Introduction to the electricity sector value chain
The electricity sector value chain consists of several key components, which are often organized into four categories: (i) generation, (ii) transmission, (iii) distribution, and (iv) retail supply . In turn, each of these segments may have other subdivisions. For example, generation includes fuel supply, plant construction, plant operation, and wholesale trading; transmission includes transmission line construction, planning and coordination of flows, and transmission line operations and maintenance; distribution, in addition to construction, operation, and maintenance, includes metering and billing.
Generation: process of producing electric energy from other forms of energy.
Transmission (high-voltage): bulk transfer of electric energy from generating stations to substations near load centers.
Distribution (low- and medium-voltage): final stage in the delivery of electricity to end users.
Retail supply: final sale of power from an electricity provider to end users.
Administrative simplicity and transparency: rates should be straightforward for customers to understand. Complex rate designs increase costs to consumers, and may result in more time being spent proving that the rate design is indeed fair to all customers. Ratemaking mechanisms should also be appropriate for the jurisdiction in which they are applied – complex rates in regions with poor data and understaffed regulators may be impossible to administer.
The electricity supply value chain
Historically, in many parts of the world, all of these functions would have been performed by a single, vertically integrated monopoly utility, which was either publicly or privately owned. Utilities were identified within a particular defined geographic service territory, and their system was built specifically to serve the needs of this particular area. Examples of such arrangements still exist in jurisdictions which have chosen not to liberalize their power sectors, or which have chosen different ways to attempt to improve the efficiency of incumbents.
