Generation woes

Inefficiencies in the power sector is the bigg-est headache for any government. The estimated direct and indirect fiscal cost (including circular debt and subsidies) of the power sector is at Rs9.4 trillion in the last fifteen years. The usual criticism is on the transmission and distribution system and inefficient discos. There is no denying these issues. However, not much heed is given to the losses and inefficiencies on the generation side. That must have its fair share of criticism.

Some of the issues on the generation side are highlighted in NEPRA’s industry report 2021-22. One big problem is non-utilization of efficient power plants. There is a huge cost of growing capacity payment due to addition of new power plants. These are better in efficiency and have lower fuel cost; but have high-capacity charges. And to capitalize on these, the newer plants should run at optimal level. However, that is not happening.

The reasons cited for the lapse are due to non-availability of fuel and T&D constraints. On top of the list are RLNG power plants. The issues are in managing supply chain of the RLNG. The government at times failed to procure the spot cargos, and in some cases, the merit order was not right. The cost of unviability of RLNG to the plants is estimated at Rs19 billion. And the system constraints costRs4 billion. When the 3 RLNG plants were erected, the objective was to complete in record time, and in the process, the connection was made to 550 KV line which limits the supply to the load centers.

The other big issue is the violation of the economic merit order. It should be dynamic. The problem is bureaucratic red tape and the fear of taking a decision (however right it may be) due to accountability in taking commercial decisions. The merit order is decided well in advance and then the demand of certain fuel is generated and based on that, the fuel is being procured (mainly imported). And the procurement process has PPRA rules which again takes time. By the time the fuel arrives, the prices could move and make the buying unviable. In all these processes, there are various government department and companies involved and the commercial viability is somehow lost in the process.

There is also the fact that theAccurate Dependable Capacity (ADC) tests of power plants have not been carried out which is critical to determine capacity charges.

Then there is unutilized power plants. Part Load Adjustment Charges (PLAC) are collected by thesystem operator when there is lesser load than their dependable capacity. This results is efficiency losses for power producers and higher fuel price charges for end-consumers. NEPRA notes that most efficient RLNG plants (above 61% and 51% efficiency) were operated on part load, resulting in Rs 41.7 billion accrual in PLAC.

One main issue is of Take or Pay policy. Capacity payments must be made regardless of whether available generation capacity was used or not. The utilization of 30,303 MW of thermal power plants in CPPA-G system is mere 46 percent. Consumers paid capacity charges for remaining 54 percent as well.

The utilization of renewable energy is low. Cost can be reduced by having it in the mix. These are low hanging fruits. The Sugar industry has installed bagasse-based generation plants to meet their needs and are willing to sell spillover at much lower rates. Discos commercial interest of buying is missing. Then there are delays in commissioning of 2 solar power projects due to DISCOs mismanagement. There are more examples of delay in plant commissioning. These are affecting cost of electricity for end-consumers.

These are some examples of generation issues which are making electricity expensive for end consumers and higher circular debt for government. There is a systematic problem here. Since the tariffs are kept same across the country, good discos get the brunt on bad generation too. For example, the generation issues in the up country are making the electricity prices expensive for K-Electric consumers. The solution is to deregulate the sector and open up the market by reducing the hold and footprint of the government.