Optimising the mix and structure of successor companies in electricity market restructuring : the theory and evidence of Indonesia

• Main Author: Hakam, Dzikri
• Other Authors: Macatangay, Rafael ; Mu, Xiaoyi
• Published: University of Dundee 2018
• Online Access: https://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.762975

This thesis discusses the law and economics of imperfect competition in electricity markets. Market power, indicating the ability to raise prices profitably above the competitive level, tends to be a significant problem in the aftermath of electricity market restructuring. In the process of regulatory reform and the development of competitive electricity markets, it seems desirable and practical to establish an efficient number of competitor Generating Companies (GenCos). A simulation of an electric power system accounts not only for multi-plant mergers of GenCos subject to a regulatory measure of market power (i.e. the Residual Supply Index/RSI) and the influence of forward contracting but also for direct current load flow and the topology of the electric power system. This research focuses on designing competitive successor companies with theoretical and empirical analysis in electricity market restructuring. Creating efficient successor companies from electricity market restructuring is essential to mitigate the exercise of market power which can occur from suboptimal market structure. The economic damage arising from inefficient successor companies occurs in the form of market prices that are higher compared to the competitive benchmark. The exercise of market power also leads to lower consumption rates compared to the competitive level. Therefore, an electricity market with inefficient successor companies could not achieve optimal market welfare. The algorithm developed in this thesis is a blend of economics and engineering models. The theoretical model section in Chapter three focuses on the theory of successor companies' creation which is composed of bottom-up modelling, recursive optimisation, Karush-Kuhn Tucker (KKT), Locational Marginal Price (LMP), Cournot oligopoly, Direct Current Load Flow (DC LF), and merger analysis. This research applies RSI as the market power index to mitigate the potential market power. Based on theoretical modelling, this thesis proposes an anticipatory approach by using a purpose-built algorithm, to optimise the configuration of GenCos ex-ante (i.e. before restructuring) rather than ex-post. The critical contribution of this algorithm to the existing literature is the anticipatory approach in creating optimal electricity market structure by using Residual Supply Index (RSI) as an index under perfect competition and Cournot competition. To test the robustness of the algorithm, a numerical simulation for the proposed model in a simple four players setting under an interconnected power system was conducted. The empirical study in Chapter four applies the Cournot oligopoly market model by incorporating forward contracting in the Institute of Electrical and Electronics Engineers (IEEE) 30 bus test power system. In Chapter five and six, the proposed model and algorithm is applied to a large-scale power system, i.e. the Indonesia electricity system with unique network topology and specific transmission and generation constraints. Indonesia is the most significant archipelago in the world. Thus, the network consists of multi interconnected power system with diverse generation technology and power plant size. The novelty and contributions of this thesis are as follows: 1. This thesis is the first ever to estimate nodal prices in the Indonesian electricity market.2. This thesis is the first ever to simulate perfect and Cournot competition in the Indonesian electricity market.3. This thesis is the first ever to propose the concept of anticipatory antitrust in the process of restructuring.4. This thesis is the first ever to apply the concept of RSI as a tool for the implementation of anticipatory antitrust policy.5. This thesis, using Indonesia as a case study, is the first ever to formulate successor companies on the basis of RSI in the context of anticipatory antitrust policy.