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STUDY ON SINGLE BUYER MODEL AND POOL TRADING MODEL IN
DEREGULATED ELECTRICITY MARKET
NURULAIN NADIAH BINTI KASIM
A project report submitted in partial fulfillment of the requirements for the award of
the Degree of Master of Electrical Engineering
Faculty Of Electrical And Electronic Engineering
Universiti Tun Hussein Onn Malaysia
January 2014
v
ABSTRACT
In the new era of modernity, the competitive environment has spread widely into all
sectors including electricity market which began 1980. A number of market models
have been introduced and each model was design appropriately with its local
condition. Looking forward to an opened and competitive electricity trading market,
Malaysia Electricity Supply Industry (MESI) has started to change its structure to a
wholesale market model in 2005. In 1992, the first step had taken by introducing the
Independent Power Producers (IPPs) and since then, MESI have applied this model
until this moment. Tenaga Nasional Berhad (TNB) will acts as a medium by all
power producers (TNBG and IPPs) and sells the energy to consumers. However, this
model does not provide competition as it supposed to. The purpose of this research is
to study in depth the restructuring of electricity supply industry and identify
advantages and disadvantages for each market model. The economic benefits from
the view of power producer from both models were also analyzed. Matlab Software
has been used in this study to compare both market models in term of generation
revenue based on the real load profile of Peninsular Malaysia. The results showed the
single buyer is uncompetitive and TNB monopoly the market. Meanwhile, pool
model are able to provide a competitive environment but creates higher risks as the
energy price will change from time to time. Hence, MESI should considered several
policies if they plan to apply this model.
vi
ABSTRAK
Dalam era baru kemodenan, lingkungan persekitaran yang berdaya saing telah
tersebar luas ke semua sektor termasuklah pasaran elektrik yang telah bermula pada
tahun 1980. Beberapa jenis pasaran model telah diperkenalkan dan setiap model di
rekebentuk agar bersesuaian dengan keadaan tempatan. Malaysia telah melihat ke
hadapan untuk pasaran perdagangan elektrik dibuka dan berdaya saing, Malaysia
Electricity Supply Industry (MESI) telah mula menukar strukturnya kepada pasaran
secara borong pada tahun 1995. Pada tahun 1992 pula, langkah pertama telah diambil
dengan memperkenalkan Penjana Kuasa Bebas (IPP) dan sejak itu, MESI telah
menggunakan model ini sehingga sekarang. Tenaga Nasional Berhad (TNB) akan
bertindak sebagai perantara untuk semua pengeluar tenaga bebas (TNBG dan IPPs)
dan menjual tenaganya kepada pelanggan. Bagaimanapun, model ini tidak
menyediakan/mewujudkan persaingan yang sepatutnya. Tujuan peyelidikan ini
adalah untuk mempelajari dengan lebih mendalam mengenai struktur industri
bekalan tenaga elektrik dan mengenalpasti kelebihan dan kekurangan untuk setiap
pasaran model. Dari segi manfaat ekonomi pengeluar tenaga bebas untuk kedua-dua
model di analisis menggunakan perisian Matlab untuk membandingkan kedua-kedua
pasaran model dari segi pendapatan penjanaan berdasarkan profil beban sebenar
Semenanjung Malaysia. Keputusan menunjukkan model tunggal tidak berdaya saing
dan TNB memonopoli pasaran ini. Sementara itu, model pool dapat mewujudkan
persekitaran daya saing tetapi agak berisiko tinggi dimana harga tenaga akan berubah
dari semasa ke semasa. Oleh itu, (MESI) haruslah mengambil kira beberapa dasar-
dasar yang sepatutnya jika mereka merancang untuk menggunakan model ini.
vii
TABLE OF CONTENTS
TITLE i
DECLARATION ii
DEDICATION iii
ACKNOWLEDGEMENT iv
ABSTRACT v
ABSTRAK vi
TABLE OF CONTENTS vii
LIST OF FIGURES xi
LIST OF TABLES xiii
LIST OF ABBREVIATIONS xiv
LIST OF APPENDICES xvi
CHAPTER 1 INTRODUCTION 1
1.1 Overview of Electricity Supply Industry 1
1.2 Problem Statement 3
1.3 Objectives of Project 4
1.4 Scope of Project 4
1.5 Methodology 4
1.6 Thesis Overview 6
viii
CHAPTER 2 ELECTRICITY SUPPLY INDUSTRY
RESTRUCTURING 7
2.1 Introduction 7
2.2 Restructuring in Other Countries 8
2.2.1 Electricity Trading in Canada 8
2.2.2 Electricity Trading in England and Wales 8
2.3 Structure of Electricity Supply Industry 9
2.3.1 Monopoly/Vertically Integrated Unit (VLU) 9
2.3.2 Purchasing Agency/Single Buyer 10
2.3.3 Wholesale Competition 11
2.3.4 Retail Competition 12
2.4 Electricity Trading Arrangement 13
2.4.1 Single Buyer Arrangement 13
2.4.2 Pool Trading Model 14
2.4.3 Bilateral Model 15
2.4.4 Hybrid Model 15
2.5 The Economic Viewpoint of the Parties Involved 16
CHAPTER 3 MALAYSIA ELECTRICITY SUPPLY
INDUSTRY (MESI) 18
3.1 Introduction 18
3.2 MESI towards Restructuring 19
3.3 Implemented Single Buyer in MESI 20
ix
3.4 Power Purchase Agreement (PPA) 21
3.5 Energy Price 22
3.6 Installed Capacity and Generation 23
3.7 Economic Aspects of Single Buyer 25
3.8 Example of A Simple Case Study 27
CHAPTER 4 A POOL BASED MARKET DESIGN FOR MESI 31
4.1 Introduction 31
4.2 Overview of Pool Market Model 31
4.3 Pool Market Price Determination 32
4.4 Market Settlement Strategies 34
4.4.1 Single Auction Power Pools 34
4.4.1.1 Application of Single Auction
in MESI 35
4.4.2 Double Auction Power Pools 35
4.4.2.1 Application of Double Auction
in MESI 36
4.5 Economic Aspects of Pool Market Model 37
4.6 Example of Case Study 38
CHAPTER 5 RESULT AND ANALYSIS 42
5.1 Introduction 42
5.2 Case Study 42
5.3 Load Demand for Peninsular Malaysia 43
5.4 Generation Revenue for All Types of Demand 44
x
5.5 Generator’s Revenue for Each Generator 47
CHAPTER 6 CONCLUSION AND RECOMMENDATION 51
6.1 Conclusions 51
6.2 Scopes for Future Works 52
REFERENCES 53
APPENDICES
xi
LIST OF FIGURES
1.1 Electricity supply industry 1
1.2 Structure of a vertically integrated utility 2
1.3 Project flowchart 5
2.1 Monopoly model/Vertically integrated unit (VLU) 10
2.2 Purchasing agency/Single buyer model 11
2.3 Wholesale competition model 12
2.4 Retail competition model 13
2.5 Single buyer model 14
2.6 Pool trading model 15
2.7 Bilateral model 16
3.1 MESI in structure; Single buyer 21
3.2 Four generators with three load 27
3.3 Energy payment obtained by each generator
at different demand 29
3.4 Capacity payment obtained by each generator
at different demand 29
3.5 Each generator’s revenue at a different demand 30
3.6 Total generator’s revenue for all demand 30
4.1 Design for MESI; Pool market model 32
xii
4.2 Single auction pool market 34
4.3 Single auction pool market in MESI 35
4.4 Double auction pool market 36
4.5 Double auction pool market in MESI 37
4.6 Four generators with three loads 39
4.7 Generation revenue based on energy payment (Pay as bid) 40
4.8 Generation revenue based on SMP (Uniform price) 40
4.9 Total generation revenue for uniform price and pay as bid 41
5.1 Load for Peninsular Malaysia profile 44
5.2 Total generation revenue during Weekdays 45
5.3 Total generation revenue during Saturday 46
5.4 Total generation revenue during Sunday 46
5.5 Total generation revenue during public holiday 47
5.6 Each generator revenue during Weekdays 48
5.7 Each generator revenue during Saturday 48
5.8 Each generator revenue during Sunday 49
5.9 Each generator revenue during public holiday 49
xiii
LIST OF TABLES
2.1 The economic view of parties involved 16
3.1 MESI planning towards restructuring 20
3.2 List of TNB and IPP power plant 23
3.3 Differences between energy payment and
capacity payment 26
3.4 Generator details 28
4.1 Differences between two pricing schemes 37
4.2 Generator details 39
5.1 The detail information for each generator 43
5.2 Total generation revenue for each market model 50
xiv
LIST OF ABBREVIATIONS
ESI - Electricity Supply Industry
MESI - Malaysia Electricity Supply Industry
TNB - Tenaga Nasional Berhad
IPP - Independent Power Producers
PPA - Power Purchase Agreement
VLU - Vertically Integrated Unit
IMO - Independent Market Operator
CEB - Central Electricity Board
NEB - National Electricity Board
IGSO - Independent Grid System Operator
TNBG - Tenaga Nasional Berhad Generation
TNBT - Tenaga Nasional Berhad Transmission
TNBD - Tenaga Nasional Berhad Distribution
CCGT - Combine Cycle Gas Turbine
OC - Open Cycle
SMP - System Marginal Price
CPP - Pool Purchase Price
LOLP - Loss of Load Probability
xv
VOLL - Value of Lost Load
CSP - Pool Selling Price
xvi
LIST OF APPENDICES
APPENDICES TITLE PAGE
A Details data for single buyer model 55
B Details data for pool trading model 57
C Load profile for Peninsular Malaysia 60
D Details data on the simulation results on generation revenue 61
1
CHAPTER 1
INTRODUCTION
1.1 Overview of Electricity Supply Industry
Each sector in the electricity supply industry (ESI) consists of three components of
electric power industry: generation, transmission, and distribution as illustrated in
Figure 1.1.
Figure 1.1: Electricity supply industry
In many years, the electric power industry has been dominated by large
utilities that had overall authority over all activities of power within its domain of
operation. It has been monopolized by the vertically integrated utilities. Vertically
integrated means that its monopoly the whole electricity business from generated the
2
electrical energy transmitted it from the power plant and distributed it to the
consumers. So, consumers have no choice to buy electricity and choose their
particular utility company due to the vertically integrated monopolized [1, 2]. The
whole electricity industry has been dominated by vertically integrated utilities is
encounter a big changes throughout the world.
In Figure 1.2, the money flow is in unidirectional which is from the consumer
to the electric company. Similarly, the energy flow exists only between generators
and transmissions systems. This situation may affect the availability of financial
resources to support investment in improving generation and transmission capacities
with offer consumer a greater choice in purchasing economic energy [3].
Figure 1.2: Structure of a vertically integrated utility
Later on, the electricity supply industry (ESI) had undergone a major
transition worldwide that may lead to the deregulation. Deregulation means to
restructure rules and economic incentives that government set up to control the
electric power industry. There are many reasons that may lead to the deregulation of
power system. In 1980s, there is force that lead to the deregulation of electric power
was change in their way of operation and business, from vertically integrated
mechanisms to open market systems. The restructuring process of the power industry
is separate the transmission activities from the electricity generation activities hence
will create competition in generation activities [3].
3
However, restructuring process is not uniform in all countries. It was intend
to enhance competition and bring consumers a new choice of electric utility and also
give economic benefit to particular countries. Other than that, deregulation gives dis-
aggregated into separate companies devoted and offer them a better choice in
purchasing economic energy.
Thereby, in 1992, Malaysia Electricity Supply Industry (MESI) had move
forward to restricting by encourage private investors in producing electrical energy.
Tenaga Nasional Berhad (TNB) monopoly the whole electricity market, but it’s
come to end when Malaysia government introduced Independent Power Producers
(IPP). IPP aim’s to assist Tenaga Nasional Berhad (TNB) to overcome the electricity
issue and enlarge electrical energy generation sector. Other than that, IPP will create
competition among other generation [1]. This electricity market model applied in
Malaysia known as single buyer model. Nowadays, there are 14 IPP in the Peninsular
Malaysia that serve electricity and sold to TNB to purchase by the consumers. IPP
and TNB have an agreement that last for 21 years based on the power purchase
agreement (PPA).
1.2 Problem Statement
For most the twentieth century, when consumers want to buy electrical energy, they
had no choice in term of generation sector. They had to buy it from the utility that
held monopoly for the supply of electricity in the area where consumers were
located. In the 1980s, some economics started to argue that this model had run its
course. They said the monopoly status of the electric utilities removed the incentive
to operate efficiently and encourage unnecessary investments. They also argued that
the cost of the mistakes that private utilities made should not be passed on to the
consumers. These economists suggested the prices would be lower and that the
economy as a whole would benefit if the supply of electricity became the object of
marker discipline rather than monopoly regulation or government policy. Therefore,
in this project a pool trading model has been introduced to overcome this problem.
4
1.3 Objectives of Project
This project will be implemented based on below objectives:
i) To study the electricity market models in restructured electricity
supply industry.
ii) To identify comparison between single buyer and pool trading model.
iii) To observe pricing scheme on generation revenue.
1.4 Scope of Project
Due to the restructuring process, there are various types of the electricity market
models that applied such as single buyer model, pool trading model, bilateral trading
model, and hybrid model. However, in this study, single buyer model was discussed
further because Malaysia applied single buyer model according to the Malaysia
Electricity Supply Industry (MESI). While for pool trading model was investigated
as this model offers more benefits compare to single buyer model. Then, the
comparison between both models was discussed in term of their generation revenue.
1.5 Methodology
In analyzing the electricity market economic, there are several steps to be considered
to ensure the smooth running of this project. It started with gain the information
about the overview of the electricity supply industry from the conferences paper,
journal, article, newspaper, and etc. In addition, there are many countries that
implemented the restructuring, so it can be used as an example in this study. Then,
the comparison between single buyer model and pool trading model were made to
analysis in term of their generation revenue.
5
Start
Gain information about the
project
Literature Review
Design suitable market
model
Formulate Mathematical
Equation
Comparative analysis
Simulation on real data
Discussion
Report Writing
End
No
Yes
Master Project 1
Master Project 2
Figure 1.3: Project flowchart
6
1.6 Thesis Overview
This thesis is divided into six chapters. The first chapter is the overview of
the project, problem statement, objectives of project, scope of project, and
methodology. It followed by second chapter which is discuss about electricity supply
industry restructuring which is include example of several countries that had
implemented restructuring, structure of models electricity supply industry, and
electricity trading arrangement that applied in each countries. Meanwhile, Chapter 3
describes situation for Malaysia Electricity Supply Industry (MESI) which is applied
single buyer model. It consists of MESI planning towards restructuring and
implemented single buyer in MESI. Other than that, an agreement between
Independent Power Producers (IPP) and Tenaga Nasional Berhad (TNB) which is
PPA have been discuss with their types of payment installed capacity for each
generators in Peninsular Malaysia.
Chapter 4 covers pool trading model that design for MESI. There are two
types of market settlement in pool trading model which is single auction and double
auction being discussed in this chapter. Besides that, two types of payment being
explain in term of their economic aspects. Chapter 5 represents about result and
analysis of case study for 14 IPP selected to shows the comparison between both
models in term of their generation revenue. Lastly, Chapter 6 provides the conclusion
of study and some recommendation suggests.
7
CHAPTER 2
ELECTRICITY SUPPLY INDUSTRY RESTRUCTURING
2.1 Introduction
Restructuring of the power industry remove the monopoly in the generation sectors,
and introducing competition at various levels. Generating companies have the
contract to supply the generated power distributors/consumer to sell the power in a
pool in which the power brokers and customer also participate. The buyer can bid for
their demands along with their willingness to pay. So, power generation will become
more competitive. Electricity sector restructuring, also known as deregulation is
expected to draw private investment, increase efficiency, promote technical growth
and improve customer satisfaction as different parties compete with each other to
win their market share and remain in business [1].
A competitive electricity market should be supported by proper trading tools
that take into account of special nature of electricity which is different from other
commodities. The tools are an introduction of competition, which is supported by
regulation, and the encouragement of private participants. Electricity trading may
refer to any number of transactions with the delivery of a host desirable energy
related services and product to wholesale increasingly, retail customers [4]. Power
marketers do not need own any generation, transmission or distribution facilities or
assets. They depend on others for the physical delivery of the underlying services
[23].
8
2.2 Restructuring in Other Countries
The restructuring of the electricity supplied had happen in the developing countries
around the world. There are several countries that restructuring process occurs:
i) Electricity Trading in Canada
ii) Electricity Trading in England and Wales
2.2.1 Electricity Trading in Canada
The Canadian electricity markets have been developed along provincial or regional
boundaries. Electricity pricing are different according to their volume and type of
available generation and whether prices are market-based or regulated. Alberta was
the first Canadian province to implemented deregulated electricity market. In 1
January 1996, was a turning point for Alberta’s electric industry to move in
restructuring its electricity market and move it with cautiously to maintain the
benefits of the existing low cost generators for customers while making the transition
to fully competitive market [3].
Ontario which is one more provincial of Canada has created electricity
market together with the Alberta in order to increase investment and competition in
the sector of the company. Both provinces operate electricity markets, but there are
differences between the two systems [6]. The Ontario market is a hybrid, with the
Ontario Power Authority contracting for supply, integrated system planning, and
regulated pricing for much of Ontario's generation and load. While in Alberta, the
generation business is competitive, hence transmission and distribution are regulated
[7].
2.2.2 Electricity Trading in England and Wales
The industry in the England and Wales was typically by CEGB managing generation
and transmission development and operation. There are twelve distribution
companies supplying direct to customers, hence they can choose their own utilities.
The new structure were designed to give the distribution companies promote the
9
competition among generation and wider a choice of generation. Distribution
companies also would have an ability to connect competing generators to the system
exploiting open transmission access [8].
These countries expected to continue their contract for sufficient generation
to maintain supplies to their 22 million customers. The new structure is to separate
generation from transmission and introduces several smaller independent generation
companies operating competition with National Power, Power Gen, and Nuclear
Electric. While Transmission Company established as the National Grid.
2.3 Structure of Electricity Supply Industry (ESI)
There are four models to define the evolution of the electricity supply industry from
a regulated monopoly to full competition [1, 9, 10]. The models are as follows:
i) Monopoly/ Vertically Integrated Unit
ii) Purchasing Agency/ Single Buyer
iii) Wholesale Competition
iv) Retail Competition
2.3.1 Monopoly/Vertically Integrated Unit (VLU)
Figure 2.1 (a) shows the utility integrates the generation, transmission, and
distribution of electricity. While in Figure 2.1 (b) shows generation and distribution
monopoly by one utility, which sells the energy to the distribution companies.
10
Generator
Wholesale/
transmitter
Distribution
company
Customer
Generator
Wholesale/
transmitter
Distribution
company
Customer
(a) (b)
Figure 2.1: Monopoly model/Vertically integrated unit (VLU)
2.3.2 Purchasing Agency/Single Buyer
For this model, the electric power industry no longer owns by the vertically
integrated model. Independent Power Producers (IPP) was introduced in several
developing countries in1990s to generate electricity and sell it to the national power
company. Figure 2.2 (a) shows integrated version of single buyer where competition
only occurs at the generation sector. Figure 2.2 (b) shows a disaggregated version
where the utility no longer owns any generation capacity and purchases all its energy
from the IPPs. The distribution and retail activities also disaggregated [1, 9, 10].
Wholesale Purchase Agency then will be was sell to the Disco as it will distribute to
the consumers. The price rates that set by the Wholesale Purchasing Agency must be
regulated because it has monopoly power over the Disco.
11
Own Generators
Wholesale
purchasing agency
Distribution
Consumers
Wholesale
purchasing agency
Disco
Consumers
IPPIPP
DiscoDisco
Consumers Consumers
IPP IPP IPP
(a) (b)
Figure 2.2: Purchasing agency/Single buyer model
2.3.3 Wholesale Competition
Wholesale Competition does not have a central organization to responsible towards
provision of electrical energy. As show in the Figure 2.3, Disco will purchase the
electricity directly from generating companies to consume by their customers. These
transactions called wholesale electricity market. The largest consumers are allowed
to purchase electrical energy directly from the wholesale market. So, generating
companies will compete each other to sell their electricity directly to any distribution
companies and brokers or offer it in a power exchanges. The Company can collect
the payment from generating and distribution companies because use their
transmission facilities and service [1, 9, 10]. At the wholesale level, the only
functions remain centralized are the operation of the spot market, and the operation
of the transmission network.
12
Figure 2.3: Wholesale competition model
2.3.4 Retail Competition
Figure 2.4 illustrated a competitive electricity market which is consumers can choose
their supplier. The largest consumers are allowed to purchase energy directly from
the wholesale market, while small and medium consumers can purchase it from
retailers. In this model distribution companies are separated from their retail
activities because they no longer have a local monopoly for the supply of electrical
energy [1, 9, 10]. When sufficient competitive market have been established, the
retail price no longer has to be regulated because small consumers can change
retailer when they have an offer from better price.
Disco
Consumers
Wholesale market
Transmission system
GenCo GenCoGenCoGenCoGenCo
Disco DiscoLarge
Consumer
ConsumersConsumers
13
Figure 2.4: Retail competition model
2.4 Electricity Trading Arrangement
Trading arrangement is properly designed in every country to take care of other
abuse of market. These arrangements are kept on changing from to time depending
on the requirement for transparent and non-discriminatory electricity market. There
are several types of electricity market model applied such as:
i) Single Buyer Model
ii) Pool Market Model
iii) Bilateral Model
iv) Hybrid Model
2.4.1 Single Buyer Model
The single buyer model first appeared in developing countries in the 1990s.
Government in several countries authorized the private investors to construct power
plant through Independent Power Producer (IPP) to generate the electricity and sell it
to the national power company [11]. IPPs sold their output through long term power
purchase agreement that included take or pay quotes or fixed capacity charges to
protect investors from market risks. Figure 2.5 below shows a single buyer model.
Retailer
Consumers
Wholesale market
Transmission system
GenCo GenCoGenCoGenCoGenCo
Retailer RetailerLarge
Consumer
ConsumersConsumers
Retail market
Distribution networks
Consumers
14
Figure 2.5: Single buyer model
2.4.2 Pool Trading Model
Different with the single buyer model, in this model all energy supply is controlled
and coordinated by a single pool operator who is normally known as Independent
Market Operator (IMO) or Pool Company as illustrated in Figure 2.6. The buyer
customers and seller interact each other through IMO. IMO are responsible as a
medium between producers/supplier and customers/consumers. The seller will
submit the bids to the IMO/Pool Company for a large amount of power that they
want to trade in the market. Sellers in the power market would compete each other
but not for a specific customers. If a seller bids to high price, it might not be able to
sell to consumers/customer. At the same time, buyers also will compete to buying
power. If their bids are too low, the might be not able to purchase it [11].
TNB
GenerationIPP IPP IPP
TNB Load Dispatch Centre
TNB Transmission
TNB Distribution
Consumers
15
Gen
Gen
Gen
Gen
Independent Market
Operator/Company PoolDistributor Company
Submit Demand
Sell Electricity
Seller
Submit Bid
Submit Bid
Consumer
Figure 2.6: Pool trading model
2.4.3 Bilateral Model
Figure 2.7 shows bilateral model. As can see, the transaction only involves two
market participants which is buyer and seller that made a contract between them. The
buyer will direct purchase the power electricity to the generation. In this context,
buyer can be says as a distribution company/eligible consumer while seller as a
generations company. The buyer will demand some amount of power electricity for
their enterprise at the best price can be negotiated and seller will sell their energy as
much as can achieve. In this model, after the transaction between buyer and seller are
settle, they need to inform ISO due to ensure the sufficient transmission capacity
exist to complete the transactions and maintain the transmission security [11].
The bilateral model allowed customer/buyer to purchase directly through
generation company (GenCo). Different with the single buyer model, transmission
company (TransCo) does not have to deal with buy and sell energy and no capacity
payment. Hence, GenCo needs to pay the transmission charges to the TransCo,
meanwhile DisCo also will pay a similar charges to the TrasnCo because use their
transmission facilities and service [12]
16
ISO
Bilateral Contract
Energy
Supplier
Customer/
Buyers
Figure 2.7: Bilateral model
2.4.4 Hybrid Model
For hybrid model, it combines both models which is bilateral and pool market.
Customer would be allowed to choose their trading through bilateral and pool model.
PoolCo also could serve the buyers and sellers who not sign the bilateral contracts.
2.5 The Economic Viewpoint of the Parties Involved
There are several characteristics that GenCo, TransCo, and DisCo play in single
buyer and pool trading model. The Table 2.1 shows the economics point of view of
different parties in each market model.
Table 2.1: The economic view of parties involved
Model Single Buyer Model Pool Trading Model
GenCo a)Power sold to GenCo is
guaranteed through PPA
b)Long term PPA is attractive due
to the payment collection from
purchasing agency is
profitable [24].
a) Power sold to PoolCo is based on
the merit order; the least generator
will sell first.
b) Only based on energy price
c)Create competition among
generators as they will submit the
lowest demand
17
TransCo No access fee and cost is covered
by the purchasing agency
Only provide power transmission
and facilities maintenance services.
DisCo a) Buy power from one source
only, TransCo
b) The energy price is stable and
it is easy for end customers make
investment decision. But the price
is fixed.
a) Buy power from Independent
Market Operator (IMO)
18
CHAPTER 3
MALAYSIA ELECTRICITY SUPPLY INDUSTRY (MESI)
3.1 Introduction
Electricity first made its appearance in this country at the turn of the 20th
century. In
1894, there were first two enterprising individuals installed an electric generator to
operates their mines and marked the great beginning of the story of electricity in
Malaysia. Until the mid nineteen twenties, most generating plants were small and
used a variety of fuel including low grade coal, local wood, charcoal and important
oil as well as water power. As the rapid increase in electricity demands, the Central
Electricity Board (CEB) was established on 1 September 1949. CEB became owner
to 34 power stations with a generation capacity of 39.88 MW including a steam
power station, hydroelectric power station, and diesel power station [11].
Then, on 22 June 1965, Central Electricity Board (CEB) was renamed as the
National Electricity Board of the States of Malaya (NEB). The National Grid was
one of the plans in full motion. The National Grid or Grid Nasional in Malay is the
primary electricity transmission network linking the electricity generation,
transmission, distribution and consumption in Malaysia. On 1 September 1990, NEB
was replaced with Tenaga Nasional Berhad (TNB) and became a private company
wholly-owned by the government. Its function includes generating, transmitting, and
distributing electricity to consumers [11]. Government of Malaysia had allowed
Independent Power Producers (IPP) to participate in the generation sector in addition
to break the monopoly and encourage the competition. Since Malaysia Electricity
19
Supply Industry (MESI) applied the single buyer model with TNB as the purchasing
agency.
3.2 MESI towards Restructuring
Malaysia is currently undergoing reforming its electric supply industry into a more
transparent, effective, and competitive power market. Therefore, in March 1998,
government made a decision to establish an Independent Grid System Operator
(IGSO) as part of 7th
Malaysia Plan [1]. Objectives of restructuring are:
a) To promote efficiency in the utilization of financial and technical resources
in the development and operations of the study.
b) To provide a level playing field for all players in the ESI.
c) To achieve competition electricity prices for all consumers.
The proposed MESI structure should include generation, transmission,
distribution, retail, independent market operator (IMO), and a grid system operator
(IGSO). The IMO is a new market administrator and long term planner who will be
responsible for introduction competition into generation market and possibly the
retail market. But, the target of operating the IMO by 1st January 2001 was not
achieved.
In 2001, the first stage of restructuring model was introduced are Single
Buyer Model which is to create a competition at the generation level [18,1]. In this
case, TNB is expected to be the single buyer at this stage. At the second stage, Multi
Buyer Model was proposed to be operated in 2005 where it supposedly will enhance
the wholesale market by introducing more than one buyer from the power market to
provide customer. Nevertheless, this model was put on hold as other target was put
on hold as well. Table 3.1will shows the plan headed to the restructuring and the
current status.
20
Table 3.1: MESI planning towards restructuring
Year Planning Status
1992 Introduction of Independent Power Producer (IPP) Done
1998 Establish an independent grid system operator (IGSO) On Hold
2001 Operational date of the independent market operator
(IMO)
On Hold
2001 Stage 1: Single Buyer Model Done
2005 Stage 2: Multi Buyer Model/Wholesale Market On Hold
Before Malaysian Government was introduced Independent Power Producers
(IPP), TNB was monopolized electricity market from generation, transmission, and
distribution sector. It comes to the end when IPP introduced with the aim to avoid
shortage and facilitate competitions among generators. The first IPP is an YTL
Corporation Sdn. Bhd. which is own by Yeoh Tiong Lay and from time to time,
many IPP have given an opportunity to supply the electricity [13]. Currently, there
are 14 IPP that serve electricity throughout the Peninsular Malaysia via TNB with
total install capacity 14755.10 MW.
In 2001, Malaysian Electricity Supply Industry (MESI) has changed their
electricity model from vertically integrated to the single buyer model due to the
competitive environment in generation sector. In this model, TNB have an authority
to choose which generator that success to supply their power output throughout
Peninsular Malaysia based on demand that required by a consumers. Other than that,
in 1998, MESI aims to establish an Independent Grid System Operator (IGSO) and
Independent Market Operator (IMO) in 2001 but fails to do so [14,1]. In 2005, the
plan move to establish a Multi Buyer Model, but it put on hold due to the effect of
California’ crisis and long term agreement bonded between the private power
producers and TNB.
3.3 Implemented Single Buyer in MESI
Single Buyer was implemented in Malaysia since 2001. TNB will acts as a power
purchase agency which is obliged Tenaga Nasional Berhad Generation (TNBG) and
21
Independent Power Producer (IPP) to buy the electricity from them. Although IPP
has been introduced to create a competition in the generation sector, but it did not
affect real competition in generation sector. Other than that, there was an agreement
between IPP and TNB which is known as Power Purchase Agreement (PPA). PPA
was consists of fixed capacity charges to protect investors from market risks.
The structure of single buyer model can be seen in the Figure 3.1. It shows all
the IPP and TNBG can only sell their output to the Tenaga Nasional Berhad
Transmission (TNBT) and Tenaga Nasional Berhad Distribution (TNBD).
Nevertheless, it cannot directly sell to the consumer side which is means IPP and
TNBG do not have any choice except depends on competition among each other.
But, TNBT and TNBD has the authority to choose a number of generator that will
supply depends on the demand that required by consumers [1, 18].
Figure 3.1: MESI structure; Single buyer
3.4 Power Purchase Agreement (PPA)
A power purchase agreement (PPA) is a contract that developed between two parties,
one who the owners of private power plants and one who is the buyer of the
electricity [1].
TNB
GenerationIPP IPP IPP
TNB Load Dispatch Centre
TNB Transmission
TNB Distribution
Consumers
22
PPA defines all of the commercial terms for the sale of electricity between
the two parties, including when the project will begin commercial operation,
schedule for delivery of electricity, penalties for under delivery, payment terms, and
termination. A PPA is the principal agreement that defines the revenue and credit
quality of a generating project and is thus a key instrument of project finance. There
are many forms of PPA in use today and they vary according to the needs of buyer,
seller, and financing counterparties [15].
As Malaysia had introduced private producers in generation sector, the PPA
is being signed between IPP and TNB for 21 years, which is the agreement, is
between 15 to 20 years. The basic information contains in this agreement [1]:
a) Definitions
b) Purchase and sale of contract capacity and energy (such as steam, hot
water and/or chilled water in the case of cogeneration and regeneration
plants)
c) Operation of the power plant
d) Financing of the power plant
e) Guarantee of performances
f) Penalties
g) Payment (capacity payment which covers the capital costs of the
generators and energy payments to cater for the variation of demand
during plant operation)
h) Force majeure
i) Default and early termination
j) Miscellaneous
k) Term and conditions
3.5 Energy Price
The energy price (RM/MWH) is the price that paid per unit of incremental output. It
was close to the costs of fuel burnt in generating 1MWH, some allowance for
operation and maintenance cost which is depend on the level of energy production.
The dispatcher will dispatch the IPP when it is cheaper than other sources [16].
23
Energy prices may be fixed, or set by a formula which includes separate
terms of the cost of fuel and the assumed rate of conversion into electricity.
However, the cost of fuel can be different because fixing the unit cost of fuel in the
PPA would expose the owner to the risk.
3.6 Installed Capacity and Generators Location
A power station (referred to generating station, power plant, powerhouse or
generating plant) is an industrial place for the generation of electric power. There are
several electricity sources that supplied from 16 TNBG and 14 IPP throughout
Peninsular Malaysia such as Hydro, Thermal, Combine Cycle Gas Turbine (CCGT),
and Open Cycle (OC). The summarized of Peninsular Malaysia installed capacity as
shown in Table 3.2 [17].
Table 3.2: List of TNB and IPP power plant
No Power Plant State Owner Type of Plant Installed
Capacity
(MW)
1 Stesen
Hidroelektrik
Sultan Azlan Shah
Bersia
Perak TNB Hydro 4x87MW
2 Stesen
Hidroelektrik
Chenderoh
Perak TNB Hydro 4x10.7MW
1x8.4MW
3 Stesen
Hidroelektrik
Sultan Azlan Shah
Kenering
Perak TNB Hydro 3x40MW
4 Stesen
Hidroelektrik
Sungai Upper Piah
Perak TNB Hydro 2x7.3MW
5 Stesen
Hidroelektrik
Sungai Lower Piah
Perak TNB Hydro 2x27MW
6 Stesen
Hidroelektrik
Temenggor
Perak TNB Hydro 4x87MW
7 Stesen-stesen
Hidroelektrik
Cameron
Highlands
TNB Hydro
24
a)Sultan Yusof Jor
b)Sultan Idris
Whoh
c) Odak
d) Habu
e) Kampung Raja
f) Kampung Terla
g) Robinson Falls
4x24MW
3x50MW
4.2MW
5.5MW
0.8MW
0.5MW
0.9MW
8 Stesen
Hidroelektrik
Mahmud Power
Station, Kenyir
Terengganu TNB Hydro 4x100MW
9 Stesen Janakuasa
Sultan Ismail, Paka
Terengganu TNB CCGT 1136MW
10 Stesen
Hidroelektrik
Ismail Petra,
Pergau
Kelantan TNB Hydro 4x150MW
11 Stesen Janakuasa
Jambatan
Connaught
Selangor TNB CCGT, OC,
Thermal
832MW
12 Stesen Janakuasa
Putrajaya
Selangor TNB OC 625MW
13 Stesen Janakuasa
Sultan Iskandar
Johor TNB CCGT, OC,
Thermal
729MW
14 Stesen Janakuasa
Tuanku Jaafar
Negeri
Sembilan
TNB CCGT 715MW
15 Stesen Janakuasa
Gelugor
Pulau
Pinang
TNB CCGT 303MW
16 Stesen Janakuasa
Teluk Ewa
Pulau
Pinang
TNB Thermal 62MW
17 Genting Sanyen
Power Sdn. Bhd.
Selangor IPP CCGT 740MW
18 Lumut GB3 Sdn.
Bhd.
Perak IPP CCGT 640MW
19 Segari Energy
Ventures Sdn.
Bhd.
Perak IPP CCGT 1303MW
20 YTL Power
Generation Sdn.
Bhd.
Terengganu IPP CCGT 1212MW
21 Prai Power Sdn.
Bhd.
Pulau
Pinang
IPP CCGT 350MW
22 Pahlawan Power
Sdn. Bhd.
Melaka IPP CCGT 322MW
23 Powertek Sdn.
Bhd.
Melaka IPP OC 440MW
24 Panglima Power
Sdb. Bhd.
Melaka IPP CCGT 720MW
53
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