Improving the performance of regional electricity markets in developing countries : the case of the Southern African Power

Abstract

Power pools can reduce the cost of providing electricity and improve system reliability through coordinated use of energy resources. Realizing these benefits requires careful market design supported by technical, economic and institutional analysis of the system as it exists today and as it will likely evolve in the future. In this dissertation, I demonstrate this integrated approach through a detailed study of the design and operation of the Southern African Power Pool (SAPP). I develop a linear programming model of the SAPP system that explicitly represents hourly system operations to conduct this analysis. This model is then adapted through the addition of new input parameters or linear constraints to investigate different market design questions including how to implement bilateral contracts in the wholesale market and allocate costs for regional transmission investments. I also examine the design of regional institutions and their role to promote efficient investments and market behavior. The primary contributions from this work include a new method to design and incorporate security-motivated bilateral contracts into wholesale markets using Implicit Auctions with Security of Supply Guarantees; a regulatory framework for transmission planning and cost allocation designed specifically for supranational regional markets; a quantitative comparison of transmission pricing methods leading to recommendations to apply Beneficiary Pays for new lines and Average Participations for existing lines; recommended adjustments to transmission regulation to facilitate increased penetrations of renewable energy; and a proposed design for the regional regulator. I also identify several unique features of developing country power systems that may influence market design. Other markets in Africa, Asia and Central America contain similar technical and institutional characteristics that can lead to similar market challenges. The specific market rules and implementation steps developed for the SAPP may not apply in all regions but the integrated approach used in this thesis, combining technical models and institutional analysis to support regulatory decisions, could be generalized to other regional electricity markets.