Reforms approved to usher in competitive power markets

ISLAMABAD: In a long outstanding major development, the National Electric Power Regulatory Authority (Nepra) on Monday approved an 18-month roadmap to the electricity stock exchange — Competitive Trading Bilateral Contract Market (CTBCM) — to convert the existing captive (single buyer) electricity market into a liberal multi-buyer environment.

Conceptually, this would mean the power generators and purchasers will have freedom to sell and purchase electricity bilaterally on take and pay basis through a market operator (MO) and special purpose trader (SPT) — Central Power Purchasing Agency — unlike the existing arrangement where consumers are bound to purchase electricity from the distribution company of a specific area. As such, the electricity units will ultimately be traded like share trading at a stock exchange.

The CTBCM is targeted to become fully operational in two phases in 18 months i.e by June 2022. Initially, the wholesale market will become operational and take over about 16pc of electricity sales and purchases. The CTBCM roadmap was submitted by CPPA to Nepra in February this year under various government decisions.

This is part of the power sector reform process started in 1992 and was expected to be completed in 3-5 years.

With approval of the CTBCM, the CPPA would function as market operator and start wholesale power exchange activities including metering, billing and settlement of electricity transactions through software based arrangement to be followed by retail exchange activities within 18 months to complete bilateral trading.

A formal announcement to this effect is expected over the next couple of days. Officials said the revised memorandums of understanding (MoUs) recently signed by the independent power producers (IPPs) with the government would also covered in the scherme, however, with a right of refusal to CPPA.

Under these MoUs, the IPPs had agreed to convert their existing contracts of guaranteed “take or pay” to “Take and Pay basis”, without exclusivity, when Competitive Trading Arrangement is implemented and becomes fully operational, as per the terms defined in the license of each IPP.

They had agreed that in the interim period, CPPA shall work towards providing access to the bilateral market at the earliest while the government had committed to actively support the creation of competitive power markets.

Officials said the right of refusal to CPPA had been put in place keeping mind that some IPPs having completed their debt repayments and are now in last leg of their power purchase agreements (PPAs) and will happily walk to their preferred consumers while IPPs still in the debt repayment tenure may not find their own customers.

An implementation group comprising federal secretary power and chairman Nepra will oversee the CTBCM implementation roadmap and ensure operational hiccups are addressed quickly to avoid market complications.

The power division, CPPA and Nepra, that have are reported to have laid some of the groundwork already, will be required to start complete roll out of regulatory, legal, technical, commercial and financial actions to facilitate transition to the wholesale power market.