A Transitional ESI Model for Developing Country

Abstract

Electric supply industries in developing countries have mostly developed as state-ownedmonopoly utilities. A typical monopoly utility is responsible for long-term system planning and day-to-day economic operation of the system. Financial resources are provided by or guaranteed by thegovernment. At a certain stage of economic development, the financial requirement for powersystem expansion becomes an impetus for adoption of the scheme of independent power producer(IPP). The private sector is encouraged to construct, own and generate power for sale to state-owned utility under a long-term purchase agreement. This turns the state utility into the singlebuyer of electricity. This IPP scheme has worked well and helped alleviate power shortage in manydeveloping countries. But the growth of the IPPs increases the cost of electricity and constrainseconomic operation of power system. Many developing countries have been encouraged to adoptednew competitive ESI structure. This paper illustrates numerically that the IPP scheme in a monopsonyESI structure increases overall costs of power generation and constrains economic operation. Itintroduces a transitional model that can lead to a new ESI structure that encourages wholesalecompetition. Development of the model takes into account economic, social, legal and technicalconstraints existing in a typical developing country.