Wholesale power market: CPPA-G putting finishing touches to rules

The Central Power Purchasing Agency-Guaranteed (CPPA-G) is giving final touches to rules for the establishment of a wholesale electricity market and proposed legislative changes in the current electricity mechanism, scheduled to be effective from April, 2022, well-informed sources told Business Recorder.

The Economic Coordination Committee (ECC) of the Cabinet in its decision of April 30, 2015 mandated CPPA-G to prepare a comprehensive Competitive Trading Bilateral Contract Market (CTBCM) design and plan for transition of the power market. However, CPPA-G took five years to finalise a detailed design as the Power Division did not show any enthusiasm due to the influence of some “influential” players making windfall profits and therefore were not supportive of competition.

According to the revised agreements signed between the Government of Pakistan (GoP) and Independent Power Producers (IPPs), the GoP intends to create competitive markets. Without prejudice to the terms of its generation licence, the IPPs shall actively support and participate in the competitive trading arrangement when it is implemented and become fully operational. This initiative would provide a broader choice to power consumers (mainly industries and commercial units) to procure power from multiple power sellers.

At a recent meeting of the Cabinet Committee on Energy (CCoE) headed by Minister for Planning, Development and Special Initiatives, Asad Umar, it was observed that “had it been adopted six to seven years earlier the trillions of rupees circular debt would not have piled up”.

On November 10, 2020, National Electric Power Regulatory Authority (Nepra) approved a detailed design and the implementation plan of CTBCM to make competitive wholesale electricity markets operational by April 2022.

The CCoE has directed Power Division to ensure completion of requisite actions by the concerned entities within their given timelines to achieve Commercial Operation Date (COD) of CTBCM by November 2021 and submit a monthly report to it on the progress towards achieving COD of CTBCM.

The sources said a new design was expected to be framed for the IPPs to sell their electricity in the wholesale market, adding that several IPPs had already been paid capacity payment for 15 years and if they were included in the wholesale market, they would make huge profits. On January 12, 2021, the ECC was informed that CTBCM model was also discussed in a meeting of the CCoE on April 20, 2020. During the meeting, the then SAPM on Petroleum, Nadeem Babar, raised certain queries. Consequently, CCoE constituted a committee led by Minister for Power Division to review the model in light of these queries. Several meetings were held to achieve consensus and design.

The detailed design and plan of CTBCM provided a complete framework that entailed interventions to achieve the objectives of a competitive wholesale market.

The sources said, Prime Minister’s directives of September 16, 2020 stipulated a 12-month timeline. Nepra, however, had approved an implementation plan with a timeframe of 18 months. Considering the requirement of fast-track implementation, CPPA-G in consultation with stakeholders, plans to achieve COD by Feb 2022 with expected completion timeline of 15 months.

This includes three months reserved as float or cushion to cater for any possible delays. The 15-month plan covers major milestones along with timelines.

On January 14, 2021, the Power Division requested the CCoE for approval of principles for establishing a competitive wholesale market, essential design features of CTBCM and timelines for its implementation.

The CCoE held threadbare discussions on CTBCM and observed that it was going in the right direction – towards restructuring of power sector.

During the meeting, it was observed that as per international best practices, the approach was to open the wholesale market first and stabilize it as planned under CTBCM and then gradually open the retail market for the aggregators of demand to procure from wholesale market and sell it to end consumers.

It was further stated that other countries like Brazil, India, the UK and Turkey took 10 years to reach full retail competition. Initially, the initiatives would focus on the consumers of one megawatt and above (approximately 16 percent of the power consumers in the country).

Special Assistant to the Prime Minister on Revenue (now also Finance), Dr Waqar Masood, appreciated the proposed reforms in the power sector but cautioned in case of exit of the compliant/good consumers Discos might not be able to compete. According to SAPM on Power and Petroleum, Tabish Gauhar, in the first phase it would be at the wholesale level for bulk customers and would later include the retail level.

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