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Competitive Wholesale Electricity Market to Commence in Pakistan by April 2022

BY Piotr Listwoń, Vice-President, Operations, Towarowa Giełda Energii S.A. (TGE)

ON June 1, 2021

Originally published in APEx Newsletter Volume XVII – June 2021.

The Pakistani Power Market today is based on Single Buyer Plus Model with an installed generation capacity of 40,000 MW that will cross 50,000 MW mark in next two years. Projections of dispatch mix and marginal prices from 2021 to 2025 are depicted in Figure 1. It is important to highlight that Power Sector was de-bundled from a VIU back in 1998, Generation, Transmission and Distribution segments were separated, and independent regulatory Authority (NEPRA) was created. Today, CPPA (the single buyer and market operator) has long terms PPAs with private and government owned power producers on behalf of ten distribution companies.

In 2015, Government of Pakistan decided to introduce wholesale competition in the electricity sector. According to this decision, CPPA prepared the design and plan of the Competitive Trading and Bilateral Contract Market (CTBCM). In November 2020, NEPRA approved the detailed design and 18-month implementation plan of CTBCM to make the competitive wholesale electricity market operational in Pakistan by April 2022.

Competitive Wholesale Electricity Market to Commence in Pakistan by April 2022

The market reforms plan entails nineteen group of actions ranging from institutional strengthening to augmenting legal and regulatory frameworks and cover people, processes, and
technological aspects to deliver the market providing non-discriminatory open access to all market players.

When the CTBCM commences in April 2022, only Bulk Power Consumers (1MW and above) will freely choose their suppliers. These consumers are approx.2000 in number (out of 28 million consumers) and represent 16 % of the current power market in terms of sales. Eventually this threshold will be reduced in steps to open retail competition. Two products will be offered for trading at start of market: Firm Capacity and Energy. It will be a cost-based gross pool market from dispatch perspective, in which generators will be economically dispatched (security constrained economic dispatch) by the system operator and will have hourly balancing mechanism for energy and annual balancing mechanism for capacity. Marginal prices for energy will be discovered ex-post on hourly basis based on real time dispatch results, whereas, marginal prices for capacity will be determined annually by the intersection of demand supply curves. Market Operator business will be separated from CPPA in CTBCM who will perform net settlement based on these marginal prices.

In-order to ensure supply adequacy in long-run, capacity obligations will be imposed on all demand participants. In CTBCM, only firm capacity certificates will be traded to fulfill the capacity obligations of demand participants. This firm capacity concept is introduced primarily to cater for the intermittency factor of renewable generations, which enables renewables to trade capacity. Currently, CPPA is working on different mechanisms to evaluate firm capacities of various generation technologies, like their contribution towards system peak in most loaded hours or stress hours in the system. Number of simulations and studies are being done to finalize such mechanisms before the start of CTBCM.

The legacy PPAs that are signed by CPPA on behalf of distribution companies will be commercially allocated to distribution companies; these legacy contracts will be honored and administered until their expiry. Whereas, with the start of competitive wholesale market DISCOs will be allowed sign bilateral contracts, these contracts can be generation following, load following, or fixed quantity supply contracts.

The governance of wholesale market after CTBCM will be tremendously improved through institutional reforms, automation of business processes and intense capacity building of
professionals. It is highlighted here these institutional reforms includes creation of market departments in all distribution companies and creation of Independent System Operator
(which includes Market Operator and System Operator functions under one company). Apart from several IT interventions including implementation of Market Management System
(MMS), other most important development is creation Power Sector Center of Excellence (PSCE) institute with collaboration of one of the leading universities in Pakistan (LUMS) that will be operational by July 2021 and offer regular trainings and learning opportunities for power sector professionals. With start of CTBCM transparency of wholesale market operations will tremendously improve that will help in achieving the objectives of market reforms.