The first step of unbundling is to identify where in the value chain (from generation, transmission, distribution, and retail supply) individual entity activities can be introduced and to determine the extent of restructuring required.
Generally, power sector evolution in emerging economies tends to follow a familiar progression:
- The first stage in the unbundling process (Phase 2) involves the corporatization of former government departments, if they exist, into a corporatized utility.
- Next, an independent regulator is created to oversee the sector, and the vertically integrated utility is unbundled into separate generation, transmission, and distribution entities.
- These companies may remain within the holding company (i.e., a form of functional or legal unbundling, as seen in Phase 3), or be spun-off into independent companies (i.e., akin to ownership or full unbundling, as seen in Phase 4).
- As the sector evolves, competitive wholesale and retail markets begin to take form (Phase 5).
- These phases involve the potential formation of several new entities, including an independent regulator, a single buyer, and/or an ISO.
Determination of the points in the value chain where individual entity activities ought to be established will depend primarily on the current stage of power sector evolution that the country finds itself in.
