Our government, under IMF pressure, is currently mulling over a proposal to shift the burden of power sector’s inefficiencies on to the electricity consumers. The new proposal, under the title of “Debt Servicing Surcharge” will empower the National Electric Power Regulatory Authority (NEPRA) to pass on the cost burden of power sector’s technical and administrative inefficiencies, including the “circular debt” which is now touching Rs. 2 trillion mark, to electricity consumers.
It’s an ill-advised move for a host of reasons. First, the consumers are already drowning under the heavy burden of their electricity bills and any further increase in these will only add to their miseries. Second, the additional burden will necessarily be borne by paying consumers and not by electricity stealers or bill defaulters. Third, it will be akin to condoning the prevailing inefficiencies and mal-practices in the system. Fourth, it may further encourage consumers to desert the grid, by opting for PV systems on their rooftops, thus further suppressing the electricity demand which the government desperately needs to stimulate to control the runaway electricity costs. And, last but not the least, it will further reinforce the growing feeling that our government is either incompetent in managing national issues or is cruelly insensitive to the plight of common citizens.
One sincerely hopes that better sense will prevail and the government, instead of such thoughtless and sure-to-backfire decisions, will focus on addressing the real issues in the power sector head-on, that is, gross institutional mismanagement, pervasive technical inefficiencies and leakages in the system, excessive pilferage of electricity, and non-payment of bills by some powerful private and public sector consumers.
The government will need to provide an enabling legal framework to encourage the deployment of distributed energy generation and demand management schemes in the local electricity system
Even though the government’s 4-point power sector agenda agreed with the IMF (tariff increases, loss reduction, bill recovery, and replacement of DISCOs’ Boards and CEOs on merit) is a necessary set of reforms, it may not be sufficient to save the currently sinking power sector and could actually worsen its interminable woes. The primary reason for this skepticism is that the government is hoping to cure the power sector ills using an approach that has been rendered obsolete already in the wake of some disruptive trends in the energy market. The government, therefore, desperately needs a new vision to pull this sector out of its present quagmire and set it on a path to recovery.
Fortunately, the world’s energy market has taken a favorable turn recently, opening up a historic window of opportunity to gradually phase out our dependence on large-scale and capital-intensive generation facilities including IPPs and reorganize our electricity supply industry (ESI) on a more decentralized and distributed grid. Small power plants have emerged that beat the cost and performance features of large plants. Renewables, even without government support, are proving competitive. Deployment of intelligent and smart devices and meters are unlocking new opportunities for demand management. Affordable and modular battery storage technologies are enabling consumers to reduce, and even eliminate, their dependence on grid supply by coupling these with their rooftop PV installations. Electric vehicles (EVs) are also opening up new vistas due to their dual role as loads well as sources of supply.
The new vision for the power sector must build around four strategic threads: (i) it should be fully alive, responsive, and aligned to the market forces that are reshaping the energy sectors around the world; (ii) it should provide a business-friendly legal framework to reorganize the ESI along open, transparent, fair, and competitive lines; (iii) it must replace the traditional business model with a more innovative, liberal, flexible, and decentralized model in which all market players can participate fairly and beneficially; and (iv) it should shift decision-making in this sector closer to the end-users.
First, in the changed business landscape, a continued reliance on a centrally-planned and tightly-controlled top-down approach to power sector management, notwithstanding introduction of competition in some segments, is tantamount to inviting bankruptcy for not just this sector but for the national economy as well. The government will need to let go of this “command and control” mindset and instead take a more liberal and laidback approach to encourage small and independent power producers and consumers assume more active and participatory role in this sector’s various activities.
Most analysts now agree that the future of ESI will be ruled by small, distributed, and independent supply- and consumer-centric schemes that can be best managed through liberalizing and devolving the market and by empowering consumers and non-utility producers by building closer partnerships with them. The government and NEPRA’s role in the new setup will be essentially restricted to just setting the principles and rules of participation in the power market; not micro-managing it but “pushing it here and pulling it there” to keep it on track.
Second, the government will need to provide an enabling legal framework to encourage the deployment of distributed energy generation and demand management schemes in the local electricity system. The new policy framework should also encourage deployment of storage technologies in the system as these will enhance the value of renewable energy technologies while relaxing their intermittency and variability constraints. Similarly, besides being a source of new electric demand, battery packs in electric vehicles (EVs) can also support the power grid in more economical ways than the traditional solutions, and as such should form a key component of any future energy policy.
Third, the traditional business model in which power flows in one direction (from power plants to end-users) and revenues flow in the opposite direction (from end-users to utility) with electricity prices fixed by the regulator will not be effective in dealing with the new market challenges. In the new environment, power will flow in either direction as some of the consumers may now meet part or all of their electricity demand by generation at their own premises, and not infrequently, providing their excess power and capability to contribute to grid security and reliability. Like the power, revenues will also flow in either direction.
The electricity business in the country, therefore, will need reworking along more open and flexible lines to treat these new options not as competitors or threats but instead as partners and complements to the utility’s own efforts to serve society. The utility managers will need to not just encourage, but actually seek out, potential contributions from customers and investors.
Under this new vision, the fourth step will be to shift the decision-making from the center to as close as possible to end-users of electricity, that is, at the DISCO level. This will be imperative as DISCOs are in the best position to grasp the evolving patterns and dynamics of consumer demand, the potential of serving it through supply- or demand-side solutions, and the viability of different strategies in this respect.
The Ministry of Energy and NEPRA will need to empower DISCOs to devise and introduce innovative and flexible pricing and compensation schemes to induce consumers and investors to install such distributed technologies in the system. These schemes should also enable proper accounting, allocation, and recovery of the various costs from the participating consumers and other investors while allowing them a fair remuneration for the benefits their facilities provide to the grid.
Selection of DISCO Boards and CEOs on merit may be a necessary first step, but may not be sufficient. Their executives, in particular, will need to be hired based on the vision and business plans they present to the selection boards and how convincing and realistic the boards find them. It will also be necessary that these teams are offered time-bound and performance-based contracts with their compensations also clearly tied with their actual performance on these positions.
The writer is a concerned citizen of this country. He can be reached via email at: msrahim @hotmail.com