Key Takeaways
- Pakistan has initiated a 400 MW electricity wheeling auction, moving away from the traditional single-buyer model.
- Large consumers can now negotiate directly with power producers, paying a Use of System Charge for network access.
- The auction aims to determine who gets access to available capacity, potentially reducing the government’s role in electricity procurement.
Pakistan has opened the bidding process for its first 400 MW electricity wheeling auction, marking a significant shift from the traditional single-buyer model. Under the new system, large consumers, particularly industrial users, will be able to seek electricity directly from power producers through bilateral contracts.
For decades, the government has acted as the central buyer of electricity, purchasing power from generators and supplying it through distribution companies to consumers. This new model, as explained by economist and Federal Minister for Power’s adviser Ammar H. Khan, is an initial step towards a competitive electricity market where power producers compete for customers.
The basic model involves a large electricity consumer identifying a supplier and negotiating a bilateral power purchase agreement. The supplier then uses the existing transmission and distribution network to deliver electricity to the buyer, with the consumer paying a Use of System Charge for network access.
Nepra has approved variable wheeling charges ranging from Rs. 6.23 to Rs. 19.62 per unit for participating bulk consumers, depending on their category, along with a fixed grid charge of Rs. 1 per kilowatt per month. These charges will be paid by the producer or buyer for access to the network.
The 400 MW auction is designed to decide who gets access to the available capacity. The government has set a base level for the auction, while participants will compete for the available capacity. Khan argues that competitive bidding can help determine a market clearing price and allocate limited network capacity to those with the greatest willingness to pay.
The current framework provides for 800 MW to be auctioned over five years, with 400 MW being offered in the first phase. This model could eventually allow an independent power producer to sign a direct contract with an industrial buyer without requiring the government to enter into another long term power purchase agreement.
By reducing the government’s role as the central purchaser of electricity, this move aims to shift more procurement decisions toward individual buyers and producers. The auction is seen as a crucial step towards a more competitive and efficient electricity market in Pakistan.
