ISLAMABAD: The National Electric Power Regulatory Authority (Nepra), in its State of Industry (SoI) Report 2020, has proposed 23-point formula to reduce electricity cost as high cost, inefficient distribution services and load-shedding policy on high loss feeders is pushing consumers away from the Discos' network.

The report released Tuesday states that the installed electric power generation capacity can broadly be placed into two categories i.e. the base load power plants and the other large hydro and Renewable Energy (RE) power plants whose capacity varies daily as well as on a seasonal basis. The addition of RE projects has accelerated in the power sector, bringing in the advantages of clean and indigenous resources.

According to the SoI, the rapid decline in prices, owing to improvement in technology, has made solar and wind power the cheapest source of energy. Despite the stated advantages, the inclusion of RE power plants, being intermittent in nature, is still a big challenge due to the reasons, including but not limited to, the requirement of backup power generation capacity and added cost of transmission line due to remote locations of wind and hydropower plants. However, with better planning, based on reliable and historic data and the use of modern techniques such as hybridization of RE power, challenges in the induction of RE power plants can be managed to a large extent. In order to take advantage of the solar potential across the country small and medium-sized solar power plants may be installed near load centers, where the power evacuation facility (grid) already exists to minimize the transmission cost.

Acknowledging the importance of RE power plants, the Federal Government has set a target of 20% RE capacity by 2025 and 30% by 2030 in the national grid. Although the induction of electric power generation capacity on large scale has catered for the longstanding electric power shortfall, the obligation of capacity payments has increased due to the 'Take or Pay' Power Purchase Agreements (PPAs).

Such types of PPAs require optimum utilization of available generation capacity to avoid undue financial burden that emanates from capacity payments. Over a period of time, the electricity prices have been increasing for the end consumer which is a growing concern for the regulator. Besides the higher Transmission & Distribution losses, the low recoveries and under-utilization of 'Take or Pay' power plants, various other elements like currency devaluation, low sales growth rate, front-loaded tariff, operation of costlier power plants due to transmission constraints, etc. have added to the increased cost.

With regard to electric power generation system, a comprehensive plan for induction, retirement and replacement of power plants is needed to be developed and followed up with strict monitoring and continuous improvements. NTDC, according to the provisions of Grid Code, prepared a long term Indicative Generation Capacity Expansion Plan (IGCEP) and submitted it to Nepra for approval. The Plan was evaluated by the professionals of Nepra in consultation with all the stakeholders and returned with observations of the Authority as well as other stakeholders to NTDC for revision and resubmission. The IGCEP, once approved by the regulator, will give a clear picture of power generation outlook of the country and provide clarity for decision makers at all levels. For effective utilization of available generation capacity, a robust and efficient transmission network is essential to transmit the electricity from its point of generation to the load centers. The existing transmission network of NTDC, subject to system constraints, is causing under-utilization of the efficient plants. Besides some hydel and thermal power plants, the wind power plants in the South are also facing problems in evacuation of electric power that could be generated. Under the Energy Purchase Agreements (EPAs), in the event of failure to off take the available energy from RE power plants, these plants are eligible for payments on account of Non-Project Missed Volume (NPMV). Therefore, NTDC must develop a robust transmission system to ensure full evacuation of electric power for transmission across the country from South to Center and North or vice-versa; so that cheaper power from efficient power plants can be made use of. Like generation and transmission systems, the distribution business in electric power sector is also important as it directly interacts with the electricity consumers. The distribution business could not be transformed into a competitive market as was conceived under Wapda's Strategic Plan for the Privatization of Pakistan's Power Sector, 1992. For smooth transition, PEPCO was incorporated in 1998 to facilitate the transition process within two years, but even after 20 years PEPCO still exists controlling the affairs of Ex-Wapda DISCOs.

The high cost of electricity, inefficient distribution services and load-shedding policy on high loss feeders is pushing consumers away from the Discos. The load-shedding policy is compelling the consumers to use smaller inefficient gas or diesel generators as well as Un-interrupted Power Supply (UPS) which has disrupted the efficient allocation of valuable resources in the economy. The distributed generation through solar power solutions has made a significant ingress in the domestic consumer base of DISCOs which are losing consumers with high consumption and paying capacity. Similarly, the commercial, educational and industrial outfits are also inclined to drift away from DISCOs and opt for self-generation through solar power. So far, nearly 5,000 Net-Metering Licences with around 86 MW electric power generation capacity have been issued by NEPRA. Apart from the distributed generation, various industrial and commercial consumers of DISCOs, dissatisfied with the higher cost and poor quality of services, tend to directly purchase electricity from generation companies for reliable and cheaper electricity supply through wheeling arrangements. Although DISCOs are resisting the wheeling regime, the Regulator cannot deprive the consumers from buying cheaper electricity from the sources of their choice. The power sector reforms envisaged a transition from monopoly structure to a competitive market - an objective which has not been achieved yet.

Discos which were supposed to be independent commercial entities are instead, tied centrally, having the least say in their own commercial decisions. Similarly, the Public Sector Generation Companies (Gencos) have also been centrally tied by the creation of GENCO Holding Company Limited (GHCL). Going forward, in the wake of amendments in NEPRA Act in 2018, the competition can no longer be avoided. The Nepra (Amendment) Act, 2018 puts a lot of emphasis on developing an electric power market and reducing regulatory oversight. Fundamental structural changes have been introduced, leading to the wholesale and retail markets.

The supply of power has been excluded from the ambit of distribution and is now a distinct licensed business which will create a retail market. Similarly, the power trader licence has been introduced for wholesale trade of electricity. Provinces are also eligible to develop their own transmission system for transmission of power within the province. All of these fundamental changes, coupled with the increased interest of consumers in net-metering and wheeling of electric power, are going to lead towards a competitive environment as an unavoidable reality which the public sector entities, especially the DISCOs must realize. Any attempt to further protect the monopolistic and oligopolistic status- quo may not only hurt the power sector but also the overall economic growth of the country. CPPA-G, already registered to act as Market Operator, has been mandated with the responsibility to design a wholesale competitive market model for the country. CPPA-G submitted a conceptual design of the Competitive Trading Bilateral Contract Market (CTBCM) model which was approved by Authority in December, 2019. Subsequently, CPPA-G submitted the detailed design model and implementation roadmap for approval of the Authority in February, 2020. An International Consultant has been engaged for the review of the proposed model. The Authority has considered the observations of the relevant stakeholders as well as the International Consultant and the same have been shared with CPPA-G for redressal. Under the NEPRA (Amendment) Act, 2018 the Federal Government is required to prepare a National Electricity Policy for the development of power markets as well as the National Electricity Plan in accordance with the Policy. The Authority is required to perform its functions under the National Electricity Policy and National Electricity Plan. Besides the policy and plan, formulization of rules under the Nepra Act, 2018 is now also the domain of the Federal Government. Urgent finalization of the National Electricity Policy and Plan is necessary for formulating the regulatory framework to forward the objectives of the Act in its spirit and to create certainty for all the stakeholders in the power sector.

The present state of electric power generation, transmission and distribution in the country shows that in the existing system there is a potential to decrease the electricity cost by making efficient decisions and maintaining good governance in the power sector. The existing higher prices of electricity can be lowered by the measures, including but not limited to the following: (i) operating the most efficient plants at optimal load, (ii) retiring the inefficient power plants specifically the ones operating in public sector GENCOs, (iii) improving the supply chain for RLNG, (iv) displacing expensive electricity with cheap electricity generation options, (v) allocation of cheapest gas (pipeline quality) to the most efficient power plants, (vi) minimum operation of combined cycle power plants in open cycle mode, (vii) discouraging use of pipeline quality gas in open cycle steam turbine thermal power plants, (viii) inducting small and medium size solar power plants near existing grid stations, (ix) avoiding operation of most efficient power plants on part load, (x) ensuring the availability of transmission line to evacuate electricity from most efficient power plants, (xi) executing Transmission Service Agreement (TSA), (xii) decreasing the transmission and distribution losses, (xiii) retiring the circular debt, (xiv) ensuring the timely payments of subsidy amounts, (xv) avoiding load-shedding on feeders on the basis of Aggregate Technical & Commercial (AT&C) losses, (xvi) improving the billing collection ratio, (xvii) revisiting the use of two basket system in the country, (xviii) decreasing the levies on primary energy being used for power generation, (xix) avoiding recoveries of various taxes/fees/levies through electricity bills, (xx) adopting effective demand side management, (xxi) introducing Time-of-Use (ToU) tariff in off-peak hours for optimum utilization of 'Take or Pay' electric power generation capacity; (xxii) inducting peak load power plants in the system; and (xxiii) encouraging Merchant plants to supply electricity in the country.

Copyright Business Recorder, 2020

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