Daily Times

In Part I of this article (Daily Times, June 13, 2019), we discussed the few ‘disruptive trends’ in the electricity market that are driving down the cost of small scale and distributed renewable energy technologies (RETs), making it feasible for some consumers, especially those in the industrial and agriculture sectors, to opt for them in place of the utility supply.

We also noted that these trends were pushing our power sector into a death spiral’ as any effort to raise tariff to recover sunk costs in supply facilities was, in fact, backfiring. It was shrinking the price gap between grid supply and off-grid electricity production, and encouraging more and more grid users to opt for independent supply, thus eroding the power sector’s revenue base. What options then exist for us to ward off this impending threat? In a nutshell: we will need to scrap the century-old, and now obsolete, business operating model being used to run the power sector, and recast it into a dynamic business enterprise. Government will need to take a couple of short-term urgent actions that must be followed by a thorough overhauling of the power sector in the medium to long term.

In the short term, government should encourage electricity sales in the country by giving incentives to industrial and agricultural consumers, and also find ways to maximise the generating capacity’s utilisation, especially during off-peak hours. These will expand the revenue base while improving the use of existing power plants, thus easing the growing capacity cost stress to some extent.

Days of large-scale power projects are now over, except for perhaps hydro projects. The electricity world is now ruled by small-scale, renewable and distributed plants as these do not carry the huge risks of large projects, are modular in nature, and also help avoid the transmission and distribution (T&D) costs that are a necessary part of mega projects.

In the medium to long-term, therefore, the two must-do actions for our government will be to: (1) revamp the existing legal and regulatory structure in the country, and replace it with a more enabling and facilitative set of laws and regulations to encourage, and in fact, mandate power sector entities to embrace small-scale and distributed energy technologies into their systems; and (2) recast the electric utility business from its present rigid ‘take or leave’ service approach into a purely business-oriented enterprise by giving it autonomy and freedom to devise value-added service packages for its customers with a variety of pricing options to choose from.

As part of the first step, government will need to provide an enabling and facilitative policy and regulatory framework to encourage promotion and deployment of distributed RETS, storage technologies, and demand management schemes in the local electricity system.

Since the T&D networks will retain their natural monopoly status, a regulator will still be required, but its role and functions will radically change. Instead of its previous command-and-control and price-setter role, it will need to assume a more enabling posture by establishing a general regulatory framework and set of principles to regulate the participation of different players in the power sector.

In the short term, government should encourage electricity sales in the country by giving incentives to industrial and agricultural consumers

This regulatory framework will need to authorise power sector entities to devise and introduce innovative pricing and compensation schemes that induce consumers to install distributed technologies in the system. It should also enable proper accounting, allocation, and recovery of the various costs from the participating customers while allowing them a fair compensation for the benefits their facilities contribute to the grid.

As part of the second step, the electricity business in the country will need to be reworked along a more open and flexible lines to treat these new distributed supply and demand options as not competitors or threats but as partners and complements to the utility’s efforts to serve society with reliable, secure, and economic electricity.

Managers of these entities will need to not just encourage, but also seek, potential contributions from customers on such options and technologies. They will have already studied and identified the best locations in their localities for developing different distributed technologies, and use creative and aggressive marketing to encourage customers to actually go for these technologies.

They will also need to develop appropriate tools and data and information bases, and make these freely accessible to potential customers, for using these to assess the scope and feasibility of different options in meeting their own demand for electricity as well as their contribution to the grid.

As the grid will act as the enabling platform for integration and operation of diverse and distributed technologies, perhaps the most critical component in the reform effort must focus on modernising the exiting T&D networks in the country to transform these into a smart electricity grid that can facilitate the successful integration of distributed RET and demand management technologies.

The modernised grid will have to be capable of bringing together a range of energy technologies and processes, and various market participants-producers, operators and customers-with the aim to optimise resource utilisation and operational performance, minimise economic and environmental costs, and maximise system security, reliability, and resilience.

The growing popularity of EVs offers a unique opportunity to the power sector to use it as a counter-measure against declining sales and in their favour by actively developing charging platforms and services that EV owners can use. EVs can provide them with multiple benefits, both as a source of new demand and as a support to improve system reliability.

We can’t ignore the emerging trends in the world’s energy market. We also can’t just sit back and let the opportunity pass us by. Without an enabling business environment and facilitative operating conditions, the newer distributed technologies will still be ‘connected’ with the grid, but will not be optimally ‘integrated’ with it, thus raising numerous technical and financial issues for grid operators and utility managers.

Consumers will also lose because some of the economic and technical benefits that their newer technologies and schemes hold for the utilities will not be fully realised and compensated using the existing business model. The country on the whole will thus suffer.

It is, therefore, time for government to act because concern should drive us to action, and not despair.

Concluded

The writer is a freelance consultant specialising in sustainable energy and power system planning and development