Island Electricity Market Liberalization

The Islands of the Caribbean are known to have some of the highest electricity rates in the world, with the exception of only a few. The following chart shows the average price of retail electricity across the region.  Thesecan be linked to, some extent, the existent of monopoly electricity markets in the region.

The high prices have led to the exploration of a range of  possible options to reduce the cost of electricity by the regional governments, including:

1) implementing viable forms of renewable energy generation;

2) reducing system losses (technical and non-technical);

3) changing the main fuel used for generation to a cheaper source (natural gas or coal); and

4) liberalization of the entire electricity sector.

The option to liberalize the vertically integrated (monopoly) market structure would see the industry separating into generation, transmission and distribution industries. This segmentation will see the formation of numerous electricity markets including wholesale, retail, and ancillary markets, where various firms will trade electricity in the wholesale and retail power markets. The high voltage network would be owned and/or operated by an independent system operator (ISO), while trading in the different markets is managed by the market operator which can also be the ISO.

Dominican Republic’s vertically integrated electricity utility was liberalized in 1997, and in 2000 the Government established an open generation market under which distributors and generators could trade electricity. By 2008 there were more than a dozen generators, a transmission company and three regional distribution companies operating in the sector (two of which were subsequently purchased by Government).

However, the question still remains as to whether the small electricity industries in the region can feasibly sustain liberalized electricity markets. And, any attempt to answer such a question must also determine the key indicators (such as the number of generators per market size, maximum market share to be held by a single generator, minimum level of competition, market concentration, etc) that can used to determine if liberalization can be applied to the individual markets, with an acceptable level of competition and efficiency.