There are two grid operating systems in Pakistan- NTDC and K-Electric (KE). While in NTDC, efficiencies and capacities have increased, KE is still relying on old inefficient plants and the company is eyeing developing its own capacities. KE has become a problem in the country, though it can become part of innovative solutions, which can be accelerated by expediting the sale of KE to Shanghai Electric.
The government needs to have clear cut policy by imposing a moratorium on new imported fuel based power plants by both NTDC and K-Electric. Meanwhile, it should come up with smart ways of shifting the excess burden from NTDC to deficient K-electric.
In the past regime, massive power capacities additions have created expensive surplus in the NTDC system, with annual aggregate capacity payments by CPPA increasing from Rs280 billion in FY16 to around Rs665 billion in FY19. Without significant enhancement in demand (consumption), the electricity tariffs ought to increase substantially.
According to NEPRA, in order to keep the capacity cost component at FY17 level, in FY18-19, the energy sold by NTDC should be increased at least by 30 percent. That is impossible without out of box solutions. The math is simple at about 100 billion units of annual billing; the additional capacity charge translates into a base tariff increase for consumers of nearly Rs4/unit.
The story does not end here. New capacities will add further as there are numerous big projects which are under construction will be commissioned in years to come with the bulk concentrated in southern region. The NTDC installed capacity will increase from 33,961MW in 2018 to 62,184MW by 2025 while NEPRA expects planned generation capability to increase to 47,750MW, leaving a gap of 13,934MW by then. Today, the gap between capacity and capability is at 908MW.
What is added or in the process of construction cannot be undone; but certainly there is a room for better deployment of NTDC power capacity in KE system. The peak demand in KE System is around 3,400 MW—KE’s own capacity is 2,200 MW of which 1,000 MW is relatively new and efficient while remaining 1,200 MW is more than 25 years old and have thermal efficiency rates of almost half that of new RLNG based power plants.
In addition, KE also buys around 440 MW electricity from IPPs and CPPs including 250 MW of electricity from two furnace oil fired IPPs which is also expensive electricity. The remaining gap is filled by 137MW from KANUPP and 650MW from NTDC.
A method could be designed in a way for KE to do away with the expensive 250MW, the 1,200MW of its own old plants, and 650MW from NTDC. This creates a gap of 2,100MW, with KE existing deficit of 300-400MW, the overall gap will jump to 2,400-2,500MW. This can be plugged in by two southern NTDC new coal power plants to KE of about 1,320 MW each.
This can help in sharing the capacity payments within the two systems. For instance, a 1320 MW coal fired plant has annual capacity payment of about $380 million (Rs51bn) on NTDC. The NTDC has the surplus that KE can use. This will not only fill the capacity gap in KE and improve efficiencies in that system but also reduces the capacity charge on NTDC.
It’s a win-win situation for the country, as KE is best suited for southern capacity additions, and this will also ease the pressure of KE on inefficient plants. The PPAs of KE own old plants and other inefficient IPPs are close to expiry. They should not be extended and their relatively less capacity charge should be assumed as a fixed cost till the PPAs retire. For NTDC, shifting the onus of two plants capacity charge to KE, will ease the pressure of increase in base tariffs. This solution can be implemented with 3 years months subject to materializing of KE sale deal.
It will also help in imports savings for the country by precluding imports of new plants and expensive fuel by KE, and also by reducing cost of generation (inefficient RFO run IPPs) for K-Electric which can be shared with NTDC. This mechanism will also free up natural gas from use in inefficient power plants of KE which could be used in fertilizer.
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