More power? Think again

In Islamabad, there are talks of an out-of-box solution for the energy mess. The core issue is growing capacity charge. It stems from a growing number of new IPPs coming online within the NTDC system. The demand is not growing in tandem, and excess supply leads to capacity payment that must be paid by the existing consumers.

Yet at the same time, K-Electric’s request to increase its generation capacity by 1,600 MW is also under consideration. Granted, there is shortage in KE-network and more supply is warranted. The optimal solution is to novate upcoming plants in south from NTDC to KE. Unfortunately, that is not happening.

IMF is pushing government to come up with a viable plan for reducing energy circular debt. In absence of innovative ideas, the electricity tariff at NTDC will rise further. The industrial sector is already losing competitiveness at existing tariffs. Domestic consumers are reaching threshold too. Any further increase will sway consumers from the NTDC grid. Given a choice, industrial consumers would prefer in-house captive power generation. With more consumers moving away from grid, per unit capacity charge will increase further. That will require further increase in electricity prices.

It is a vicious cycle. In order to break the loop, higher consumption at grid is warranted. In south, (mainly in Karachi), consumers are relying on KE grid. Two nuclear plants of 1,100MW each are coming online soon – K2 is expected to come online by Sep-20 and K3 by Sep-21. In addition, three projects of total 1,320MW are expected to come online in next two years in Thar, powered by domestic coal. These plants shall generate enough power to plug in the future Karachi demand.

It is argued that KE lacks transmission and distribution system to evacuate the electricity from NTDC system. The other argument presented for new IPPs is that the excess in NTDC will not last forever. And if a shortage is faced in coming years, it may warrant reversion of novated electricity back to NTDC. In the not-so-distant past, use of 650MW of electricity from NTDC system by KE was heavily criticized when there was shortage in north.

These problems can be dealt with. In case of transmission and distribution, the investment required is a fraction of what is needed for putting up new plants.  Moreover, it takes less time to install transmission.  Government should provide incentives for investment in transmission and distribution system. To do that, simply novate one or two of the south plants to KE from NTDC. Once done, NTDC won’t have any right to these plants in future.

The amount paid as capacity charges is shockingly high. Last year, the figure was around Rs640 billion which is expected to increase to Rs900 billion in the ongoing fiscal. By FY23, the capacity fixed charge is likely to increase to Rs1,300 billion. Energy is expected to be in surplus till FY23 and the capacity charge per unit is going to increase further. More power, regardless of where it is added, will exacerbate the situation.

Furthermore, there is an external account problem due to fuel skewed towards imported options. KE’s plans for new plants are on imported coal and RLNG.  Although there is a ban on new plants on imported fuel, KE has reportedly requested CCoE to exempt its proposed capacity addition from the same.

Given the external account situation, allowing new plants on imported fuel is against the larger interest of the economy. It is also against the spirit of integrated energy planning, yet KE is pushing for it. One probable reason is that new IPPs would be based on guaranteed returns. As a profit-maximizing enterprise, KE would secure higher returns by putting up fresh capacity rather than taking electricity from plants novated from NTDC. Any guaranteed returns on expanding transmission lines would be a fraction of the cost, in comparison. The regulator must look out for interests of the consumers and broader economy, instead of those of a singular private enterprise.