What next after Power Market Limited dissolution?
By Kandi Padambo:
During the reform of power sectors in the capacity range of the Malawi Power Market Limited and even those with far bigger installed generation capacities such as Malaysia (34,600 megawatts), Egypt (60,073mw), Republic of South-Africa (64,500mw), Kenya (3,483mw), Tanzania (3,704mw) and Zambia (3,365mw), the role of Single Buyer has been assigned to the national power utility.
All the mentioned power markets are dominated by State-owned vertically integrated power utilities and characterized by a sizeable number of privately owned Independent Power Producers (IPPs) responsible for a significant proportion of total power supplied to the market.
The preference for this model by policymakers is underpinned by considerations of both electrical engineering and electricity economics which can be summarised as follows:
- The flow of electricity in the network follows the natural laws of physics which have no regard for institutional, legal or contractual arrangements let alone politically motivated arrangements.
- Electricity is the consummate real-time product. Because production and consumption essentially happen at the same time, electricity supply must match demand second by second, requiring the balancing of differences between the planned and actual outputs and loads.
- By giving the entity responsible for real-time dispatch the exclusive right to buy electricity from generators and sell it to distributors, the single-buyer model within the national power utility, which owns the power network and has trained personnel to operate and maintain it, greatly facilitates this balancing.
- Judicious system wide coordination to achieve real time balancing of supply and demand enables the meeting of specific physical parameters such as frequency, voltage and stability. An imbalance can cause the entire system to shut down which may take time to restore resulting in cost ramifications.
- Having a separate Single Buyer will require a regime for third party access into the system which can be costly.
- Complimentary technical and administrative services placed under the supervisory ambit of one functional division of a power utility will avoid unnecessary duplication and result in a conducive environment for multi-skilling and other optimisation efforts of expensive human resources and full utilisation of economies of scale.
Any policy that ignores the above, particularly the first five which allude to the inexorable nature of electricity, is likely to result in a sub-optimal, expensive and cumbersome outcome.
Escom’s role in the power market
Power producers in Malawi seeking to sell their product to electricity customers have to connect to the transmission and a distribution system of our national grid or power network owned, operated and maintained by State-owned Electricity Supply Corporation of Malawi (Escom).
The all-important ancillary services, which ensure proper directional flow of electricity within desirable voltage and frequency parameters and addressing of imbalances between supply and demand to ensure system stability and reliability, are expertly provided by Escom engineer’s day in day out, second by second.
In cases of breakdowns, it is engineers and technicians on the payroll of Escom who rush to replace, repair or restore everything.
Through transformers installed and maintained by Escom, electricity is safely brought into our homes, factories and offices where meters, installed and maintained by Escom, record electricity consumption.
Payment is enforced by the national power utility which bills and collects from electricity customers. Its accountants manage the proceeds. The entire electricity supply value chain is managed by Escom.
We cannot expect our power market to deliver the expected benefits of reform if we continue disturbing and destabilising such a critical role.
National power utilities, like Escom, have planning departments which monitor demand for power. They collect information from relevant stakeholders including government departments and agencies, for prospective investments and planned projects.
They also investigate power generation possibilities and visit sites of our rivers, to measure heights of waterfalls and rates of water flow for estimation of potential power output. The result is a triple outcome.
The Load Forecasting Model forecasts demand for power over the planning period. The Least Cost Development Plan guides and prioritises development and acquirement of generation facilities to meet the anticipated power demand.
The Investment Plan projects the cost of capital required to finance the development plan at least cost. The Investment Plan feeds into the utility’s overall Financial Planning Model.
There is much more than meets the eye whenever we encounter men and women in Escom uniform, risking body and limb, atop electricity poles on maintenance work or driving Escom vehicles in the still of the night to attend to reported faults.
The Electricity Act
The Electricity (Amendment) Act 2016 empowers the Malawi Energy Regulatory Authority (Mera) to issue licences for generation, transmission, importation, exportation, System and Market Operation, Single Buyer and distribution.
The Act, also allocates duties and functions to the different licensees. Four crucial roles, among others, assigned to the System and Market Operator are:
- to guarantee to all generation plants a fair dispatch and non-discriminatory access to the transmission system,
- own manage and operate the Load Dispatch Centre in a non-discriminatory manner and at least cost,
- supervise and co-ordinate the real-time operation of the market and to meter and settle transactions among licensees,
- manage imports and exports of electricity arising from the Southern African Power Pool and
- Provide accurate information to licensees and companies interested to invest in the sector.
Some spelt out functions and duties of the transmission licensee are:
- build, operate and maintain the transmission network in Malawi,
- coordinate the operation of the transmission system with the System and Market Operator licensee,
- undertake transmission planning activities in collaboration with the Single Buyer and
- provide information for the Single Buyer’s planning activities.
For the distribution licensee, the licensed functions and duties include:
- plan, build, operate and maintain the distribution network in Malawi,
- supply electricity to customers,
- take meter readings, prepare and deliver invoices, and collect payments from customers,
- forecast electricity consumption,
- provide information to the System and Market Operator licensee for the daily generation dispatch and to
- provide information to the Single Buyer licensee for planning and forecasts purposes.
As to the Single Buyer, all the functions and duties as listed are:
- prepare long term forecast of demand, taking into consideration the targets of electric supply coverage and expected economic growth in consultation with the minister,
- undertake least cost long-term generation and transmission planning,
- prepare a ranking of generation projects to be tendered out with the approval of the minister,
- prepare a ranking of transmission projects to be built, in coordination with the transmission licensee, with the approval of the minister;
- organise, with the approval of the minister, open tenders for independent power producers that will comply with guidelines established by the authority,
- evaluate unsolicited proposal from independent power producers (IPPs) and recommend to the minister for approval,
- negotiate and submit power purchase contracts to the authority for approval, and sign contracts with independent power producers,
- prepare the annual generation forecast,
- conclude power purchase agreements with generation licensees,
- conclude power supply contracts with distribution licensees, and
- conclude power purchase agreements for importation and exportation of electricity.
Why not a detached Single Buyer?
The roles under the licences for System and Market Operation, Transmission and Distribution are incidental to the operations of the respective licensees.
The Single Buyer is the only licensee with no function that can be directly related to a link in the power or electricity supply chain. Without data and information collected, processed and provided by the other licensees, a detached Single Buyer cannot function.
It is the holder of the distribution licence who is legally mandated to “take meter readings, prepare and deliver invoices, and collect payments from customers. It is the System and Market Operator who has to “meter and settle transactions among licensees”.
Those who associate a Single Buyer licensee with settling of IPP accounts do so out of ignorance or a proclivity to breach the law. The principal Act, which the Electricity (Amendment Act) 2016, keeps on referring to, is the legislation which was enacted to give legal effect to the reforms under the Power Sector Reform Programme (PSRP).
The Electricity Act 2004 provided that licensees should only hold one type of license. But it hastened to make an exception by providing that a transmission licensee and a distribution licensee “may apply for and be granted…” licences for importation and exportation of electricity.
By 2004, Escom was exporting electricity to Mozambique for its border towns along the border with Malawi. With the Southern African Power Pool in place and the interconnection with Mozambique on the horizon, the possibility of Escom importing electricity was real.
After the incorporation of Escom’s generation Strategic Business Unit as Electricity Supply Generation Company of Malawi in 2016, Escom became the holder of the transmission, distribution, importation and exportation licences.
The Electricity (Amendment) Act 2016 came with two new licences, for System and Market Operation and Single Buyer.
It continued with the insistence that “…a licensee shall not be granted more than one type of licence” but, for good reasons, also maintained an exception to the general rule by providing that “….a holder of a transmission licence, before the commencement of this Act, shall hold simultaneously, licences for distribution, imports, exports, systems and market operator and Single Buyer.”
The holder of the transmission licence was of course Escom. This was the law and still remains so. The, licences, once issued, are valid for specified periods and may be extended, unless revoked by the issuing authority for breach of conditions.
A licence can also be transferred to another licensee under quite stringent conditions including a public hearing in the case of submitted objections.
To be continued on Friday