Establishing Multilateral Power Trade in ASEAN |
Establishing multilateral power trade in an ASEAN context |
Figure 47. Overview of a CCP function
Source: Nord Pool.
Optional requirement: Trading currency or currencies
Multilateral power trade among the AMS is complicated to some degree by the fact that each AMS maintains its own currency. To manage this, two main options are possible. First, the AMS could agree on a single common currency to use for all regional trades. Second, regional trading can allow for settlement in local currencies. In fact, many of the international case examples presented in Section 4 use a common currency – typically USD, though the European Union uses the euro. The SAPP uses USD as the main currency, but it also allows for settlement in South African rand.
There are pros and cons to multicurrency trading. From market participants’ point of view, it may be easier, more economical and more secure to trade in the local currency. However, from a regional perspective, this increases operational complexity and exposes counterparties to potential currency risk. One key aspect when considering this design parameter is whether the local currency trading is required under the laws and regulations of the respective AMS, or if it is a term set specifically in trading agreements. This can be managed by, for example, the organisation that hosts the regional market or by a CCP (if there is one).
Potential options for regional institutions in ASEAN
As noted above, there are already a number of relevant institutions in ASEAN. Depending on how multilateral power trade develops in the region, the roles of these institutions may need to change. In addition, it may be necessary to develop new institutions.
Therefore, the AMS should take a two-pronged approach to institution development. First, leverage to the greatest extent possible existing institutions. Second, in areas where existing institutions are insufficient, develop new ones.
Some of the functions discussed above will naturally fall under the purview of existing institutions. Take, for example, the development of harmonised grid codes. HAPUA already includes all of the relevant ASEAN utilities. As these utilities will need to be involved in grid code harmonisation, it makes sense to leverage HAPUA as a first choice, instead of building a new institution to perform a similar function.
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Establishing Multilateral Power Trade in ASEAN |
Establishing multilateral power trade in an ASEAN context |
At the same time, the AMS regulators will also need to be involved in the grid code development and harmonisation process. Here, the AERN is a logical choice for an existing institution to utilise. However, in contrast to HAPUA, the AERN does not have permanent staff or the necessary infrastructure to do this work. Therefore, the AERN could and should be further built up so that it can perform the necessary work.
In addition, ASEAN will almost certainly need to build new institutions to manage functions that do not have an obvious existing home, such as market organisation. Structurally, in doing so the AMS will need to find an appropriate balance between centralisation and distribution of responsibilities.
Generally, as the level of integration increases, the role of regional institutions becomes more crucial. Unnecessary duplication of functions can lead to inefficiencies and the potential for conflicting or divergent pathways to the development of multilateral power trade across the region. Therefore, it may make sense to develop single central institutions to take on certain key roles.
However, given the principles of stepwise development and voluntary participation, it is possible that some AMS will develop deeper forms of multilateral power trading faster than others do. It may therefore make sense to develop multiple institutions that can manage the differing needs of the various AMS.
Institutional flexibility will be important. Given ASEAN’s principles of stepwise development and voluntary participation, it is likely that some AMS will choose to participate in multilateral trading early on, while others will choose to wait. It may even be that over the long term, multiple different markets emerge in an ASEAN context.
As will be discussed in Section 6, it is possible to develop market frameworks that allow for differing levels of participation among the AMS. Institutions can either help or hinder this, depending on how they are designed.
Market operation, for example, is a central function. If there is more than one market in ASEAN, then there may need to be more than one market operator. In practice, it will likely be necessary to develop new institutions to organise and operate the relevant market or markets.
As noted above, parallel development of market operation functions would be less efficient than centralisation in a single ASEAN-wide institution. However, a single institution may find it difficult to manage any potential subregional markets, especially if those markets are serving very different needs or if they have different designs.
The ownership structure of the regional market operators also matters, as it to some degree determines how easy it is to share knowledge across regions. If the market operator is structured as a private company, many of the best practices might be considered proprietary knowledge, and thus not be shared between subregions. It may therefore make more sense to have state ownership of the institutions, or to structure the institutions as a non-profit. A detailed analysis of the appropriate ownership structure for the AMS is out of scope for this study. It is important, however, that this issue be settled early on in the institutional development process.
Regardless of the path or paths the AMS take to develop multilateral power trade in the region, the role of regulators will be critical. Some issues that they face, such as the impact of increased cross-border power flows, will be the same regardless of the model of trade developed. Therefore, there is a significant benefit to the development of a single ASEAN-wide regulatory
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