The introduction of a single buyer model (SBM) is envisaged for the Azerbaijani electricity market in the fourth quarter of 2024 as a step towards a fully competitive wholesale and retail market, Report informs referring to the World Bank (WB) papers on the project "Support for the development of transitional mechanisms for the liberalization of the electricity market in Azerbaijan".
“The main concept of market liberalization was developed by the US government in 2018-2019. The three-stage approach proposed at the time reflected both the existing preconditions and the challenges associated with the legal, economic, institutional and physical conditions of Azerbaijan's energy sector.
In many countries, SBM is working successfully and is a transitional stage to the bilateral contract and balancing market (BCBM). The BCBM model still functions as the stated "target model" in the electric power law. With this transitional goal, the main work of SBM, to be completed within 2-4 years, is to unlock the efficiency potential from economical dispatching of generation and adequate reflection of capacity costs to ensuring market flexibility,” the report says.
The WB believes that the current situation in Azerbaijan is such that some components are naturally present now, and good transition management requires the preservation of such structures and not the “destruction” of the seeds of competition where they are present. This concerns the current mechanisms for transferring electricity from independent renewable energy producers to their own premises.
The study also looked at some existing restrictions on competition, such as electricity purchase agreements by renewable energy producers selling to a single buyer.
“On the other hand, the development of retail competition – identifying eligible and ineligible customers and creating independent suppliers is not seen as a priority for the initial creation of the SBM model; after its full implementation, the gradual introduction of the concept of an eligible consumer and the authorization of independent suppliers are recommended,” the bank notes.
According to the authors of the study, the events of the past three years have confirmed an approach to reform based on the main initial consideration: the need for competition to unlock the potential for efficiency in the sector while improving the quality and reliability of supply.
“Within the current structure, certain improvements have been achieved, in particular, the modernization of the network infrastructure and the increase in fuel efficiency at thermal power plants, the adjustment of tariffs to bring the industry closer to self-sufficiency.
However, further improvement of the system without the introduction of competition is hardly possible. And the main tool provided for the transition to a competitive market remains SBM,” the WB believes.
The single-buyer model provides for the creation of a single state agency that buys electricity on a competitive basis from generators under long-term contracts and, accordingly, sells it at regulated prices. Many countries that did not like the competitive model of the electric power industry have switched to a partially liberalized model - the single buyer model, because, on the one hand, it does not infringe on the rights of private investors, on the other hand, it allows the state to somehow influence the growth of final consumer prices.