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require continuing to provide long-term contracts, gradually
developing flexible contracting mechanisms to cope with
obsolescence risk, improving wholesale competition, and
better managing supply security.
Some of the key features will still include a mechanism of competition for the market that continues to rely
on planning to determine contracting levels and reliability
requirements, coupled with better tools and governance to
avoid over- or undercontracting. In addition, there should be
contracts that are more flexible than standard PPAs, with
different durations but certain standardization that makes
them understandable and bankable for both regulated and
unregulated consumer segments. System flexibility and
variability, while not yet a generalized challenge for many
developing countries, could be solved by allowing system
operators to use new tools, such as storage, directly. In some
cases, this may be preferable to a solution that relies on the
perfect disaggregation of all ancillary services or requires
storage to be a fully unregulated activity.
In countries where coal or other fossil-fuel generation
still dominates, a clear and financed strategy to decommission assets may be needed to increase the penetration of
renewables. Many countries, especially in Asia, relied heavily on long-term PPAs to attract needed investment in generation. Even at low levels of RE penetration, inflexibility in
some of these contracts (similar to must-run provisions) are
increasing the curtailment of renewables.
While renewable costs continue to quickly decrease, the
risk of curtailment could derail efforts toward increasing
renewable penetration. In addition to providing appropriate
market design via ancillary services and other regulatory
instruments to foster a flexible system, a specific transition
and exit strategy may be needed to deal with premature plant
retirements if RE goals are to be met. This should include
appropriately financed transition plans, when appropriate, to
deal with such retirements.

Accelerate Demand and Distributed Solutions,
Including Electric Mobility
The industrial load in some developing regions represents
a particularly large share of electricity demand, given low
household demand. Such structural conditions can be helpful to foster demand-response programs to help improve
system flexibility. Demand management will be key to
manage large shares of renewable generation, especially in
more extreme climates, such as hot countries close to the
equator, where the demand for cooling is a large driver of
demand growth. Distributed-generation and demand-management solutions may be more valuable in such contexts.
In addition, the rapid electrification of electric public
transportation-already taking off in some cities in the
developing world, especially in China, India, and some
countries in Latin America-and its full two-way integration with the grid could become a real and sizable tool to
manage variability. Thousands of electric buses already on
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the streets represent hundreds of megawatthours in electricity storage whose value to grid flexibility is waiting to be
tapped. Wholesale market design also needs to be cognizant that a single centralized wholesale market will need to
accept, rather than push away, other forms of energy trade
that are less centralized and closer to the consumer.

Acknowledgments
The findings, interpretations, and conclusions expressed in
this article are entirely those of the authors and should not
be attributed in any manner to the institutions the authors
work for or to their boards of directors and the countries they
represent: IFC, the World Bank, IDB Invest, and IDB.

For Further Reading
F. Carvajal et al., Brechas de Acceso a los Servicios de la
Energía en América Latina y el Caribe. Washington, D.C.:
Banco Interamericano de Desarrollo, 2020.
V. Foster and A. Rana, " Rethinking power sector reform
in the developing world, " World Bank, Washington, D.C.,
2020. [Online]. Available: https://www.worldbank.org/en/
topic/energy/publication/rethinking-power-sector-reform
J. Millan and M. von der Fehr N, Keeping the Lights On:
Power Sector Reform in Latin America, N. Fehr, Ed. Washington, D.C.: Inter-American Development Bank, 2003.
S. Mocarquer, L. Barroso, H. Rudnick, B. Bezerra, and
M. Pereira, " Energy policy in Latin America: The need for
a balanced approach, " IEEE Power Energy Mag., vol. 7,
no. 5, pp. 26-35, 2009. [Online]. Available: https://www3
.ing.uc.cl/publicaciones/balance-of-power-httpdx-doi-org10
-1109mpe-2009-933417. doi: 10.1109/MPE.2009.933417.
A. Benn, P. Bodnar, and J. Mitchell, " Managing the coal
capital transition, " Rocky Mountain Institute, Basalt, CO, 2018.
[Online]. Available: https://rmi.org/managing-coal-capital
-transition/
L. Viscidi and A. Yepez, " Clean energy auctions in Latin
America, " Inter-American Development Bank, Washington,
D.C., 2019. [Online]. Available: https://publications.iadb.org
/publications/english/document/Clean_Energy_Auctions
_in_Latin_America.pdf
" Development effectiveness overview (DEO) 2019, " Inter
American Development Bank, Washington, D.C., 2019. [Online]. Available: https://publications.iadb.org/en/development
-effectiveness-overview-deo-2019. doi: http://dx.doi.org/10.18235
/0001797.

Biographies
Tonci Bakovic is with International Finance Corporation,
Washington, D.C., USA.
Debabrata Chattopadhyay is with the World Bank,
Washington, D.C., USA.
Fernando Cubillos is with IDB Invest, Washington, D.C., USA.
Marcelino Madrigal is with the IDB Invest., Washington,
D.C., USA.
p&e

january/february 2021

https://www.worldbank.org/en/topic/energy/publication/rethinking-power-sector-reform https://www.worldbank.org/en/topic/energy/publication/rethinking-power-sector-reform https://www3.ing.uc.cl/publicaciones/balance-of-power-httpdx-doi-org10-1109mpe-2009-933417 https://www3.ing.uc.cl/publicaciones/balance-of-power-httpdx-doi-org10-1109mpe-2009-933417 https://www3.ing.uc.cl/publicaciones/balance-of-power-httpdx-doi-org10-1109mpe-2009-933417 https://rmi.org/managing-coal-capital-transition/ https://rmi.org/managing-coal-capital-transition/ https://publications.iadb.org/publications/english/document/Clean_Energy_Auctions_in_Latin_America.pdf https://publications.iadb.org/publications/english/document/Clean_Energy_Auctions_in_Latin_America.pdf https://publications.iadb.org/publications/english/document/Clean_Energy_Auctions_in_Latin_America.pdf https://publications.iadb.org/en/development-effectiveness-overview-deo-2019 https://publications.iadb.org/en/development-effectiveness-overview-deo-2019 http://dx.doi.org/10.18235/0001797 http://dx.doi.org/10.18235/0001797

IEEE Power & Energy Magazine - January/February 2021

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