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2012 Pacific Energy Summit: Summit Papers

To inform discussions at the 2012 Pacific Energy Summit on power generation, NBR commissioned seven policy papers on the challenges and opportunities confronting the region’s power and energy sectors. Read the Summit papers.


SUMMIT PAPERS


Powering Asia’s Growth: Meeting Rising Electricity Needs
Mikkal E. Herberg
The National Bureau of Asian Research; University of California, San Diego

Full Text English | Full Text Vietnamese | Executive Summary English


Electricity at the Right Price
Donald Hertzmark
DMP Resources

Full Text English | Full Text Vietnamese | Executive Summary English


First Principles: Technology as an Enabler for Productive Power Markets
Peter Hughes, Scott Hare, and Maite Pina
Ricardo Strategic Consulting

Full Text English | Full Text Vietnamese | Executive Summary English


Case Study on Power Sector Restructuring in Vietnam
Nguyen Anh Tuan
Institute of Energy, Vietnam

Full Text English | Executive Summary Vietnamese | Executive Summary English


Prospects for Nuclear Energy in Asia
Hooman Peimani
Energy Studies Institute

Full Text English | Executive Summary Vietnamese | Executive Summary English


Taking Renewable Energy to Scale in Asia
Letha Tawney
World Resources Institute

Full Text English | Executive Summary Vietnamese | Executive Summary English


Principles of Successful Expansion of Rural Electrification Programs
Daniel Waddle
NRECA International

Full Text English | Executive Summary Vietnamese | Executive Summary English






Read the Executive Summaries.


Powering Asia’s Growth: Meeting Rising Electricity Needs

Mikkal E. Herberg
The National Bureau of Asian Research; University of California, San Diego

Full Text (PDF) English | Full Text (PDF) Vietnamese


EXECUTIVE SUMMARY

This paper provides an overview of Asia’s electricity and energy challenges and outlines the fuel and power generation choices that the region faces as it seeks to meet rising demand and move toward a cleaner power future.

Main Argument

Asia faces enormous challenges in meeting rapidly rising power demand to fuel economic growth, while at the same time shifting to a cleaner energy mix and extending the benefits of electricity to rural and urban areas as a means to reduce poverty. Policymakers will need to mobilize and incentivize all potential sources of new power generation, including natural gas, nuclear, renewables, hydroelectric, and cleaner coal-burning technology. They will also need to enable major new investments in more flexible and efficient electricity grids by utilizing every potential source of financing, including private capital, multilateral financing, and government support. Mobilizing all available power resources and investments will require important but politically sensitive reforms and unbundling in the power industry across the region.

Policy Implications

  • Governments in Asia need to provide a policy environment conducive to investment and technology development and the requisite deployment needed. This means stronger and more supportive domestic energy policy environments to promote investment in new supplies, more efficient generation technologies, and cleaner power sources, including renewables.
  • Power industry reform, unbundling, and the introduction of greater competition are critical to increasing investment and production, improving efficiency and reliability, lowering costs, and introducing and deploying renewable and cleaner technology.
  • Electricity price reform and reducing costly and inefficient subsidies are essential to accelerating investment and reducing chronic power shortages. Price reform is crucial to introducing renewables, which require effective “feed-in” tariffs and investment in more flexible grid systems.
  • Efficiency gains are critical to slow demand growth and can be supported through price reform and regulatory programs that promote best practices and strong efficiency programs.
  • Special efforts are needed to reduce growth in coal-fired generation and raise the thermal efficiency of new coal-fired units. Carbon capture and storage (CCS) technology needs to be promoted as the long-term solution to rising air pollution and carbon emissions coming from coal in power generation.


Electricity at the Right Price

Donald Hertzmark
DMP Resources

Full Text (PDF) English | Full Text (PDF) Vietnamese


EXECUTIVE SUMMARY

This paper presents a framework for thinking about electricity pricing in countries with state-owned utility companies.

Main Argument

For many years, electricity utilities around the world used largely similar approaches to both structure and pricing. Utilities were integrated operationally and tariffs were supposed to apply to the company as a whole, not to individual segments such as generation, transmission, and distribution. Unfortunately, many countries allowed electricity prices to drift below the cost of supply, with retail prices often lower than the cost of fuel in generation alone. As demand for electricity grows, fueled in part by these low prices for power, utilities are put in a financially untenable position. They cannot afford to expand to meet new demand and, in some cases, cannot even maintain existing equipment.

Without financial soundness, utilities must rely on external financing, often in the form of supplier credits, export credit financing, or loans from international development banks. If an electricity supply company is relatively large, in terms of its share of a country’s overall economic financing, its expansion can eventually impact the financial risk rating of a country. A number of potential solutions exist. They involve bringing in private generation, unbundling of lines of business, restructuring, or even outright privatization. However, if the pricing of electricity is not sound, then none of these potential remedies can work well.

Policy Implications

  • The most important business of the electricity tariff is to cover costs of supply, including new generation and network investments. This is the prime directive of electricity pricing. Without cost coverage, there is no amount of clever restructuring, unbundling, or packaged “models” that can work for more than a short time.
  • Once cost coverage is achieved, then further complexity can be added to the pricing system, such as where and when to use or supply electricity.
  • There is no one correct way to structure the electricity sector; a number of different structures have been able to work as long as the pricing of electricity is reasonably accurate. However, the structure that is adopted must be consistent with the country’s commercial and banking capabilities. The ability to regulate the monopolistic aspects of the industry must evolve as well, keeping pace with changes in structure and industry capabilities.


First Principles: Technology as an Enabler for Productive Power Markets

Peter Hughes, Scott Hare, and Maite Pina
Ricardo Strategic Consulting

Full Text (PDF) English | Full Text (PDF) Vietnamese


EXECUTIVE SUMMARY

In this paper, we look at the advantages that decentralized energy (DE) systems offer to the Asia-Pacific as compared to the traditional power generation model and provide insights to governments, utilities, and developers looking to electrify poor and/or remote areas of the region.

Main Argument

Power generation in the developed world has been built around the concept of large, centralized plants connected through long distances of transmission and distribution infrastructure. While this conventional wisdom is embedded in most utilities, a new mindset may be helpful for developing regions in the Asia-Pacific. Smaller decentralized energy systems may offer the best way forward to electrify poor or remote communities without incurring significant delays or infrastructure costs. Within the right regulatory frameworks and employing the correct business models, DE systems can provide long-term socioeconomic and environmental benefits to local communities at relatively low cost. In this paper, we consider how developments in technologies such as solar, wind, and biomass have increased their feasibility for DE systems while ongoing convergence between the energy and information technology sectors is removing previous operational barriers.

Policy Implications

  • Constantly changing social, economic, and technology landscapes should encourage leaders to periodically revisit their energy strategies, and look at the question of whether DE systems can be utilized in order to realize their potential benefits, and if so, where and how?
  • The development of DE systems is often constrained by limited access to capital. Many technologies have relatively high upfront capital costs per kilowatt (kW), but subsequently benefit from modest operating costs. Governments should create an environment where public, private, or combined funds can be used to overcome any initial financing hurdles
  • Market liberalization is often required to promote DE system development. Smaller, regional players are inherently more efficient at creating small-scale plants than are the large incumbents; however, market regulation frameworks must be designed to remove any major barriers that smaller generators would face.


Case Study on Power Sector Restructuring in Vietnam

Nguyen Anh Tuan
Institute of Energy, Vietnam

Full Text (PDF) English | Executive Summary (PDF) Vietnamese


EXECUTIVE SUMMARY

This essay provides a case study on power sector restructuring in Vietnam.

Main Argument

Over the last decade, the rapid growth and expansion of Vietnam’s economy has dramatically increased the demand for electricity in the country. Faced with this challenge, Vietnam’s power industry has struggled to expand and improve the country’s power system, as evidenced by difficulties with developing new resources, enhancing high-voltage transmission lines, and reducing transmission and distribution losses. However, in 2006, the government approved a roadmap for establishing a competitive power market and began to restructure the electricity sector, starting with establishing Vietnam Electricity (EVN) as a private holding company. This essay provides an overview of the key features of the restructuring and reform process of Vietnam’s power sector and then assesses both its success to date and the road ahead for continued progress. It argues that as a result of unbundling, competition in the electricity sector is increasing and the quality of power networks has improved.

Policy Implications

  • Vietnam has embarked on an ambitious long-term program to completely restructure its power sector, which may span twenty years from beginning to end. However, critical strategic choices will need to be made over the next few years to adhere to this program.
  • There are still many framework limitations to establishing a perfect power market in Vietnam. Government authorities should review their experiences with EVN to develop and prioritize optimal strategies for further unbundling. This process should also take into consideration the need to develop new shareholder companies that are financially viable and have the desire to ensure a solid foundation for future expansions of the power market.
  • Creating an effective power market cannot be done through unbundling alone and requires holistic approaches to the energy sector. Among other tasks, this will require reforming electricity tariffs, allowing utilities to have decent operational margins, and improving and developing infrastructure to deliver electricity to customers.


Prospects for Nuclear Energy in Asia

Hooman Peimani
Energy Studies Institute

Full Text (PDF) English | Executive Summary (PDF) Vietnamese


EXECUTIVE SUMMARY

This paper outlines the reasons for Asia’s interest in nuclear power and argues that despite the 2011 disaster at Fukushima, the region will continue to be the main arena for expanding the use of nuclear power.

Main Argument

Asia has established itself as the world’s largest energy consumer, accounting for 45.2% of the global energy consumption in 2010. Today, fossil energy accounts for the bulk of regional energy requirements, but many factors have demanded diversification of the region’s energy mix to include non-fossil energy—particularly nuclear power, which can provide clean energy on a large scale and in a reliable manner. While concerns about the safety of nuclear reactors are legitimate, they are not a strong argument for dismissing nuclear energy. Consequently, safety concerns have not resulted in serious plans in Asia to reverse or downsize nuclear energy programs in its countries with active programs or serious existing plans.

Policy Implications

  • The Asia-Pacific region has been growing at a significant rate, which ensures a high and increasing demand for goods and services. In turn, such economic momentum has unsurprisingly ensured a large and growing demand for energy in the region.
  • Against a background of a resurgence of interest in nuclear energy in developing countries, evidence suggests that Asia is opting for nuclear energy on a larger scale than other regions. Reasons for this interest include energy security concerns, geopolitical considerations, financial imperatives, desires to mitigate global warming, and opportunities to benefit from exporting nuclear technology.
  • Fukushima has not been a game changer when it comes to Asia’s nuclear power sector. Unconvinced by the argument equating nuclear energy with nuclear disasters, and having compelling reasons to continue with nuclear energy, all Asian countries with active and serious nuclear programs will continue at paces determined by their countries’ specific needs for and views toward nuclear energy. Japan seems to be an exception to the rule, having shut down many of its reactors for inspection right after the Fukushima crisis and suspended the construction of its two new projects. Yet, having no realistic alternative to nuclear energy, the Japanese government has pointed out this reality as a prelude to a gradual re-opening of the shut-down facilities.


Taking Renewable Energy to Scale in Asia

Letha Tawney
World Resources Institute

Full Text (PDF) English | Executive Summary (PDF) Vietnamese


EXECUTIVE SUMMARY

This paper argues that the renewable energy sector is significant and growing quickly, and that seizing the benefits and opportunities in this trend for economic development will require developing strategies that harness innovation to compete.

Main Argument

Electricity from renewable sources is becoming a mainstream option in the Asia-Pacific for many reasons, ranging from a tremendous growth in energy demand to concerns about energy security, improvements in renewable technologies, and efforts to limit pollution. Although this trend presents opportunities for economic growth, in this fast-moving sector developing and maintaining an internationally competitive domestic industry will require a strong capacity for innovation.

Policy Implications

  • Successful innovations and market changes are converging in ways that both enhance the economic and environmental benefits of integrating renewables into the grid while lowering the costs of doing so. Moreover, it is now widely expected that solar photovoltaic projects and onshore wind projects will be competitive with fossil-fuel power around the globe by 2016, making the sector increasingly competitive with other traditional fuel sources.
  • Efforts to seize the benefits of this growing sector can be assisted by building a market for renewables, which can be done through a mix of support for renewables demand, such as through mandates or feed-in-tariffs, and through promoting fossil-fuel subsidy reform or internalizing the cost of pollution damage in fossil-fuel prices.
  • For those seeking to maximize potential gains from entering the renewables sector, even if a country can create a very large domestic market, international markets are still larger. Thus, building an internationally competitive sector is crucial to making the most of economic opportunities.
  • Policymakers should focus on developing a renewables industry through building innovative capacity in the segments of the value chain they can compete for rather than through supporting local-content requirements and other infant industry protections. The latter risk creating a domestic sector that cannot compete for the international market and may keep domestic costs high. Building innovative capacity requires creating a healthy innovation system that improves the innovators’ chances of success. That system should do the following: create and share new knowledge, build competence, create collaborative networks, develop infrastructure, provide finance, establish governance and regulatory frameworks, and create markets.


Principles of Successful Expansion of Rural Electrification Programs

Daniel Waddle
NRECA International

Full Text (PDF) English | Executive Summary (PDF) Vietnamese

EXECUTIVE SUMMARY

This paper presents an overview of the contributing factors to the design, implementation, and sustainability of successful rural electrification programs.

Main Argument

Rural electrification programs require a number of conditions in the institutional environment to ensure successful and sustainable program expansion. Due to the specific challenges posed by low population density, low energy demand, and undeveloped rural economies, these programs require special financing conditions, design and construction standards specifically formulated to address rural power-supply characteristics, and a program management agency with the expertise required to adapt to country-specific realities. This paper will examine both the conditions and requirements for designing successful rural electrification programs that achieve high rural electrification penetration rates and the issues that may challenge long-term success during program implementation. It will further explore lessons learned from selected successful rural electrification programs.

Policy Implications

  • Well-designed electrification programs contribute significantly to rural economic development, but only if the resulting electric service is reliable, affordable, and accessible to a significant proportion of the communities served.
  • Ensuring that infrastructure costs are reasonable has a direct impact on not only the affordability of electric service, but also on the potential impact of the program in terms of cost per household or business served. Moreover, given the need for other essential public services that require electricity, such as healthcare, primary education, safe water supply, and transportation, ensuring that program implementation is economically efficient directly benefits both the government and

  • Given the potential economic benefits of affordable and reliable electric service, long-term institutional and financial sustainability is essential.


On March 20-22, the 2012 Pacific Energy Summit convened global stakeholders in Hanoi to discuss market and policy solutions for "Innovative Generation: Powering a Prosperous Asia." Learn more.



In advance of the Summit, NBR directed questions related to Asia's rising energy demand to Summit advisor Mark Thurber, (Associate Director for Research at the Program on Energy and Sustainable Development at Stanford University), Carlos Colom Bickford (President of the National Energy Commission, Guatemala), and Peter Hughes (Director and Head of the Energy Practice at Ricardo, a multi-industry energy consulting firm). Read the Q&As.

General Information

For more information, please contact:

Clara Gillispie
Senior Director of Trade, Economic, and Energy Affairs
+1.202.347.9767
eta@nbr.org


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2012 Pacific Energy Summit Media Alert