During Bill Clinton’s 1992 campaign for presidency, James Carville famously coined the phrase “it’s the economy, stupid” to emphasize how crucial the economy was to the election.
It could be argued that “it’s the transmission, stupid” accurately describes the difficulties the power sector is facing in Pakistan. Many of the issues affecting Pakistan’s power sector, such as power outages, limited access to electricity, inefficient use of the country’s existing power generation capacity, and high system losses, cannot be resolved due to the absence of a reliable transmission network.
Blackouts and load shedding are frequent in Pakistan as a result of the transmission network’s constrained capacity. This has a major impact on households, businesses, and the economy.
Electricity access is limited in many parts of the country, particularly in rural areas, due to lack of transmission infrastructure. Although we list this as an outcome of the transmission problem but for remote village access, we are not advocating transmission networks, rather this has to be dealt with micro grids and distributed generation as covered in another piece on “democratisation of energy”.
Mother of all ills, the nuclear bomb of the current crisis is this lack of transmission infrastructure that has caused the existing power generation capacity to frequently go underutilized, which raises costs for both the government and the general public.
Currently, Pakistan’s generation capacity is over 42,000 MW, which is far more than what we can utilise and what our transmission system can take. By any estimate our transmission capacity stands at merely 22,000 MW.
This means that we are underutilising our generation capacity to a very high proportion. Now as per the contracts of power plants, capacity payments must be made for all the generation capacity whether we use it or not, so if we assume that fifty percent capacity is not used at any time then the units produced at that time would have to bear the cost of this unused production capacity, essentially making those units even costlier.
So, if a 2000 MW plant operates at 1000 MW level, the power produced will be costlier per unit compared to when it would operate at 100% capacity.
The real rub comes from the point that at a time when we are running from pillar to post to get foreign exchange, one mode of power generation that doesn’t utilise imported fuel cannot be fully used. 100% generation capacity of renewable energy that is already installed cannot be delivered to the consumers due to lack of transmission infrastructure.
Hence the irony we are facing is that we keep on running thermal power plants but curtail the production of Wind power in Jhimpir because our grid is unable to dispatch it. This is happening at a time when it is crucial for decreasing Pakistan’s reliance on fossil fuels and addressing our foreign exchange issues.
Unfortunately, wind as a resource cannot be stored for future like diesel or petrol. So, the amount of power that has been curtailed from the existing wind power plants is power lost forever. Currently, installed wind power generation capacity is about 1900 MW and almost half of it cannot be transmitted through the grid.
This is over half a billion-dollar worth of investment going waste and we are using power generated through imported fuel.
To cap off all this there are plans afoot to establish further solar energy power plants of 600 MW at the federal government level. Added on top of that are multitude of solar plants of smaller capacities that are under consideration by many other important organisations.
When we have excess generation capacity and unutilised installed wind power then why our policy makers are focusing on new generation capacity. Why not to focus on transmission lines. Transmission lines as a private business make a wonderful case of stability and profitability.
If there are investors out there who want to make money by developing new generation capacity, then surely, they can make money in transmission line installation also. So the focus needs to change from generation to transmission.
To handle this problem of transmission we need to look out for private investment. Several countries have implemented transmission line privatization in the power sector.
One of the successful examples is the United Kingdom where National Grid plc, a private company, now oversees the transmission network after it was privatized in 1990. This has been viewed as a successful example of privatization due to the network’s increased efficiency and dependability.
In Chile, the government privatized the country’s transmission lines and the entire electricity sector in the 1980s. A private company named Transelec now owns and manages the transmission network. The privatization has been deemed successful in terms of raising the transmission network’s effectiveness and lowering costs.
There are many other examples of privatisation of transmission network in the world, including Brazil and the Philippines.
Transmission infrastructure could be improved with speed and efficiency if we allow private sector to participate. This is not a new concept. For the corporate world Warren Buffet, one of the richest persons in the world, is always an example to follow and Berkshire Hathaway, the Warren Buffett-led company, has investments in the transmission industry. The business owns and manages transmission lines in the US.
He owns two companies in transmission business in line with his business strategy of making investments in companies that are stable and profitable.
The demand for transmission lines will remain high in the coming years as renewable energy sources become more prevalent. Hence this makes a good case for inviting Pakistani and global investors in this sector.
We can go the public private partnership route to unlock investment in this sector. It would require policymakers’ attention towards a legal and regulatory framework that is well-designed, careful project identification and feasibility assessment, effective risk allocation and financing, performance monitoring and evaluation, stakeholder engagement, and strong contract management.
Policymakers can look at opening the sector to tolling agreements for private transmission lines; these are a type of public-private partnership (PPP) in which private companies or investors are granted the right to build and operate transmission lines in exchange for compensation via a tolling mechanism.
The private company or investor is responsible for financing, constructing, and operating the transmission line under this arrangement.
In exchange, they are given the right to charge third parties who use the transmission line to transport electricity a fee or toll. Tolls are typically based on a fixed rate per unit of electricity transported or a negotiated rate based on the transmission arrangement’s specific circumstances.
When private investors can generate a return on their investment through tolls, they will be willing to further invest in transmission infrastructure. Because their revenue is linked to transmission line usage, private companies will have a stronger incentive to operate transmission lines efficiently and effectively.
Construction delays or cost overruns are shared by the private company and the government or utility, lowering the risk to the government or utility. Private companies may be more creative in their approach to constructing and operating transmission lines, potentially resulting in more efficient and effective infrastructure.
Tolling arrangements are currently used in the USA, Europe, UK, Chile, the Philippines and many other countries. Not all of these countries are developed but this public private partnership has created value for their power systems.
The model of private investment in transmission assets, which has proven successful in other parts of the world, has the potential to be replicated in Pakistan. However, several factors must be considered before such a model can be implemented in Pakistan. To begin with, a regulatory framework for transmission infrastructure must be established in order to encourage private investment.
This would entail defining the roles and responsibilities of the government and private investors in the development and operation of transmission infrastructure, as well as establishing a regulatory framework to ensure that private investors are incentivized to invest in infrastructure while also protecting consumers.
A clear pipeline of transmission projects ready for investment would be required. This would entail identifying areas in need of new transmission infrastructure and developing a project pipeline that is appealing to private investors. Transmission projects would require a transparent and efficient bidding process.
This would entail ensuring that private investors have access to the information they need to evaluate a project’s potential risks and returns, as well as that the bidding process is fair and transparent.
Above all, a stable and predictable investment climate in Pakistan would be required to encourage long-term investment in transmission infrastructure. This would entail creating a stable regulatory environment, ensuring that we treat our investors during the lifetime of projects as partners and not as pariahs.
Here a word about current investors in the power sector: we must revisit how we treat the current investors, local and foreign, who face delayed payments, all sorts of legal lacunas that are used to scuttle their business plan and economic returns, all in the name of a witch-hunt whose premise is that they are making a lot of money.
This needs a rethink at the policy level, while making any policy, it is the duty of the policymaker to look farther into the future and plan as per the requirements and ability to shoulder the burden of an investment. Now if despite of having 42,000 MW of generation capacity we are still issuing tenders for new power plants there is something seriously wrong with our policymakers and regulatory institutions.
For Pakistan to get out of the current mess economically we need to address problems of the power sector and we must start thinking beyond power generation. Our current and short-term problem is not generation, it is indeed transmission.
Unless significant investment is made in upgrading transmission infrastructure as well as policy changes are made to create a conducive regulatory environment that promotes private investment in this sector we are doomed to get deeper into the troubles that are already hounding us. So, we better adopt the slogan, “it’s the transmission, stupid”.
Copyright Business Recorder, 2023
The writer is CEO of a wind power project and can be reached at kashifmateen [email protected]