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Comprehensive Overview of CPPA-G and Pakistan's Competitive Power Market Evolution

An in-depth presentation on CPPA-G's role, market structure, CTBCM features, wholesale market design, and power sector reforms in Pakistan's electricity trading landscape.

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INTRODUCTION TO CPPA-G JUNE 10, 2024
INTRODUCTION Central Power Purchasing Agency (CPPA-G)- Company incorporated under the Companies Ordinance, 1984 Wholly owned by the Government of Pakistan Since June 2015, CPPA-G has assumed the business of National Transmission and Dispatch Company pertaining to the market operations Presently functioning as the Market Operator in accordance with Rule-5 of the NEPRA Market Rules, 2015.
To become a world-class power Market Operator by providing the optimum environment for trading electricity in the Pakistani Power Market. www.cppa.gov.pk Vision
To achieve our vision, we are determined to become one of the best-run public organizations in the world, a place where people love to work, developing capacity of stakeholders and providing systems, tools, and processes for enabling a transparent and competitive power market. During the transition period, however, our company will also procure the required energy on behalf of the Distribution Companies for retail sales to their customers transparently and efficiently. www.cppa.gov.pk Mission
www.cppa.gov.pk Core Values Professionalism Integrity Innovation Team Work
Departments Technical Finance Company Secretary HR & Admin Policy & Planning Legal Information Technology Market Operations and Development Internal Audit
Market Structure: Pakistan has a single-buyer market structure in place. Buyer: Central Power Purchasing Agency Guarantee (CPPA-G) Ltd. www.cppa.gov.pk Market Structure Generators CPPA-G DISCOs Invoices UoSC Invoice Payments NTDC CTR & ETR UoSC Payment
CTBCM Evolution and Way Forward
CTBCM Evolution and Way Forward
Single-Buyer Model and Wholesale Competitive Market Single Buyer DISCOs as Supplier All Consumers Power Generation Companies Wholesale Market Traders Competitive Suppliers 26.6 Mln Consumers, 84% share in energy sales 2000+ Eligible Consumers, 16% share in energy sales Current Structure: Single Buyer Model Approved Structure: Competitive Wholesale Market Model CTBCM DISCOs as Supplier Power Generation Companies Power Generation Companies DISCOs as Supplier Competitive Suppliers Traders
Players in Wholesale Market 1. System Operator 2. Market Operator Operators Market Participants Service Providers
Players in Wholesale Market 1. System Operator 1. DISCOs as Regulated Supplier 2. Market Operator 2. Competitive Supplier 3. Generator 4. Trader 5. Bulk Power Consumer (BPC) Operators Market Participants Service Providers
Players in Wholesale Market 1. System Operator 1. DISCOs as Regulated Supplier 1. DISCOs as wire company (Distrib) 2. Market Operator 2. Competitive Supplier 2. Wire Company (Transm) 3. Generator 3. Independent Auction Administrator (IAA) 4. Trader 5. Bulk Power Consumer (BPC) 4. Special Purpose Agent (SPA) 5. NTDC as Metering Service Provider (MSP) Operators Market Participants Service Providers
Players in CTBCM Wholesale Market ISMO > 1MW Centralized Generation Dispatch - Eligible Consumer/BPCs > 1MW -Legacy Generation (Existing PPAs) -New Generation (Market Contracts) Market Trading & Settlement SO MO TNO Competition IAA DNO MSP Supplier* CTBCM Features *DISCOs are the Supplier of Last Resort who will supply at regulated tariff and also obligated to supply to BPCs of other suppliers who have defaulted - Regulated Consumers (All including BPCs not exercising choice to leave DISCOs) For New Procurem ents
Competitive Wholesale Market Design Power Generation Companies Three Transactions in Market: 1.B2B Bilateral (wheeling) 2.DISCOs Bilateral procurement 3.Merchant transaction (Generators selling at Marginal Price) Traders 27 Million Consumers DISCOs as Supplier Power Generation Companies Suppliers ‘DISCOs’ Competitive Suppliers Traders Competitive Suppliers Suppliers ‘Competitive’ System Operator Market Operator Auction Administrator
Key Issues: Power Sector Supply Chain • Legal, Policy& Regulatory Framework • Institutional capacities • Procurement Discipline, Contractual Arrangements & Guarantees • Tariffs • Operational Efficiency and Transparency • Corporate Governance, collections to payments accountability ………..
Scope of market reforms Legal, Policy & Regulatory Institutional Capacity Building! IT Interventions 1. Regulations by NEPRA 2. NEPRA Act Amendments 3. Rules 4. MO Commercial Code 5. Grid Code 6. Distribution Code 7. Three Connection Agreements 8. Market Contracts / SPDs 9. Special Purpose Trader (SPT) Code 1. MO Restructuring 2. DISCOs Restructuring /MIRADs 3. SMS Metering Department 4. SO Restructuring 5. PPIB Restructuring for IAA 1. All DISCOs Board Members 2. 300 power sector professionals 3. 36 Training Sessions 4. 152 days of training imparted 5. 58 Professionals certified under EMP program 1. SDXP system 2. SMS system 3. MMS system 4. MP application etc.
1. Providing non-discriminatory open access to all market participants 2. Improve conditions to attract investments based on credit covers provided by participants and move away from sovereign guarantees 3. Provide a trading environment that seamlessly transits into retail market 4. Contribute in improving power sector security of supply 5. Improve efficiency arising from “competition in market” and “competition for the market” 6. Improves payment discipline in wholesale market 7. Ensure transparency and predictability in the market Objectives of Wholesale Market Objectives of Wholesale Market CTBCM
CTBCM Main Features • New Capacity for DISCOs procured through centralized auction by Independent Auction Administrator (IAA) • Introduction of Credit Covers to cover non-payment risks in the market • Government Support for low performing DISCOs • Balancing Mechanisms introduced to trade imbalances on market prices www.cppa.gov.pk
CTBCM Main Features • Rules and Regulations established for Market Participants and Service Providers • Legacy PPAs/EPAs will be commercially allocated to the DISCOs and will be legally administered by the CPPA-G • Introduction of flexibilities in new contracts • Contract Registrar to check validity of contracts and verify capacity obligations of the market participants • New Commercial Code to govern the operations of MO www.cppa.gov.pk
www.cppa.gov.pk Balancing Mechanism for Energy: Hourly Marginal Prices 5 8 10 Price (PKR) Demand (MW) 1000 2000 3000 4000 5000 6000 7000
www.cppa.gov.pk Balancing Mechanism The balancing mechanism will determine difference between energy injected/extracted to or from the transmission/distribution network at trading points and the participants contracted energy at each hour. The total imbalance for each hour = Actual Energy per hour - Contracted energy per hour Total Imbalance amount for each hour = (Energy imbalance of hour) x (Marginal Price of the hour) Balancing mechanism for energy will be settled on monthly basis and the trading period is 1 hour.
Generator 1 Generator 2 Generator 3 Generator 4 VC = Rs 1/KWh VC = Rs 2/KWh VC = Rs 3/KWh VC = Rs 4/KWh CPPA Load 1 Load 2 Load 3 Load 4 Load = 50 MW Load = 50 MW Load = 50 MW Load = 50 MW System Operator SO dispatches generators against demand as per merit order SINGLE BUYER MODEL
Generator 1 Generator 2 Generator 3 Generator 4 VC = Rs 1/KWh VC = Rs 2/KWh VC = Rs 3/KWh VC = Rs 4/KWh CPPA Load 1 = 50 MWh Load 2 = 0 MWh Load 3 = 50 MWh Load 4 = 50 MWh System Operator SO dispatches generators against demand as per merit order Generation cost = Rs. 2/ KWh Settlement happens at Rs. 2/KWh of all demand through single buyer SINGLE BUYER MODEL
Generator 1 Generator 2 Generator 3 Generator 4 VC = Rs 1/KWh VC = Rs 2/KWh VC = Rs 3/KWh VC = Rs 4/KWh Load 1 Load 2 Load 3 Load 4 Load = 50 MW Load = 50 MW Load = 50 MW Load = 50 MW System Operator SO dispatches generators against demand as per merit order Direct contract of Demand with Generators IMBALANCES SETTLEMENT IN ABSENCE OF SINGLE BUYER
Generator 1 Generator 2 Generator 3 Generator 4 VC = Rs 1/KWh VC = Rs 2/KWh VC = Rs 3/KWh VC = Rs 4/KWh Load 1 = 50 MWh Load 2 = 0 MWh Load 3 = 50 MW Load 4 = 50 MWh System Operator SO dispatches generators against demand as per merit order Imbalance Imbalance Analysis: • Demand 2 was zero MWh at this instant. However, its contracted generator 2 was running at full load. Both of them can not be compensated fairly in absence of settlement mechanism. • Demand 4 was consuming 50 MWh at this instant. However, its contracted Generator 4 was not generating any power as per instructions of SO following merit order. Both of them can also not be compensated fairly in absence of settlement mechanism IMBALANCES SETTLEMENT IN ABSENCE OF SINGLE BUYER
Payment @ 4/KWh Generator 1 Generator 2 Generator 3 Generator 4 Load 1 = 50 MWh Load 2 = 0 MWh Load 3 = 50 MW Load 4 = 50 MWh Market Operator Imbalance Imbalance COMMERCIAL FLOW IN CASE OF IMBALANCES Settlement at bilaterally agreed price No Payment by VIU 2 as it did not consume Settlement at bilaterally agreed price VC = Rs 1/KWh VC = Rs 2/KWh VC = Rs 3/KWh VC = Rs 4/KWh Payment @ MP Settlement at bilaterally agreed price
SETTLEMENT UNDER CTBCM # Demand Contracte d Energy (Mw) Actual Consumptio n (MW) Imbalanc e (MW) Margina l Price (Rs.) Settlement of Imbalance s (RS.) Remarks 1 Load 1 50 50 0 3 Nil • VIU 1 will pay to G1 : Bilaterally agreed rate/KWh. 2 Load 2 50 0 +50 3 +150 • VIU2 has not consumed any energy but its generator run on 50 MWh. • VIU2 will not pay G2 • MO will pay to G2 at MP 3 Load 3 50 50 0 3 Nil • VIU 3 will pay to G3 : Bilaterally agreed rate/KWh. 4 Load 4 0 50 -50 3 -150 • VIU 4 will pay to G4: Bilateral Price • G4 will pay to MO at MP
Part-2 Historical Background
CTBCM Evolution and Way Forward
Key Issues: Power Sector Supply Chain • Legal, Policy& Regulatory Framework • Institutional capacities • Procurement Discipline, Contractual Arrangements & Guarantees • Tariffs • Operational Efficiency and Transparency • Corporate Governance, collections to payments accountability ………..
i. Alternative-I: Improve the performance of WAPDA as VIU with Government Ownership ii.Alternative-II: Move towards: a.unbundling b.competition and c. privatization Solution: 1992 Decision 1998 2009 2023
30 Years in Transition 2002 2018 2020 1997 & 98 2015 2020 1992 Strategic Plan NEPRA Act & De-bundling NTDC License Amended Act High Level Design Approved 2021 2024 Test Run ECC Decision Detail Design Approved FG approves CTBCM & NE Policy by CCI 2022 CMOD
CPPA’s Institutional Capacity Head Market Operations & Development Specialized Market Professionals Chief Information Officer Specialized IT Professionals
TURKEY • Net Pool • Day Ahead Market • Intraday Market • Real time Market INDIA PHILIPPINE • Gross Pool • IMO is independent & SO is part of Transmission Company • Hour Ahead Market • Real time Market BRAZIL • Real Time Market for Imbalance Settlement • Weekly System Marginal price • System Operator and Market Operator are Separate ARGENTINA • Gross pool • Hourly Marginal Price • ISO Model • Ancillary Services Payments PERU • Gross pool • Cost Based • ISO Model • Real Time Mandatory Pool European Countries • Hybrid Structure • Long term PPAs • Day Ahead Market • Regional ,State & National SO • Exchange exist • Net Pool • Day Ahead Market • Intraday Market • Balancing Market • EPEXSPOT/Nord Pool Exchange Every Market is UNIQUE in terms of Design! AESO • Gross pool • Price Based • ISO Model • 7 day ahead scheduling NYISO • Day Ahead Market • Real Time Market • Security constraints Economic Dispatch • Price Based Pool 1. MRC International proposed the Design 2. 10 Markets were physically visited 3. 800+ comments were addressed Self Dispatch Centralized Economic Dispatch CTBCM IEA 2006
Part-3 CTBCM Test Run Plan & Key Achievements
Background ▪ On 31st May 2022, Authority through its determination: ▪ Granted Market Operator license ▪ Approved Market Commercial Code ▪ 24 actions under 6 months Test Run Plan with roles & timelines identified ▪ Issued six specific directions as part of determination ▪ CPPA was assigned role of coordinator / facilitator.
Test Run Plan The Components of the Test Run plan are as follows: a) Actions under Market Commercial Code - 12 Actions b) Test Run Tools and Systems - 10 Actions c) Awareness, Capacity Building, Test Run Sessions and Reports - 02 Actions
Market Commercial Code Test Run Tools & Systems Roadshows & Capacity Building 12 Actions 1. Execution of BME and issuance of settlement statements 2. Issuance of Yearly Settlement Statement for Capacity 3. Calculation of Ex-Ante Capacity Obligations 4. Development of CCOPs …. …. 11. Establishment of CCRP 12. Charging of Capacity based on Allocation Factors 10 Actions 1. Completion of MMS Phase 1 2. Development of MO Website 3. Completion of SMS (NTDC, DISCOs) 4. Development of Marginal Price Application …. …. 9. Deployment of SDXP 10. Development of Variable Cost Submission Portal 2 Actions 1. Consultative Workshops and Test Run Reports 2. Roadshows, Awareness Sessions & Capacity Building related to CTBCM
Market Commercial Code Test Run Tools & Systems Roadshows & Capacity Building 5 Actions 1. Nominations for CCRP 2. Enrollment Application as MP/SP to MO and Execution of MPA/SPA 3. Review of monthly & yearly settlement statements 4. Provide data for Ex- ante capacity obligation 1 Action 1. Collection for 100% of SMS Data and sharing with MO 1 Action 1. Participation in Consultation and Capacity Building sessions related to CTBCM DISCO’s Specific Actions in Test Run Plan
Key Highlights • Development and operationalization of ▪Market Management System ▪SDXP System ▪SMS Metering System ▪Marginal Price Application ▪Variable Cost Submission Portal ▪Merit Order on daily basis • Issuance of PSS and FSS for BME to market participants • Issuance of Preliminary Yearly Settlement Statement and report of Capacity Obligations • Processing of Firm Capacity Certificates Secured Metering System Marginal Price Application
Key Highlights • Receipt of Enrollment Applications from all DISCOs • Notification of Commercial Code Review Panel • Several Consultative Sessions on Test Run • CTBCM Roadshows in Major Cities • CCoE Approval on Submission of Test Run Report to NEPRA • Completion of Test Run Actions by respective implementing power sector entities
Market Applications & Back Office Applications Secured Metering System SO Data eXchange Portal Marginal Price Application Enterprise Content Management Enterprise Resource Planning Centralized File Server Market Applications CPPA Back Office Applications
Part-4 CTBCM Framework – Policy, Legal, Regulatory & Contractual
Hierarchy of Legislation NEPRA Act Rules • Eligibility Criteria for license applicant • Criteria and manner for registration applicant Regulations • Specify and enforce performance standards • Form and manner of application for license • Duties and responsibilities of licensees • Specify Accounting standards and uniform system of accounts Codes • Provide governing framework / code of conduct for the market operations, system operations, agency, transmission & distribution businesses Guidelines • carry out the purposes of Act and the rules and regulations • Provides legal basis to start competitive market www.cppa.gov.pk
CTBCM Wholesale Market Framework LEGAL POLICY CONTRACTUAL REGULATORY 1. NEPRA Act 2. Electricity Act 1. 02 x Current Policies 2. 05 x Others 1. 14 x Regulations 2. 04 x Market Codes 3. 07 x Rules 1. 05 x Security Package Agreements 2. 03 x Market Agreements Generation Electricity Transmission (NTDC) Electricity Distribution (DISCOs) End Consumers including BPCs
NEXT STEPS in this regard: • As per CCoE directive in last meeting, NEPRA to share the completion timelines of the above-mentioned 03 actions • The Committee on Wheeling Charges, as constituted by CCoE, to issue guidance on optimal Wheeling Charges to NEPRA Actions Required for Market Operationalization & Next Steps #. Actions Status 1 Grant of SPA Registration to CPPA-G and Approval of SPA Code by NEPRA • Several rounds of consultations between NEPRA and CPPA-G have been held and issuance of the determination by NEPRA on the subject action is expected in the coming month 2 Determination on Use of System Charges (Wheeling Charges) by NEPRA • DISCOs have submitted their fully allocated cost-of- service model to NEPRA and the same is under due regulatory approval process 3 Determination on the Final Test Run Report and Approval of Revised MCC by NEPRA • The Final Test Run Report and Market Commercial Code have been uploaded on NEPRA’s website for stakeholder consultation as part of regulatory approval process
Q&A www.cppa.gov.pk
Legal Framework 1. Electricity Act 1910 2. NEPRA Act 2018 www.cppa.gov.pk
Electricity Act 1910 • Some provision which are not available in NEPRA Act are provided in Electricity Act 1910 such as: I. How to install transmission and distribution lines and grant of right of way II. How to collect charges from end-consumers, disconnection incase of default in payment and theft of electric power and procedure for filing complaints to Electric Inspector III. Appointment of Electric Inspector IV. Imposition of criminal penalties and description of offenses related to electricity www.cppa.gov.pk
Electricity Act 1910 V. Imposition of criminal penalties and description of offenses related to electricity VI. Recovery of arrears in case of default in payment VII. Requisition of assistance from police www.cppa.gov.pk
NEPRA Act • NEPRA Act promulgated in December 1997 • Provides for regulations of Generation, Transmission and Distribution of Electric Power • NEPRA Act was amended in 2018 to cater the development of Electricity Market • The amended NEPRA Act has 4 Chapters 51 Sections www.cppa.gov.pk
1. Chapter I (General) (Sec 1-2) I. Title & Definitions 2. Chapter II (Establishment of Authority) (Sec. 3 – 12) II. Establishment of Authority III. Resignation and Removal of Chairman IV. Powers and Functions of the Authority 3. Chapter IIA (Appellate Tribunal) (Sec. 12A – 14) V. Establishment VI. Powers VII. Procedures NEPRA Act www.cppa.gov.pk
4. Chapter IIB (National Electricity Policy & Plan) (Sec. 14A) I. National Electricity Policy 5. Chapter IIC (Generation of Electricity) (Sec. 14B – 14D) II. Generation III. Captive Generation IV. Duties of Generation Companies 6. Chapter III (License and Registration) (Sec. 15 – 27) V. Transmission License VI. National Grid Company VII. Provincial Grid Company NEPRA Act www.cppa.gov.pk
I. Special Purpose Transmission II. Distribution License III. Duties of a Distribution Licensee IV. Sale to Bulk Power Consumer V. Sale to Other Distribution Companies 7. Chapter IIC (Generation of Electricity) (Sec. 14B – 14D) VI. Generation VII. Captive Generation VIII. Duties of Generation Companies NEPRA Act www.cppa.gov.pk
8. Chapter III (License and Registration) (Sec. 15 – 27) I. Transmission License II. National Grid Company III. Provincial Grid Company IV. Special Purpose Transmission V. Distribution License VI. Duties of a Distribution Licensee VII. Sale to Bulk Power Consumer VIII. Sale to Other Distribution Companies NEPRA Act www.cppa.gov.pk
9. Chapter III (License and Registration) (Sec. 15 – 27) I. Market Operator License II. Electric Power Supplier Licence III. Electric Power Trader Licence IV. System Operator Licence V. Licensees of Territory Served by KESC 10. Chapter IIIA (Enforcement) (Sec. 27A – 30) VI. Investigation and proceedings by the Authority VII. Prohibition order NEPRA Act www.cppa.gov.pk
III. Suspension and revocation IV. WAPDA and PEDO to be licensees 11. Chapter IIIB (Tariff) (Sec. 31 – 32) V. Tariff VI. Investment and power Acquisition Program 12. Chapter IIIC (Performance & Standards) (Sec. 33 – 37) VII. Performance Standards VIII. Industry Standards and Code of Conduct IX. Uniform System of Accounts NEPRA Act www.cppa.gov.pk
13. Chapter IV (Administration) (Sec. 38 – 39) I. Provincial Offices of Inspection II. Complaints 14. Chapter IVA (Miscellaneous) (Sec. 40 – 51) III. Enforcement of Orders of Authority IV. Reports of Authority V. Inspection by Public VI. Information VII. Relationship to Other Laws NEPRA Act www.cppa.gov.pk
• Two distinct licenses for DISCOs according to the Act • Distribution/Wire Business (Sec 20 & 21) • Supply Business (Sec 23E, 23F) • Provision for more than one suppliers (competitive) in the same distribution jurisdiction • Apply for Supplier of Last Resort license • Provision to provide non-discriminatory open access as distribution licensee • Investment and Power Acquisition Program (Sec 32) NEPRA Act – Key Takeaways www.cppa.gov.pk
1. Current Policies I. National Electricity Policy 2021 & Plan is also approved II. ARE Policy 2019 2. Other Relevant Policies I. Power Policy 1994 II. Power Policy 2002 III. RE Policy 2006 IV. Power Policy 2015 V. Power Generation Policy (In pipeline) Policy Framework www.cppa.gov.pk NE Policy
Contractual Framework 1. Future Bilateral Procurement Agreements (Security Package) I. Connection Agreement II. Energy/Power Purchase Agreement III. Implementation Agreement IV. Involved Buyer Agreement V. Fuel Supply Agreement 2. Market Agreements I. Market Participation Agreement II. Service Provider Agreement III. Use of System Agreement www.cppa.gov.pk
• NEPRA as a sole entity is responsible for regulating the power sector: 1. Issues licenses and authorizations 2. Specify procedures and standards for investment programs and approve investment programs 3. Ensure efficient tariff structure and approves licensees' tariff 4. Specify and enforce performance standards 5. Settle disputes between licensees 6. Take enforcement action against non-compliances 7. Promote development of market in accordance with NE Policy and Plan and approves market design Regulatory Framework - Role of NEPRA www.cppa.gov.pk
Regulatory Framework Summary 1. Rules (07) 2. Regulations (14) 3. Market Codes (04) Rules Regulations Codes www.cppa.gov.pk
Regulatory Framework – Eligibility Criteria Rules Sr.# Eligibility Criteria Rules NEPRA Act 1 System Operator License Eligibility Criteria Rules Section 23G 2 Market Operator License Eligibility Criteria Rules Section 23A 3 Electric Power Supplier License Eligibility Criteria Rules Section 23E 4 Registration (Manner and Conditions for Providing Electric Power Services) Rules Section 25A Sr.# Eligibility Criteria Rules NEPRA Act 1 Distribution License Eligibility Criteria Rules Section 20 2 Transmission License Eligibility Criteria Rules Sections 16, 17 &18A 3 Electric Power Trader License Eligibility Criteria Rules Section 23C
Purpose of Formation of Rules Under NEPRA Act • Eligibility Criteria provide the required ability and capacity of legal person to obtain the license/registration, mainly in the following areas: • Minimum solvency requirements • Minimum technical resources & human resource requirements • public service obligations (quality of service, transparency of transactions & collection of surcharges) • Eligibility Criteria Rules will be utilized by NEPRA to evaluate the licenses/registration application & grant the licenses/registration to legal person(s) who are capably to fulfill the requirements given in eligibility criteria
1. NEPRA Supplier Regulations 2022 2. NEPRA Distribution Regulations 2022 3. NEPRA Power Procurement Regulations 2022 4. NEPRA’s Open Access Regulations 2022 5. Consumer Eligibility Criteria (Distribution) 2022 6. Consumer Eligibility Criteria (Supplier) 2022 7. NEPRA Distribution Regulations 2022 Regulatory Framework – Important Regulations