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Policy Review

PPP in Transmission: Spreading across regions, growing in quantum [free access]

October 11, 2018

Power transmission is one of the most important links in the electricity value chain. The growth of any power sector is highly dependent on the development of a robust and reliable transmission network. Traditionally, public funds have been the main source for financing grid investments in most countries across the globe, with state-owned utilities controlling the sector. Only a handful of countries have opened the sector to private investment.


In most cases, governments introduce private participation as part of the electricity sector restructuring and reform process to boost competition and drive efficiency. The private transmission service provider (TSP) model – in which existing grid assets or companies are sold off to private companies – has been one of the key approaches to attract private investment. In the past, countries such as Argentina, Australia, Germany, Italy, Portugal and the UK have adopted this route. Alternatively, a few countries such as the Philippines, Mali and Cameroon, have used the transmission grid concession model to engage private players. Under this, a long-term concession is awarded to the private entity for all existing and new lines within a country or region.


However, over the years, new models have evolved to engage private investors, including the independent power transmission (IPT) company and merchant transmission model. Under IPT, new grid projects are awarded mostly through a competitive bidding or tender or auction process for a specified period of time. Brazil takes the lead in the IPT route with projects involving over 91,000 km being awarded through 44 transmission auctions held since 2000. Other Latin American countries following the IPT model are Chile, Colombia and Peru. A handful of projects have also been awarded in Canada and the US through this route. The UK is also using this model to award offshore transmission assets. Another country where the IPT model is being followed is India, where over 50 grid projects have been awarded so far.


The merchant transmission model follows a very different approach. Under this, an investor identifies and proposes to develop a specific project, and bears all costs and risks associated with it while users of the asset pay negotiated rates to the developer. Several projects based on this model have been developed or are under development in the US. In the UK and in a few European Union countries, the merchant transmission route has been adopted to build a few cross-border electricity links.


Private participation opportunities can also emerge when governments/entities look to sell their stake in existing grid companies to reduce debt/focus on other business sectors. Recent examples include Brazil-based Centrais Elétricas Brasileiras S.A.’s (Eletrobras) stake sale in 10 transmission special purpose entities to reduce financial leverage and debt; State Grid Corporation of China’s (SGCC) acquisition of a 24 per cent stake in Greece’s Independent Power Transmission Operator SA (IPTO) as part of the Greek government’s bailout plan; and India-based Reliance Infrastructure Limited’s 100 per cent stake sale of its integrated power business of generation, transmission and distribution in the Mumbai area to Adani Transmission Limited in order to focus on upcoming opportunities in the asset-light engineering, procurement and construction and defence businesses.


Private participation has delivered multifold benefits for the power transmission sector across the globe including lower end tariffs, faster project execution, savings in annual project costs and reducing state fiscal burdens. The recent success has encouraged many countries to explore the possibility of opening their transmission sectors to private participation.


In line, some countries are reforming their power sector policies; some are opting for new models; and some are in the process of developing a framework for introducing public-private participation (PPP) in transmission. Private participation holds abundant potential in particular for the African power transmission sector. Given that only 35 per cent of the continent’s population has access to power, there is a definite need for a new model to help governments provide greater electricity access as well as reliable and affordable electricity to populations. Some countries in Africa, including Nigeria and Kenya, are thus evolving new models of financing by encouraging investments from private players.


Recently, as part of its electricity sector reforms, Mexico has decided to end the monopoly of state-owned companies and open up the sector to private and international investors. Currently, two transmission projects, involving an investment of over USD2 billion, are at various stages of bidding. The tender award and project execution experience of the two identified projects will define the future course, and extent and scope of private participation in the sector.


The global power transmission market is expected to provide investment opportunities worth billions of dollars to the private sector over the next few years, with several Latin American countries looking to exponentially expand their project offerings. Meanwhile, the UK is considering expanding the competitor model to onshore projects. Further, private investment opportunities are likely to emerge in new countries such as Oman and Nepal, as the sector reform moves come to fruition.


The power transmission sector holds great potential to attract private investors. Governments across the globe are continuously working to further improve auction rules and offer attractive returns, to maintain the attractiveness and competitiveness of the sector. Further, new markets are expected to open up for private investment as the involved governments put in place the right incentives and assurances.


Global Transmission has just released a report on Private Participation and PPP in Power Transmission. The report will analyse the expected opportunities for private participation and PPP in the transmission sector. It will profile key players dominant in this space, besides profiling key countries (~20 countries) where such opportunities are available or are expected to be available in the near future. For more details visit our website,