Pakistan has moved closer to launching a competitive wholesale electricity market after the National Electric Power Regulatory Authority approved uniform charges for consumers that use the national electricity network to buy power from alternative suppliers.
The decision concerns Use of System Charges, or UoSC, paid by eligible open-access consumers for using transmission and distribution networks.
For participants in the competitive wheeling auction, variable grid charges will range from Rs6.23 to Rs19.62 per unit, depending on the consumer category.
A fixed grid charge of Rs1 per kilowatt per month, based on sanctioned load, will also apply.
What is changing?
Pakistan’s electricity system has traditionally operated largely through a single-buyer structure.
The Competitive Trading Bilateral Contract Market, known as CTBCM, is intended to introduce competition by allowing eligible consumers to purchase electricity from suppliers through bilateral arrangements rather than relying exclusively on their existing distribution company.
The initial focus is on bulk and industrial electricity consumers rather than ordinary households.
NEPRA’s latest decision establishes uniform charges for using the electricity network, an important requirement for allowing these transactions to take place.
First 400MW auction
The decision clears the way for an initial 400-megawatt competitive electricity auction.
The government has allocated a total of 800MW for competitive auction in two phases, with 400MW planned for the first phase.
The Independent System and Market Operator of Pakistan is expected to conduct the auction.
Eligible industrial consumers participating in the system could then procure electricity from competing suppliers while continuing to use the national transmission and distribution network to deliver that power.
What will businesses pay?
The approved variable grid charges differ by consumer category.
For example, participating B-3 industrial consumers will face a grid charge of Rs6.23 per unit, while B-4 industrial consumers will face a charge of Rs9.09 per unit.
Other eligible consumer categories face higher charges, with the approved participating rates reaching as much as Rs19.62 per unit.
These network charges are separate from the actual price of electricity agreed between the buyer and power supplier.
Why it matters
The reform could represent an important structural change in Pakistan’s electricity market.
Allowing eligible businesses to choose among power suppliers introduces a form of competition that has largely been absent from the traditional system.
In principle, competition can create pressure on suppliers to offer more attractive prices and services.
It could also create additional opportunities for private generators, renewable-energy producers and other electricity suppliers to sell power directly to eligible consumers.
However, the existence of a competitive market does not automatically mean electricity prices will fall.
The final cost to a consumer will depend on the price negotiated with the electricity supplier as well as grid charges, market conditions and other applicable costs.
What happens next?
Attention now turns to the first competitive auction.
The Independent System and Market Operator is expected to establish the auction timetable and detailed procedures for the initial 400MW phase.
The effectiveness of the reform will ultimately depend on participation by buyers and sellers, the prices produced through competition and how smoothly open access works in practice.
For Pakistan’s industrial sector, the auction will provide an early test of whether electricity-market competition can offer businesses a viable alternative to the traditional power-supply model.
Sources: National Electric Power Regulatory Authority; Ministry of Energy (Power Division); reporting on NEPRA’s Use of System Charges determination.