Electricity Pricing Mr. Shahid Sattar Executive

Transcript:Electricity Pricing Mr. Shahid Sattar Executive:
Electricity Pricing Mr. Shahid Sattar Executive Director, APTMA Former Member Energy, Planning Commission 1 What is electricity pricing? Electricity prices generally reflect the cost to build, finance, maintain, and operate power plants and the electricity grid. Due to the complications of electricity generation, the cost to supply electricity varies minute by minute in electricity markets. The worldwide acknowledged cardinal principle is that least cost/competitive electricity pricing only possible through multi-seller competitive sales of electricity to consumers at all levels. 2 In developed markets, short-term prices are impacted the most by the weather. Demand due to heating in the winter and cooling in the summer are the main drivers for seasonal price spikes. Cost Of Fuels Power Plant Cost Transmission & Distribution System Weather Regulations Season Location Type Of Consumer Factors Determining The Price 3 Electricity Tariff Structure In Pakistan For residential customers, Pakistan’s electricity tariff adopts an incremental block tariff (IBT) structure, where a unit price increases in the amount of electricity use. There are many rationales for the IBT in Pakistan, but the main one is to protect lifeline (or extremely small) users. This increasing IBT prices goes against the principle of bulk discounts & costs of service! Pakistan is not marketing electricity (despite excess installed capacity), it is rationing the use of electricity through IBT and Revenue Based load shedding. This also flouts the universal access to power principle. 4 Pakistan - Mechanism For Setting Electricity Pricing? Revenue Requirement How much is needed to meet the cost of providing electricity distribution service, including cost of capital. The price / tariff for Generation, Transmission and Distribution segments and setting of consumer end tariff is designed by regulator. Determination of consumer end tariff ideally, the regulator has to follow the following steps for proper rate making for each class of consumers; Cost of Service What is each class’s equitable share if utility revenue requirement? Rate Design How rates should be adjusted to reflect cost of service remain sensitive to consumer rate impact? Affordability How many can manage to pay for it? 5 Pakistan – Adjustments in Tariff Annual adjustments in the rate to the following components; Assessment of T & D losses target. Assessment of Sales target. Impact of Consumer mix variance. Month wise assessment of reference values with respect to PPP (including energy, capacity & transmission charges) for the whole control period. Assessment of Distribution Margin. Assessment of prior