Examining the Impact of Deregulation on Generation Capacity Growth in Economies in Transition by System Dynamics Modeling

Many developing countries whose economy is in transition are changing their structure towards liberalization and open market economies. Because of population growth and restructuring changes in these countries, electricity demand is growing at a high rate of 7-10% annually. As capacity installation in electricity sector is time consuming and requires high capital investments, governments of developing countries are burdened to spend heavy budgets in this sector. Electric sector in these countries is taking into consideration the change from monopoly towards free competition markets and allowing private sector to invest in electricity capacity expansion. Some developed nations with less capacity growths and stronger markets have experienced busts and booms after deregulation. This feature can result to much more instabilities and higher risks of market collapse if necessary policies and supports are not taken by the governments. This paper examines a case study for Iran which is a developing country for the case in which generation sector has become completely deregulated and generation market is open to private sectors to invest for building capacities, operating and owning or transferring to the government (B.O.O and B.O.T schemes). For this purpose, system dynamics modeling has been used to examine the impact of deregulation on generation capacity growth in economies in transition and finding necessary actions required to reach a more stable and sustainable growth after deregulation