Pakistan’s Power Sector Penalises Consumers While Resisting Rooftop Solar Growth |
Imagine for a minute that you are a consumer of electricity in Pakistan, getting it from the electric grid. Inspired by the government’s campaign to conserve energy, you decide to plug any leakages of energy from your house and replace all inefficient appliances with more efficient ones, obviously not without considerable expense. You go to sleep feeling elated for acting as a responsible consumer, only to wake up the next morning with a notice from your DISCO that reads:
Dear Consumer: We can’t allow any reduction in your consumption because it will negatively affect our fixed-cost recovery and shift it to other consumers.
Sounds absurd, does it not? But not to decision-makers in Pakistan, who find consumers an easy prey to dump the whole burden of inefficiency and poor management in the power sector. The regulator, who has the mandate to strike a balance between the interests of consumers of electricity and its suppliers, has turned a blind eye to consumers’ misery and seems always ready to follow dictates from above verbatim.
Two latest examples of the rough deal that consumers regularly receive from the government: first, a drastic cut in the buyback rates for consumers currently on net-metering and making new net-metering connections more difficult; and second, imposing fixed charges on residential consumers as well.
The mantra of fixed-cost recovery and shifting of unrecovered costs to other consumers is nothing but a pretext to perpetuate control of the monolithic power sector that every government in Pakistan likes to retain.
Net-metering, net-billing, feed-in tariffs, and similar policies are used as interim instruments to help nascent renewable technologies take a foothold in the market, which is skewed towards fossil-fuel-based generation. Revising or terminating them is not unusual. However, the haste with which the power ministry has tried to accomplish this and the reasons being used for this purpose raise serious doubts about the true intent behind this move.
Distributed solar (mostly rooftop) has been expanding rapidly in the country lately and has started to alarm the controllers of the power sector. Different sources place the distributed solar capacity in Pakistan between 33 and 46 GW. However, an official estimate provided by the Power Minister on the floor of the National Assembly recently placed it between 20 and 22 GW (only 6 GW of this is on net-metering).
Solar and wind both have some limitations, and their presence and operation in the electric grid certainly pose challenges. But nothing of size or nature that can’t be managed by careful planning and operation.
Most of the complexity (and cost) in the electric grid is due to consumers’ demand (or “load”), which varies randomly over time. Electricity also has unique constraints. The critical one is that it must be produced and delivered the moment it’s demanded because its storage has been both difficult and expensive. Suppliers must have resources ready to serve demand, anytime and anywhere in the grid. Recent breakthroughs in battery storage have started to ease this constraint, but we aren’t there yet.
Studies from around the world have corroborated that, if properly planned, deployed, and operated, smaller and modular VRE technologies can minimise and even eliminate costly and import-dependent thermal power generation
Studies from around the world have corroborated that, if properly planned, deployed, and operated, smaller and modular VRE technologies can minimise and even eliminate costly and import-dependent thermal power generation
Different technologies have evolved to serve electricity demand reliably and at the least cost. We have high upfront but low fuel-cost plants like coal and nuclear, on one hand, used primarily to serve base load that remains on the grid continuously. We have low-upfront but high fuel-cost combustion turbines and diesel generators to serve peak load that comes on the grid only for a few hours. We also have a host of other technologies that fall between these two extremes.
Multiple factors influence the selection of a portfolio of power plants to serve demand. Cost is a critical concern, but is not the only one. Other factors also influence this selection, like a plant’s function, its operational flexibility, its construction time and life, its environmental footprint, its role in local industrial development and job creation, self-reliance, and many more.
Historically, electric grids had large power plants that operated in strict synchronisation. Other than cost, fuel supplies for these have been mostly certain. These plants are termed “dispatchable” because operators can call them for duty whenever they need, except when these plants are down for maintenance or some technical problem.
The situation changes when we add variable renewable energy (VRE) plants to the grid. In addition to the randomness of demand and supply, a new uncertainty emerges—the intermittency and variability of sunlight or wind. VRE plants are non-synchronous and connect with the grid via electronic interfaces. They can’t operate like conventional plants and are considered “non-dispatchable”.
The simplest way to make a VRE plant dispatchable is to add storage with it. The only issue is that it adds substantially to the plant’s costs, often as much as doubling it. Some other techniques can also serve this purpose, but not without cost.
Regardless of who owns it, grid operation is governed by a standard set of procedures in a “scheduling and dispatch (S&D)” process. Economics is paramount but not always; other factors also influence this process.
Scale economies in generation, benefits of interconnection, and having no other alternative meant that electricity consumers had no option but to remain tied to their local grid regardless of its cost, reliability, or quality. Breakthroughs in the costs of photovoltaic and battery storage technologies have disrupted this century-old balance.
Scale economies reaching their limits, the advent of inexpensive information and communications technologies (ICTs), the phenomenal reduction in the cost of solar and wind and battery storage technologies, and concerns over pollution from fossil fuel plants have reshaped the electricity business. Large is no longer efficient and cheaper. Small is more economical and profitable.
The traditional approach to electricity supply through the centralised grid is no longer viable because consumers now have a choice. They can serve their demand by generating at their own premises to save their electricity bills (which have almost doubled in the past three years) and even earn money by exporting any excess electricity to the grid.
Studies from around the world have corroborated that, if properly planned, deployed, and operated, smaller and modular VRE technologies can minimise and even eliminate costly and import-dependent thermal power generation.
Distributed solar, behind-the-meter or tied with the local distribution system, offers many additional benefits. They are small, modular, more economical, and eco-friendly. They take no public space, no capital, operating, or fuel costs from the national exchequer, need no IPP-type contracts, and emit no noxious pollutants.
The fears of the government are misplaced and unfounded. These are mainly due to viewing distributed solar through the lens of the traditional business approach, which treats them as an appendage to the grid and negative loads that risk losing some revenue for the suppliers.
The current approach to power sector regulation also fuels such fears. Commonly termed “cost of supply” or “rate of return” regulation, it does not promote efficiency and performance and assures suppliers' recovery of their costs from the consumers, including those arising from inefficiency, losses, and ill-conceived past policies. Consequently, any option that has the potential of reducing their revenues is perceived by suppliers as a threat to their financial health.
This approach must change now. The critical step the government or regulator should take is to provide distributed solar a fair deal. This can be done by modifying the existing business evaluation criteria from its exclusive focus on minimising investment and operating costs to include the benefits of a candidate option in the equation.
Options and opportunities abound to manage the uncertainty and variability of VRE plants. The problem does not lie in any inherent limitation of VRE technologies or those who use them (net-metering or not). It rests in the resistance by the beneficiaries of the status quo, who are averse to any effort that threatens their old and comfortable routines.