Central Power purchasing agency (Guarantee) Limited

Central Power purchasing agency (Guarantee) Limited

Competitive Markets Setting the Perspectives EMP @ LUMS Sep 11-14, 2018 www.cppa.gov.pk Catching-up CPPA: Website for EMT; www.cppa.gov.pk CEOs Conference Meeting at IESCO Market Working Group Association of DISCOs Keep pursuing the participants EMT Team Members: Learning and only self learning Module II Introduction & Key Objectives Objectives Schedule www.cppa.gov.pk Scheme of Presentation

Part-1 Electricity Markets: Setting the Perspective Part-2 Pakistans Electricity Market Framework Part-3 Electricity Market Team (EMT) Part-4 Revision of Key Concepts from Module-I www.cppa.gov.pk Part I Electricity Markets: Setting the Perspective www.cppa.gov.pk 4 The Electricity Market A trading environment where multiple sellers trade with multiple buyers, market products under specific rules. Why they have been there in many countries?

Service providers. What do they do?. Restrictions? Competition may apply in certain segments of the market. Which ones? Why? Why regulation still is necessary? www.cppa.gov.pk Parameter Pakistan India Bangladesh

Turkey Brazil USA Real GDP CAGR (2016-25) GDP Per Capita (USD) Population (Million) HDI (Rank) Ease of Doing Business (Rank) CES (Unemployment) % Elct. Market Structure 5.1% for S. Asia 1,547 200 148 147 6 5.1% for S. Asia 1,516

164 140 177 4 1.7% for Europe 10,540 80.7 72 60 11 1.9% 9,821 210 79 125 11.8 2% 59,531 325 11

6 4.4 Single Byer Multiple Seller 7.7% 1,939 1,339 131 100 8.8 Multiple Byer Multiple Seller Single Byer Multiple Seller Competitive Competitive

Competitive 31,000 330,000 13,846 80,000 154,000 1,074,000 (58% coal) (66% Gas) (34 % Coal) (Hydro 64%) (Gas & Coal 30%

each) 26,700 107 471 KWh 46 17% 160,000 1,236 806 128 20% 46,000 300 2,855 294 15 85,000 585 2,601

287 16 5.4% 7% approx 14,000 57 310 40 11 7% next 5 years 4% approx. - Installed Generation MW Dominant Fuel for Electricity Generation % Peak Demand MW

Energy Generation TWh KWh per Capita (2014) Watts per person (2014) T&D Losses % (2014) Demand Growth CAGR in medium term % 800,000 apprx 4,013 (3304) 12,984 1,377 6 From negative to around 1 % by 2050 Parameter Pakistan India Bangladesh

Turkey Brazil USA Access to Electricity (2016 World Bank) Industrial Consumption % 99%? 84% 76% 100% 100% 100% 29%

30% 8.75 12.5 7.3 - 13 16.4 - 30% approx 12.6 8.3 16 Avg. Tariff (PKR) Avg. Indust. Tariff (PKR) Avg. Resid Tariff (PKR) Evolution of Each Model

--------------- Drivers of the Change to the Market Model Strateg y Efficiency through competition in generation and retail Regulation for activities not appropriate for competition, specifically networks Objectives Search for efficiency, as the traditional model had no incentives for reducing costs and making prudent investments

Facilitate the financing of the sector, introducing dynamic and creditworthy players Increased efficiency and appropriate financing ultimately should lead to lower tariffs and better service quality for end users 9 www.cppa.gov.pk Lack of an agreed best practice design of the markets And others Central clearing in a pool And others Bilateral markets

Nodal prices Single /zonal prices Capacity and energy market Energy only ISO + independent trans. firms TSO + Power exchanges Financial rights point-to-point Physical rights on flowgates www.cppa.gov.pk What World has achieved Through Wholesale Competition US (PJM): Downwards Trend in Power Prices : Average annual wholesale energy price of $36.26 per megawatt hour (MWh)

in 2015 was lower than the 2000 price of $42.28/MWh Capacity Resources: Gain of 17% in installed capacity, which ensures that sufficient resources are available for reliability Operational Efficiency: Improvement in generator operational efficiencies (e.g. increased thermal efficiency, reduced reactor outages) and reduced labor and non-fuel costs www.cppa.gov.pk www.cppa.gov.pk What World has achieved Through Wholesale Competition UK: Reduction in electricity prices for end user Increase in the generation investment Active participation of demand Turkey: Market transparency for new entrants both on production

and retail side Sufficient diversity of active players Development in the installed capacity Market price decreased from 100 $/MWh to 49 $/MWh over www.cppa.gov.pk a period of 2009 to 2017 www.cppa.gov.pk Part II Pakistans Electricity Market Framework www.cppa.gov.pk 13 Overview: Market Operator in the Electricity Market Service Providers CPPA Government of Pakistan Market Participant

NEPRA (Regulator) MO Pakistan Atomic Energy Commission Power Division CPPA-G WAPDA Water Projects PEPCO Ownership Mega

Dams AEDB PPIB CHASHN UPP KANUPP Licensees Ownership Private Sector IPPs SPPs/ CPPs KElectric

SO + TNO GENCOs DISCOs NTDC (TNO+SO) www.cppa.gov.pk Electricity Market: Service Providers and Participants Wholesale Electricity Market Operator Energy purchased in FY2017 = 107 TWh Generators as Market Participants Transmission Service - Total Generators Online = 73 Provider NTDC - Installed Capacity = 31,222 MW - Total PPAs/EPAs signed = 113

- DISCOs: Wire Business & Supplier - BPC > 1MW - Participants as Retail Suppliers - Others non-eligible 10 DISCOs and KE customer - Service Provider for wire business/distribution - Energy Sold in FY2017 = 104 TWh www.cppa.gov.pk Pakistans Electricity Market Framework Legal Electricity Market Framework Electricity Act 1910 NEPRA Act 2018 Policy National Electricity Policy & Plan

Regulatory Generation Transmission System Operator Market Operator Distribution Markets Market Rules, Power Procurement Rules Power Policy 2013 Grid, Commercial and Distribution Codes Transmission Network Operator (TNO) Wheeling, Competitive Bidding, Import Regulations

System Operator (SO) K-Electric Planner Distribution Wire Business (Regulated) Single Buyer Metering Service Provider Operational Planning Supply = Demand Agency Role 1994, 2002, 2015

Public Sector IPPs Constitution Parliament CCI/MoE NEPRA Regulated to Competition NTDC Regulated Service Provider NPCC Regulated Service Provider Billing & Settlement Market & Product Development

CPPA Regulated Service Provider Metering Service Provider (Regulated) Sales or Supply Business (Competition) DISCOs/KE Competitive Wholesale Competitive Retail Increase Competition New NEPRA ACT Amendments : Important Timelines and Sequencing 2 Section 14A.2b: Policy and plan on efficient and liquid

power market design 6 System Operator Licensee Considering 23G & H can come into force within 05 years & then there are 02 years for licensing (Maximum: 5+ 2= 7 years) 4 Market Operator Licensee Considering 23 A & B can come into force within 05 years & then there is one years for licensing (Maximum: 5+1 = 6 years) 3 Section 50(2): Rules and regulations shall be CTBCM Model brought into conformity Approval within 01 year 1b April 2018

2023 2024 2025 5b 1a Enactment of NEPRA ACT 1997 (Amended vide 2018) 2021 2019 Electric Power Trader Licensee 23 C &D

Electric Power Supplier Licensee 23 E & F Can only operate within an Enabling Environment i.e. (a) a competitive market model is in place and (b) the rules, regulations, codes, procedures and standards etc. are amended or created 5a CTBCM Commercial Operations Date, providing an Enabling Environment for Trading 8 Delicensing of Generation Companies 14 B 7 Separation of Supplier and

Distribution Licenses 23 E www.cppa.gov.pk Important Timelines and Sequencing 1b. CTBCM Approval & Policy & Plan 2. National Electricity 3. Rules and Regulations in conformity 4. Market Operators License 5a. CTBCM COD & Traders for BPCs 5b. Licensing of Suppliers and 6. System Operators License & Supplier and Dist. Licenses 7. Separation of

www.cppa.gov.pk 18 NEPRA Act As Amended 2018 Licensed Entities: Market Operator System Operator Transmission Operators Distribution Service Provider Traders Suppliers De-licensing of Generators www.cppa.gov.pk Role of Policy Maker In other words, the Government (with political objectives) Regarding Competitive Electricity Wholesale Market development:

Normally the political decision translates into policies the policy made by policy makers Include the market development as part of the national electricity policy (objectives, targets, mandates etc) Promote the promulgation of laws and policies to shape legally the political decisions www.cppa.gov.pk Role of Regulator It is a professional body not subject to political interests Regulate according to the law and other binding documents Regarding Competitive Electricity Wholesale Market development: Approve the rules; codes, procedures, etc. Which will regulate the functioning of the marke In the end, approves the market model that responds to the policies and the laws Monitor and supervise the functioning of the market (particularly the risk of market power abuse) May implement independent market surveillance measures Amend; adjust, create new, etc. rules, regulations, etc as needed (usually through consultation) www.cppa.gov.pk

Role of Market Operator MO must be an independent body, without any commercial interest in the market non profit entity Strict transparency and accountability rules Regarding Competitive Electricity Wholesale Market development: Well positioned to propose features of this market; the definition of a market model and products requires many pragmatic considerations (known by whom are close to the market) Well suited to prepare and propose rules, regulations and procedures for approval of the competent authority Monitor the settlement role cycle: metering, collection, validation, calculation, publication Market contracts registry (necessary for settlement) Market participants registration Credit cover administration www.cppa.gov.pk Role of System Operator

SO must be an independent body, without any commercial or technical interest in the market non profit Strict transparency and accountability rules Governance to balance conflict of interest Regarding Competitive Electricity Wholesale Market development: Propose Grid Code amendment according to the market design (for approval) Prepare the security constrained economic dispatch according to the Grid Code (security an optimization) Operational planning, day ahead, unit commitment, etc In some cases expansion planning (indicative or not) for approval

www.cppa.gov.pk Planning and Power Procurement Cycle Planning Cycle Integrated Energy Plan (IEP) Energy Forecasts Procurement Plan Technology type Size Timings Fuel Mix Targets for Electricity Sector National Electricity Policy Long-term

Forecasts (NTDC PC4.2) Medium-term Forecasts DISCOs (DPC 5) Procurement Fuel Mix Targets Other policy inputs Indicative Gen. Cap. Exp. Plan (IGCEP) (NTDC PC4.2) Reconciled Demand & Energy Forecasts Mandatory Trans. Expansion Plans PPIB, AEDB, PPDB etc.

Issuance of LoIs or Bidding Role of DISCOs Discos in fact play two roles: Network services Retail services Integrated in one company or not The retail side is market participant (sells and buy) There could be more than one retailer per jurisdiction

Retailer for regulated customers and for BPCs Regarding Competitive Electricity Wholesale Market development: Balancing mechanism participant Responsible for demand forecast (long, medium, short) Credit cover www.cppa.gov.pk Retail Competition It is not just to split retail from network services It refers to when a customer can choose his/her supplier

There must be more than one supplier Competition arises when prices and other conditions are negotiated between the parties (no regulated tariffs) Service providers The supplier of last resource Metering, invoicing Gradual implementation www.cppa.gov.pk

Role of Transmission Companies Not a market participant. Regulated function. It could be a for profit company. No rights to sell and buy It may or not have obligations to decide expansions Regarding Competitive Electricity Wholesale Market development: Transmission system operation. Dispatch may or not Expansion planning Open access. Connection agreements Regulated rates Losses depending Availability obligations system operation may or not be in it Penalties for non compliance Public ownership dilemma www.cppa.gov.pk

Background on Market Development - ECCs Decision April 2015 Legal formation of CPPA. However, functioned as Department of NTDC from 2009 to 2015. - CPPA through consultation prepare CTBCM Model and Plan by June 2017 - The CTBCM is for wholesale market - Will be approved by NEPRA - Commercial Operations date: June 2020 - CPPA Operationalized 2002 2009 2013 2015

- NTDC was granted Transmission License to perform five functions: .1) TNO .2) SO .3) Planner .4) Metering Service Provider .5)Contract Registrar/ PEX Administrator - Per licensing requirement, NTDC was 2017 -The model and plan submitted to NEPRA for review - Request for ECC in amending timelines - New NEPRA Act Amendments 2018 - CPPA prepared and submitted the

- National Power Policy 2013 - Innovative business and regulatory models will be deployed to weaken the monopolies, increase efficiencies, and decrease costs through competition. Wheeling charges and whole sale markets may be introduced to introduce multiple buyers and sellers in the market place. model and plan to Board in July 2017 - The Board formed a Special Committee - The Special Committee evaluated the plan - Consultations with SECP www.cppa.gov.pk CPPA-G (The Market Operator) Power and Commercial Flows Generation Portfolio

DISCOs IESCO 2002 & onward IPPs LESCO NTDC GENCOs WAPDA (Hydel) 1. System Operation 2. Transmission Network Operator PPAs Grid Code

1994 IPPs Renewables (EPP & CPP) +UoSC CPPA-G Market Rules 1. Market Operator 2. Market Operations Commercial Code 1. Meter Reading Verification 2. Billing 3. Settlements 4. Payments FESCO GEPCO MEPCO SEPCO HESCO

(EPP & CPP) +UoSC+ MOF QESCO PESCO TESCO EPP & CPP Power Flow Financial Flows (EPP & CPP) +UoSC+ MOF+ DM www.cppa.gov.pk Market Structure Market Structure: Pakistan has a single-buyer market structure in place. Buyer: Central Power Purchasing Agency Guarantee (CPPA-G) Ltd. Three major types of power purchase mechanism in place:

Power Purchase Agreements (Take or pay capacity) Power Purchase Agreements with (Take or www.cppa.gov.pk pay capacity and Energy) Types of Agreements: Take or Pay Capacity Power Purchase Agreement Capacity Charges Fixed Operation & Maintenance Cost of Working Capital Insurance Debt Service Return on Equity Fixed Cost and Must be paid (Take or Pay) Energy Charges

Variable Operation & Maintenance Fuel Cost/ Water Use Charge Variable cost only payable if energy is purchased www.cppa.gov.pk Types of Agreements Power Purchase Agreement (with fixed energy supply clause) Capacity Charges Fixed Operation & Maintenance Cost of Working Capital Insurance Debt Service Return on Equity Fixed Cost and Must be paid (Take or Pay) Energy Charges

Variable Operation & Maintenance Fuel Cost Ash Disposal (for coal only) Lime Stone (for coal only) Water Charges (for coal only) Certain % of energy must be bought (Imp. Coal 50%, RLNG 66%) www.cppa.gov.pk Types of Agreements Energy Purchase Agreement Operation & Maintenance Cost of Working Capital Insurance Debt Service Return on Equity Must-run plant www.cppa.gov.pk

Supply Demand Position: NEPRAs State of Industry Report 2017 www.cppa.gov.pk Indicative Dispatch Illustrated in Future E.g. Demand: E.g. Supply as per Merit Order 35,000 MW All other plants according to economic merit dispatch order Gets priority in the merit dispatch order due to contractual set-up RLNG Plants ---35,000 MW

Local Coal Plants Imported Coal Plants Nuclear Out of merit order, must run Solar Wind Bagasse Hydel ---0 www.cppa.gov.pk CTBCM Model & Roadmap www.cppa.gov.pk Wholesale Market Development Mandate

ECC 2015 decision point number 09: Prepare a Model and Plan through consultation Submit Model and Plan for NEPRAs approval To initiate the Wholesale Competitive Market by June 2020 NEPRA Act as Amended; Section 2 Definitions; Market Operator is responsible for organization and administration of trade in Electricity Markets Market Rules 2015; Rule 2(1)h, Schedule-2, 3(d); Market Operator will facilitate in developing and implementing competitive power markets www.cppa.gov.pk Market Design and Implementation Strategies Phase-I (Basic Market Design) Task1: Inception Mission Phase-II (Detailed Market Design) Task8: Documents Development

Phase-III (Implementation) Task10: Adapt CPPA Organization to new Market Model Task11: Implementation Support to Entities (Market Development) Task2: PPA Bifurcation Wire Business Remains Task9: Development of Regulated Task3: Capacity Building Standard Contracts and Market Procedures Task4: Conceptual Market Design Report I & II Deliverables Deliverable Task5: CTBCM Plan is - Mkt. DesignCompetition

Document Power Market Transition Report III Gradually Introduced in Draft Regulatory Task6: Business Case Timelines Met Wholesale and Retail Amendments Development - Strategies for PPAs Business Task7: Stakeholders Assignment and Engagements Alternatives Deliverables - Capacity Building - Capacity Building

- Market Model Reports Completed - CTBCM Plan www.cppa.gov.pk June 2016 June 2017 July 2017 End of 2018 Aug 2017 2020 Results: Global Strategic Partnerships MoU Singed Full Time Member CPPAs active participation MoU Singed Several exchanges conducted Collaborating on fronts of IT, capacity building and knowledge transfer

www.cppa.gov.pk CTBCM Concept Existing PPAs between IPPs and NTDC/CPPA G (on behalf of Discos) will be converted into bilateral contracts between each IPP and all Discos CPPA G MO SPS IAA Plus a Balancing Mechanism to settle contract deviations www.cppa.gov.pk No. GROUP OF ACTIONS

Stakeholders directly involved 0 Implementation Process Start; Overall Decision and Actions; Coordination MWP NEPRA CPPA G No. 10.1 GROUP OF ACTIONS Codes: New Market Commercial Code Stakeholders directly involved

CPPA G draft and consultation, NEPRA review and approval. NTDC and Grid Code Review Panel. NEPRA review and approval. 1 Policy on market development, White Paper describing the market conceptual design NEPRA; CPPA G (draft); MWP public consultation and with other institutions, 2 Amendment to legal framework

MWP with CPPA G support 11 3 Modifications to adapt or replace energy policies to be consistent with the market development policy MWP Discos & MWP as the owner Strengthening Discos credit worthiness and of Discos 12 readiness as market participants and SPS 4 Modifications to power sector regulatory

framework to be consistent with the market NEPRA. development policy Open access to transmission services: 13 formalize transmission services rights and obligations NTDC as Transmission Network Owner NPCC as System Operator. 5 MWP and CPPA G, Assignment of pre-existing PPAs/EPAs signed or administered by CPPA G among IPPs and Gencos Imports Discos Discos NTDC as Planner (Least cost expansion 14 plan) and Metering Services Provider (adequate revenue settlement meters)

6 Separation of CPPA G into Market Operator CPPA G and Special Wholesale Supplier Functions Measures to enhance wholesale payment 15 culture: credit cover mechanisms and payment system 7 Creation of the Market Operator as a separate company 16 Readiness for commercial operation of electricity market: NTDC, NEPRA review and

approval of plan CPPA G (as observer of CPPA G/Market Operator Discos MWP IAA Lead by CPPA G, includes all market participants; CPPA G reporting of readiness tests and results 8 CPPA G in particular SPS Creation of the SPS as purchaser of not yet Business Unit; not assigned PPA/EPA Discos 17 Declaration of date to start commercial operation of the market

9 Creation of the Independent Auction Administrator (IAA) and scheme for credit cover / guarantees for low performing Discos CPPA G in particular Market Operator Business Unit MWP (PPIB); CPPA G Discos 10.2 Codes: Update Grid Code Strengthening of System Operator, enforce NTDC and NPCC rights and obligations MWP

www.cppa.gov.pk Some Key Points Products; Capacity & Energy contracted in future, than how to move forward? Gradual transition, What should be done: Contracts for Eligible and Non-Eligible consumers Initiate Signal for imbalances Strengthening of key market functions Alignment of Legal, Policy, Regulatory frameworks and institutional roles

Auctions made part of market approved design Market Development a Team Obligation www.cppa.gov.pk Part III Electricity Market Team (EMT) www.cppa.gov.pk Market Team CPPA Core Market Team www.cppa.gov.pk Part IV

Key Concepts Revision from Module I www.cppa.gov.pk How much do I value Mangoes? www.cppa.gov.pk www.cppa.gov.pk www.cppa.gov.pk www.cppa.gov.pk www.cppa.gov.pk www.cppa.gov.pk www.cppa.gov.pk www.cppa.gov.pk www.cppa.gov.pk

www.cppa.gov.pk www.cppa.gov.pk www.cppa.gov.pk www.cppa.gov.pk www.cppa.gov.pk www.cppa.gov.pk www.cppa.gov.pk www.cppa.gov.pk www.cppa.gov.pk www.cppa.gov.pk Is Trading of Energy Contracts on Existing Commodities Exchange Possible?

Differences Between Electricity and Red Chili as a Commo # 1 Characteri Electricity as Commodity stics Electricity cannot be stored like other No commodities. Currently, there are technologies Storage/ that are under research for the storage of Inventory electricity. However, it is still not economical to store large quantities of electrical energy. Red Chili as a Commodity Other commodities are storable. For example, red chili can be stored easily and can be used on need basis.

2 Consumpti on is linked with real time production Because the Electrical Energy is not a storable commodity, it must be produced instantaneously when demanded, e.g. when we switch on light, additional generation must kick-in spontaneously This is not the case with red chili, e.g. red chili can be stored and consumed whenever needed. 3 System

Operators Role In electric power system, the System Operator keeps the equation Energy Produced = Energy Demanded in balance, on second by second basis, otherwise the whole system can collapse. The System Operator also clears the generators for dispatch. The Physical Markets have very There is no such need for central balancing on a real-time basis like in an electricitys market. Chilis can be stored for use later-on. Even in-case 67of imbalances between demand # Characterist ics 4

The short-run price elasticity to demand is low, Price therefore, balancing supply and demand Elasticity of Demand requires productions facilities to follow large variations in demand. In-order to follow this demand, different generators are run resulting in the changing of marginal cost of electricity to vary throughout the day. 5 6 Electricity Red Chili as a Commodity Owing to the availability of the storage facilities, the production does not have to follow the variations in

demand on short term basis and thus, the short-runmarginal costs do not change as in electricity Energy produced by one generator cant be In case of chilis market, any Cant directed towards one specific consumer in Grid. consumer can be supplied Direct the product from any Electricity The electricity follows the least resistant path. Therefore, the energy generated is pooled and producer. There is an from a infrastructure of Particular is transferred to consumers following laws of transportation available Seller to a physics which can be used freely Buyer between the suppliers and demand The chilis market does not Deviations As consumers are connected to electrical grid

and one cant limit their consumption in realhave any such deviations. between The buyer purchases, what Contracted time, therefore consumers continue to draw 68 electrical energy as per their instantaneous is contracted. Amounts # Characteristics 7 In wholesale electricity markets there are two Centrally & Self Dispatch types of markets, Centrally dispatched and Selfdispatched. Centrally dispatch market (like Markets Pakistan) requires (non-embedded) generators to be dispatched based on a Security Constrained Economic Dispatch (SCED) by System Operator centrally. In a Self-dispatch market the generators

are self-dispatched based on contracts and this also requires System Operator to see the constraints allowing these dispatches. In both cases MO and SO are integral part market. Transmission The electrical energy between the buyers and Network (the sellers is transported over wires (transmission and distribution networks). The transmission and Marketdistribution networks, because of extensive place) constraints, imposes restrictions on dispatch that would limit/distort free trading. The System Operator also clears the generators for dispatch based on such restrictions & consequently impacts the contracted quantities. Therefore, market designs for trading has to account for all such factors. 8 Electricity Red Chili as a Commodity

These concepts are alien for Chili market There is no such physical network other than transportation infrastructure that is required to deliver the chilies. The roads are accessible to everyone and can be used for the purpose of delivery of the product at any time and thus, free 69 trading is possible. The Electricity Market www.cppa.gov.pk 70 Concepts and Units www.cppa.gov.pk 71

Capacity a Different Product? (1) There is no a single answer to this question. There are defenders in both sides. Energy only defenders (economic theory) if the market is efficient there is no need to encourage long term adequacy If the market is short, prices will go up: signal to develop additional investments. (however it requires that no limitation are on the market prices = frequent spikes Capacity defenders: the market is imperfect and the signal is not that clear when there is no enough generation that could lead to load shedding some kind of cost of unserved energy need to be used for settling the transactions. www.cppa.gov.pk Capacity a Different Product? (2) Empirical experience clearly suggest the convenience of treating capacity as a different product: New generation requires time to develop, so perception of perception of future risks is necessary

Regulator usually intervenes against price spikes, this eliminate signals required for developing new generation Extremely difficult to finance projects which expected incomes depend on price spikes. Some mechanism is needed to assure future adequacy = capacity treated as a different product justified to guarantee the security of supply www.cppa.gov.pk How to Handle Capacity? Capacity payment received by all generators, defined by the regulator (regardless their trade in the market). Add-on to the market price. LOLP * VOLL. All market participants contribute to long term adequacy. Obligation of having enough capacity contracted for the following x years. Penalized in case of non-compliance Organized auctions where the suppliers can obtain the capacity they need to comply with their obligations. An important number of hybrid (or ad-hoc) mechanisms. Any market: short term efficiency (dispatch) long term adequacy (capacity) www.cppa.gov.pk

Wholesale Market Generator 1 Generator 2 Generator 3 Generator 4 Wholesale Electricity Market Power Transmission System DISCO 1 DISCO 2 DISCO 3 Consumers Consumers

Consumers Bulk Power Consumer (BPC) Energy Sales www.cppa.gov.pk 75 Retail Market Generator 1 Generator 2 Generator 3 Generator 4 Wholesale Electricity Market Power Transmission System Retail Supplier 1

Retail Supplier 2 Retail Supplier 3 Bulk Power Consumer (BPC) Retail Market Power Distribution Network Consumers Energy Sales Consumers Consumers www.cppa.gov.pk 76 Electricity markets models Seeking for simplification Centralized economic dispatch market models in which the SO

runs an optimization software to determine the merit order list, which also takes into consideration regulated security limits.. Self dispatch market models in which the SO only takes care of the congestion and through different mechanisms adjust the operation to make it fesable within the regulated security limits. www.cppa.gov.pk Centralized dispatch model All generators and all the demand have to declare to the MO or M&SO available capacity prices variable costs price (with certain restrictions) pairs of quantities and prices SO dispatch generation based on security constrained economic dispatch www.cppa.gov.pk Trading Platforms In both markets it is possible to implement platforms

Trading platforms for eligible consumers and generators with no long term contracts normally are not regulated Result: a number of bilateral contracts between the sellers and the buyers Actual operation: In centralized dispatch market in self dispatched markets SO dispatches regardless contracts SO dispatches physically the contracts Deviations settled in balancing market Physical market Essentially financial instruments www.cppa.gov.pk What in Terms of Efficiency? Centralized economic dispatch: optimal solution for the

operation (least cost operation for the short and medium term), taking into account all possible restrictions All other types of dispatch, are either less efficient or at best, obtain same total costs as with the centralized economic dispatch model. In many cases, pre-existing conditions (like ownership, links with financial markets, etc.) condition the type of market to implement Centralized dispatch has proven to be very practical for cases with challenging starting point www.cppa.gov.pk Mandatory Power Pool Generation Unit 1 All generators must sell their entire production to the pool All suppliers must purchase their entire demand from the pool Mandatory Power Pool

System & Market Operator Generation Unit 2 Generation Unit 3 Supplier Customers Supplier Customers Large Industrial Customers Contracts for Difference (Financial)

Transmission Distribution Centralized scheduling, unit based www.cppa.gov.pk Grid Code: Central Dispatch www.cppa.gov.pk Voluntary Power Exchange Voluntary Power Exchange Generation Unit 1 Supplier Customers Generation Unit 2

Supplier Customers Generation Unit 3 Large Industrial Customers Bilateral Contracts System Operation Transmission Distribution Decentralized scheduling, company based www.cppa.gov.pk

What is an Imbalance? www.cppa.gov.pk 84 What is an Imbalance? www.cppa.gov.pk 85 Purchase of Energy in Wholesale Market www.cppa.gov.pk 86 Settling the Energy Consumption www.cppa.gov.pk 87 Imbalances-II www.cppa.gov.pk 88 Settlement of Imbalances

www.cppa.gov.pk 89 The Effect of Free Consumer www.cppa.gov.pk 90 Purchasing and Selling in an Exchange www.cppa.gov.pk 91 Real Time Dispatch Demand is continuously varying in time Every MW of power required at any point in time must be supplied at the same instance Indication to SO System Frequency Frequency = 50 Hz

Generation Demand Frequency < 50 Hz Generation Demand www.cppa.gov.pk Forecasting and its Horizons Forecast Type Purpose Typical Time Horizon Short Term Operation From hour ahead

al up to few days ahead OC 2 Generation schedule / unit commitment Marginal pricing Medium Term Operation From weeks ahead al up to few years Planning (typically 3-5) ahead OC 2,4 Maintenance outage planning Energy estimates

Fuel arrangements Cash flows Balance sheets Risk management Long Term Expansio n Planning PC 4 Transmission and generation expansion planning Investment analysis Determination of future sites and fuel resources for power plants Few years ahead up to 40 years

ahead Grid Target outcomes Code Referen ce www.cppa.gov.pk General Optimization Modeling Tools Capabilities Optgen SDDP NCP Objective Function Minimization of Total System Cost

Minimization of Total System Cost/Maximize expected revenues Minimization of Total System Cost/Maximize expected revenues Model Type Planning Dispatch Dispatch Planning Capability Generation and Transmission N/A

N/A Stochastic Yes Yes No Optimization Technique MIP Techniques MIP Techniques MIP Techniques Scenario Oriented Yes

Yes Yes International Experience Yes Yes Yes System Granularity All All All Simulation Horizon Long Term

Mid Term Short Term Simulation Steps Monthly to Yearly Weekly or Monthly From 15 mins to 1 hour Reliability Consideration Yes, Spinning Reserves and Operational Reserves Yes, Spinning Reserves and Operational Reserves

Yes, Spinning Reserves and Operational Reserves www.cppa.gov.pk How to Manage Demand Fluctuations www.cppa.gov.pk Planning and Power Procurement Cycle Planning Cycle Integrated Energy Plan (IEP) Energy Forecasts PPIB/AEDB/ PPDB etc Technology type Size Timings

Fuel Mix Targets for Electricity Sector National Electricity Policy Long-term Forecasts (NTDC PC4.2) Medium-term Forecasts DISCOs (DPC 5) Procurement Fuel Mix Targets Other policy inputs Indicative Gen. Cap. Exp. Plan (IGCEP) (NTDC PC4.2)

Procurement Plan Issuance of LoIs or Bidding Reconciled Demand & Energy Forecasts Mandatory Trans. Expansion Plans www.cppa.gov.pk Existing Flow for PPA www.cppa.gov.pk 97 Benefits of Competition Market-based price signals are transparent and can stimulate appropriate infrastructure investment, energy conservation, and demand response Achieve efficiency both in energy and economic terms

Pressure on Price / Adequacy Create the conditions for a fair allocation of risk and benefit sharing between investors/sellers and buyers/consumers Level the playing field; removing conflict of interest to facilitate entry of new investors and participation of private players, including Bulk Power Customers Ensure transparency and predictability Competition provides customers with choicesi.e., customer sovereignty www.cppa.gov.pk Thanks www.cppa.gov.pk

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