“The true voyage of discovery lies not in seeking new landscapes, but in having new eyes.” (Marcel Proust)
Recent developments in the global energy markets have created an unprecedented and unique opportunity for our leaders to transform the seriously ailing power sector of the country into a viable contributor to powering nation’s development dreams. It would be unfortunate if they miss this opportunity by continuing to run this sector on traditional lines that will lock the nation into technologies and systems that will soon become a serious liability for the nation. They must act boldly to substitute the existing unsustainable practices in the power sector with sustainable ways of serving the country’s electricity needs.
Some disruptive forces have swept the global energy business. Small power plants have emerged that beat the cost and performance features of large power plants. Renewables technologies, even without government support, are proving competitive with their conventional competitors. Deployment of intelligent and smart devices in the grid is unlocking new opportunities for squeezing more value from existing assets and also for demand response and management. Affordable and modular battery storage technologies are enabling consumers to reduce, and even eliminate, their dependence on grid supply by coupling these with their rooftop PV installations. Electric vehicles (EVs) are also opening up new vistas due to their dual role as loads as well as sources of electric supply.
In this fundamentally changed business environment, a continued reliance on a centrally-planned and tightly-controlled top-down approach to power sector management, notwithstanding the introduction of competition in some segments, is akin to inviting bankruptcy for not just this sector but for the whole economy as well. Most analysts now agree that the future of electric supply industry (ESI) will be ruled by small, distributed, and independent supply- and consumer-oriented schemes that can be best managed through liberalizing and devolving the market and by empowering consumers and non-utility producers by building closer partnerships with them.
Our leaders must not miss this historic opportunity. They must use it to gradually phase out our dependence on large-sized, capital-intensive, and import-dependent supply schemes—a knot tied by imprudent decisions in the past which the nation will now have to untangle with its teeth. They must capitalize on these new developments to reorganize our electricity supply industry on a more decentralized and distributed “grid of the future” concept, instead of following the old track that will just accelerate this sector’s drift to bankruptcy.
Even though the government’s 4-point power sector agenda agreed with the IMF (tariff increase, loss reduction, bill recovery, and replacement of DISCOs’ Boards and CEOs on merit) is a necessary set of reforms, it may not be sufficient to save the currently sinking power sector and could actually worsen its interminable crisis. The primary reason for this pessimism is that the government is hoping to cure the power sector ills using an approach that has now lost its utility in the wake of the disruptive trends in the energy market. The government, therefore, desperately needs a new vision to pull this sector out of its present quagmire and set it on a path to recovery.
The new vision for the power sector must build around four strategic threads: (i) it should be fully alive, responsive, and aligned to the market forces that are reshaping the energy sectors around the world; (ii) it should provide a business-friendly legal framework to reorganize the ESI along open, transparent, fair, and competitive lines; (iii) it must replace the traditional business model with a more innovative, liberal, flexible, and decentralized model in which all market players can participate fairly and beneficially; and (iv) it should shift decision-making in this sector closer to the end-users.
Three essential features of a viable energy system for any country are its “affordability”, “security”, and “sustainability”. On all these counts, the decentralized and distributed renewable-based supplies outperform the traditional centralized grid. With over 30 percent of our population still without grid access and the existing consumers literally choking under the prohibitively-high electricity prices, demand-centered electric supplies at significantly lower costs can provide the much-needed sigh of relief to consumers. These systems, due to their reliance on ubiquitous renewable supplies, will add to energy security of the country which can be even further enhanced by promoting their local manufacture and supply. These will also be sustainable not just because they do not degrade the country’s ecosystem but also because they will promote substantial employment generation in the country throughout their value chain and not restricted to any particular region.
The change at any significant level, however, will not come at its own. In the absence of a strong political will and push from top leadership, the new technologies and options will still find their way into the power system, but may not be optimally integrated into it to contribute their true potential. To make that happen, the government will have to aggressively pursue for these opportunities. The great ancient Chinese military strategist, Sun Tzu, had observed in his timeless classic, The Art of War (equally popular in business strategy circles also), “Opportunities multiply as they are seized.” The government will have to move forward proactively to seize these opportunities and, otherwise these might slip by us unnoticed.
Our government will have to take four critical initiatives to capitalize on these new opportunities by: (i) setting a clear vision in a strategic plan to substitute central-station and mega-scale facilities with small-scale and distributed renewable power supply schemes; (ii) devising a set of policies to encourage distributed renewable generation and discourage mega-scale power supply projects, especially which base on foreign technologies and fuels; (iii) promoting lateral institutional structures and decentralized decision making; and (iv) catalyzing a visionary R&D program to inform evidence-based policy formulation and decision-making in the country.
First, the government will need to set a clear vision in a strategic plan to gradually phase out central-station and mega-scale conventional power supply schemes and substitute these with small-scale renewable power supply options at demand-ends or as close as possible to the end-users of electricity. This plan must be unified, integrated, and holistic by clearly identifying the most appropriate blending of various energy carriers, including electricity, in serving the various energy-based service needs of the people, businesses, and industries. It will also need to transcend the typical but largely artificial boundaries among the various sectors of the economy and their traditional reliance on specific fuels.
Second, the government will need to devise a set of mutually-complementary policies to encourage the deployment of distributed energy generation and supply schemes and discourage future induction of mega-scale projects, especially those which base on foreign technologies and fuel supplies. The new policy framework should also encourage deployment of storage technologies in the system as these will enhance the value of renewable energy technologies while relaxing their intermittency and variability constraints. Similarly, besides being a source of new electric demand, battery packs in electric vehicles (EVs) can also support the power grid in more economical ways than the traditional solutions, and as such should form a key component of any future energy policy.
The traditional practice of preparing and issuing disjointed, piecemeal, and fragmented policies (often at odd with each other) will not work. These policies should flow out from the national strategic plan, and must complement and reinforce each other to collectively lead the country in accomplishing the objectives and goals to be defined in the strategic plan. Before implementing any new policy, a proper cost-benefit assessment of this initiative must be done to compare it against leaving it to the market.
Third, the government will need to promote decentralized decision making in the power sector by gradually lateralizing the existing vertical hierarchies in the power sector with more open and flexible organizational structures, and devolve decision-making as much as possible closer to the end-users of electricity, that is, the distribution companies (DISCOs). This will be imperative as DISCOs are in the best position to grasp the evolving patterns and dynamics of consumer demand, the potential of serving it through supply- or demand-side solutions, and the viability of different strategies in this respect.
The government and regulator’s role in the new setup will be essentially restricted to setting the rules of market participation and not micro-managing the business. The government will need to let go of its present tight “command and control” mindset and instead take a more liberal approach to encourage small and independent power producers and consumers assume more active and participatory role in this sector’s various activities.
NEPRA will need to empower DISCOs to devise and introduce innovative and flexible pricing and compensation schemes to induce consumers and investors to install distributed technologies in the system. These schemes should also enable proper accounting, allocation, and recovery of various costs from participating consumers and other investors while allowing them a fair remuneration for the benefits their facilities provide to the grid.
Third, the traditional business model in which power flows in one direction (from power plants to end-users) and revenues flow in the opposite direction (from end-users to utility) with electricity prices fixed by the regulator will not be effective. In the new environment, power will flow in either direction as some of the consumers may now meet part or all of their electricity demand by generation at their own premises, and not infrequently, providing their excess power and capability to contribute to grid security and reliability. Like the power, revenues will also flow in either direction. The electricity business in the country, therefore, will need reworking on a more open and flexible lines to treat these new options as partners and complements to the utility’s own efforts to serve society.
Fourth, the government will need to catalyze, with sufficient seed-funding, a visionary R&D program in the country to promote distributed and renewable technologies, by suitably segregating it among the local institutions. This R&D should aim to provide the much-needed information base to devise evidence-based policy formulation and decision-making in the country. Instead of focusing on basic technology issues, this R&D should focus on issues like the following (just as a few pointers): (a) understanding consumer behavior with respect to their choice of built environment, selection of appliances and fixtures, and their patterns of use after purchase; (b) adoption of already commercial supply and demand technologies, identifying any existing barriers, financial and non-financial, to their wider uptake, and how these can be removed; and (c) renewable resource distributions at different sites, their correlations with electricity demand, and the most feasible ways to match distributed supplies with consumer demand.
To conclude, and using the words of American president JFK, “Change is the law of life and those who look only to the past or present are certain to miss the future.”
The country is arguably at a crossroads as far as energy is concerned, and it’s a time for our government to choose. It can either continue with old comfortable routines of central-station and mega-sized power supply schemes that are a surefire recipe for ruin or take a bold decision and reconstruct the monolithic, inefficient, and poorly-managed power sector and make it embrace the emerging trends which hold great promise in setting it on affordable, secure, and sustainable footings. Choice is obviously all ours.