Daily Times

The days of long-term strategic planning in the electric utility business are already over. As the industry undergoes an unprecedented transformation, unleashed mainly by technology-driven disruptive market forces in the past decade, almost all aspects of this hundred-and-forty years old and stable industry have come under critical scrutiny-the physical infrastructure, the institutional setup, the business model, the regulatory framework, the pricing and performance control, and you just name it. A new approach now seems to be sinking in the boardrooms of electric utilities that their focus now, in sharp contrast to this industry’s history, must shift to the extreme end of its value chain, the end consumers, if the industry is to avoid annihilation and remain viable.

Our Energy Minister, Omar Ayub Khan’s latest statement, at the inauguration of “Energy Week” of National Electric Power Regulatory Authority (NEPRA) on February 24, 2020 that Pakistan needs investment of over $100bn in the power sector ($45bn for generation, $20bn for transmission, and $15-20 for distribution), therefore, is somewhat disturbing. It shows a continuation of the traditional way of managing this sector. In this writer’s view, 80% of the future investments should go to augmenting and strengthening the T&D systems and capabilities and the rest 20% to centralized generation facilities.

Infrastructure industries, previously thought to be an exclusive domain of the state for their natural monopoly and public-service nature, also couldn’t remain immune to the disruptive market forces. First to fall was public transport, then the airline industry, and later the telephone industry. Due to its size and complexity, electricity business acted as the last bastion of this special category of businesses. It did resist major changes until the last decade, except a guided competition here and some choice allowed there. But, with the advent of small-sized generators with cost and performance characteristics beating those of their large-sized competitors, this industry also couldn’t withstand the market’s onslaught. The final death blow to this behemoth, however, was dealt by the recent availability of small, modular, and competitive renewable power generation technologies.

The planning function at NTDC will still be required but its aim and role will have to change significantly. Instead of acting as the sole planner for the power sector, it will need to act as a coordinator and facilitator in linking together the multiple mini-grids under the DISCOs

The industry is arguably at a crossroads right now. Some other developments, chiefly the growing popularity of electric vehicles (EVs), EV-driven battery storage, and smart grid technologies, are poised to shakeup the foundation of this industry. The question isn’t whether to change or not, as there is consensus among utility executives that they must change to remain profitable. The real issue, however, is how to manage this change and to what degree, as some of them, due to their sheer familiarity with old habits and comfortable routines, are still reluctant to make a radical change even though the world around their industry has drastically changed.

But change they must because it’s unavoidable. The sooner they did, the better it would be. Planning and planners hold a key and pivotal role to easing out the requisite transition. From its traditional role of providing business solutions to executive management that are robust against a set of predictable future scenarios, the utility planners are now increasingly being called upon to aid their top leaderships in thinking strategically and thus devising appropriate strategies to realign and redefine their position in a market that continues to be dominated by unpredictable surprises. In this new world, “strategic planning” is an oxymoron. Agility and flexibility for adapting are the new rules of the game called electricity supply and delivery business.

“When the world is predictable, you need smart people. When the world is unpredictable, you need adaptable people.” had commented distinguished Professor Henry Mintzberg, at Canada’s McGill University, who has studied the formal and informal roles of managers in business success perhaps more than anyone else among his peers. His seminal book, “The Rise and Fall of Strategic Planning” and a paper on the same theme in Harvard Business Review (HBR), both published in 1994, had sent jitters through the spines of business school faculties and corporate executives across the world. “Strategic planning”, met its coup de grace in the 90s, after enjoying its zenith in the 70s and 80s, as industry after industry went through major upheavals and reshuffling to survive the ruthless competitive market forces that were set in to motion.

The traditional approaches to electricity resource planning, including “least-cost planning”, “integrated resource planning”, “portfolio planning”, and more recently, “value-based planning” are all remnants from an era when electric utilities were considered among the most stable and least riskiest of industries for investment since economies of scale existed in the generation and transmission of electricity, competition was non-existence due to natural monopoly character of this industry, consumers had no choice in suppliers, and a decent return on investment was virtually guaranteed by the regulators.

Traditional planning essentially consists of aggregating consumers’ forecast demand within the utility’s control area and meeting it through a least-cost (capital and operating) sequence of generation and transmission and distribution (T&D) capacity additions. These approaches have lost their rationale as well as utility. A continued reliance on this approach essentially is tantamount to locking the country into capital-intensive, long-lived, import-dependent, and environmentally-hostile power sector infrastructure which, once in place, will be difficult to change, let alone rollback completely.

In the changed approach, the system planning will need to start at the consumer’s end, by identifying his energy service needs, for example space conditioning, lighting, cooking, food preservation, mobility, etc. After identifying these at the individual customer as well as community levels, planners should consider the scope of electricity in serving these requirements, at source, via a nearby distributed plant, or from the utility’s main grid whichever proves to be the most feasible solution.

Reaping the huge potential that shifting the planning and development focus at the demand’s end holds, however, will not be easy. It will require a strong political will and commitment by the government and some systemic overhaul in the existing institutional structure in the power sector. Most planning tools, institutional capacity, and financing arrangements have evolved around large and central-station supply-oriented schemes based on conventional fuels and technologies. As such, these long-standing practices will be difficult to unravel and replace with a new thinking that surely will involve more labor by the planners for which they presently are neither trained nor have the requisite tools. Potential investors might also shy away from investing in such small-size schemes owing to their distributed and scattered nature and consequently higher risks.

A major part of the system planning function will also need to move from its current central location-under the National Transmission and Despatch Company (NTDC)-to Distribution Companies (DISCOs) as these entities are much closer to the end-customers, and thus can better plan for the demand and required supplies within their jurisdictions. In a sense, DISCOs will be planning for mini-grids that will be designed to function as autonomous systems largely but will be tied with the NTDC’s national grid to mutually assist each other to enhance technical and economic operation of the country-wide interconnected system.

To accomplish the above objectives, the existing planning capacity within DISCOs will require considerable strengthening and re-equipping to enable them to perform their new and enhanced roles effectively. The planning function at NTDC will still be required but its aim and role will have to change significantly. Instead of acting as the main and sole planner for the power sector, it will need to act as a coordinator and facilitator in linking together the multiple mini-grids under the DISCOs. The suggested changes will be difficult as well as time- and resource-consuming, but their payoffs to the nation would be huge in terms of avoiding unnecessary, capital-intensive, and largely import-dependent generation, transmission, and distribution assets.?

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