sector analysis electric power

8/3/2019 Sector Analysis Electric Power

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Introduction:

Electric Energy:

The ability of electricity to do work. We use electricity in our day to day activities such aslighting, heating, lifting, etc...

Joule: (J, SI unit of energy)

Work done by a force of 1 Newton, to move anything a distance of 1 meter along thedirection of the force.

Calorie: (cal, SI unit of heat)

The amount of heat (energy) needed to raise the temperature of 1 gram (g) of water by 1degree Celsius.

Kilocalorie (kcal):

The amount of heat (energy) needed to raise the temperature of 1 kilogram (kg) of water by1 degree Celsius. 1 kcal = 1,000 cal = 4.184 kJ

Fuel:

Material that can be burned to release energy

PAKISTAN ELECTRICITY CRISIS ² A REAL PERSPECTIVE

The country is facing a huge electric power crisis today. This crisis appears insurmountable

in the near or even long-term future, unless proper understanding and correctimplementation is undertaken on priority basis. At present total power production capacityin the country is about 19,500 MW, out of which Hydel Power is only 6,500 MW, balance of13,000 MW is thermal either using Natural Gas or Furnace Oil. Small capacity of 450 MW isNuclear and only 150 MW is through coal.

Although gas is to be provided for 5800 MW to various thermal plants, but in actual factmuch less gas is being made available, the deficiency is being filled through furnace oil. Itcan be inferred that in the recent past, only furnace oil was used as fuel for about 9000MW generation.

It is very important to understand the consequence of the prevailing situation. Currentprice of furnace oil is about Rs 49,000 per ton, which amount upto Rs 49/- per kg. On anaverage one kg of furnace oil produces 3.8 kWh of electricity. Thus, the cost of furnace oilfor generating one unit of electricity is about Rs 13. On top of this the fixed cost of athermal plant works out to be about Rs 3 per unit. Therefore, one unit (kWh) of theelectricity produced by all thermal plants using furnace oil is Rs 16 per unit. According toWAPDA/IPP agreement, the private power producers will charge WAPDA the actual fuel



cost for which they have a direct contract with PSO. As we all know that WAPDA tariffcharged from the consumers is about Rs 5 per unit (kWh).

The production cost of furnace oil electricity is Rs 16 per unit, add to it the transmission,distribution cost (including loses), ´the total cost of such electricity works out to

approximately Rs 22 per kWh. The difference between WAPDA tariff and the furnace oilelectricity is Rs17 per kWh.µ It is estimated that the country consumes at least 25 billionunits of electricity produced annually through furnace oil, which amounts to the total deficitof Rs 425 Billion. If WAPDA has to balance its books it would require a subsidy of Rs 425Billion. This deficit is somewhat reduced due to cheap power produced through hydel energyand natural gas, but the deficit cannot change substantially, unless bulk of electricity isproduced through hydel energy. Obviously, a deficit of Rs 300-350 Billion cannot besustained, the government does not have resources to pay such a huge subsidy, it is also notfeasible to increase the power tariff very much. Therefore the power crisis is far greaterthan what is being perceived. In the absence of extremely heavy subsidy, WAPDA isdelaying payments to IPPs and also to the oil companies. The result is that IPPs are now

producing much less electricity than their capacity.

To any planner, it should be obvious that the country cannot afford electricity producedthrough oil. Indigenous fuels like coal, gas, atomic will have to be developed and developedquickly. The final solution however lies in depending on the hydroelectric renewable energy,but unfortunately the narrow minded bickering on construction of dams has persuaded theplanners to find an easy solution, which we cannot afford any more. Since the shortage orhigh price of electricity has severe detrimental effect on all sectors of economy, thesituation calls for concerted short-term, medium-term and long-term actions to overcomethe problem of energy shortage.

Way Forward: In the short-term, the shortages have to be somehow met. The foremostimmediate action which can give some relief is the conservation of energy. The governmenthas already announced certain measures like shutting down power on billboards, hoardingsand neon signs. Recently in Lahore supersize televisions have been installed on importanttraffic points. In order to keep the temperature down air conditioners are installed behindthese sets. In spite of government directions, the energy saving measures are not beingimplemented. Shops use excessive lights, which can be conveniently reduced. A suggestionthat cities be divided in zones, and the market on these zones be closed on different days,can also save peak time energy usage. In order to implement conservation measures, thenazims, naib nazims should visit the areas and try to convince and negotiate with the people,shopkeepers etc requesting them to cooperate in the overall interests.

At present the IPPs, and WAPDA owned thermal plants are averaging about 50 percentplant factor, which means that they are not being used to their potential level, 70 to 80percent plant factor is quite feasible; this would require better maintenance of such plants.A higher plant factor on these power stations can provide 20 to 30 percent more energy,which will circumvent the present shortages to a certain extent. Improving the plant factorof the existing plants is far more economical then setting up new plants, although new plantswill still be needed. One of the reasons for low plant factor is that the funds are not madeavailable for the purchase of oil, solution for this factor will help in short term increase in



energy production. The government has announced that immediately 1200 MW of additionalplants will be set-up. If these plants will operate on furnace oil, the deficit will furtherincrease. At present the country has about 28 Trillion cft of recoverable gas available, the yearly consumption is about 1.2 Trillion cft, which means that even if gas consumption isincreased, the existing recoverable gas will be sufficient for the next 15 years. Therefore

the additional thermal generation should be based on gas, but in order to make additionalgas available, the gas pressure and its transmission system will have to be enhanced. Themoney saved by using gas instead of furnace oil, should be invested in developing new gasfields which have already been discovered.

Mid and Long Term: The oil prices are not going to come down drastically, therefore allefforts are needed to stay away from oil. For thermal plants only Coal and Natural Gasshould be used. Vast deposits of coal exist at Thar, but it is inconceivable why the mining ofthis coal has not yet started. There are a number of new gas fields discovered; but theirdevelopment has been put on the back burner, again for some unknown reasons. The gaspurchase agreement with Iran be finalised immediately, even without India. A large power

station using this gas can be installed at Gwadar, 500 KV transmission lines can bring thepower to load centres. In addition agreement with Kazakistan be persued diligently for theimport of gas.

Currently the country loses 29 billion units of electricity annually due to heavy losses in thesystem. All efforts must be genuinely applied to reduce the losses. If losses are reduced byeven 5 percent, the saving will be over 7 Billion rupees.

For hydroelectric projects, the large ones can only be built on the Indus River, where notonly hydroelectricity can be produced, but highly needed water storage can also be a by-product. Some legitimate objections on the environment and social impacts of large damsare there, but solutions for such objections can be satisfactorily found. The will of thegovernment leaders is needed, with the present coalition partnership in the centre, matterscan be resolved. Experts from various provinces can get together and put forward a solutionfor mitigating the objections. It was due to the clear vision of the leadership that theTarbela Dam was constructed, without which where would we have been today. Similarvisionary approach is needed and needed now.

There are a number of other attractive runs of the river hydel projects which are beingoffered to the Private Sector. None of these projects have yet started, because the tariffis still not finalised. With the huge losses being accumulated in thermal plants, again it isstrange that the hydel projects in the private sector are not being encouraged. Under thepresent circumstances, a rational and market oriented policy has to be adopted, hopefully

the present government will immediately look into this.

It is good to know that the work on Neelum Jhelum Hydro Project (900MW) has started byWAPDA.

The current power crisis is grossly due to very high oil prices, and the country has toprepare itself at least for the next several years to somehow cope with it, since noimmediate cheaper alternate solutions are available. It has been a big set back that new



Hydel Projects have not been undertaken, neither the indigenous coal mining has started,investments in the existing as well as new gas field have been lacking. The policy orientationneeds a drastic modification and indigenous resource like hydel energy production as well asdevelopment of coal mining and new gas fields should be the top priority.

PROSPECTS

Recognizing that electricity is one of the key drivers for rapid economic growth and povertyalleviation, the industry has set itself the target of providing access to all households over the nextfew years. As per government reports, about 36% of the households did not have access toelectricity. Hence, meeting the target of providing universal access is a daunting task requiringsignificant addition to generation capacity and expansion of the transmission and distributionnetwork.

Coal costs from both domestic linkages and imported sources are expected to be on the rise.Shortfall of coal in India is expected to go up to 100 MMT (m metric tonnes) by FY14. Availabilityof coal from domestic linkages would suffice only 55 to 60% of the PLF equivalent. Hence purchaseof coal by way of Coal India's e-auction would only become more expensive.

Restoration of the financial health of SEBs and improvement in their operating performancecontinue to remain a critical issue in the power sector.

On an overall basis, power distribution has been loss-making business in India. But with theprivatization coming in, the investment in transmission and distribution networking is expected toimprove.

Trading in electricity has brought a sea change in the structure of the industry because some partsof country are power surplus and some are deficient. A power trading company buys power from

surplus area and sells it in a power deficit area through transmission lines. While the potential forpower trading is huge, the regulator has to play a key role in removing all discrepancies that occur interms of electricity pricing across trading regions.

With the coming of Electricity Act 2003, the power sector, which was highly regulated with lot oflicensing requirements, was supposed to be in the throes of a long awaited change. But things arestill happening very slowly on ground. The sector is facing serious delays in terms of capacityexpansion. The Eleventh Five-Year Plan (2007-12) target of setting up 78,000 MW of newgeneration capacity has already been lowered by around 25%. And even the revised target seemsunattainable given the current progress.

The key problems hindering the growth of the power sector are land, fuel, environment, and forestclearances. Even the government is finding it very difficult to get the required land for allotting topower projects. One of the key problems in getting land is Naxalism in the eastern and centralstates, where a large number of projects are being planned owing to abundance of fuel resources.

Central institutions like NTPC and the State Electricity Boards (SEBs) continue to dominate thepower sector in India. India has adopted a blend of thermal, hydel and nuclear sources with a viewto increasing the availability of electricity. Thermal plants at present account for 65% (115,650



MW) of the total power generation capacity in India. This is followed by hydro-electricity (22%share; 37,367 MW). The rest comes from nuclear and wind energy.

Average transmission and distribution losses (T&D) exceed 25% of total power generationcompared to less than 15% for developing economies. The T&D losses are due to a variety of

reasons, viz., substantial energy sold at low voltage, sparsely distributed loads over large ruralareas, inadequate investment in distribution system, improper billing and high pilferage.

FINANCIAL YEAR '11

Total power generation stood at 811 bn units (BU) in FY11, as compared to 771 BU in FY10. Thisrepresented a growth of just around 5%, when the requirement is anywhere around 10-12% perannum. FY11 also witnessed peak shortage in availability of critical fuel coal which hamperedcapacity addition in the power sector.

The average PLF in the Central Public Sector Undertakings and private sector companies was much

higher than that achieved by the SEBs as a whole in FY11. Wide inter-state variations were noticedin the average PLF of thermal power plants with southern and northern zones having betterperformances.

As far as T&D segments of the sector are concerned, there was little that actually happened inFY11. The country continues to reel under the pressure of higher T&D losses and with thegovernment going very slow with the reforms process in these segments, the long-term sustainablegrowth of the sector seems doubtful.

KEY POINTS

Supply:

Many projects have been planned but due to slow regulatory processes and inadequate equipmentsand fuel, the supply is far lesser than demand. Currently, India needs to double its generationcapacity over the next decade or so to meet the potential demand.

Demand:



The long-term average demand growth rate is 7-8% per annum and is expected to grow at fasterrate in the future.

Barriers to entry:

Barriers to entry are high, especially in the transmission and distribution segments, which arelargely state monopolies. Also, entering the power generation business requires heavy investmentinitially. The other barriers are fuel linkages, payment guarantees from state governments that buypower and retail distribution license.

Bargaining power of suppliers:

Not very high as government controls tariff structure. However, this may change in the future.

Bargaining power of customers:

Bargaining power of retail customers is low, as power is in short supply. However government is a bigbuyer and payments from it can be erratic, as has been seen in the past.

Competition:

Getting intense, but there is enough room for many players. The Electricity Act 2003 aims toencourage investments, thereby increasing competition.

ENERGY, POWER SECTOR FY11 RECURRING PROFITS UP 29%

Higher global crude oil prices, slight improved hydrocarbon production and restricted exploration

expense reflected positively on energy and power sector·s profitability in FY11.

During the period under-review, sector·s profitability increased by 18 percent to Rs 105.8 billion ascompared to Rs 90.0 billion last year.

However, earning growth could have been even higher at 29 percent if analyst excluded one-timeretro respective adjustment of Kunnar crude oil prices.

For the period under-review, sector·s top-line rose by a noteworthy 17 percent to Rs 258.5 billionon account of favorable price as well as volumetric variance. International crude oil prices (ArabLight) rose by a 35 percent to average $93 per barrel in FY11 while sector·s oil and gas production

rose by 2.8 percent and 2.2 percent respectively.

However, the growth was partially diluted by one-time retro-respective adjustment of Rs 15.2billion of Kunnar field crude oil prices. Adjusting for the impact, sector·s topline grew by 24percent.

In addition, 9.3 percent decline in exploration cost to Rs 12.2 billion and 31 percent increase inother income to Rs 9.7 billion also led their hand to the phenomenal growth in the profitability.



Increase in other income mainly contributed by POL and PPL, which are least affected by circulardebt as they earned higher return on their bank placements.

Pakistan Oilfields (POL) was the star-performer with a growth of 45 percent on account of highsensitivity to oil prices and chief beneficary of enhanced production from Tal block production. This

was followed by 35 percent growth in PPL·s bottomline as its benefit from its working interest inTal and Naspha block and higher net realised gas prices.

Pakistan largest explorer, Oil and Gas Development (OGDC) earnings growth remained muted to amere 7 percent, as adverse impact of Kunnar crude oil prices issue diluted the impact of favourablepricing scenario. Adjusting for the one time impact, company·s earnings grew by 22 percent in FY11.

Based on augmented production flows from Tal, Iklas and Naspha blocks and commissioning of newdevelopment projects like Sinjhoro and KPD-TAY (Kunnar Pasahki Deep-Yando Allah Yar), analystexpects earning growth to continue in FY12. With based case oil prices assumption of $98 perbarrel (Arab Light) and muted exploration program, analyst eyes sector·s earnings to grow by 25

percent. PPL is expected to lead the way with 32 percent while POL earnings are expected to growby 17 percent. Thus POL and PPL remain preferred play in E&P sector.

POWER GENERATION

Thermal Generation

PEPCO's Thermal Power Generation is mainly based on generation of power from its Steam Turbo-Generators, Gas Turbines (simple as well as Combined Cycle Units) installed at different PowerStations located in Sindh, Punjab and Balochistan provinces. Indigenous Gas & Coal is the main fuelwhereas Furnace oil and HSD are also used as alternative fuel. .

As per Government of Pakistan policy all thermal power generation has been restructured and fourcorporatized companies namely Jamshoro Power Generation Company Limited (GENCO-1) headquarter at Jamshoro district Dadu near Hyderabad Sindh, Central Power Generation CompanyLimited (GENCO-2) head quarter at Guddu district Jacobabad Sindh and Northern PowerGeneration Company Limited (GENCO-3) head quarters at Muzaffargarh and Lakhra Power



Generation Company Limited (GENCO-IV) at Khanote (Sindh) have been formed and registered.Functioning of GENCOs has commenced.

Structural formation of all four GENCOs is as under:

JPCL

(GENCO-1) CPGCL

(GENCO-2)

NPGCL

(GENCO-3)

LPGCL

(GENCO-4)

TPS Jamshoro TPS Guddu TPS Muzaffargarh FBC Lakhra

GTPS Kotri TPS Quetta NGPS Multan

GTPS Faisalabad

SPS FaisalabadGTPS Shahdara

CGTM W/Shop F/Abad

Jamshoro Power Generation Company Limited-I (GENCO-1)

Central Power Generation Company Limited (GENCO-II)

Northern Power Generation Company Limited (GENCO-III)

Central Power Generation Company Limited (GENCO-II)

TPS Guddu

a. Location

Thermal Power Station Guddu is situated on the right bank of River Indus near Guddu barrage, 10Km from Kashmore in district Jacobabad (Sindh). It is about 60 Km away from Sadiqabad and about160 Km from Sukkur. It is a confluence of three provinces, i.e. Sindh, Punjab and Balochistan.

b. Fuel (Gas & F. Oil) Supplies

The existing daily gas allocation is 285 MMCFD, ( from Kandhkot = 115 MMCFD, Sui = 40 MMCFDMari=90 MMCFD & Tullow= 40 MMCFD). Daily requirement of gas is about 310 MMCFD and in thisway there is short fall of about 25 MMCFD. Furnace Oil is also used to meet-with short fall of Gasquota. Furnace oil is received through Railway Wagons and Tank Lorries from Karachi.

TPS Quetta



a. Location

This Power Station is situated at Quetta.

b. Fuel (Gas) Supplies

Natural gas is the main fuel being used for combustion as and when available basis. Company underthe new management (PEPCO) is trying to make an agreement with the gas company regarding firmgas supply.

Northern Power Generation Company Limited (GENCO-III)

TPS Muzaffargarh

a. Location

TPS Muzaffargarh is located in the middle of the country between the River Indus and RiverChenab, 2.5 Km to North-West of Muzaffargarh Town in District Muzaffargarh. The nearest Airport facility is at Multan at a distance of 45 Km North-East of Muzaffargarh.

b. Fuel

Dual fuel combustion provision (Gas & Furnace Oil) has been made for all the machines. Furnace oilis transported through Railway Wagons and tank lorries.

NGPS Multan

a. Location

Power Station is located at Piranghaib about one Km towards North from Piranghaib Railway stationand at a distance of 10 Km from Multan city towards East.

b. Fuel

Dual fuel combustion provision (Gas & Furnace Oil) has been made for all the machines. 15 MMCFDgas is allocated and the short fall is met with by furnace oil firing.

SPS Faisalabad

a. Location

This Power Station is situated at about 10 Km from Faisalabad city on Faisalabad-Sheikhupura road.Nishatabad railway station is 04 Km in the West and Rakh branch canal flows close to the powerstation in the East.

b. Fuel



Dual fuel combustion provision (Gas & Furnace Oil) has been made for all the machines. Requirementof Gas on 70% load factor is about 22 MMCFD. Furnace oil is used to meet with short fall of Gaquota.

GTPS Faisalabad

a. Location

This Power Station is situated (adjoining SPS) at about 10 Km from Faisalabad city on Faisalabad-Sheikhpura road. Nishatabad railway station is 04 Km in the West and Rakh branch canal flowsclose to the power station in the East.

b. Fuel

Dual fuel combustion provision (Gas & HSD Oil) has been made for all the machines.

GTPS Shahdara

a. Location

This Power Station is situated at Shahdara on right bank of river Ravi Lahore.

b. Fuel (Gas) Supplies

Natural gas is the main fuel being used for combustion as and when available basis. Company underthe new management (PEPCO) is trying to make an agreement with the gas company regarding firmgas supply.

FBC Lakhra

a. Location

The Lakhra Power Station is located near Manzoor-abad/Khanote in the District of Dadu (Sindh) onthe right bank of mighty Indus River. Hyderabad city is about 46 Km in North-East and Karachi isabout 200 Km South-West of the Power Plant. The Power Station can be readily approached fromNorth and South by the connecting highways.

b. Fuel

All the three units are based on Coal, which is being recovered by primitive underground miningmethod from Lakhra coal mines, 25 Km from Lakhra Power Station.

The detail of three GENCOs showing Power stations, number of units installed, capacity, make, yearof commissioning and fuel used is given below in table-1,2,3&4.

IPPS



The country had been experiencing severe power shortage during eighties and early nineties. As aresult, load shedding had to be resorted to all over the country. This adversely affected thenational economy. It was not possible for the Govt. to establish Power Plants in public sector due toshortage of funds. In order to eliminate power shortage/load shedding in the minimum possibletime, the Government constituted an Energy Task Force in 1993 to devise a consolidated

and comprehensive policy for revamping and rejuvenating the energy sector. On therecommendations of the Energy Task Force, the Government announced a ´Policy Framework andPackage of Incentives for Private Sector Power Generation Projectsµ in March 1994 for a largescale induction of the private sector in power development. The said Policy offered a fix loveliestariff of US¢ 5.57 / kWh to the prospective investors (US¢ 6.1 / kWh average for 1-10 years) anda number of other incentives to attract foreign investment in the power sector.

1292 MW (Net 1200 MW) HUB Power Project the biggest power plant in the private sectorcontracted in 1992 started commercial operations in March 1997. Shortly after commissioningdisputes arose between GOP / WAPDA and HUBCO on tariff and other issues. After protractednegotiations, these were resolved through Settlement Agreement of December 2000 signed by the

GOP, WAPDA and HUBCO. This resulted in a lower tariff entailing a saving of about 3 billion dollarsover 30 years term of the Power Purchase Agreement. WAPDA also privatized its 1638 MW (Net1342 MW) Gas Turbine Power Station, Kot Addu in June 1996 by incorporating it under the name ofKAPCO and selling its 36%

shares to International Power of UK.After extensive correspondence/negotiations with the

International Power, the Power Purchase Agreement and other relevant documents have beenamended, providing inter-alia, reduction in tariff from Cents 5.60 / kWh to Cents 5.04 / kWh,resulting in a saving of about 1.3 billion dollars to WAPDA over 25 years term of the Agreement.



SR.# NAME OF IPP FUEL COD

DEPENDABLE

CAPACITY

ENERGY

RECEIVED

(JUL,10 -

JUN,11)

(MW) (MKWH)

1 Kot Addu Power FO/Gas/HSD 27-Jun-96

1,342 1025

2Hub Power

FO 31-Mar-97 1,200 1478

3Kohinoor energy

FO 20-Jun-97 124 143

4Lalpir Power (Pvt) Ltd,

FO 06-Nov-97 348342

5AES Pakgen

FO 01-Feb-98 349 419

6Southern Electric Power

FO 10-Mar-99 119 61

7 Habibullah Coastal Power Gas 11-Sep-99 129 79

8 FAUJI KABIRWALA Gas 21-0ct-99 151 214

9 ROUSCH POWER Gas 11-Dec-99 395 558

10 SABA POWER FO 31-Dec-99 126 31

11 JAPAN POWER FO 14-Mar-00 121 67

12 UCH POWER Gas 18-0ct-00 551 747

13 ALTERN ENERGY Gas 06-Jun-01 26 39

14 LIBERTY POWER Gas 10-Sep-01 213 261

15 CHASNUPP Nuclear 09-Jun-01 325 230

16 Chashma Nuclear Power II Nuclear 18-May-11 340 370

17 TAVANIR, IRAN - - 39 46



Rental

18 Attock Power RFO 17-03-2009 156.181 205.443

19 MALAKAND III Hydel 11-01-2008 81.4855.303

20 Atlas Honda RFO - 213 286.468

21 Nishat Power Ltd (NPL) RFO - - 250.256

22Foundation Power Company

(FPL)RFO - - 245.939

23 Nishat Chunian Power Ltd (FPL) RFO 232.144

24 Orient Power GAS 154.308

25 SAPHIRE Electric GAS 215.232

26 Saif Power GAS 202.644

27 Engro Energy GAS 292.976

28 Halmore Generation - - - 148.705

29 Liberty Power Tech - - - 274.529

30 HUBCO Power Co. Ltd - - - 241.002

31 Gulf Power - - - 83.197

32 Sammundari Road (Rental) - - - -

33 WALTER Power (Rental) - - - -

34 RTPS Naudero (Rental) - - - 34.964

35 Reshma Power Generation - - - -

36 Small Power Producers (SPPs) - - - 78.407

37 Karkey (Rental) 88.290

sector analysis electric power

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