Asia has largely eschewed deregulation, privatisation and market competition, preferring instead the perceived security of centralised markets that are either directly or indirectly government controlled, with subsidised energy to ensure affordability.


Asia has largely eschewed deregulation, privatisation and market competition, preferring instead the perceived security of centralised markets that are either directly or indirectly government controlled, with subsidised energy to ensure affordability.

There are exceptions. Singapore started liberalising its electricity market in 2003, and plans for full retail contestability in the second half of 2018, but the city state, which also aspires to be Asia’s LNG hub and is developing a secondary gas market, is not arguably representative of Asia’s energy and social markets, with no indigenous resources, no rural areas and high wealth distribution.

Japan also has full retail contestability in its gas and electricity markets, although unbundling in the electricity market will not be effected until end-decade, while the Philippines remains resolved to market competition but poor communication of the potential benefits by the regulator has led to court cases attempting to stall the process.

Nonetheless there are three electricity markets at varying stages of contestability, four if we include India, although that market is more theoretically contestable than it is practically or economically contestable, owing to chronic load management problems and accrued debts at most of the State Electricity Boards.

If we discount India, there are commonalities among the three contestable markets. Economically, Japan and Singapore are the most developed, have low levels of social poverty, have high urbanisation levels and are almost entirely import dependent. Philippines, like Japan and Singapore, has a democratically elected government, and good political and regulatory stability, but is less economically developed and has higher social poverty than Singapore and Japan, as well as having considerably lower urbanisation.

The level of market deregulation in these three countries generally correlates with the level of political freedom, social wealth and economic development, with Singapore and Japan having the most liberalised markets. Certainly, many of the remaining Asia countries lack these development factors, but not all. South Korea has a developed economy and enjoys political freedom but the country’s energy market remains highly centralised.

While there is no prerequisite infrastructure that is required to commence market deregulation, what is required is the political vision and commitment to unshackle the smothering protection associated with highly regulated government control and embrace the economic liberation of market forces. And Asia will need to have confidence in market forces if it is to maintain economic growth and affordably meet energy demand growth in the medium to longer term.

Currently two more Asia countries are on the path to more market-orientated electricity pricing, namely China and Vietnam. Of the two, Vietnam is of more interest as a potential market model for Asia.

China’s market is not technically deregulating, and the government is not ceding any control, at least not publically. But Beijing has long been cognizant of the risks associated with regulated pricing, and its recent attempts to manage prices, most notably coal, have been a failure and led to sharply volatile prices as Beijing placed restrictions on domestic production only to see import demand and prices surge.

Since 2015 Beijing has been quietly implementing market reforms with the aim of increasing price discovery. In particular large industrial consumers are allowed to bilaterally negotiate supply prices and transmission and distribution tariffs have been restricted to the cost of recovery plus a ‘reasonable’ return. With a national emissions trading scheme to come, probably in 2018, and other reform mandates aimed at improving market and pricing efficiency, China has slowly transitioned to a reforming regulated market.

How far these reforms will proceed is difficult to foresee. There has been talk of financial products and futures markets being developed in the medium-term but we will probably have to wait until China’s 14th Five Year Plan in 2021 for the next major reforms. And by this date Vietnam should be close to a competitive electricity market.

With a competitive generation market developed, and testing underway for a competitive wholesale electricity market, Vietnam is slowly progressing towards its objective of a contestable electricity market by 2022, although this date may prove to be over-optimistic.

What makes Vietnam interesting is that it more closely resembles other Asia countries in terms of resources and demographics than Singapore, Japan or, indeed China, and as such has the potential to be the Asia role model that Singapore continually aspires to but is unlikely to ever achieve.

Asia would significantly benefit from competitive energy markets, and indeed if the region is to successfully transition from an energy policy that prioritises affordability and security to a policy that places a greater emphasis on sustainability it would greatly benefit from market pricing and competition to reduce the risk of unaffordable energy and the associated socio-economic risks.

If Asia wants to realise its full economic potential, and associated social benefits, it will have to be less protective, move from the current vertically integrated centralised structures to unbundled and horizontal market structures, and allow more foreign investment and expertise to participate in the market to enable efficient development.

This all requires long-term planning and most governments remain either unconvinced of the potential benefits of market forces, or simply refuse to relinquish control of markets that risk becoming inefficient without the input and direction provided by market forces.

In 2018 the Association of South East Asia Nations (ASEAN) celebrates its 50th year. If ASEAN is sincere about sustainable economic development it has to look beyond the physical interconnection of the region’s energy markets and towards market pricing transparency. ASEAN has the opportunity to commence its second half-century with a discussion on how it can move towards a more liberalised infrastructure and the potential benefits that would accrue. It’s a discussion that should not be delayed.

It’s time Asia removed its market forces blinkers. And Vietnam could prove to be the market role model that Asia can no longer ignore. 

Jeremy Wilcox is managing director of the Energy Partnership, an independent Thailand-based energy and environment consulting firm.