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PolicyResearchWorkingPaper10986

GlobalEvolutionofPowerMarketDesigns

ElcinAkcura

EmellyMutambatsere

WORLDBANKGROUP

InternationalFinanceCorporationNovember2024

PolicyResearchWorkingPaper10986

Abstract

Thedesignofthepowermarketdetermineshowthesectorcanaddresscomplexeconomic,social,environmental,andengineeringchallengestodeliversustainableandreliableelectricityatleastcosttoconsumers.Thisisnosimpletask,assupplyanddemandmustbebalancedeverysecond,mul-tipleresourceandnetworkconstraintsmustbesatisfied,andthemarketmustsendthecorrectpricesignalstomotivateefficientgenerationandinvestmentinthesectorovertime.Thereissignificantheterogeneityintheelectricitymarketdesignsadoptedbycountriesglobally.No“one-type-fits-all”blueprintexists,andforanydesigntofunctionwell,thecountry,political,andeconomiccontextmatters.Atthis

juncture,theexperimentationcontinues.Thispapertakesstockoftheglobalpatternsandtrendsintheadoptionofdifferentpowermarketdesignoptions,utilizingauniquenewGlobalPowerMarketStructuresDatabase(Akcura2024)covering230economiesfortheperiod1989to2024.Thepathsthesecountrieshavetakeninstructuringtheirpowermarketsprovidevaluablelessonsonthemultiplemodelsthatcansupportthedevelopmentofthepowersectorindifferentcountrycontexts.Thepaperdrawsonglobalexperiencetoshedlightonpromisingdesignoptionsforthefuture.

ThispaperisaproductoftheInternationalFinanceCorporation.ItispartofalargereffortbytheWorldBanktoprovideopenaccesstoitsresearchandmakeacontributiontodevelopmentpolicydiscussionsaroundtheworld.PolicyResearchWorkingPapersarealsopostedontheWebat

/prwp.Theauthorsmaybe

contactedateakcura@.

ThePolicyResearchWorkingPaperSeriesdisseminatesthefindingsofworkinprogresstoencouragetheexchangeofideasaboutdevelopmentissues.Anobjectiveoftheseriesistogetthefindingsoutquickly,evenifthepresentationsarelessthanfullypolished.Thepaperscarrythenamesoftheauthorsandshouldbecitedaccordingly.Thefindings,interpretations,andconclusionsexpressedinthispaperareentirelythoseoftheauthors.TheydonotnecessarilyrepresenttheviewsoftheInternationalBankforReconstructionandDevelopment/WorldBankanditsaffiliatedorganizations,orthoseoftheExecutiveDirectorsoftheWorldBankorthegovernmentstheyrepresent.

ProducedbytheResearchSupportTeam

GlobalEvolutionofPowerMarketDesigns

ByELCINAKCURAAANDEMELLYMUTAMBATSEREB*

JELclassificationcodes:Q400,Q4,L94

Keywords:ElectricityMarkets;PowerMarketDesign;PowerSectorReforms;IndependentPowerProducers

*ElcinAkcura(eakcura@)isaSeniorEnergyEconomistwiththeWorldBank.EmellyMutambatsereisaManagerattheIFC.The

authorsmaybecontactedateakcura@.TheauthorswouldliketothankAyooluwaOlusolaAdewoleandTosinKolajoGbadegesin

foralltheirsupportinpreparingthispaper.

Thefindings,interpretations,andconclusionsexpressedinthispaperareentirelythoseoftheauthors.TheydonotnecessarilyrepresenttheviewsoftheInternationalFinanceCorporation/InternationalBankforReconstructionandDevelopment/WorldBankanditsaffiliatedorganizations,orthoseoftheExecutiveDirectorsoftheWorldBankorthegovernmentstheyrepresent.TheWorldBankdoesnotguaranteetheaccuracyofthedataincludedinthisworkanddoesnotassumeresponsibilityforanyerrors,omissions,ordiscrepanciesintheinformation,orliabilitywithrespecttotheuseoforfailuretousetheinformation,methods,processes,orconclusionssetforth.Theboundaries,colors,denominations,links/footnotes,andotherinformationshowninthisworkdonotimplyanyjudgmentonthepartofTheWorldBankconcerningthelegalstatusofanyterritoryortheendorsementoracceptanceofsuchboundaries.ThecitationofworksauthoredbyothersdoesnotmeantheWorldBankendorsestheviewsexpressedbythoseauthorsorthecontentoftheirworks.

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1Introduction

Electricpowersystemsemergedinthesecondhalfofthe19thcentury,primarilyintheUnitedKingdomandtheUnitedStates.Initially,commercialpowerplantswereownedbyprivateinvestorsandprovidedelectricitytosmallserviceareas,mainlylightingforlocalbusinesses,streets,andgovernmentbuildings.Bythemid-20thcentury,verticallyintegratedandoftenstate-ownedmonopolycompaniesbecametheorganizationofchoice.Verticallyintegratedpowerutilitieswerewidelyseenastheappropriatemarketstructureduetotheuniquetechnicalcharacteristicsofelectricity.Developingnationsembracedthemodel,andmostofthemcreatedpubliclyownednationalpowerutilities.

Althoughintegratedpowermonopoliessupportedunprecedentedeconomicgrowthinthesecondhalfofthe20thcentury,thepowersector’sperformancewasattimesinadequate.Overthepastfortyyears,bothadvancedanddevelopingcountrieshavelookedforalternativestointegratedmonopoliesthroughsectorreformsthatintroducedmarket-typemechanismstotheirpowersystems.Anincreasingnumberofdevelopingcountriesembracedliberalizationandmarketmechanismstomobilizeprivateinvestmentinpowergenerationand,tosomeextent,innetworks.

Duetoarangeofuniquefeaturesofelectricity,powermarketsareamongthemostchallengingtocreate.Thedesignofthepowermarketdetermineshowthesectorcanaddresscomplexeconomic,social,environmental,andengineeringchallengestodeliversustainableandreliableelectricityatleastcosttoconsumers.Thisisnosimpletask,assupplyanddemandmustbebalancedeverysecond,multipleresourceandnetworkconstraintsmustbesatisfied,andthemarketmustsendthecorrectpricesignalstomotivateefficientgenerationandinvestmentinthesectorovertime.

Thereissignificantheterogeneityinelectricitymarketstructuresadoptedbycountriesglobally.No“one-typefitsall”blueprintexists,foranysolutiontofunctionwell,thecountry,politicalandeconomiccontextmatters.Atthisjuncture,theexperimentationcontinues.However,valuablelessonscanbedrawnfrompastandcurrentexperienceofcountriesunderdifferentpowermarketdesignoptions.

Thispaperundertakesacomprehensivestock-takeoftheevolutionofthepowermarketstructureineveryeconomyintheworldbetween1989and2024.Werelyonanewuniquedatabase,the“GlobalPowerMarketStructuresDatabase

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”developedbyoneoftheco-authorsofthispaper.Thedatabaseexaminesall230globaleconomies,documentingthechangesinthepowermarketstructureforeveryyearbetween1989and2024.Thedatabase’sobjectiveistopresentdifferentdesignspursuedbycountriesgloballyinstructuringtheirpowermarkets.Tothebestofourknowledgethisisthefirstsuchdatabaseandthisisthefirstpapertoanalyzepowermarketsinsuchacomprehensiveglobalmanner.

Thepaperisstructuredasfollows:Section2providesaglobaloverviewofeachpowermarketstructure;wealsodelveintothedifferentdesignoptionsadoptedbycountriesgloballywithineachstructure.Section3presentstheglobalexperienceofcountriestransitioningbetweendifferentmarketstructures,highlightingbothenablersandchallengescountriesfacedduringthesetransformations.Section4discussestheexperienceofcountriesthatexperimentedwithdifferentdesignswithintheirrespectivepowermarketstructure.Section5containsourconclusionsanddistillsthekeypolicyrecommendationsforeachpowermarketstructurebasedon35yearsofglobalexperience.

1GlobalPowerMarketStructuresDatabase(Akcura2024).

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2PowerMarketStructureDesignOptions

BasedontheGlobalPowerMarketStructuresDatabase,between1989and2024,158countriestransitionedfromthetraditionalpubliclyownedverticallyintegratedutility(VIU)modeltointroducingadegreeofprivatesectorengagementintheelectricitysystem

(Figure1)

.Thishasgenerallybeenatthegenerationsegment.Since1989,152economiesintroducedprivateindependentpowerproducerstotheirgenerationsegment.

Figure1:GlobalViewofPowerMarketStructures1989vs2024

Source:(Akcura2024)

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Inthissectionwerevieweachofthefouroverarchingmarketstructures:(1)VIU,(2)single-buyermodel(SBM),(3)competitivewholesalemarkets,and(4)competitiveretailmarkets.Withineachmarketstructurewedelveintothedifferentdesignoptionsadoptedbycountriesglobally.

2.1VerticallyIntegratedUtility(VIU)Model

Themarketstructurewiththelongesthistoryistheverticallyintegratedutility(VIU)model.Underthismarketstructure,asingleentitycarriesoutallfunctionsintheelectricitysector,includinggeneration,transmission,distribution,andretailsupply

(Figure2)

.TheVIUmodelarosefromthetraditionalnotionoftheelectricityindustryasanaturalmonopoly,whereeconomiesofscaleandhighsunkcostsgivearationaleforhavingasingleentityownandoperatethenetwork.

Figure2:VIUStructure

In1989,215economieswereusingtheVIUmodel,providingelectricityto92percentoftheworld’spopulation.By2023thisnumberwasdownto72countriesandterritories(covering7percentoftheworld’spopulation),butitremainsthesecondmostprevalentmarketstructuregloballyespeciallyinSub-SaharanAfrica

(Figure3)

.

Figure3:CountrieswithVIUStructurein2024

Source:(Akcura2024)

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VIUsarecommonincountrieswithsmallmarkets,suchassmallstatesandislandnationswithpopulationsoflessthan3million

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.Thesmallsizeofthesemarketsandgeographicisolation(includingfragmentationinarchipelagos)limitsscaleandinterconnectivity.Thesefactorsresultinhighpowersectorcostsandfinancialrisksthatmaydiscourageentryofmultipleplayersintothepowermarket.InlargercountrieswithVIUstructurestheVIUistypicallystate-owned.Insomecases,thisstructureisinlinewiththeirstate-controlledeconomies(suchasintheDemocraticPeople’sRepublicofKoreaandtheRepúblicaBolivarianadeVenezuela)orduetofragilityandconflictsituations(asinAfghanistanandtheSyrianArabRepublic)whereprivatesectorentryistooriskyorpoliticallyinfeasible.

Currently,84percentofVIUsarestate-ownedcompanies.Only11economieshaveprivatizedtheVIUwhilestillmaintainingitasthesolecompanyintheelectricitysectorprovidingintegratedservices.Thesearemostlysmallstates(9areislandstatesandonenon-islandsmallstateofMonaco).Theuniquecontextofthesecountries,includingmajorsectorsustainabilityissues,constrainsthescopeforprivatesectorentry.PrivateownershipoftheVIUispredominantinhigh-incomeislandnations,wheregovernmentsprivatizedelectricutilitiessuchasBermuda,CaymanIslands,andFrenchPolynesia.

PrivateVIUscanimproveoperationalperformancebutrelyoneffectiveregulationtomitigatetheabuseofmarketpowerandensurethattheprivatemonopolyhastherightincentives.Restrictionsonmarketentrycouldalsoperpetuatemarketpower,evenwheneconomicandtechnologicalchangessupportnewentrants(Kiesling2014).Thisstructurefacesriskofconflictbetweentheprivateownerandthegovernmentwhentheirprioritiesdonotalign.Forexample,theVIUisthemainstakeholderalongsidethegovernmentindrivinganylarge-scaletransitiontorenewablestomeetthesector'ssustainabilityobjectives.However,asaprivateentity,itisunlikelythattheVIU’smanagementwouldencouragethedevelopmentofthird-partyrenewableenergygenerationthatwouldputitsownmarketshareatriskunlessitfeltadequatelycompensatedorequippedtoprofitfromgeneratingitsownrenewableenergy.

ThetechnicalandfinancialperformanceofVIUshasbeenmixed.Somemarketsleveragedthemodeltoensurethatinvestmentdecisionsandoperationswerecoordinated(improvingcostefficiencyandloweringrisks)andtoachieveenergysecurityandsocialobjectivessuchasruralelectrification.However,someeconomieswithVIUshaveseeninvestmentlags,lackofcompetition,poorfinancialperformance,lowefficiencies,andhigherlosses.Thisisbecausethereistypicallylessincentivetoinnovateandimproveperformance,especiallyforstate-ownedVIUsthathavestandingfiscalsupportavailable.Thismarketstructurecanbesubjecttogovernmentinterferencedrivenbyshort-termpoliticalobjectivesthatimpactVIUoperationssuchasbillcollection,tariffs,andfuelprocurement.

CountriesthatsucceededatmaintaininghighperformanceunderVIUstructureshavedonesobyeffectivelyalleviatingtheserisks,forexample,throughcorporatizationorpubliclistingsofstateutilities.ThepubliclistingofVIUstendstoimproveoverallperformance,asitengendersmorerobustfinancial,corporategovernance,anddisclosureprinciples.Thecorporatizationofstate-ownedVIUscanalsobehelpfulasasteptowardsettingupamarketstructurewithprivatesectorparticipation

(Box1)

.Somehighlyadvancedpowermarketstructureswerelaunchedonthebackofcorporatization.Forexample,Singapore’scorporatizationofitsVIUin1995helpedthesectorgraduallytransitionintooneoftheworld’smostliberalelectricitymarkets.

2Abouthalf(49percent)oftheWorldBankSmallStatesForummembercountrieswithinthedatabaseusetheVIUmodelin2024.

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Box1:CorporatizingandunbundlingVIUsenroutetoprivatization:TheexperienceofKosovo

TheKosovoEnergyCorporation(KEK)wastheverticallyintegratedpublicutilityprovidingpowerservicestoKosovountil2006.UnderKEK,thepowersectorfacedseveralchallenges:apeakcapacitygap,hightechnicalandcommerciallosses,poorbillingandcollectionpractices,andhighgovernmentsubsidiestooffsetenergyimportcosts.Thedistributionsegmentalonewaslosingover€20millionannuallythroughtechnicallossesandlowcollectionrates.

Overtheperiod2005to2006,thegovernmentofKosovocorporatizedandunbundledKEK.Thetransmissionanddispatchbusinesswassuccessfullyunbundledtoaseparatepubliccompany.ThegovernmentturnedtoIFCtohelpcorporatizeandprivatizeKEKElectricityDistributionandSupply(KEDS).IFCwasretainedasleadadvisortoKosovo'sgovernmenttoexecuteatransparentandcompetitivebiddingprocesstoallowaprivateinvestortoacquireamajoritystakeinKEDSandoperateit.

AninternationalcallforExpressionofInterestwaslaunchedinJune2010.Despitethechallengingenvironment,theprojectsuccessfullyattractedtwoqualifiedbids,onefromaconsortiumintheArabRepublicofEgyptandtheotherfromTürkiye.TheTurkishconsortium,Limak-?alik,submittedthehighestbidandwasselectedthroughanopen,transparentprocess.ContractualagreementsregulatingthesaleofKEDSandallfuturerelationshipsbetweenKEDSandthevariousstakeholderswerenegotiatedoverafour-monthperiodandsignedinOctober2012.Thesecontractsrequiredthewinningbiddertoinvestatleast€300millioninKEDStobringdistributionandsupplysystemstointernationalstandards,aswellasimprovemetering,billing,andcollection.Thewinningbidderwascontractuallyobligatedtomeetclearlydefinedtargetstoreducetechnicalandcommerciallossesbyaminimumof13.5percentduringthefirstfive-yearregulatoryperiod.Thecompanysuccessfullyloweredtechnicalandcommerciallossesfrom42.8percentin2012to18.5percentby2021(KEDS2022).

ThecorporatizationandunbundlingofKEKsetthestageforthecountrytotransitionfromVIUtoacompetitiveorganizedwholesalestructureastheKosovanpowerexchangebecameoperationalinFebruary2024.

SomecountriesstructuredtheirVIUsascorporateswithoperationalandfiduciaryautonomyfromthestate(forexample,inTheBahamas

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),althoughtheyoftenhavestaterepresentativesontheirboards.Thesecorporatizedutilitiesalsohavemanagerialautonomyandarenormallysubjecttocompanylawandaccountingruleswithrespecttotransparencyandreporting.Withcorporatization,thegoalisforgovernmentstoretainownershipoftheutilitywhileensuringbetterorganizedandefficientoperations.Corporatizationofutilitiesisalsousedtoalleviatefiscalstressonstatebudgets.

2.2SingleBuyerModel

Currently,thesinglebuyermodel(SBM)isthemostutilizedpowermarketstructureintheworld.Eighty-sevencountriesandterritoriesoperatetheirpowersectorthroughthisstructure,covering29percentoftheworld’spopulation.UnderSBM,thestateauthorizesprivateinvestorstoconstructplantsasIPPstogenerateelectricityandsellittothenationalpowercompanyorawholesalepurchasingagencywithsolelegalrighttobuygridscaleelectricity

(Figure4)

.Usually,IPPsselltheiroutputthroughlong-termpowerpurchaseagreements(PPAs).

3TheBahamasPowerandLightCompany,Ltd.(BPL)wereestablishedin1956bytheElectricityActof1956,whichcreatedTheBahamasElectricCompany(BEC)asagovernment-ownedpubliccorporation.Thecorporationisgovernedbyaboardofdirectorsappointedbythegovernment.(BahamasPowerandLightCompany2020)

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Figure4:SingleBuyerModel(SBM)Structure

Withinthisbroadcategorization,severaldesignvariationsexist:asinglebuyermayretainownershipandcontrolofgenerationassets(andotherfunctions)orbewhollydetachedfromothervaluechainfunctions(suchaspowergenerationanddistribution).Thecommonelementisthefactthatallthesemodelsrequiresomesystemofcentralizedpurchasingarrangements.Thevariantadoptedbyacountrydependsonspecificpowersectorconditionsaswellaspoliticalandinstitutionalfactors,asdiscussedbelow.Currently,69countrieshaveasinglebuyerthatownsgenerationassetswhilein20countriesthesinglebuyerdoesnotowngenerationassets

(Figure5)

.

Figure5:CountrieswithSBMStructurein2024

Source:(Akcura2024)

Countrieshavetakendifferentroutestoasinglebuyermodel,accountingfortheiruniqueeconomic,institutional,andpoliticallandscape.ThisresultedinseveralvariationsintheSBMmodel,including:

VIUwithIPPs:ThemarketdesignthatinvolvestheleaststructuralchangefromVIUisanSBMstructurethatallowsIPPstosellpowertoVIUsthathavenotbeenunbundled.InessencetheVIUfunctionsasasinglebuyerthatalsoownsgenerationassetsitself.Thisentitymakesdecisionsaboutcapacityadditionsandgenerationsystemexpansion.Sixty-sixeconomiescurrentlymaintainastate-ownedorprivatizedVIUsbutpermitsomeIPPstosellpowertotheVIU.ExamplesincludeMorocco’sNationalAgencyforElectricityandWater(ONEE)andElectricityGeneratingAuthorityofThailand(EGAT).Thismarket

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designallowslimitedcompetitionforthemarketastheVIUprocuresnewgenerationplantsviacontractsfromprivategenerators.However,theVIUcanhaveaconflictofinterestthatcouldleadittofavoritsowngeneratorsoverIPPs.ThisstructurehasbeenpredominantlyadoptedinSub-SaharanAfrica(21countries)andpartsofAsia(19countries).

Unbundletransmissionbutplacesinglebuyerwiththegeneration&distributioncompany:Twocountries,BangladeshandCameroon,unbundledtransmissionfromtheVIUbutmaintainsinglebuyerfunctionwiththeintegratedutility(thatownsgenerationanddistribution).Cameroonstartedstructuringitsmarketalongthisdesignwithreformsunderthe1998ElectricityLawthatconcessionedtheVIU(SONELnowENEO)toaprivateoperatorandcreatedasectorregulator(ARSEL)tomonitorconcessionperformance,settariffs,andregulateIPPs.TwothermalIPPssubsequentlystartedsellingtotheVIU.In2011,asecondwaveofreformswereinstitutedtoaddressbottlenecksthathadlimitedsectorinvestment,includingpotentialconflictsofinterestforthepartiallyprivatizedVIUwhichalsoownedgenerationassets.ThereformsunbundledtransmissionassetsfromENEO’sconcession,andcreatedanewpublictransmissionsystemoperator,Sonatrel.ENEOcontinuestofunctionasthesinglebuyer.Thiscaseillustratesprogressivestructuraladvancementsthatretainedthesinglebuyermodel.

Createindependenttransmissionoperator(ITO):SomecountriesunbundledgenerationassetsfromtheVIU,creatingasinglebuyerwhichisalegallyseparateentityoperatingasanindependenttransmissionoperator(ITO).Thisdesignmitigatesconflictofinterest,asthesinglebuyerpurchasesallgenerationfromthirdparties.Forexample,Kenyaunbundledgenerationfromtransmissionanddistribution,followedbyprivatizationofthegenerationcompanyKenyaElectricityGeneratingCompany(KenGen)(withpartialstateownership).KenyaPowerandLightingCompany(KPLC)wascreatedasanindependenttransmissionoperatortofunctionasthesinglebuyer.KengenandKPLCarepubliclylistedcompanies,operatingoncommercialprinciplesandareabletotapintocapitalmarketsforfinancingneeds.Broadersectorreformsimprovedtheoperationalefficiencyofthesector,andmovedthesectorclosertocostrecovery,resultinginlargeprivatecapitalflowsintothesector.Atleast$3billioninprivatecapitalweremobilizedinthepowersectorbetween1997and2018(WorldBank2019).Simultaneously,thestatehasremainedanimportantinvestor,playingapivotalroleinexpandinggenerationcapacity,scaling-upelectrification,andleadingdiversificationtowardgeothermalenergy.Whilesomeofthisprogress(inparticular,thelastmileconnectivityprogram)cameathighcostsandfacedsomeprogramgovernanceissuesthataffectedKPLC’sliquidity,

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Kenyarecordedoneofthefastestelectrificationratesonthecontinentbetween2013and2020.

TheSBMisrelativelyeasytoimplementandtailortocountrycontexts.ItcansignificantlyincreasegenerationcapacitythroughIPPsinthefaceofpublicfinancingconstraints.However,themodelalsofacesconsiderablerisks—theSBMcanlockinpoorlydesignedandnegotiatedlong-termPPAs,whichcouldbedetrimentaltothesector'sfinancialsustainabilityorprospectsforatransitiontomorecompetitivestructures.Sub-optimalsectoroutcomescanresultifthesinglebuyer,asanoff-taker,isfinanciallyweakandunabletohonorthetermsofPPAs.

2.3WholesaleCompetition

Somecountrieshaveexperimentedwithintroducingcompetitionintotheelectricitymarket,amodelthatsupportstheactiveparticipationofpublicandprivategenerationcompanies,distributionandsupply

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Forthefinancialyearending30June2023,KenyaPowerandLightingCompanyPLCreportedapre-taxlossofKShs.4.43billion(approximatelyUS$31.95million).InthefiscalyearendingJune2024,KPLCpostedapre-taxprofitofapproximatelyUS$337.3million(KSh.43.67billion)basedonaconversionrateof1USDtoKSh.129.5.(KPLC2024)

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companies,andend-usersinthemarket.Market-determinedelectricitypricesaidpricediscoveryandenabletransparentsignalsforinvestments,whilecompetitioninwholesaleandretailsegmentsopensupopportunitiesfortheprivatesector(Poudineh2019).Thereareavarietyofwholesaleandretailcompetitionmarketdesignoptions.

Currently,69countrieshavesomeformofwholesalecompetition,covering63percentoftheworld’spopulation.Majorityofthesecountriesallowbilateralcontractingbetweengeneratorsandlargeenergyconsumers(distributioncompaniesandindustrialconsumers).Bilateralcontractingenablesbuyersandsellerstofreelyenterintoshort-termtradesandlong-termPPAs.Sincethesetransactionsareprivateagreementsbetweenthetwoparties,exacttermsandconditionsoftradingdealsareeasilycustomizedtoaccommodatetheneedsofthesellerandbuyerwhichallowsflexibility.However,theyareoftennottransparent,asthedetailsaboutthetradedpriceandvolumearelimitedtothetwopartiesinvolvedandareusuallynotmadepubliclyavailable.

Mostcountriescomplementbilateralcontractingwithatypeoforganizedspotmarket

(Figure6)

.Short-termtradesareconductedinthespotmarketforadayinadvance(theday-aheadmarket)orwithinaday(theintra-daymarket)beforetheactualdeliveryofpower.Thereareseveralvariationsoforganizedspotmarkets.Theycanbedesignedas“powerexchange/netpool”settlementwhichinvolvesdoubleauctionswherepowergeneratorssubmitbidpricesandquantitiestosell,andbuyers(distribution/supplycompanies,traders,andlargeconsumers)submitofferstopurchasepower.Thegenerators’bidsarethenstackedinincreasingorderofpriceoffered,andthedemandbidsarestackedindecreasingorderoftheirprices;theirintersectiondeterminesthemarket-clearingprice.Currently,42countrieshavethisstructure.

Alternatively,theorganizedspotmarketcouldbesetupasa“powerpool/grosspool”settlementwhichinvolvesasingleauctionwhereonlythegeneratorsofferbids,andthepriceisdeterminedbythehighestacceptedgenerator’ssellbidthatintersectswithforecasteddemand.Currentlyeightcountrieshavethiswholesalestructure.

Figure6:PowerExchange(netpool)vsPowerPool(grosspool)WholesaleMarketStructure

Source:AdaptedfromBouddouetal.(2020)

Thirteencountries(primarilyinLatinAmerica)adoptedwholesalemarketsunderacost-basedstructure.Thisdesignsharessomeofthecharacteristicsofbid-basedspotmarkets,butwithonesignificant

divergence:thequantityandthepricecomponentsofthebidsareregulatedbasedonadministrativelysetformulas.Forexample,underthismodel,thepricepaidtothermalgeneratorsissetbythesystemoperator

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atthemarginalcostoftheplant,basedonfuelinputpricesandthetechnicalcharacteristicsoftheplant

(Figure7)

.

Figure7:Cost-basedOrganizedWholesaleMarketStructure

Source:AdaptedfromPowerEngineeringInternational(2003)

BasedontheGlobalPowerMarketStructuresDatabaseasofJuly2024,63countrieshaveanorganizedwholesalepowermarketstructure

(Fig