Review of Retail Electricity Tariffs September 5, 2016 Cecilia Lee Supervisor: Mr. Yongping Zhai SDAS/SDCC Asian Development Bank Azerbaijan, China, India, Indonesia, Myanmar, Philippines, Thailand, Vietnam
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
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Photocredit:OPIC.gov