Wholesale power market appears to be a pipedream

ISLAMABAD: The wholesale electricity market in Pakistan appears to be a pipedream as the government first needs to strengthen the transmission and distribution infrastructure to achieve this target. This was the crux of a webinar organized by the National Electric Power Regulatory Authority (Nepra) on Tuesday. However, the representatives of key stakeholders like Discos and generation companies were not visibly present during the webinar.

The main concern of the power sector was resolution of circular debt issue, which has choked the entire chain, but has not been addressed in the Competitive Trading Bilateral Contract Market (CTBCM). However, the focus was on efficient market operators and an independent regulator. The system operator would be responsible for quality of service and security constrained economic despatch.

CTBCM concept is vague as available information only provides a theoretical picture of what the CTBCM is meant to be and leaves many questions unanswered.

How does CTBCM expect to resolve issues such as the capacity surplus in the system? Or the inadequacies in the Transmission and Distribution system which is a chronic bottleneck? While power generation capacity has almost doubled, the growth in units sent-out between 2018 to 2020 has remained only 0.2%. The material available on CPPA and NEPRA website does not offer any research paper which assesses the implications of the proposed model on the Pakistan market and how it impacts on the key challenges being faced by the sector. The material though does offer insight on what the model is and where it has been adopted from.

In Pakistan the system operator function already exists as part of NTDC (NPCC).

Chairman Nepra, Tauseef H. Farooqi, said the CTBCM has been approved after consultation of almost one year with the stakeholders. CPP-G, consultants Reberto D. Addario, also assisted the regulator.

“This is the key decision taken by Nepra and the concerned organisations have to be ready to implement it after 19 months time,” he added.

This is the first session not the final as more such consultations will be organized for this purpose, he added. Question was raised on treatment of cross subsidy but there wasn’t any clear answer to this issue. Participants were briefed that this is government’s prerogative.

It was recognized that T&D segment is far from efficient but shouldn’t be considered as a show stopper. Standard costs was another important issue left to the government. The cross subsidy and capacity constitute the most chronic issue for sector today and no study has been conducted on the T&D and RR outlook and implications for Pakistan’s power sector in case CTBCM works well or as planned. There will be more than one type of suppliers including default suppliers and competitive suppliers. The default suppliers must sell to regulated consumers at tariffs and fees determined by Nepra.

The existing Discos must be split in to distribution and supply within the coming five years and enforced through an amended Act.

The representative of CPPA-G, Qamar Haroon Malik, stated that Market Implementation Monitoring Group has been formed and CCoE has been closely monitoring CTBCM development. He said, in April 2022, there would be generation companies, wholesale market and Discos will perform as suppliers, there will be competitive suppliers and traders. It will provide a level playing field to all the market participants.

He said the purpose of CTBCM is to gradually move away from sovereign guarantees and provide a framework to move away from take or pay to take and pay regime over time.

It will provide interface and is the first step to move towards retail market. It will provide choice to bulk power consumers (mainly industries and commercial units) to procure power from other than Discos. For all regulated priced consumers there will be a reduction in power procurement costs through competitive bidding and least cost planning. He said CTBCM will contribute to security of supply, avoiding a boom-bust cycle.

Nepra Consultant Beatriz Arizu Jablonski stated that a perfect market design that suits all does not exist, but common economic and efficiency principles do.

She maintained that different experience and designs are in place, adapted to the needs and conditionalities of the system and sector where the market has been implemented.

In reply to a question, to the Chairman Nepra said the Authority is in the process of finalizing the decision on wheeling which will be announced within days.

Answering another question about circular debt, “Chairman Nepra said that it is not a simple question.” We also have apprehensions that it is a huge task that we have to bring transmission and distribution infrastructure to match our dreams,” he added.

According to a press release the Chairman Nepra, stated that CTBCM will prove to be a game changer for the power industry of Pakistan. He stated that Nepra has approved a detailed design and implementation plan of the CTBCM that will usher in a competitive environment in power sector benefiting the country. He further said that to fully understand its implementation, a webinar on CTBCM has been arranged to disseminate and develop understanding of the different stakeholders on the Wholesale Electricity Market (WEM) as well as to inform the participants on power sector reforms, challenges and objectives expected to result due to CTBCM.

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