Negative power pricing and how far Pakistan is from it


After decades of energy crisis, Pakistan is finally producing more than its current demand. This is a combined result of a contracted demand due to COVID-19 pandemic and increased power (mainly coal) coming online. Hence, the new challenge is transmission. Lack of transmission infrastructure inhibits access to electricity in many areas and others continue to face power outages. Despite the excess supply the consumers continue to pay increasing tariffs for electricity consumption.
Costs of coal to fuel the new power plants, and government’s contract to buy energy from the new power plants regardless of demand are the reasons behind increasing costs for consumers. Keeping current energy outlook in perspective can Pakistan ever experience the phenomenon of Negative Power Pricing?
Negative power pricing occurs when supply of electricity on the grid exceeds the demand. This leads to a fall in prices in the wholesale market. Negative pricing is a condition where the producers prefer to sell at a loss as they foresee future profits. The supply shoots due to lack of flexibility of the conventional generation system. During periods of increased wind and solar energy production, nuclear, fossil fuel-fired and hydroelectric plants cannot significantly reduce their output. The low responsiveness of demand and a lack of storage facilities lead to excess electricity on the grid.
They were first experienced in 2008 on the German/Austrian Day-Ahead and 2007 in the German Intraday market. In 2010, they were introduced on the French Day-Ahead and Intraday markets. Analysis conducted by power market data firm EnAppSys shows that instances of negative power pricing more than doubled in Europe in the first nine months of 2020 with Ireland, Germany and Denmark being the most affected.
How far is Pakistan from experiencing this phenomenon?
According to the statistics provided by the Special Assistant to Prime Minister (SAPM) on Power TabishGauhar, Pakistan’s current energy mix is dominated by fossil fuels while renewables contribute the least.
In order to drive down power prices Pakistan will need to work on a few strategies simultaneously.
Pakistan will need to establish competition in its electricity market by creating a whole sale market. The transmission and distribution network must be regulated and eventually the retail market should be competitive.
Dominating share of renewables in the energy mix is the only way to cut down the hefty costs incurred to fuel the fossil fired plants. This is also important because unless the costs of generation are not reduced even the competition will fail to drive the prices down.
The third challenge that the government must tackle is that of generating demand for the excess electricity on the grid.
The effects of negative power pricing however, do not translate directly into retail prices. Whereas negative power prices are something that the generators will want to avoid. Therefore, achieving low energy costs should be the aim instead of striving for negative power prices. In order to avoid the drawbacks of this phenomenon the government should invest in electricity storage facilities.