A System Dynamics Model for the Analysis of the Deregulation in Electricity Market

A System Dynamics Model for the Analysis of the Deregulation in Electricity Market

Arezou Gholizad (Industrial Engineering Department, Islamic Azad University, Tehran, Iran), Loza Ahmadi (Construction Management Department, Curtin University, Australia), Erfan Hassannayebi (Industrial Engineering Department, Islamic Azad University (Central Tehran Branch), Tehran, Iran), Mehrdad Memarpour (Industrial Engineering Department, Tarbiat Modares University (TMU), Tehran, Iran) and Masoud Shakibayifar (Department of Transportation Engineering and Planning, Iran University of Science & Technology, Tehran, Iran)
Copyright: © 2017 |Pages: 30
DOI: 10.4018/IJSDA.2017040101
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Abstract

The process of privatization of the electricity market involves the serious needs of the industry in order to increase productivity, attract private investment and partnerships. If current trends continue, the total investment needed for the industry is not to be able to be supplied from domestic sources. The participation of the private sector in capacity expansion is essential. In this study, a system dynamic approach is presented to study the pricing strategies in electricity market and also to analyze the rate of load consumption in Iranian electricity market. The proposed model enables the decision-maker to assess the effect of prices on the average rate of energy consumption as well as to simulate and predict the behavior of the model with/without taking into account subsidies to the electricity sales rate. The results show that capacity under construction is of high amplitude fluctuations. Moreover, the energy consumption increases with increasing capacity growth.
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1. Introduction

The continuous supply of electric power plays an important role in achieving mobility and economic and social development in countries. The continuity and reliability of electricity supply requires investment in capacity building, and improving the quality of the operation. In order to achieve this important goal, the electricity industry should be restructured in a competitive environment. The most important features of the power industry are the large number of subscribers and consumers of electricity, and an increase in the average power consumption (Hadjipaschalis et al. 2009). The low electricity price per capita and growing consumption of electricity drive the needs for huge investment in new production capacity to meet demand. The Iranian government has adopted policies to solve this problem by private sector participation in power generation and the development of competition in the market. It can be a form of privatization of the electricity industry restructuring and operation of the industry for non-traditional system (Tomain 1997). In recent years, the privatization of the electricity industry has been running in the implementation and planning stages in a number of developed countries. Nevertheless, the results were not the same in all countries. In some successful practices, the regulation and restructuring strategies result in efficiency, increased competition in the electricity industry, and the identification and use of potentials in the optimization of system utilization. In general, the most important reasons regarding the privatization of the electricity industry that different countries have cited can be categorized as follows (Zhang et al. 2008):

  • 1.

    The poor performance of the public sector in the management of the electricity industry and the resulting high cost of electricity supply.

  • 2.

    The inability of the public sector in the provision of financial resources, investments and maintenance of existing facilities.

  • 3.

    The need to eliminate subsidies granted to the electricity sector.

  • 4.

    The desire to create new sources of revenue for the government through the sale of assets in the electricity sector.

The process of privatization of the electricity industry involves the serious needs of the industry in order to increase productivity, attract private investment and partnerships. If current trends continue, the total investment needed for the industry is not to be able to be supplied from domestic sources. The participation of the private sector in capacity expansion is essential. But because the industry is not profitable, the government had to pay subsidies to the private sector. The privatization of the electricity industry in different countries have different results, and while in most countries it has been reduced the price of electricity for industrial and commercial customers and the price of electricity for domestic consumers has not changed or increased. The exclusive nature of the power industry challenged the idea of ​​a public competition in the electricity production industry. South American countries such as Argentina and Chile are the first countries to start privatization and competition in the electricity industry in 1982. A study was conducted by the World Energy Council to discuss the liberalization of the electricity industry in 115 countries. The outcome achieved through the countries surveyed, only 15 countries have been able to take basic steps in order to liberalize the electricity industry that more than half of these countries comprise 55 high-income industrialized countries. Finally, 81 countries have done nothing to liberalization of the electricity industry; most of them are African nations and the Middle East (Bacon and Besant-Jones 2001).

In Iran, based on the Third Development Plan, the privatization of the electricity industry has provided legal background. The privatization of the electricity industry does not improve performance because in countries such as Iran the private sector is heavily dependent on the state, so that the problem of lack of effectiveness of the transfer of ownership to the private sector cannot be solved.

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