsinthatclassfrom22millionhouseholdsto4millionhouseholds

Source:GSI,IISD.IndonesiaApprovesRevised2016Budget:Subsidyupdate.26July2016.13

Indonesia

• Lowruralelectrificationrate:66%(Urban:94%)• Since2015,PTPLNpublishesadjustedtariffseverymonthbasedon

anevaluationontheIDR―US$exchangerate,theIndonesianCrudePriceandtheinflationrate (Source:GSI/IISD)

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Myanmar• State-ownedsingle-buyermodel/Verticallyintegrated

• Dependsonvolatilehydropowerandoldgas-firedpowerplants

• Heavilysubsidizedelectricity– Industrial(US$0.086/kWh)>Residential(US$0.034/kWh)in2015

-Gov’tcovers72%ofthetariffbysubsidy– Thelowesttariffamongthestudiedcountries:US$0.034/kWh(Philippines(highest):US$0.2/kWh)

– ThelowelectricitypricesthreatenfiscalcapacityanddonotattractIPPs

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Myanmar• LowestelectrificationrateamongASEANcountries

-Urban(60%)&Rural(18%)• 50%electrificationratetargetby2020 and100%by2030– Gradualtariffsubsidyreformmustbeconducted– PrivateinvestmentsneededinadditiontotheloansfromtheMDBsandaidfrombilateralODAs• ADB:PowerTransmissionImprovementProject(US$80m)• WorldBank:ElectricPowerProject(US$140m)

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54%

18%

13%

10%

5%

PhilippinesMeralco's RetailTariffin2015

Generation

DistributionCharges

Taxes,Subsidies

Transmission

SystemLoss

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PhilippinesMeralco

August2016RateofSchedule

Meralco publishesmonthlyrates<July2016>

GenerationCharge*:4.0604LifelineRateSubsidy**:0.062

GenerationCharge* DistributionCharge LifelineRateSubsidy** LifelineDiscount SeniorCitizenResidential perkWh perkWh perkWh % perkWh0to20kWh 3.8560 1.0012 100

21-50 3.8560 1.0012 5051-70 3.8560 1.0012 3571-100 3.8560 1.0012 20101-200 3.8560 1.0012 0.076 0.0001201-300 3.8560 1.3183 0.076 0.0001301-400 3.8560 1.6175 0.076 0.0001Over400 3.8560 2.1387 0.076 0.0001

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Philippines• Firstintroducedin1987,IPPsprovide44%ofthetotalinstalledelectricitycapacity– ControversialIPPcontractsledtoextremelyhighelectricity

prices(IEA,2015)tolimittheimpactonpublicfinances(WorldBank,2016)“legacycost”

• IndependentElectricityRegulatoryBody• Ruralelectrificationremainslow:67%(Urban:94%)• Amongthestudiedcountries,onlyfully"unbundled"powersector usingprivatizedpowergeneratorsandindependentgridoperators– Unbundledcharges:mirrorstheindustrysupplychain,all

adjustmentsintheratesaregovernedbyRegulatoryMechanisms 19

78%

13%

9% Thailand-EGAT'sRetailTariffin2012

Generation

Distribution&RetailTransmission

61% 26%

13%

BreakdownofGenerationforEGAT'sRetailTariffin

2012PowerPurchasingPriceFuelCost

InvestmentCapital,etc.20

Thailand

• Residential(US$0.12/kWh)>Industrial (US$0.084/kWh)in2015

• LifelineTariffexist• Independentelectricityregulatorybody• Electricitydistributionlargelymonopolizedby100%government-ownedElectricityGeneratingAuthorityofThailand(EGAT)

• Universalelectricityaccess-Urban(100%)&Rural(98%)

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Thailand• Asof2015,theinstalledcapacitycomprisedof…– PrivateIPPs:60%– EGAT:40%

• Generationincreasinglyrelyingonimportednaturalgaswellaheadofcoal– Vulnerabletofluctuationsintheinternationalmarket->mightcauseunstableelectricitysupplyandpowersecurity

Source:AnnualReport2015.EGAT;DevelopmentProspectsoftheASEANPowerSector.InternationalEnergyAgency.2015.22

Vietnam• StrongestincreaseinelectricitydemandofallASEANcountriesinthepastdecade(IEA,2015)

• OnlyVietnamincreaseditsretailtariffsin2014-2015amongthestudiedcountries– Industrial(US$0.06->US$0.0648/kWh)– Residential(US$0.07->US$0.081/kWh)

• Reductionsincross-subsidies– Since2009,residentialelectricitytariffsincreasedtoeliminatethecross-subsidyfromcommercialandindustrialtowardsresidentialusers.

• NolifelineTariffSource:Enerdata;AFinancialRecoveryPlanforVietnamElectricity,WorldBank(2016)

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Vietnam• Vietnamhaslowtechnicallosses(e.g.theft),highlevelsofbillingandcashcollection,andlowlevelsofoperatingcosts

• Presentretailtariffsarebelowthecostofsupply– MustreachthecostrecoveryleveltoachievefinancialsustainabilityofEVN(VietnamElectricity(thelargestpowercompanyinVietnam))

– Recommendedtoincreasethetariffshigherthantherateofinflation

– Otherwise,EVN’sdebtwillbecome“unsustainable”

Source:AfinancialrecoveryplanforVietnamElectricity(EVN).WorldBank.201624

AnalysisofReview• Costreflectivetariffiscrucialforlong-termfinancialsustainabilityofpowersector– Affordabilityisveryimportant,too– Electrificationrateandreliablepowerprovisionarecloselyrelatedtothecostrecoveryofenergycompanies

• WeakeningcurrencyofseveralDMCsisalsoamajorcontributoroftheirenergycompanies’debts

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AnalysisofReview• Subsidydesignforrenewableenergy– Forenergysecurityanddiversity– Forgreenhousegasemissionsreduction

• Cross-subsidymustbere-evaluated– Checkifitdetersnewprivateinvestments– Ensuremostvulnerable&poorestpopulationgetsupport(socialprotection)

• Transparentandindependentregulatorybody• Robustprivatesectorparticipationforinvestments

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ThankYou

CeciliaLeeMasterofScience‘17,SchoolofNaturalResourcesandEnvironment

MasterofAppliedEconomics‘17UniversityofMichigan

lcecilia@umich.edu

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Photocredit:OPIC.gov