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Energy wheeling – advantages and challenges

Many long-term energy agreements have been signed in the last five years that has increased the generation capacity to almost double the country’s energy demand. Most of the plants are now idle and getting the capacity payments. This situation is putting the additional burden on the end consumers. That’s why we are facing a continuous increase in energy tariff. This is all happening due to lack of planning. It is required to increase the energy generation based on consumption forecast on a continuous basis rather than installing 20,000 MW in three years and then keep the plants idle for ten years.

The country faced the same situation after the installation of power plants under the 1994 Power Policy. The plants installed under that policy achieved Commercial between 1997-2000. These plants remained under-utilized till 2005-06 and received high dispatch from 2006-07. Now, after installation of new higher efficient plants, the dispatch to these plants (operating under the 1994 power policy) has reduced drastically once again. It is not good for the consumers that the plant that is designed for 30 years of operation is fully utilized only for 20 years despite of capacity payments of 30 years.

It is important to understand how it will impact the tariff and put the additional load on the public. As discussed above, some plants remain shut down due to excess electricity. But the government is paying the capacity payment for these idle plants without purchasing electricity just to keep them standby (as per the terms of the agreement). The Capacity Payment for the standby plants are putting the impact on overall electricity cost. The cost of electricity unit has already increased to compensate the capacity payments of the unutilized plants. The People of Pakistan will face this extra tariff burden for next 10 years in any case till the expiry of agreements of the 1994 power policy plants.

To avoid this type of scenario again in the future, different options are under consideration. One of them is to start a competitive market and shift on the tariff of ‘Take and Pay’ Basis. This will impact the investor that can be managed through other incentives like the permission of energy wheeling to other Bulk Power Consumers. Before going into detail of this model, it is important to understand the different types of the tariff.

Take or Pay Tariff: A Take or Pay tariff is a rule, the Power Purchaser either takes the electricity from the Power Producer or pays for the availability of the plant (known as Capacity Payment).

Power Purchaser pays the both energy and capacity payment only for the energy it takes based on the energy meter readings. The Power Purchaser is bound to run the plant strictly on Economic Dispatch Merit order (less expensive plants first). If Power Purchaser asked to run an expensive plant ahead of the cheap plant, then it will pay the Capacity Payment (fixed payment) to the less expensive plant.

Bulk Power Consumer (BPC): Means a consumer who purchases or receives electric power, at one premises, in an amount of one megawatt or more.

In order to cope up the increasing energy prices, the industries are looking at the government for subsidy to make the products compatible with international market. The payment of subsidy puts additional burden on general public in terms of taxes and hike in energy prices.

It is viable and win-win situation for the government and the industry, that industries should be allowed to purchase the power directly from the power producers. It can be implemented by allowing the option of Energy Wheeling using the network of the distribution companies (DISCO). The concept is that the power producers generate and supply the energy to the DISCO’s grid. The DISCO will supply the energy to the BPC using its own system as per routine practice. The DISCO will not bill the BPC for the price of the energy rather it will bill for the wheeling charges (use of its system charges). The power producer will bill the energy price directly to the BPC. In this way power producers can offer certain discounts and BPC can get less expensive energy.

 

In this regard, NEPRA has issued the guidelines in 2015. Under these guidelines, companies have started the wheeling within the same DISCO on a low scale. In order to make this model successful and launch the competitive market, it is required to make a policy for the wheeling of energy even between DISCOs (For example the power producer supplies power to the IESCO and BPC consumes power at MEPCO network).

The working in this regard is little complicated as every distribution and transmission company involved in the wheeling will ask for its use of system charges. That will make the overall wheeling charges much higher and make this whole model unfeasible. Here is a feasible option that can be used to make the model feasible.

  • CPPA is central company that is purchasing the power from all Power Producers irrespective of the jurisdiction of any DISCO and at any voltage, i.e. 132 kV, 220 kV and 500 kV.
  • CPPA can play a pivotal role in the model of wheeling between DISCOs (Inter-Disco Wheeling) by purchasing energy from the power producers for wheeling purposes and then ask the relevant DISCO to supply the energy to the BPC in its jurisdiction.
  • CPPA can take an overall wheeling charges and then pay the share to relevant DISCO.

The Take and Pay Tariff Policy will be better implemented if following options are added in the model:

  • Allow the sale of energy to the BPCs using Energy Wheeling Agreement, along with sale to the CPPA on Economic Dispatch Merit order (NEPRA has allowed it in some tariff petitions, but no formal guidelines to implement this model has yet been developed).
  • It is difficult to segregate the energy sale to BPCs and power purchaser simultaneously. So, the power producer can remain on one mode at one time, i.e. wheeling mode or IPP mode. There can be an option to shift from wheeling mode to IPP mode by a notice (say seven-day) to CPPA. Secondly, in order to restrict the frequent changeover, a minimum time in one mode before changeover can be added (say fourteen days’).
  • Reduce the BPCs sanctioned load from 1 MW to 400 kW (So more consumers can get benefit).
  • Option to offer discounts on the Energy Price by Power Producer should be provided. For example, if the Power Producer is at No. 60 in the merit order and his electricity cost is Rs. 13 per unit. The national electricity requirement is fulfilled by plants up to No. 48 in merit order (Say electricity Cost 10 per unit). The Power Producer can come up in the order by offering a discount and give electricity at Rs. 9.9 per unit. The Power Producer will make improvement in their process to provide less expensive electricity and remain in merit order.

It would be better for the country that all regulatory agencies should be on the same page to boost the investor confidence. We hope the regulators will keep on adding the plants with proper planning under ‘Energy Wheeling Mode Plus Take and Pay Tariff’ to avoid the same crisis in the future.

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