The federal government has filed a motion with the power regulator for extension of abolishment of time-of-use electricity tariffs for industrial consumers, as the Cabinet Committee on Energy approved the Power Division’s proposal for the same. Recall that the government had support to industrial power consumers back in November 2020, with various support packages announced, of which abolishment of peak rates on incremental consumption was one. The idea was to have it in place till April 2021 and then have a review.
The review it appears was conducted, and formal procedures are left for the relief to be extended and notified. The government has also requested for the abolishment of time-of-use tariff beyond June 2022, to be automatically incorporated in the tariff structure till the revised support package for industrial consumers is applicable, i.e., October 2023.
The decision to abolish time-of-use tariff seems to have resulted in meaningful average demand growth of 21 percent for peak hours, for the four-month period from November 2020 to February 2021. This is considerably higher than the eager 3 percent year-on-year growth in power generation for the grid during the same period.
Mind you, peak hour consumption is 12 percent of the industrial power demand. The industrial sector itself accounts for 25 percent of total national power demand. This takes the peak hour industrial consumption at no more than 3 percent of the grid demand. A 21 percent increase, the total contribution to the cumulative growth would be 0.63 percentage points, while the rest would be shared between general industrial, domestic, commercial and agriculture consumers.
Domestic consumption has no history of showing year-on-year negative consumption growth even in the worst of times. Who is to say if the industrial overall pie increased or not? The 21 percent peak-hour demand increase could also be all the demand increase shown by the industrial sector – which simply changes the pie composition and not the size. If true, a provisional subsidy that would lead to around Rs13-15 billion for six months ending April 2021, does not really serve the desired purpose.
While that would be known soon, once more detailed consumption statistics are made available, the focus shifts to the government’s decision to continue with the arrangement for the next two years. Two considerations have to be made while extending the abolishment. One is purely financial, which deals with allocating and more importantly timely releasing the subsidy. This should not be a massive problem, given the amount is not expected to cross Rs25 billion for the entire year.
The key consideration is technical, as peak summer consumption has put the entire transmission and distribution system to test, year after year. Installed capacity and the system’s generation capability are not under question. The power balance based on system capability remains comfortable even with 10 percent margin of error. The real risk is with transmission during peak consumption hours, where domestic demand puts pressure on the entire system. The transmission system’s inability to evacuate power from some of the efficient plants during peak demand hours, is well-documented.
Efforts to run the RLNG plants at full throttle have previously led to major nationwide transmission faults. This also could at times lead to a return to the least desirable mode of generation from HSD and FO, as base load struggles due to transmission constraints.
That said, the authorities must have carried out an extensive study of all the risks, before approving it for Nepra’s consideration. Here is hoping the extension is worth it.
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