NEPRA does not approve mechanism for K-Electric participation in CTBCM model

KARACHI: The National Electric Power Regulatory Authority (NEPRA) has not approved the mechanism for the participation of K-Electric Limited (KEL) in the Competitive Trading Bilateral Contract Market (CTBCM) model.

In the determination on detailed design and implementation roadmap of CTBCM issued on Thursday, NEPRA has advised KEL, Central Power Purchasing Agency (CPPA-G), and National Transmission and Dispatch Company (NTDC) to deliberate the mechanism in consultation with the relevant authorities and entities to finalize the scheme of arrangement.

NEPRA also advised the above-mentioned entities to come up with a comprehensive plan covering all financial, technical, legal, and market-related aspects of the matter with solid recommendations for approval within three months.

KEL had objected on CTBCM submitting the model was focused on incentivizing generation and did not address the critical issues dominant in the power sector of Pakistan including circular debt, lack of investment in T&D infrastructure, demand side management, off grid renewables, lack of planning, poor governance, high losses and cross-subsidization.

KEL also objected that if bulk power consumers (BPCs) were allowed to procure power directly from the market then this would result in increased T&D losses and stranded costs for the distribution companies (DISCOs), which would ultimately increase the tariff for the end-consumers.

Moreover, KEL commented that privatization of DISCOs should be considered given their financial standing and the requirement of credit cover for bilateral contracts, otherwise they would continue to rely on the government support, which may defeat the overall purpose of the CTBCM.

Additionally, necessary clarification on the taxation mechanism in the CTBCM may also be provided.

KEL commented that there should be a proper mechanism in the design to eliminate the possibility of arbitrage opportunities, higher margins due to market exploitation by certain type of participants, and risk of possible tacit collusion.

KEL also noted that due to intermittent nature of the Renewable Energy (RE) power plants, there should be a cap on the maximum share of renewable capacity to avoid any sudden imbalances.

Further, there should be clarity on the treatment of hydel and nuclear power plants in the competitive market being strategic projects. It was suggested that instead of the capacity pricing based on demand-supply intersection, every generator should receive the capacity price it bids in the market to avoid exponential returns for some generators.

KEL also proposed a proper criteria for the entry of suppliers as failure of the said to fulfill their obligations would transfer the burden to DISCOs putting sustainability of the sector as risk. Similarly, a minimum credit worthiness criterion may also be set for the BPCs.

Central Power Purchasing Agency (CPPA-G) will prepare and submit a plan for developing understanding, sharing of information with all the stakeholders including provincial entities, power producers, private sector, and other interested parties regarding CTBCM.

NEPRA in December 2019 approved the conceptual design of the CTBCM model, which was submitted by CPPA-G. In the said determination, NEPRA directed CPPA-G to submit the detailed design of the CTBCM along with its implementation roadmap.

CPPA-G submitted the detailed design along with its implementation roadmap on February 5, 2020. After a due process including seeking comments of the stakeholders and public hearings, NEPRA has approved CTBCM along with its implementation roadmap.

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