Energy Market Integration in East Asia: Theories, Electricity Sector and Subsidies

Since the formation of the East Asian Summit (EAS) in 2005, Energy Market Integration (EMI) in East Asia has become one of the initiatives endorsed and actively promoted by EAS governments. Electricity market integration in East Asia is an important component of EMI. It is argued that an integrated East Asian electricity market would benefit all EAS members in several ways. These include potential access to competing suppliers within and beyond the borders, and hence better provision for peak electricity demand and supply security. Some progress has been made in this direction. These include the cross-border power trading within the Greater Sub-Mekong Region (GMS) and the scheduled construction of the ASEAN Power Grid (APG). However, electricity market integration within the EAS area remains a challenging task. To gain a better understanding of the issues involved and follow two previous ERIA projects, this EMI project focuses on the electricity sector. It has several objectives. First, we want to explore some general issues associated with EMI particularly electricity market integration and hence contribute to the ongoing debates about regional market integration. Second, we select three countries for case studies, namely, Cambodia, China and New Zealand. These countries represent EAS members at different stages of development in their electricity sectors. The third objective of this project is to deal with the removal of subsidies in the energy sectors. We focus on three EAS members, namely Indonesia, Malaysia and Vietnam for detailed investigations. Specifically we consider various scenarios of reducing or removing subsidies and hence the possible consequences.