The Nationwide Electrical Energy Regulatory Authority (Nepra) authorized Central Energy Buying Company-Assure (CPPA-G) proposed governance regime for the deliberate wholesale electrical energy market the place a number of turbines/suppliers might promote energy to bulk consumers, together with distribution firms (Discos), by means of bilateral contracts leaves key points unaddressed and raises questions over its effectiveness.
The federal government has been attempting to implement power-sector reforms to deliver competitors out there and cut back its function by means of the event of a aggressive electrical energy market because the early 1990s. The event of a aggressive market is predicted to stimulate personal infrastructure investments, give shoppers a alternative, ease strain on costs and create circumstances for a good allocation of dangers.
The overarching goal is to do away with capability funds underneath the long-term contracts with energy producers, cast off sovereign ensures to market gamers, and substitute current ‘take or pay’ contracts between CPPA-G and producers with ‘take and pay’ offers following graduation of the Aggressive Buying and selling Bilateral Contract Market (CTBCM) framework authorized by the power-sector regulator in December final 12 months.
CPPA-G Technique Advertising Growth Deputy Common Supervisor Omer Haroon Malik informed a Nepra webinar late final month that it’s going to take a 12 months and a half earlier than the brand new plan is definitely carried out. Therefore, Nepra’s determination to provoke the proceedings for bringing competitors to the Karachi market lengthy earlier than addressing the important thing public issues and preparations of a CTBCM implementation plan has stunned many.
Nepra and CPPA-G apart, few trust within the success of the plan, which largely ignores the issues of the business and the general public
Nonetheless, the discussions throughout the CTBCM webinar left many questioning if the brand new, proposed power-sector governance regime, which supplies the massive shoppers a alternative to purchase electrical energy bilaterally from the generator(s) at a negotiated value apart from offering for wheeling providers and aggressive tariff-based bidding for brand spanking new investments within the sector, has what it takes to ship a functioning aggressive market with out affecting the low-middle-income shoppers.
Nepra and CPPA-G apart, few trust within the success of the plan, which largely ignores the business and public issues over points associated to cost volatility, new investments in transmission and distribution infrastructure to chop extraordinarily excessive system losses, cross-subsidy for the poorer segments, doable cartelisation by turbines, inefficient governance of Discos, demand-side administration mechanism, accumulation of round debt and so forth.
Some webinar members questioned the knowledge of introduction of the aggressive electrical energy market with out privatisation of distribution firms or with out tackling their administration and governance inefficiencies in addition to strengthening transmission and distribution infrastructure to deliver down their exorbitantly excessive system losses because the CTBCM plan seeks switch of current energy buy agreements of the unbiased energy producers (IPPs) from CPPA-G to Discos.
With new suppliers cherry-picking their clients, Discos, that are sure to produce electrical energy to the regulated shoppers on the Nepra-determined charges, will discover their transmission and distribution losses spike and their skill to reinvest within the distribution community squeezed. That is very true in areas the place losses are greater than the Nepra-determined benchmarks.
If Discos additionally get the choice to cherry-pick their clients, who’s going to produce electrical energy to areas with excessive losses and theft? In Turkey, a senior Lahore Electrical Provide Firm official identified whereas speaking to this correspondent, the state-owned enterprises continued to incur excessive transmission and distribution (T&D) losses after market reforms and the federal government needed to finally permit them a rise within the T&D loss goal. “Such a move makes electricity more expensive for their consumers and results in an additional subsidy burden.”
He feels that the purposed mannequin will shift the monetary burden of presidency/CPPA-G to Discos solely on paper with out bringing any qualitative change within the regulated market or obtain its targets. “These public-sector entities will suffer more losses once they lose their high-end customers to their competitors, further affecting their ability to cross-subsidise their low-end users.”
Probably the most overriding concern in regards to the proposed regime is expounded to its monetary influence on the poorer shoppers of Discos. The top of uniform energy pricing provides an unfair benefit to the high-income shoppers like industrial, business and bulk consumers, and high-end residential shoppers — whose quantity is estimated by Mr Malik to be within the vary of two,000 and a couple of,500 — as a substitute of supporting weak teams as a result of sellers can cost completely different costs from completely different consumers, leading to value discrimination.
With high-end bulk shoppers, who cross-subsidise lower-end customers of Discos opting out of their networks to keep away from cross-subsidy expenses, the distribution firms would discover them uncovered to the danger of stranded prices and capability funds. India has included cross-subsidy expenses in wheeling and community funds of suppliers to make sure the burden shouldn’t be transferred on to the poorer segments of society.
Then, value volatility due to the introduction of a spot market and removing of value cap is a significant potential threat for each Discos and their shoppers. Uncertainties in manufacturing prices and the sudden spikes or drops in demand make it laborious to forecast costs out there. Potential collusion between energy producers might additionally deliver uncertainty within the markets and push electrical energy charges on the peril of Discos and their clients. This has occurred within the US and Europe after the deregulation of the business. But no mechanism is usually recommended within the plan to avert such a chance.
Mr Malik brushes apart nearly all of criticism in regards to the proposed mannequin. “We need to move towards a self-sustaining market to provide affordable electricity to consumers,” he informed Daybreak from Islamabad by phone just a few days in the past. In accordance with him, laws are being aligned and authorized coverage framework developed to manipulate the brand new aggressive market. “Initially, we will have a competitive wholesale market for large buyers, including Discos, and later move towards opening up the retail markets for competition (for the benefit of smaller consumers).”
He asserted all massive shoppers will preserve paying expenses for cross-subsidising poorer segments. Subsequently, good shoppers leaving Discos is not going to have an effect on the regulated end-users or burden distribution firms. But he didn’t clarify the mechanism by means of which bulk shoppers might be made to select the cross-subsidy burden.
Mr Mailk, who was reluctant to talk intimately, claimed that the distribution system might be fully privatised earlier than the implementation of the proposed mannequin however didn’t clarify how the federal government plans to promote Discos by the tip of 2021 when the brand new wholesale aggressive electrical energy market commences. He additionally didn’t say something on the plans to repair the T&D losses of Discos earlier than the plan is executed.
He was fairly clear that the long-term agreements with IPPs wouldn’t be altered when these get transferred to Discos. “We can not afford to alter current offers as a result of such adjustments ship a unfavorable sign to potential traders. Therefore, solely these producers whose contracts have already expired or are expiring will within the first section to enter into bilateral agreements with bulk consumers.
“India implemented this model in 1996. Yet only 10-15 per cent of their entire market segment comprises of bilateral agreements. In developing countries like Pakistan, such a big transition toward competitive markets is not possible in a short period.” That is precisely why the stakeholders are asking the regulator and CPPA-G to successfully handle the problems that straight bear on low-middle-income shoppers, or have an effect on the monetary viability of Discos and future investments in distribution, and market threat/volatility issues earlier than the execution of the plan.
Revealed in Daybreak, The Enterprise and Finance Weekly, September 21st, 2020