Security of Supply | A Growing Issue for Energy Regulators
Security of supply in energy markets is an increasing matter of concern for governments and energy regulators. Energy reforms have led to a more efficient power sector, but also to greater price volatility and increased commercial risk for new capacity investment across all fuel types. These issues were at the center of discussion at the Fifth World Forum on Energy Regulation (WFER), held in Québec, Canada on May 13-16. The forum brought together energy regulators, policymakers and practitioners—over 1,000 participants from 100 countries.
As part of its support for knowledge exchange among client countries, ESMAP organized a session at WFER on regulation in developing markets, and sponsored the participation of officials from Brazil, Guatemala and South Africa, as well as from the African Forum for Utility Regulators. The issue of security of supply was also addressed at a plenary session by Maria Vagliasindi, Lead Economist of the World Bank’s Sustainable Energy Department.
An interesting case discussed in the World Bank's presentation at the plenary session was the response of Chile’s regulatory agency to the energy crisis of 2008. When faced with the crisis—the result of a disruption of gas supplies, severe drought, and increases in international fuel prices—the regulator managed the rising costs through a number of rapid response measures. Back-up turbines were installed and combined-cycle gas turbines were converted to handle diesel fuel. The country injected US$1.26 billion into the national fuel price stabilization fund, provided electricity subsidies for 40 percent of the population, and cash subsidies to the poorest families. To manage shortages, the regulator also implemented demand-side management, including energy savings campaigns, extension of Daylight Savings Time, and financial offers to regulated clients in return for reductions in consumption.
The results were impressive. There were no major interruptions to the electricity supply or the commercial gas supply. The entire natural gas infrastructure was adapted to be able to operate with diesel. Low-income families were spared the impacts of fuel price fluctuations. And overall, the country reduced its energy consumption by 10 percent.
The Chilean example has been used since by other countries to help plan for better security and continuity of supply. There is a widespread understanding that even short interruptions in a country’s supply can cause substantial economic losses and hardships, especially for low-income populations. One of the main points of discussion at WFER was how developing countries can close the gap between supply and demand. Several actions were recommended at the plenary session by the World Bank:
• Building the capacity for reliable electricity and primary energy supply;
• deepening regional cooperation on energy development;
• reducing waste on the production side, especially that associated with flared and vented gas;
• undertaking major energy efficiency measures on both the supply and the demand sides; and
• minimizing the carbon footprint of the new capacity to be added.
Participants agreed that regional cooperation on energy production and transportation was particularly important to boost supply security and cut costs. There are often large mismatches between supply and demand within countries and an uneven concentration of resources. At the same time, in many regions, there are strong economic incentives to cooperate and trade, because national power markets are often too small to exploit substantial economies of scale. Countries can also trade power advantageously when neighboring power systems have different supply patterns or demand patterns, either daily or seasonally. The ability to trade often takes the form of shared reserve-generation capacity for emergencies. Most developing countries, however, have yet to develop the institutional arrangements to manage these risks.