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Given the daunting challenges of Pakistan’s power sector – high tariffs, inability to provide subsidies due to IMF constraints, excess installed capacity, and inadequate transmission capacity – the advanced design of electricity tariffs is important for increasing the demand for electricity in industry.

Adopting international best practices and conducting a thorough cost-benefit analysis can help design a tariff plan that is both affordable and sustainable and competitive with the industry, while taking into account the unique circumstances of Pakistan. .

Another effective way to manage electricity demand and improve network performance is the implementation of time of use (TOU) and seasonal tariffs. These charges encourage industries to shift their electricity use to off-peak hours when the transmission system has more capacity, especially during the winter.

Pakistan has already made a successful experiment in this direction, where a new winter tariff scheme for industries has increased winter demand. Similarly, the UK and parts of the European Union have successfully implemented TOU tariffs, providing electricity at very low prices during periods of low demand.

Here in Pakistan, where transmission power is only half of generation capacity, this approach can reduce stress on the transmission system while encouraging better use of available resources.

Costs associated with TOU/season fees include upgrading metering facilities and educating customers, while benefits include lower stress, deferred investment in transmission upgrades, and lower electricity costs for of industries.

Although shaving is an important goal, disruptive programs may not be possible in Pakistan at this time. These programs, which provide financial incentives for industries to reduce or adjust their demand during peak periods, require high network stability and customer trust.

For example, South Korea has used such programs successfully, but success depends on a highly reliable network and a solid relationship between services and industries.

In Pakistan, existing network reliability challenges, as well as potential resistance from industries aware of operational disruptions, make potential disruptive programs impractical. The costs and risks associated with these programs in the Pakistani context may outweigh the benefits, suggesting that other high-level control strategies may be more effective.

A more practical solution for Pakistan’s situation is the development of a capacity auction market. Capacity markets have been used successfully in the US, especially in the PJM Interconnection, where industrial customers request energy, to ensure that they secure electricity at competitive rates during periods of increased energy.

In Pakistan, where there is a lot of installed capacity but little transmission capacity, the power auction market can allow industries to get cheap electricity at unexpected times, thereby, improving t utilization of existing production facilities.

The costs of creating such a market include the design of a strong regulatory framework, IT resources for market operations, and capacity building efforts for market participants.

However, the benefits are many, including better coordination of supply and demand, reduced costs through efficient use of existing capacity, and a more transparent and competitive market environment.

Moreover, such a market can serve as a platform to attract foreign investment, as it presents the level of predictability and competence that international investors often seek. The upcoming CTBCM regulations will pave the way for the capacity market in Pakistan, however, the deregulation of the market should be marked by the principles of a competitive market and a forward-looking perspective.

To further promote industry growth and efficiency, the introduction of performance-based fees can play a major role.

Instead of the traditional approach where tariffs are linked to energy efficiency improvements only, this model would reduce tariffs for industries that show an increase in production and the corresponding use of electricity, thereby boosting demand for electricity generation.

This idea is similar to the trends seen in countries like Germany, where industries that achieve high production levels benefit from low electricity rates, thus encouraging them to expand jobs.

In Pakistan, implementing this model will require establishing clear benchmarks to measure production growth and ensure that tariff reductions are large enough to encourage higher energy consumption. In the past, we have had perverse subsidies for weight loss industries.

Initial costs will include establishing monitoring systems and renovating billing structures, but long-term benefits will include increased industrial productivity, higher demand for electricity, and a stronger economy. This approach is also well-suited to the goal of using more installed capacity, as industries will be encouraged to increase production to take advantage of lower tariffs.

Shared energy solutions, such as microgrids and community grids within industrial zones, can help break the boundaries of transmission networks. Countries like India and China have successfully adopted shared energy systems to support industrial growth in areas with inadequate grid infrastructure.

The cost of setting up microgrids or captive plants in Pakistan can be shared between the public and private sector through public-private partnerships, with the government providing regulatory support and incentives for the primary investment.

The benefits of this approach include reduced transmission and distribution losses, enhanced energy security for industries, and the ability to efficiently integrate renewable energy sources. In addition, decentralized solutions can lead to lower electricity costs for industries, increasing industry competitiveness.

Special tariff packages for Special Economic Zones (SEZs) can act as a targeted strategy to encourage industrial growth in certain areas. China’s SEZs benefit from special incentives that attract investment by providing low electricity tariffs and direct network connections, which in turn spur economic development.

For Pakistan, designing such tariff packages will involve close collaboration with industry stakeholders to ensure that tariffs are competitive and aligned with national energy policies. The costs of implementing these tariffs can be offset by the economic benefits of increased industrial activity, job creation, and export growth.

To further improve electricity consumption, especially for residential customers, reforming the slab-based tariff structure would be effective. Currently, slab-based tariffs in Pakistan tend to hit peak consumption with rising prices, discouraging energy users from increasing their electricity consumption.

By reversing this structure, with lower prices for high consumption equipment, industries will be encouraged to increase production and increase their electricity consumption. This method can be very useful when using the country’s renewable energy.

Internationally, countries such as South Korea have successfully used a similar approach, offering low tariffs for many users to encourage industrial growth. In Pakistan, implementing such a revised tariff plan would involve revising the existing tariff system to balance affordability and affordability of distribution services.

Encouraging the installation of solar roofs and net metering is another strategy that can change electricity usage patterns from non-residential loads to industrial generated loads. Solar rooftop systems allow residential customers to generate their own electricity, reducing their reliance on the grid during peak hours.

Finally, encouraging integration initiatives such as Power-to-X (PtX), especially Power-to-Gas (PtG), provide innovative solutions for managing large amounts of renewable energy during the reduction.

In Pakistan’s Thatta region, near the wind corridor, excess wind energy that cannot be transmitted due to grid limitations can be used to produce green hydrogen through electrolysis. This raw hydrogen can be stored and later used in various sectors, including industry and transportation, or exported.

Germany has been a leader in PtG projects, using large amounts of renewable energy to produce hydrogen and other synthetic fuels, which help stabilize the grid while promoting the integration of renewable energy.

For Pakistan, investing in PtG infrastructure in wind-rich areas like Thatta would not only provide reduced wind power consumption but also position the country as a leader in hydrogen production. green, with great potential for domestic and international use.

A comprehensive cost-benefit analysis of these proposed policies reveals a clear way forward for Pakistan’s energy sector. The costs, including infrastructure improvements, marketing planning and incentive programs, are outweighed by the long-term benefits of enhanced network performance, lower demand, lower capacity charges, and increasing industry competition.

The innovative energy tax structure, modeled on international models and based on a detailed cost-benefit analysis, provides an effective solution to the challenges facing Pakistan’s energy sector. By implementing these policies, Pakistan can increase demand for electricity in the industrial sector, improve the utilization of existing infrastructure, and create a platform for sustainable economic growth.

Regulatory buy-in, consumer education, and strategic investment will be critical to the successful implementation of these changes, to ensure that the energy sector is able to meet the needs of a rapidly growing industrial economy.

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The author holds a doctorate in energy economics and works as a researcher at the Sustainable Development Policy Institute (SDPI). Twitter/X: @Khalidwaleed_ Email: [email protected]

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Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the editorial policy of Geo.tv.

Originally published in The News