Text 6. Electricity Market Reform

Virtually all OECD countries have decided to open up their electricity markets, at least to their big industrial users. In many countries electricity markets will be open to all users, including households. This is already the case in Finland, Germany, New Zealand, Norway, Sweden, England and Wales in the UK, and several states in the US and Australia. By the year 2006, more than 500 million people (and all large industrial users) in the OECD area have been entitled to choose their electricity supplier. This accounts for nearly 50 % of the population of OECD countries.

Early reforms sought to establish market mechanisms to determine the dispatch of generators and the wholesale price of electricity. This can be done by either an organized wholesale market (also known as a power exchange or pool) or by buyers and sellers of electricity engaging in bilateral trade.

A concern that economic efficiency is not as good as it might be in the ESI (Electricity Supply Industry), and hence prices to consumers are higher than what they might be is primarily reflected by the reform of electricity market. The inefficient performance of the old regulatory framework has given cause for concern. Widespread excess generating capacity, unexplained national and international cost differentials (e.g. between plants or between companies) and persistent international (or inter-state) electricity price differentials imply that there is the scope for improvement. Inefficiencies have become more obvious and relevant in the current context of slower demand growth and globalization.

In principle, many different approaches to ESI reform are possible depending on which activities are liberalized (e.g. generation), how the non-liberalized activities (e.g. transmission) are regulated and which agents are allowed to participate in the different markets. However, in practice, there is increasing convergence in the approach to reforming electricity markets in the OECD area. Recent ESI reforms often share these four elements:

• rapid introduction of full consumer choice;

• an obligation to provide non-discriminatory Third-Party Access (TPA) to the transmission and distribution networks;

• unbundling of transmission;

• liberalization of electricity trade so that electricity can be traded both through organized power exchanges and on a bilateral basis.

This combination of full market opening, unbundling of transmission activities, regulated access to the network and liberalization of electricity trade is known as ‘retail competition’. Under retail competition, transactions among generators, end users and a number of possible intermediaries, such as retailers, power exchanges and brokers take place freely (within the ‘physical’ constraints imposed by the network). Thus, on the demand side, end users are free to choose their supplier and to negotiate their contracts. On the supply side, generators can sell their electricity to any other market players. Retail competition has inspired reforms in Finland, Norway, Spain, Sweden, UK, US and, with some variations, in Australia, Denmark, Germany and New Zealand.

Exercise 75. Translate the following universal words without a dictionary. Compare their pronunciation and spelling in English and Ukrainian.

Million, mechanism, industry, national, international, context, globalization, reform, regulate, non-discriminatory, transmission, distribution, liberalization, organize, broker, contract.

Exercise 76. Explain the formation of the following words. Translate them into Ukrainian.

User, household, network, industrial, supplier, generator, wholesale, buyer, seller, bilateral, consumer, higher, widespread, framework, international, third-party, transaction, lower, retailer, non-liberalized, non-discriminatory, slower, inter-state, unbundling.

Exercise 77. Substitute ‘noun + noun’ compounds for the prepositional phrases.

Model: 1) market of electricity – electricity market; 2) desire of people – people’s desire

Trade of electricity; supplier of electricity; market of energy; dispatch of generators; supply of wholesale; demand of electricity; industry of supply; demand of consumers; cost of distribution; cost of generation; activities of transmission; network of distribution; player on the market; activity of supply; choice of consumers.

Exercise 78. Translate and comment upon the following grammar forms.

Have decided to open; are allowed; will be opened; have been entitled; can be done; might be; is reflected; has given; have become; can be traded; is known as; are free to choose; has inspired; can sell, sought.

Exercise 79. Translate the following’ verb-object’,’verb+adver-bial modifier’ combinations.

Establish market mechanisms; determine the wholesale price; choose electricity suppliers; is known as a power exchange; is reflected by the reform; has given cause for concern; are depending on activities; are allowed to participate; can be traded through power exchanges; is known as ‘retail competition’; can be traded on a bilateral basis; take place freely; choose their supplier; negotiate their contracts; can sell electricity to any other market players; has inspired reforms.

Exercise 80. Comment on the formation of the following words. Give their antonyms and translate the pairs.

Inefficient, inefficiency, unexplained, non-liberalized, non-member, non-discriminatory, unbundling, unlimited, helpless, non-competitive, non-market, impossible, irregular, illiterate, improper, unstable, inadequate, irresponsible, useless.

Exercise 81. Complete these sentences using English equivalents of the words in brackets.

1. Virtually all (країни, що входять до складу Міжнародної організації з економічного співробітництва та розвитку) have decided to open up their electricity markets. 2. Early reforms sought to establish (ринкові механізми). 3. (Неефективне функціонування) of the old regulatory framework has given cause for concern. 4. Inefficien-cies have become more obvious and relevant in the current context of slower (зростання попиту та глобалізація) . 5. Recent ESI reforms often share rapid introduction of full (вибір споживача). 6. Combina-tion of full market opening, unbundling of transmission activities, regulated access to the network and liberalization of electricity trade is known as (конкуренція на ринку). 7. Thus, on the demand side, (кін-цеві споживачі) are free to choose their supplier and (обговорювати контракти).

Exercise 82. Give synonyms or synonymous word combinations.

Intermediary, to involve, to take part, pool, consumer, inter-state, sale, to manage, agreement, energy, evident, quick, customer, provider, equal, reason, duty.

Exercise 83. Match English-Ukrainian equivalents.

1. market mechanism 2. industrial user 3. pool 4. generating capacity 5. agent 6. liberalization 7. retail competition 8. wholesale price 9. retailer 10. transactions

a) виробнича потужність b) посередник c) ринковий механізм d) скасування обмеження e) енергетичне об’єднання f) промисловий споживач g) гуртова ціна h) конкуренція на ринку роздрібної торгівлі i) торгова операція j) роздрібний торговець

Exercise 84. Give synonyms or synonymous word combinations.

Intermediary, to involve, to take part, pool, consumer, inter-state, sale, to manage, agreement, energy, evident, quick, customer, provider, equal, reason, duty.

Exercise 85. Translate these questions into English and answer them.

1. Чому країни, що входять до складу Міжнародної орга-нізації з економічного співробітництва та розвитку, вирішили від-крити свій ринок електроенергії? 2. Які країни стали учасниками ринку? 3. Що стало причиною реформування ринку електроенергії? 4. Які ринкові механізми були встановлені першими реформами? 5.Що називається гуртовим ринком? 6. На чому базуються різні підходи до реформи індустрії постачання електроенергії? 7. Які збіжності існують у різних підходах до реформування ринку електроенергії? 8. Що називається конкуренцією на ринку розд-рібної торгівлі? 9. Що впливає на вільну діяльність енергетичної біржі та посередників? 10. Яким чином реформування ринку впли-ває на попит і пропозицію?

Exercise 86. Give definitions to the following terms.

Pool, third-party, retail, competition, broker, liberalization of electricity trade, bilateral contract.

Exercise 87. Choose proper terms for the definitions.

1. A short-term market for electricity where sellers bid the advance prices of electricity and generators are dispatched to meet the demand –	a) retail competition
2. A system under which more than one electricity provider can sell to retail customers, and retail customers can buy from more than one provider –	b) third-party access
3. A right to equal (non-discriminatory) access to transmission services –	c) liberalization of electricity trade
4. Electricity trade both through organized power exchanges and on a bilateral basis –	d) broker
5. A third party who establishes a transaction between a seller and a purchaser without taking title to the commodity –	e) bilateral contract
6. A direct contract between the power producer and user or broker outside of a centralized power pool –	f) pool

Exercise 88. Speak on “Electricity Market Reform”.