Experts term transition of CPPs towards grid vital for energy sector

ISLAMABAD: Energy experts have urged the government to facilitate the immediate transition of Captive Power Plants (CPPs) to the grid system.

They emphasised that this would not only stimulate power demand but would also make significant amounts of natural gas available for the power sector. This would align it with the National Gas Allocation Policy of 2005 and Gas Supply Priority by the Economic Coordination Committee (ECC) in 2024. They also collectively stressed the need for a thorough audit of CPPs to accurately assess their claimed efficiency levels.

These recommendations came from energy experts in “Energy Priorities in Crisis: Navigating Gas Supply Cuts to Captive Power Plants in Pakistan,” organised by the Institute of Policy Studies (IPS). It was convened to analyse the government’s commitment to the International Monetary Fund (IMF) to phase out gas supplies to CPPs, to optimise energy resources.

Wali Farooqui, Research Officer at IPS pointed out that an estimated 1,180 captive units were consuming approximately 358 MMCFD of natural gas while 400,000 industrial consumers were dependent upon the grid. He further highlighted that if industries with captive power plants transition towards the grid, they would benefit from reduced electricity tariffs due to natural gas reallocation, and stimulation of national power demand which would reduce capacity payments, and boost the revenue of DISCOs, thereby reducing the circular debt burden. Bilal A. Shaikh - Director of Energy Business, Technology Solution Provider noted that gas utilization efficiency in most of the captive power plants was on the lower side. He said the gas diverted to gas-based power plants in the grid system would bring more stability without any loss of revenue. Shaikh warned that if we continued to provide gas to these captive units, we would damage the stability of the grid system.

Abu Bakar, Head of Energy & Sustainability at Amreli Steels remarked that unfortunately policymakers introduce policies but do not modify them timely which becomes a challenge later. He lamented that policymakers did not create a proper market neither for the gas nor for the electricity which amplified these challenges. Abu Bakar added that the biggest challenge faced by the industry was higher grid cost and added had there been a provision of gas to the grid instead of captive units, the cost of electricity would have been balanced to some extent. He suggested that firstly the grid cost needed to be lower and secondly proper markets for energy on the right pricing should be established. Rehan Jawed, a prominent industrialist, praised Pakistan’s grid code which allows only 5pc fluctuation as opposed to Germany where the allowed fluctuation can reach up to 10pc. Jawed mentioned that CPPs consume excessive resources despite their lower efficiency. Jawed also highlighted the financial burden of CPPs on the industrial sector causing capacity charges of up to Rs. 5 per unit which is borne by all the non-protected grid users thus increasing their costs, and effectively capacity charges of Rs 295 billion per annum were borne by grid users. To address these inefficiencies, Jawed proposed incentivising CPPs to transition to the grid by offering temporary discounts and elevating efficient plants in the merit order, ensuring optimal utilization of resources. Jawed also said that while calculating overall efficiency, some captive owners were taking into account both steam and electricity which was an incorrect approach. He emphasised that such claims are misleading, since Pakistan’s main issue is surplus electricity, and there are several alternative methods, such as using biomass and coal, to produce cheaper steam. Asad Mahmood, an energy expert, highlighted the importance of improving coordination among government departments to enhance energy management and policies reflective of ground realities. Mahmood emphasised that if industries are assured of uninterrupted, high-quality power, they would prioritize the grid, helping address high capacity costs. He also highlighted the need for timely energy audits, better data collection, and productivity handbooks to improve efficiency and attract favourable tariffs for the industries.

Asim Riaz, Energy Adviser at All Pakistan Textile Mills Association (APTMA) called for a transparent and liberalised gas market where the most efficient plants are prioritised. He argued that scarce and valuable commodities cannot be arbitrarily allocated without ensuring market equilibrium. He was of the view that the shift towards the grid should be economically viable. Ameena Sohail, Senior IPS Associate and Energy Lawyer, highlighted the need for integrated planning in the energy sector, underpinned by equitable policies. She emphasised that gas allocation should align with national interest rather than lobbying efforts, advocating for the evaluation of captive power plants based on efficiency benchmarks to phase out inefficient units. Sohail accentuated the necessity of establishing a fair benchmark to foster a competitive and sustainable market.The session concluded with a consensus among the experts on the urgent need for policy reforms that prioritise efficient energy utilization and equitable resource allocation.