KARACHI: The basket price of electricity in the K-Electric (KE) system — the only vertically integrated private utility in the energy sector — remained higher than the basket price in the nationwide system of the Central Power Purchasing Agency (CPPA) in 2020-21, according to the power sector regulator.

The National Electric Power Regulatory Authority (Nepra) said in its latest report on the state of the power industry that the higher price in the KE system was in spite of the fact that a sufficient quantity of gas was supplied to the private-sector utility at the local fuel rate as opposed to the relatively expensive imported RLNG.

Of the total 121,206 gigawatt hour (GWh) sold in the country during the last fiscal year, the share of KE was 13.25 per cent or 16,069 GWh. The Karachi-based company generated 10,185 GWh using its own plants and bought another 9,300 GWh from independent power plants (IPPs) as well as the national grid. Its transmission and distribution losses were 17.5pc in 2020-21.

“A much larger portion of the national generation mix consists of hydro power sources (around one-third) while KE’s generation mix uses natural gas, RLNG and furnace oil,” said a spokesperson for the Karachi-based utility.

“There are various reasons for the price difference in the cost of producing electricity between the national grid and KE. The important thing to note is that the price charged to the end consumer is the same regardless of the geographic location within Pakistan under the uniform tariff policy,” he said. Any variations between the cost of production and the cost charged to the consumer are addressed by subsidies and surcharges.

Nepra said in its report that CPPA, which is the energy market operator that facilitates buying and selling of electricity among generators and distributors, is also supplying “sufficient quantity” of electricity to KE at rates that are lower than KE’s own generation and power purchases.

The reasons for the high cost of electricity in the KE system, according to the regulator, include low efficiency of its newly inducted gas-based power plants as well as generation through furnace oil/RLNG from its low efficiency steam turbine thermal power plants. In addition, the regulator pointed out that generation through the costliest fuel — high-speed diesel — as well as purchases of electricity from furnace oil-based power plants also resulted in KE’s high cost of electricity.

The average cost of fuel for KE’s “own system” in 2020-21 was Rs12.41 per kilowatt hour. In contrast, the fuel cost in the CPPA system ranged between Rs3.24 and Rs6.06 per unit in 2020-21. However, these numbers don’t take into account capacity payments which, together with fuel charges, form the total generation cost.

Nepra noted that KE was generating and/or purchasing electricity from higher-cost power plants even though the cost-efficient take-or-pay generation capacity in the CPPA system remained either unutilised or under-utilised.

“One main reason for the non-purchase of cheaper electricity by KE from CPPA appears to be an inadequate transmission system,” it said, adding that that the inadequacy of the transmission system between KE and national grid was impeding the bilateral electricity trade between the two systems for the optimal utilisation of available resources in the country.

The KE spokesperson said the company was already importing about 1,100 megawatts (MW) from the national grid and planned to enhance it over the next few years. “The addition of KE’s 900MW RLNG-based Bin Qasim Power Station III as well as renewable energy will help lower the cost of electricity,” he said.

Published in Dawn, October 21st, 2021