Ensuring Low-Cost generation & Resource Adequacy: The Case of Pakistan’s new Competitive Trading Bilateral Contracts Market (CTBCM) model

The Power sector in Pakistan is currently facing severe problems in the form of rising electricity prices and mounting circular debt. One of the major reasons is the underutilization of take-or-pay contract power plants that incur huge capacity payments. The share of capacity charge in the final consumer tariff has increased from 18% in 2015 to 40% in 2022. This shows the inefficient generation capacity planning on behalf of the Central Planner in a single buyer Market regime. At the same time, the Central Power Purchasing Agency (CPPA), the electricity market operator in Pakistan, is facilitating the electricity market transition from the current single buyer to a Competitive Trading Bilateral Contracts Market (CTBCM) model.

This research aims to analyze whether this new Electricity market design can ensure resource adequacy and achieve the right balance of investment in generation capacity, especially in the upcoming renewable plants. For this purpose, case studies of different liberalized electricity markets will be analyzed to suggest the right Capacity Remuneration Mechanism (CRM) in the local context of Pakistan. The new electricity market of Pakistan will also be modelled to analyze the economic implications of capacity market design.

By: Aksam Mukhtar