Blog Post | William Kadi (Chevening Scholar, University of Aberdeen, UK)
Introduction.
The proposed Electricity (Amendment) Bill 2023 of Solomon Islands is welcoming news for electricity generation. In this blog, we will analyse the proposed changes, the existing challenges, and some considerations to further restructure the regulatory framework of the electricity market to meet Solomon Islands commitment on SDG7 and its national energy policy targets.
Amendment to section 2.
There are two key areas which are prioritized as adjustments into the regulatory framework. The first adjustment is on section 2 of the principal Act, which addresses the issue of electricity generation to be provided by installations. This amendment clarifies and provides for installation plant operators the right to generate electricity and participate in the electricity market as generators. The initial status of how the principal Act define an installation restricts the business of electricity generation and creates ambiguity in the space of independent power generation and supply.
Amendment to section 21.
The second amendment to the principal Act on section 21 is a shift of the responsibility to set prices for electricity from the distributor and supplier of electricity, Solomon Power, to the central government authority – Director of Energy, under the Ministry of Mines, Energy, and Rural Electrification (MMERE). This shift of authority is necessary to enable an impartial and competent electricity price setter. It requires further improvement to the national energy regulatory framework and depends on multi-sector factors including the supply chain, energy accessibility, and energy efficiency, so that when determining the cost of electricity, it should be affordable and there is efficient supply. These adjustments will pave the way for the establishment of an independent regulator to control electricity price and support consumer affairs, while being independent from other market players engaged in the business of generation, transmission, and distribution of electricity in the grid and oversee the off-grid market.
Overview of electricity as a commodity.
To give an overview of the electricity market and how it ought to operate efficiently, it is important to understand the key players and the nature of electricity as a commodity.
Electricity as a commodity is a fungible product. It must be produced and used simultaneously. Storage of electricity is the most expensive aspect of electricity trade; therefore, additional systems need to be in place to meet peak levels of consumption. This is the key reason why on the aspect of generation, the regulatory framework must enable room for new entrants to participate in the electricity market and create competition, consistency, confidence, and choice flexibility along the market chain.
Solomon Islands electricity market.
In the context of Solomon Islands, the entire electricity market is currently amalgamated as monopolistic and at the same time loosely organized from a market-regulatory aspect, with highly complex socio-geographic factors posing numerous challenges to its development. These complexities may have driven the suggestion to organize the reformed market as a single buyer (Solomon Power), reflecting the current policy position stated in the Solomon Islands Electrification Strategy (SIES) 2022.
Brief analysis.
However, continuous study of mature electricity markets and how they have further evolved from the single buyer market to more consumer-integrated market must also be considered. Furthermore, a necessary insight into other similar and geographically challenging market approaches like the Vanuatu electricity market structure need to be closely studied as well, to pick out similarities that would be practically effective to develop a tailored electricity market suitable for Solomon Islands.
As such, the proposed amendment to the principal Act does not define a restructuring of the market but it is more of an introductory step to shift away from the archaic model of bundling the business, regulatory, and administrative functions and duties all tangled together within a State-owned enterprise structure that has proven inadequate to shoulder the electricity market on its own.
Final thoughts.
The effect of amending section 21 of the principal Act to shift the power of electricity pricing entirely off the control of Solomon Power, and into the hands of the director of energy and the Minister, reflects a significant implementation step of the SIES 2022 which would see a reformed electricity sector further separating technical functions to new institutions and multi-sectoral collaboration within the government ministries. The MMERE must ensure that capacity is to be empowered, and a further review of the limitations identified in the Solomon Islands National Electrification Plan (SINEP) 2022 is urgently required, to prepare for implementation and practical challenges.
The illustration below would help to clarify the roles of each market player in a fully functioning electricity market.
Fig. 1: Functioning nature of the electricity market. (Rafael Leal-Arcas: (PDF) Regulation, innovation, and technology for 21st century energy goals (researchgate.net)))
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