ARTICLE IN PRESS

Deregulation of ESI and privatization of state electric

utilities in Thailand
Surapong Chirarattananon, Supattana Nirukkanaporn
Energy Program, Asian Institute of Technology, PO Box 4, Klong Luang, Pathum Thani 12120, Thailand

Abstract

In Thailand, electric supply services have all been taken over by the state and operated under state enterprises since 1968. Under a
law empowering its monopoly, state utilities accumulated assets and built up their manpower to expand and operate the power
system to serve the whole country. During the time of high growth in power demand in early the1990 s, the government initiated a
move to privatize state electric utilities, the pace of which was firmed up after 1997, the year of the financial crash. Engagement of
independent power producers (IPPs) through the use of long-term power purchase agreements (PPAs) for supply of electric power
into the system operated by state electric utilities was also initiated from the mid 1990s. Total capacity of IPPs and Small Power
Producers (SPPs) that sell excess power from cogeneration on to the system) rose and by the late 1990s started to create a constraint
on system economic dispatch. In 1999 the National Energy Policy Council (NEPC) approved a recommendation of international
consultants to transform the electric supply industry into a structure similar to the system in the United Kingdom. The
transformation was proposed to precede corporatization and privatization of state electric utilities. The objectives of deregulation
were to revoke the monopoly in ESI, to improve transparency in electricity pricing, to reduce debts of state enterprises, and to
improve economic efficiency. Industry participants have voiced strong objection to the industry model proposed. With the change of
market structure in UK to the New Electricity Trading Arrangement (NETA), the secretariat of NEPC also proposed a new
structure similar to NETA. More acceptance from industry participants have been received for the new structure. However, it has
been assumed that the proposed structure would bring improvement in system reliability, drawing investment into power generation
in a manner that would be efficient. Tariff has also been expected to become lower because of the competition in power generation
and retail trading. The authors argue that, for developing countries, issues of timely investment in new generation and delivery
capacity, stable and reasonable price of electricity, reliability of power supply, fuel diversity and security, equitable access of supply
and promotion of social equity are important. Maintaining a functioning ESI that meet the broad objectives of providing reliable
power supply to serve social and economic development needs could be prioritized over introduction of complete competition in
wholesale generation and retailing. The authors examine the present situation of the industry and propose a transitional model that
would serve the broad objectives and introduce gradual competition in the industry. The proposed design would unbundle
generation from transmission and retailing. It would aso eventually promote intra-regional interconnection and electricity trading.

Keywords: Electric supply industry; Deregulation; Privatization

1. Introduction west, Cambodia on the east and Laos on the north. It

Thailand is at the heart of Southeast Asia. It shares
borders with Malaysia on the south, Myanmar on the
has a per capita Gross Domestic Product (GDP) of
more than $2000 and a per capita Gross National
Income (GNI) almost double that of other countries in
the East Asia and Pacific region (ADB, 2003). With a
slowly growing population of more than 60 million and
a land area of 513,000 km2, its population density is
neither high nor low. While 16% of the population
 ARTICLE IN PRESS
remains under the national poverty line, life expectancy,
child mortality and illiteracy rates are approaching those
of developed economies.
Only 20% of the population live in urban areas, with
over 10 million living in the Bangkok area alone. The
remaining 80% live in rural areas and generate income
from agriculture-related activities. Agriculture and
manufacturing each accounts for 10% and 37% of
GDP respectively (NESDB, 2003). Electricity accounted
for 3.4% of GDP in 2002. Thai annual GDP growth
averaged more than 7% from 1980 to 1996. However,
the country experienced low and negative growth in
1997 and 1998 because of the regional Asian economic
crisis. Positive growth resumed in 1999 but the country
is not expected to grow at more than 5% annually
during the coming 5 years.
Poverty in Thailand, as measured by the proportion
of the population with incomes below the official
poverty line, declined steadily between 1988 and 1996.
Poverty increased in Thailand following the Asian crisis
and has not declined to the pre-crisis level. A major
feature of poverty in Thailand is the disparity between
regions: Northeast Thailand is the poorest area with
almost one-third of the population below the official
poverty line of 878 Baht per person per month in 1999.
Other regions fare better.
The amount of foreign direct investment (FDI) in
Thailand increased steadily until 1999, when FDI in
Thailand decreased by more than 15% from the year
2000 to 6213 million US dollars. This trend has not
changed in 2003. Short-term interest rates have been
kept low for 3 years amidst ample domestic liquidity and
sluggish investment expansion.
The Thai electric supply industry was participated by
state agencies and by private sector more than 50 years
ago. At one point in time the state consolidated state
electricity organizations into one generation and trans-
mission enterprise called Electricity Generating Author-
ity of Thailand (EGAT). Two distribution enterprises
were also created. One called Metropolitan Electricity
Authority (MEA) was assigned to undertake power
distribution of the Bangkok Metropolis and the
immediate surrounding provinces. Another one called
Provincial Electricity Authority (PEA) was assigned to
undertake power distribution for the rest of the country.
These three state enterprises have operated since 1968.
Deregulation and privatization of the ESI in Thailand
have been gradually introduced since early 1990s during
the time of high growth in electricity demand. The main
driving force behind the drive for privatization was to
reduce investment and liability burden on public sector.
At the initial stage, the government promoted greater
role of private investors in generation business and the
independent power producer (IPP) scheme and the small
power producer (SPP) scheme were created. Both
schemes contributed to increasing FDI during the
period. As a result of introduction of IPP and SPP
schemes, the state generation and transmission enter-
prise was turned from a monopoly into a monopsony or
single buyer.
After the year the financial crisis erupted, the pace of
reform of ESI was hastened. The Master Plan for State
Enterprise Sector Reform envisages that the future
structure of the ESI will follow the competitive model.
The National Energy Policy Office (NEPO) (NEPO,
2000a, b), the secretariat of the National Energy Policy
Council (NEPL), introduced a model based on the
model used in the United Kingdom (UK) prior to 2002,
known as price-based power pool. However, the state
utilities and industry participants argued that the
physical system network, industrial and financial situa-
tions could not support a free competitive structure and
country-specific factors should be considered in identi-
fying a suitable structure. EGAT appointed two
consulting teams to study and recommend a suitable
reform structure. A cost-based power pool, similar to
the model operating in the Latin American countries,
was proposed by an international consultant. Another
model was recommended by the Asian Institute of
Technology (AIT). The Electricity Relation Committee
(ERC) of the generation and transmission enterprise
also proposed a model that claimed to be similar to the
model destined to be used in Taiwan. Amidst objection
to its price-based power pool model, NEPO in 2002
proposed an alternative model called the New Electricity
Supply Arrangement (NESA), similar to the New
Electricity Trading Arrangement (NETA) system oper-
ating in the UK.
2. Present situation of Thai ESI
EGAT was created in 1968, following the World
Bank’s recommendations to the Thai government that a
national, state-owned power utility be formed by
merging the existing power utilities. Over the last three
decades, EGAT has played a key role in Thailand’s
economic development. EGAT has prepared an infra-
structure investment plan at every 5-year interval
consonant with the plan of the National Economic
and Social Development Board (NESDB). Least-cost
planning criteria have been used in 15-year power
development plans of EGAT. Accelerated rural elec-
trification programs were created and executed in
conjunction with the creation of EGAT and other
distribution utilities. As a result of these and due to
economic development, power demand has steadily
grown along with the growth in the economy. Fig. 1
exhibits the pattern of growth of electricity consumption
and of GDP at 1988 constant prices over the period of
1983–2002 (ADB, 2003; ADB, 2001; EPPO, 2002).

GDP(1988 US$)/cap
Electricity(kWh)/cap
Electricity(kWh)/GDP(US$)
2500.0
2000.0
Electricity/cap,
KWh/cap
1500.0
1000.0
500.0
0.0
1980 1985 1990
Year
1995 2000
Fig. 1. Growth in Electricity demand and GDP between 1983 and
2002.
3. Thai GDP and electricity consumption
During the late 1970s and early 1980s, the energy
crisis and the subsequent oil shortage caused sluggish
growth in GDP and electricity consumption. Also, the
NESDB consistently planned for diversification of fuels
used in power generation and development of indigen-
ous energy resource. These resulted in development of
lignite at a site called Mae Moh, in the north, for power
generation. The thermal plant at this site has grown to
2625 MW in size and become a main base load plant.
The effort to develop indigenous resources for power
generation also resulted in the increase in hydropower
generation to the level of 2886 MW and development of
natural gas-fired power plants. Nuclear power genera-
tion was also planned but never got off.
Economic growth accelerated during 1989 and 1997
with the corresponding high growth in power demand,
averaging close to 10% per annum. In order to build up
generation and transmission capacity to meet demand,
EGAT expanded its work force. It undertook to design
and construct all of its power plants, transmission and
other facilities by itself. Its work force grows eventually
to the level of 28,500 today. The capital needed for such
expansion started to strain the government coffer and
the concept of private power generation and privatiza-
tion of state utilities was introduced in 1991.
Since 1992 a plan for privatization of state enterprises
was approved and a daughter company of EGAT called
Electricity Generating Company (EGCO) was created as
part of the effort. This company was partially sold to the
public through public offerings and partially sold to
strategic partners. It sells electricity from its generating
plants to EGAT as (IPP) under negotiated power
purchase agreements (PPAs). In subsequent stages,
EGAT called for competitive bid tenderings for
investors to construct, own and generate power for sale
to EGAT under negotiated PPA. The duration of a PPA
is 25 years.
ARTICLE IN PRESS
The objectives in reform of ESI have been to increase
the role of private sector in the industry, to free up
public resources, to reduce public debt, to promote
1.600
competition in the industry, to increase efficiency and to
1.400
increase consumers’ choice.
Electricity/GDP,
1.200
During the same period, another scheme called SPPs
1.000
was created in order to promote power generation from
kWh/$
0.800
0.600
biomass and cogeneration as a means of promoting
0.400 increase in efficiency of energy use. Generators using
0.200 biomass as fuel can enter into contract under a common
0.000 PPA to sell power to EGAT for up to 90 MW.
2005 Generators who use a conventional fuel and utilize at
least 10 percent of steam in cogenerating electricity can
also enter into the SPP scheme.
The IPP and SPP schemes represent a part of effort
towards drawing involvement of private participants in
power generation. A brief chronology of effort on
reform and privatization of Thai ESI is shown in Table
1. There was steady development towards reform of
industry structure as proposed by NEPO. However,
there has been strong objection from all industry
participants to the ESI structure of price-based power
pool, modeled after the system operating in the UK
before 2002. Such adverse sentiment has not changed
when NEPO proposed a so-called NESA model, similar
to the NETA system commencing in March 2002 in UK.
The new industry structure was proposed in the middle
of 2002. By the end of 2002 the government changed the
whole bureaucratic structure and created a new Ministry
of Energy. NEPO was moved to the new Ministry of
Energy and became the Energy Policy and Planning
Office (EPPO), a department within the ministry. The
long-running Director General of the NEPO and the
new EPPO left the government, relinquishing the role of
the champion of ESI reform.
While NEPO proposed a new ESI structure, EGAT
employed two consultants to study and recommend on
an appropriate ESI structure for Thailand and on
privatization of EGAT. The reports were submitted to
EGAT in September 2002. In the midst of the study
period, ERC, a joint management-labor union of
EGAT, was also formed to undertake a study and
submitted a proposal to its Board of Directors.
The IPP and SPP schemes have steadily contributed
to total generating capacity in Thailand. Total power
generating capacity in the country in 2002 is shown in
Table 2. It is noted that non-EGAT generation capacity
forms a third of the total capacity.
In terms of fuel mix in power generation, the country
has been increasingly dependent on natural gas, at up to
65%. Table 3 shows the details. An attempt has been
made by NEPO during the last 5 years to introduce
imported coal for power generation in an effort towards
fuel diversification. But strong objection on the use of
coal at designated sites by local residents has forced the
government to relocate the plants and even switch from
 ARTICLE IN PRESS

Table 1
A chronology of events in ESI reform

Date Event

5 March 1996 The cabinet approved the principle of unbundling of generation of EGAT by operating generation facilities as two business
units for launching into two companies, following the success of EGCO.
1 September The cabinet approved a Master Plan for privatization of state enterprises in four sectors including energy.
1998
Late 1998 NEPO commissioned Arthur Andersen consortium for ESI reform study.
25 July 2000 The report of Arthur Andersen was approved.
19 September The cabinet approved the principle of establishment of an independent regulator for energy sector.
1999
19 October 2000 The cabinet approved the draft Energy Supply Industry Act and sent it to the Council of State for legal vetting.
June 2001 The Council of State sent the draft back to Minister of Prime Minister’s Office responsible for energy for reconsideration since
there was a change to new government in Febuary 2001.
February 2002 EGAT engaged AIT and Siam Commercial Bank who employed Kema Consultants to undertake a study to recommend on ESI
structure and privatization of EGAT.
September 2002 Kema Consutants and Siam Commercial Bank recommended a cost-based pool model, similar to that in Argentina. AIT
recommended a transitional model that would lead to a net pool model. Both consultants recommended separation of
generation and transmission.
August 2003 No further action, no clear decision on ESI structure but EGAT has now been scheduled for corporatization by 2003 and
privatization by 2004.

Table 2 Table 4
Total generating capacity in 2002 (EGAT, 2002) Major transmission circuits (EGAT, 2002)

Type of power plant Total generating capacity Voltage level (kV) Circuit kilometers Number of substations
(MW)
500 2790 8
EGAT 15,000.4 230 11,220 54
Thermal-steam turbine 6255 132 8.7 1
Gas and steam turbine combined-cycle 5075 115 13,837 130
Gas Turbine 778 69 52.1 2
Hydro 2886 Total 27,907 195
Renewable Energy Sources 0.534
IPPs-in Thailand 6346
SPPs- in Thailand 1768
IPPs from Laos 340 A 500 kV backbone transmission connects the north-
EGAT-TNB Connection 300
ern and central regions. Two new 500-kV lines are under
Total of non-EGAT 8754
Grand total 23,755 construction that will link the central region with the
northeast and the upper southern regions. Most of the
regional transmission systems are still based on 230-kV
Table 3
lines. Table 4 shows some details of transmission system.
Energy mix in power generation in 2002 (EGAT, 2002)
3.1. Current ESI structure
Type of fuel Generation (GWh) Percentage

EGAT 61,263 56.5 EGAT controls most of the bulk power generation
Natural gas 35,608 32.8 and all of the transmission facilities in Thailand. It is a
Lignite 16,890 15.6 monopoly; a state enterprise statuted to generate and
Hydro 6481 6.0 transmit power. Under the IPP scheme, IPPs must sell to
Fuel oil 2024 1.9
EGAT only. Under this situation EGAT is the single
Diesel 258 0.2
Non-EGAT 47,126 43.5 buyer. It also bears the responsibility of power balance
IPPs and SPPs in 44,306 40.9 as well as network management. For this, it has its own
Thailand-natural gas generation and transmission facilities at its disposal. The
Laos-hydro 2820 2.6 ESI structure is illustrated in Fig. 2. EGAT sells its
electricity primarily to the Provincial Electricity Author-
ity and Metropolitan Electricity Authority, each of
coal to natural gas. This would further increase reliance which possesses monopolistic power for distribution.
on specific fuels for power generation and may cause Such empowerment includes the authority for access
deterioration in energy security. to land under private ownership for erection of
 ARTICLE IN PRESS
Generation SPPs EGAT IPPs Neighboring Countries
Transmission EGAT
NEPO
or
EPPO
Distribution PEA MEA Direct Customer
Rural Customers Urban Customers
Fig. 2. Current ESI structure.
transmission and distribution lines. EGAT also sells a
small portion of its generated electricity directly to some
large customers who are connected directly to its
transmission.
The NEPC is statuted to set policy on ESI and on all
state enterprises in the energy sector. Previously, the
NEPO was the de facto regulator of ESI and the
Ministry of Finance regulates the financial operation of
all three state utilities. The EPPO would be expected to
be assigned the role of regulation. Financial plans and
annual budgets, as well as tariffs were endorsed by
NEPO before submission to NEPC. Since the Prime
Minister chairs NEPC, approval from NEPC has never
been contradicted by the cabinet.
4. Proposed ESI models of NEPO
NEPO first proposed a model known as Price-Based
Power Pool for the Thai ESI to reform into.
4.1. Price-based power pool
In the year 2000, NEPC approved the ESI reform
plan that requires the establishment of Power Pool, as
recommended by international consultants through
NEPO (NEPO, 2000a, b). The structure was similar to
the system operating in UK. Under this structure,
consumers have choices to buy power either from the
regulated regional retailers (SupplyCo) or competitive
retailers (RetailCos) by using the distributing facilities of
the Regulated Electricity Delivery Company (REDCo).
Fig. 3 illustrates the structure.
The power pool is established as a place for power
trade, with an Independent System Operator (ISO)
functioning as an integration of System Operator (SO)
and settlement administrator. The ISO is responsible for
managing physical transactions of electricity according
to economic merit order dispatch, ensuring system
security, physically balancing the system, and managing
financial settlements for bulk power purchases. The pool
Consumers Optional: Contract or CfD
Spot
Regulated Electricity Delivery Co RetailCos
DisCo (REDCO) SupplyCo
Contract
Spot
MWh flow
Power Pool/ISO
ISO/MO SA Traders Monetary flow
Spot
Information flow
GridCo GenCos Contract
Fig. 3. Price-based power pool model.
is mandatory. Generators compete to sell electricity to
the pool. Their bids and offers for each time interval,
together with forecasted demand, are incorporated to
determine the market clearing price. Generators are
dispatched in accordance with the lowest bids offered
which satisfy demand in each time interval. Generators
receive energy payment according to the market clearing
price or system marginal price from the power pool.
Loss factors for different locations for generator’s offers
to the designated load center are incorporated during
the process of determining the dispatching quantity and
price. Generators selected to be dispatched receive a
uniform energy payment based on the quantity needed
for dispatching deducted by an amount to compensate
system losses according to the loss factors at their
connected locations. In answer to the issue of lack of
incentive for investment in generation, the consultants
proposed that in addition to the hourly energy payment,
a capacity-related payment or Capacity Adder could
also be paid to generators in order to assure adequate
and timely investment in generating facilities (Study
Consortium of Aurthur Andersen, 2000).
Trading outside the pool can be done in the form of
physical bilateral contracts or financial contract. Con-
tracts for Difference (CfDs) are the means used by
generators and direct customers to hedge prices, based
on the differences between the contract prices and the
spot prices.
Stranded cost is one issue emphasized in the
recommendation. Under this structure, the use of an
explicit Competition Transition Charge (CTC) paid by
consumers to recover stranded costs is recommended.
An entity called DebtCo is to be established to manage
the stranded costs of existing obligations of state
utilities.
It was recommended that the transmission owner
(GridCo) be a separated entity from the ISO in order to
reduce conflicts of interest in operation. It was not
known at the time if the government would privatize
transmission. With an ISO independent from generation
and transmission, it was envisaged that this would create
potential competition in grid functions and investment,
and provide two separate information sources for
regulator to perform system analysis. However, both
 ARTICLE IN PRESS
GridCo and ISO need to share information and closely
coordinate with each other in order to operate the
system with high level of security, without creating
unnecessary duplication and higher operating costs.
In the retail sector, the Spot Price Passthrough by the
REDCo, through its supply function (SupplyCo), was
recommended. Every customer buys electricity at whole-
sale spot price plus the regulated charges for wires and
other services, such as metering and billings. Competi-
tive retailers (RetailCo) are allowed to enter in the
business in order to provide value-added services for
customers. Implementation of RetailCo can partly
reduce billing and collection costs and results in large
cost savings in REDCo. An optional CfD is also
available for consumer that wants to hedge spot price,
which could be done through RetailCo or a Bank. It was
a requirement that electricity costs to final consumers
needed to be unbundled.
4.2. New electricity supply arrangement (NESA)
The price-based power pool did not find acceptance
from EGAT and other industry participants, especially
after the California power crisis became known.
Concerns were expressed on price volatility, system
reliability, and adequate and timely investment in power
generation amidst growing power demand, exercise of
market power, and the complexity due to the physical
nature of the power system. Other important issues
raised include energy security, social equity and the need
to subsidize rural and poor consumers. As a result,
NEPO (EPPO, 2002) revised its proposal and proposed
a new system called NESA, similar to the NETA model
(Haigh, 2000) adopted by UK since 2001.
One of the basic principles of NESA is that buyers
and sellers are able to enter into bilateral contracts that
PowerGen 1 PowerGen 2 PowerGen 3
SO
Transco
Bangkok, Nonthaburi
and Samut Prakarn
DisCo Retailers
Supply Co
Customers
Fig. 4. The NESA model.
are freely negotiated between the two parties. This is
viewed as an important mechanism to achieve price
stability and to ensure sufficient supply.
In the proposed NESA model (Fig. 4), the SO takes
care of all bids and offers in a balancing market called
Power Exchange. Imbalance occurs when there is a
mismatch between the contracted quantity to be traded
and the actual transaction. Energy imbalances may be
surpluses or deficits. The contracted quantity needs to
be reported to Energy Contract Volume Notification
Agent for the imbalance settlement before the gate
closure. After gate closure time, the parties can adjust
the contracted amount by entering into Power Exchange
for settlement near or at real operating time. Bids and
offers are supplied to Power Exchange and the system
buying price (SBP) and system selling price (SSP) are
determined. These prices may fluctuate for each time
interval. Therefore, buyers and sellers would try to
maintain the amount in accordance with their con-
tracted quantity or may use future purchasing or long-
term purchasing contract in order to reduce risk.
The Power Exchange will provide signal to market
participants through the announced prices. These prices
include SSP, SBP, average traded price from the Power
Exchange and average price from future markets. These
prices can be used as references for bilateral negotiation
and for generation investment planning. An indepen-
dent regulator is also required for this model.
In this new proposal, generators of EGAT are
grouped into three PowerGens, or three generating
companies to further enhance competition. These Power-
Gens will be gradually divested while hydro power plants
will stay with transmission entity and will be maintained
as a state enterprise. The PowerGens and other
generators are expected to compete to sell electricity to
retailers and Supply Companies (SupplyCos). The
Other Generators/
New Generators
Independent Regulatory Body
Power Exchange
Other provinces
DisCo
Supply Co
MWh Flow
Contractual
Flow
 ARTICLE IN PRESS
SupplyCos are formed by restructuring MEA and PEA.
Distribution business and retailing function of MEA and
PEA are internally separated to form business units.
Under NESA, retailers and SupplyCos will have choices
to buy from any source and generators will also have
choices to sell electricity to any buyers. Competition is
gradually introduced in order to provide options for
consumers, starting from the eligible larger consumers.
Finally, it is expected that all consumers will have
choices at both retailing and generation levels.
4.3. Draft energy supply industry (ESI) act
In preparation for the implementation of the power
pool, a law designated Energy Supply Industry Act was
drafted by NEPO and approved by the cabinet on 19
October 2000 (Secretariat of the National Energy Policy
Office, 2000) The act was drafted in anticipation of the
adoption of the power pool. It refers explicitly to entities
in the proposed ESI structure.
This new law was intended to apply to energy
industry, which by nature comprises monopolistic
component(s). It creates in each industry a regulatory
commission empowered to regulate the industry and to
issue licenses for entities to operate in the industry. The
law also encourages competition and protects consu-
mers against malpractice.
The law creates a power pool or power exchange
center for control of generation and power flow, and a
center for transaction of power and for settlement of
power transactions. It is intended to steer and develop
each efficient energy industry in an orderly way.
Through it, a mechanism would be created to promote
energy conservation and protection of the environment.
The Act redefines authority and responsibilities of the
National Energy Policy Committee (NEPC) on energy
supply industry so that the NEPC would be responsible
at policy and strategy level. The NEPC is also expected
to set policy on CTC, policy on service charges and
service standards.
A Regulatory Commission is to be created to oversee
the industry, issue license to entities intending to provide
energy services, regulate to protect consumers and to
encourage competition. The commission is also respon-
sible for planning for expansion of the energy network,
and determines service charge and standards. It endorses
budget and plan of the ISO. The act empowers the
regulatory commission to derive its budget from
collection of licensing fees and other charges.
5. Cost-based power pool
In February 2000, EGAT commissioned SCB Secu-
rities Co. Ltd., which specialized in underwriting for
companies intending to offer shares to the public to
undertake a study on privatization of EGAT and on ESI
structure. SCB Securities engaged Kema Consultants to
study and recommend on ESI structure.
Kema Consultants recommended employment of a
cost-based power pool (Fig. 5) for the Thai ESI (SCB
and KEMA Consulting, 2002). Similar to all restructur-
ing process, unbundling of the vertically integrated
utility was suggested. Generating business was to be
unbundled from transmission business to form GenCo1,
Genco2, Hydro and TransCo, similar to the recommen-
dations of Arthur Andersen consortium. The differences
in the structure recommended by Kema Consultants
from that by Arthur Andersen Consortium are that
cost-based power pool is recommended, and the ISO is
not to be isolated from transmission. The same
recommendations were made for treatment of IPPs
and SPP, stranded assets and CTC. All existing PPAs
with IPPs and SPPs are negotiated to be terminated in
which case these generators will sell directly to the pool.
Otherwise, a PPA trader will act as a GenCo and fulfils
PPA obligations. Buyers and Sellers are allowed to have
financial bilateral contracts through the use of CfD
arrangement.
Cost-based pool is one of the three models suggested
for ESI reform in developing countries by the World
Bank (World Bank, 2001). The cost-based pool is a
mandatory pool, scheduled on daily basis. Similar to the
wholesale markets in Latin America, instead of gen-
erators bidding at their willingness to supply, generators
bid at their marginal costs or actual or estimated
variable production costs of supply. System marginal
price is thus determined by short-run marginal cost,
which consists of fuel cost, and operating and main-
tenance cost of the marginal plant.
Unlike the market clearing price in market-based
power pool in several countries, such as Australia, and
Nord Pool, it is believed that the differences between
market clearing price and generator’s bidding price will
generate enough revenue for recovering the fix cost.
IPPs IPPs
Sellers in SPPs SPPs
CBP
PPA
New EGAT PPA
HydroCo
GenCo GenCo Trader
TransCo
Financial
Bilateral
Contract
DisCo
Retail
If retail
Tariffs
Access
Eligible allowed Non-
Customer Eligible
Buyers in
CBP
Fig. 5. Cost-based power pool model (SCB and KEMA Consulting,
2002).
 ARTICLE IN PRESS
Capacity payment has been introduced in power market
of various countries, such as those in Spain and in
several Latin American countries, aiming for ensuring
adequate reserve capacity and coverage of transmission
and other losses. Generators receive a per-MW payment
based on their availability, even when they are not
dispatched. The capacity payments are collected from
customers as an uplift charge. These payments are viewed
as an additional revenue source for generators that are
needed to guarantee profitability in addition to the
competitive energy revenues. The capacity payment
proposed under this model for Thailand is based on a
levelized long-run marginal cost (LRMC) of the peaking
plant, that reflects capital cost plus operating and
maintenance costs. An adjustment factor is applied to
take into account the required and actual reserve margin.
However, determining the appropriate level of capacity
payment is very important. Capacity payments have
given the wrong signals for investment in Argentina
(Millan, 2000). The Argentine authorities are currently
studying changes to modernize the wholesale power
market. Some changes proposed include replacement of
the capacity payment with auctions of available capacity.
6. The electricity relation committee’s model
A committee was formed jointly between the manage-
ment of EGAT and its Employee’s Union to undertake
a study on ESI reform and privatization. This activity
runs parallel to the activities of SCB Securities and
Kema, and AIT team. This committee was called ERC
and was headed by an assistant governor of EGAT. The
committee later presented a recommendation to its
Board of Directors in parallel to the presentations and
recommendations of the consultants commissioned by
EGAT. A diagram of the model is shown in Fig. 6.
The ERC claimed that this model was similar to the
ESI structure of Taiwan. In this model, customers are
divided into two groups, those in captive market and
those in free or competitive market. The State Electricity
Co. or SECo is an organization that is transformed from
State Electricity
Generation and
Private
Transmission Co.
GenCo
State Electricity
Distribution Co.
Contract
Captive Customers Large Industrial Customers
and Public Utilities (Competitive)
Fig. 6. The ERC’s Model.
EGAT. However, generation and transmission are not
legally unbundled. Transmission access is available to all
Gencos and large customers. Responsibility of balan-
cing the system and ensuring adequate supply rests with
SECo. It has monopoly to supply to captive market and
it can also compete in the free market. Negotiation
would be used to terminate PPAs of IPPs and SPPs. But
if an IPP wishes to continue its PPA, it would not be
allowed to change the terms and conditions. All new
private generations will compete to sell in the compe-
titive market on their own. SECo will build and operate
all of its existing and new generation.
In the free market, there is no pool, or power exchange.
There is no buying or selling mechanism created for the
free market. Private GenCos have to manage their own
sale and power transport. Customers in the free market
must ensure reliability of power supply by creating their
own scheme of reliability assurance.
Large industrial customers are allowed to buy from
any generators. Those who want to buy electricity from
SECo must enter into contract to secure supply. The
minimum contract period is 2 years.
The regulatory body is established to regulate
electricity price in the captive market and give license
to new private GenCos. The wheeling charge in free
market is also regulated.
It is noted here that even when large customers are
allowed to buy from private generators, this will not
likely happen unless some private reliability assurance
scheme can be developed, which is unlikely. If no buyer
switches from SECo to new private generators, compe-
titive market will not develop.
7. A model proposed by AIT
AIT was invited to submit a proposal for a study for
identification and recommendation of a suitable reform
ESI structure for Thailand and a strategy for privatiza-
tion of EGAT at the same time as SCB Securities Co.
The approach taken by AIT was to examine the existing
and future environment related to ESI in Thailand and
identify relevant criteria for assessment of a suitable ESI
structure (AIT, 2002).
The study team of AIT recognized that in the long run
competitive ESI structure, where business risks in the
industry are shared by all participants, should be taken
as the end model for the industry to develop into. But it
perceived that up to ten years would be required for the
industry to transit into an envisaged structure. An
intermediate or transitional model should be first adopted.
7.1. Relevant environment
(a) Thailand as a developing country: Thailand is a
developing country with a growing economy. Its per
 ARTICLE IN PRESS
capita consumption of electricity is still low by interna-
tional and regional standards. Its economy is shifting
from agriculture and consumption of electricity would
still grow several folds. Increase in power generation and
delivery at a high rate must continue to meet demand, if
economic growth is to be maintained.
The AIT team examined ESI models that had been
suggested by Arthur Andersen Consortium, by Kema
Consultants, and other models claimed to have operated
successfully. It was concluded that none possessed a
mechanism that would ensure timely investment in
generation and delivery structure that could match
rising demand. The IPP scheme had been successful, but
it had started to constrain the economic dispatch due to
its increasing proportion. Each PPA turned an IPP
virtually into a ‘must run’ unit.
As a developing country with gross income disparity
among its population, social equity policy should and
would be pursued by any government. In this respect
equitable access to electricity irrespective of geographi-
cal location is desirable and some form of subsidy for
the lower income groups should still be implemented.
The present policy of maintaining uniform tariff
throughout the country has worked well. Progressive
tariff that charges a low rate for smaller consumption
and higher rate for higher consumption by residential
customers should be maintained. Cross subsidy among
customers in the residential category has functioned
well. A competitive retail ESI structure would not be
amenable to such policy, at least for the transitional
period.
As a country with limited resources, energy conserva-
tion has been and should still be rigorously pursued. The
rationale for this is consistent with a vertically inte-
grated industry or other industry structure that accounts
for the cost of electricity generation and capacity
investment on behalf of the public. The vision here is
that mass sell off of present generation assets or
investment of merchant plant under speculative purpose
would not and should not occur.
(b) Thailand as a country in the Mekong and ASEAN
Regions: There are large resources for power generation
in the region. Very substantial hydropower resources are
available in the northern neighboring countries. Other
resources such as coal and natural gas are also available.
To utilize these resources, long-term commitment would
be required. Successful example of joint exploitation of
these resources for power generation are the government
to government agreement on purchase of power from
Laos by Thailand and the joint investment of Thai and
Laos private and public bodies. These were made in the
form of PPAs between EGAT and the IPPs in Laos. The
transactions have led to concomitant economic devel-
opment.
(c) The present structure of ESI: The present structure
of ESI has functioned well. The system is reliable.
Prudent and cautious investment has been made in the
industry. The utilities have used least-cost planning
concept for economic investment. The success is
reflected in the low debts of state utilities. The tariff is
low by international standard. The PPAs could be
viewed as long-term bilateral contract between a
government entity and private generations. Present
PPAs would need to be honored. The PPA trader
scheme proposed for ESI models utilizing power pools
seems to be heavily contrived and would need convin-
cing that it would function.
7.2. Proposed transitional model
Competition is introduced in generation in the
transitional stage and gradually extended to retailing
sector in the final stage. Separation of generation and
transmission is recommended in the early phase of the
reform so that all generators will face a fair competition.
Transmission and system operation should operate as
one entity, to be set independently of other players in the
industry. A modified form of IPP arrangement with
special PPA is created in order to enhance private
investment in power generation. Existing PPAs are still
honored while new PPAs need to have terms and clauses
designed to be more competitive. Generators should not
be completely insulated from all market risks. Bilateral
contract is allowed for electricity trading between
generators and large customers to create competitive
situation of multiple buyers and multiple sellers. Fig. 7
illustrates the transitional model.
Existing IPPs, both foreign and domestic, opting to
retain the original PPAs, connect and sell power to the
system. Those opting to change to new PPAs are
classified together with new generations as new IPPs. A
System Agent (SAGE) is formed from the remaining
EGAT
New Old Foreign
SPPs IPPs GenCo IPPs IPPs
PPAs PPAs PPAs PPAs
R
SAGE: SO/SA + Transmission + Hydro E
G
U
L
Distribution A
T
O
R
Regulated Retailers
Bi-lateral
Contracts
Large Customers Small Customers
Note: 1 represents the existing PPAs
2 represents new competitive PPAs
Fig. 7. Recommended ESI structure for intermediate term.
 ARTICLE IN PRESS

units of EGAT after all generating facilities have been SPPs

New
IPPs
EGAT
GenCo IPPs
Old Foreign
IPPs
separated. The main functions of SAGE are system
operation, settlement operation, domestic hydropower BC/ BC/ PPA/ PPA/
PPA
Bid Bid BC/Bid BC/Bid
generation and transmission. Generation units of EGAT
R
and new IPPs enter into special PPA arrangement with SAGE: SO/SA + Transmission + Hydro E
G
SAGE. The special PPA arrangement resembles bilat- U
eral contract. The contract capacity and energy is less L
A
Bi-lateral Contracts Distribution
than the full capacity of each generator and the duration T
O
of contract is shorter. Under new PPAs, competitive R
Commercial Retailers Regulated Retailers
generators, which include EGAT GenCo and new IPPs,
can utilize a part of respective capacities by selling
Large Customers Small Customers
generation in excess of contract with SAGE to large
customers directly or to SAGE in competitive offer. Note: BC = bilateral contract
Bid = bid and offer into Power Exchange Market
Large customers may source electricity directly from PPA = remaining power purchase agreement

competitive generators or from regulated retailer, which

is formed from the existing retailing units of MEA and
PEA. The regulated retailers source their power from
SAGE, and are not expected to source directly from the
generators. Competitive retailing is not introduced in
this phase. With this arrangement, social policy can be
implemented for regulated customers.
7.3. Wholesale competition model
The short-term model could be viewed as a transi-
tional model, which is an intermediary arrangement for
passage from the present structure to fully competitive
structure in order to reduce risks when the industry is
not ready.
After the market participants have gained experiences
with some competitive generation, another phase of
reform with full wholesale competition can be intro-
duced. SAGE will separate into two bodies, one to
operate the power balancing market only and one to
operate as a regulated retailer to fulfill the remaining
obligation of PPAs. The system will resemble the net
pool system operated in Norway and Sweden, except
that there is no competitive retailing.
7.4. Full competition model
This phase could be introduced when social equity is
no longer an issue, or that alternative means could be
found. Competitive retailing is introduced by allowing
commercial retailing business. Fig. 8 illustrates the
configuration of the structure of the long-term phase
of the reform. As the market matures, the structure is
moving towards what is called a net pool model. The
proportion of electricity trading through bilateral
contracts outside SAGE is expected to grow. SAGE is
finally performing more in system balancing and less in
electricity trading under PPA. Bidding is used for
generators willing to sell their power to the balancing
market, or Power Exchange Market.
Fig. 8. Recommended ESI structure for long-term.
8. Conclusion
This paper describes the development of the electricity
supply industry in Thailand. In the early 1990s, the state
began to encounter heavy requirement of investment in
electric power system. The global trend of privatization
influenced decisions by the state, to an extent, in its
decision to transform ESI. Foreign consultants were
invited to give recommendation on a suitable model for
the industry. It should be noted that all foreign
consultants recommended mandatory pool-based mod-
els. The consultants did not seem to have taken the
socio-economic, cultural, historical, geographical, or
geo-political situations or even the existing industry
structure into account. The recommended models were
working models at a given time. The price-based power
pool model in UK was replaced soon after it was
recommended for Thailand. With the collapse of the
economy in Argentina, it is uncertain if and how the
functioning of its ESI structure contributes to the
collapse.
One repercussion of the Asian financial crisis of 1997
seems to be a rising sentiment against globalization. The
reform programs for ESIs in many Asian countries seem
to have slowed down. Some are reassessing the models
they earlier plan to adopt. In Thailand, the present
government seems to have stalled in the attempt to
transform the ESI structure. There is now a danger that
it could move towards privatization of the utilities
without reforming the industry. This could lead to
changing the utilities from state monopolies into private
monopolies.
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Further reading
MoF, 1998. State Enterprise Reform, Office of State Enterprises Policy
Commission’s Secretariat, Office of State Enterprises and Govern-
ment Portfolio, Comptroller-General’s Department, Ministry of
Finance, available at http://www.mof.go.th/sepc/sepcRef.htm.