How Effective Power Market Reform Depends upon Gas Market Reform in The Asia Pacific Region

Abstract

Many of the twenty-one economies in the Asia Pacific region have considered or undertakenreforms to boost competition in their natural gas and power markets. Many are also using gas for asignificant and growing share of electric power production. Thus, the success of power marketreforms in reducing electricity costs often depends on reforms to boost competition and lower costsin markets for gas. This paper summarises relevant conclusions from a recent study by the AsiaPacific Energy Research Centre (APERC) on Natural Gas Market Reform in the Asia Pacific Region[1].Even in economies where independent power producers account for a major share ofelectricity generation, competition in the power market may be severely limited by a lack ofcompetition in the gas market. If there is only a single gas producer, offering gas at about the sameprice to all generators, then generators can compete only on the basis of capital costs and operatingefficiency. Since combined cycle gas turbines are produced by only a few manufacturers, again withsimilar costs likely for all buyers, productive efficiency gains may be further limited to operationalefficiencies only. And if gas is offered at a subsidized price, even incentives for operational efficiencymay be limited.But where gas and power market reforms are joined, efficiency improvements and costreductions are more likely. If there are many competing gas producers, then generators can reducecosts by shopping for the gas that is cheapest. If power market competition is limited to wholesaletransactions, with all independent power producers selling their production to a single buyer,regulators will have to be vigilant if they wish the single buyer to pass on the resulting cost savingsto consumers. But if there is also retail competition in the power sector, with customers eligible tochoose the least-cost power supplier, there is greater certainty that the cost savings will be passedon.