Global Movements towards Market Restructuring

In the late 1970s, one of the earliest introductions to the privatizations in the market structure took place in Chile. Argentina also tried to build a market and privatize existing generation companied and provide capital investments for reintegration of assets and for transmission expansions. Other Latin countries like Brazil, Peru and Colombia were among those followers who tried to establish a competitive market in 1990s [2].

Economic crisis forced other countries around the world to restructure their market into a completive one in order to bring transparency and remove market power from wholesale trading. Nordic countries, Continental Europe, New Zealand, North America, Australia and Great Britain were among those pioneers [2]. Brief summary of these market revolutions are described below.

2.4.1 Nordic Countries

Nordic countries consist of Norway, Sweden, Finland and Denmark. Norway was the first country that introduced market restructuring by the Energy Act of 1990. Following Norway, Sweden tried to establish a competitive market in 1995, which resulted in establishing Norwegian-Swedish Exchange (Nord Pool) in 1996. Later on Finland

joined this market in 1998, West Denmark in 1999 and East Denmark in 2000. There are five System Operators (SO) in this market, one for each country except Denmark with two SOs; therefore the Nord Pool can be considered as the only existing international market [10].

2.4.2 Continental Europe

Since electricity markets in each European Union (EU) states have weak points in terms of cross-border electricity exchanges the idea of single Internal Electricity Market (IEM) was introduced in 1996 [11-13].

The majority of trading would be bilateral contacts including forward and future arrangements; only a small fraction of trading would take place in daily and hourly contracts in the spot markets in order to help all participants to fine-tune their positions.

The IEM would be divided into submarkets in order to help Transmission System Operators (TSOs) monitoring and controlling each zone. In 1999, European Transmission System Operator (ETSO) was established in order to implement IEM.

Also in 2009, European Network of Transmission Systems Operators for Electricity (ENTSO-E) was founded to insure co-operation among European TSOs and implement regulations and rules in line with European Union legislation [12].

However, it is obvious that further investigations required establishing a single IEM for all EU states, with the purpose to fulfill all three European Union pillars, which are as follow:

 Security of supply

 Sustainability and environment

 Competition

European Council (EC) has set a target as 2014 to achievement of the Internal Electricity Market. By this time electricity would be traded freely in Europe [11].

2.4.3 New Zealand

New Zealand used to have a monopoly electricity market until 1994. Since then several deregulations took place in both generation and retail sides to bring competition into the market. The wholesale electricity market, called NZEM, brought transparency and regulated prices by using pool and spot markets. NZEM in considered as the first international market based on nodal pricing, which brings Local Marginal Pricing (LMP) in the market. M-co is a company who administrates the market on behalf of government and a state-owned company is the owner of transmission networks and plays the role of TSO [14].

2.4.4 Australia

Altered commercial solutions and restructures were introduced in the early 1990s to eliminate the monopoly from wholesale and retail markets and bring functionality into transmission and distribution network operations. In 1998 the major reform took place in southern and eastern Australia where the National Electricity Market (NEM) was established. The market operator for this market is called National Electricity Market Management Company (NEMMCO).

The NEM involves pool structure where all the electricity sold at wholesale level is traded in this market. NEM covers one of the longest interconnected power systems since there are six zones in this market and constraints on interconnectors can cause distinct marginal spot prices among these regions [2,15].

2.4.5 United States

The emerge of Independent System Operators (ISOs) in United States happened in 1996 after launching the Energy Policy Act of 1992. The Federal Energy Regulatory Commission (FERC) introduced ISOs including Pennsylvania-New Jersey-Maryland (PJM), ISO New England (ISO-NE), New York ISO (NYISO), California ISO

(CalISO), Midwest ISO (MISO), Southwest Power Pool (SPP) and Electric Reliability Council of Texas (ERCOT) [2].

Each ISO covers one or more than one area and is responsible for reliability and security of supply for those areas. The procedure of this market is based on two elements:

Available Transfer Capabilities (ATC), provided by ISOs, and Open Access Same-time Information System (OASIS). These ATCs would be published on OASIS and based on bilateral trading; transmission requests can be addressed within those specified areas [16].

However diversity in a number of ISOs in United States caused divergence problems.

Some ISOs had pool market background, which resulted in creation of several voluntary spot markets like 1997 PJM and 1999 ISO-NE markets [17,18]. In order to establish a top-level organization to ensure the reliability of all transmission networks and security of supply, FERC founded Regional Transmission Organizations (RTO) in 2000, which was responsible for market operations and regulations and supervising the ISOs. Finally, this complex structure of electricity market and partial deregulations caused market manipulation and in 2000 California Market had several crises, which resulted in multiple blackouts and economic fall out [19].

The California electricity market crisis was a good case that demonstrated the importance of considering market reliability in designing electricity market structure.