Contents lists available at ScienceDirect

Renewable and Sustainable Energy Reviews

journal homepage: www.elsevier.com/locate/rser

An institutional framework for the development of sustainable andcompetitive power market in Pakistan

Usama Qazi⁎, Mirza Jahanzaib, Wasim Ahmad, Salman Hussain

Department of Industrial Engineering, University of Engineering & Technology, Taxila, Pakistan

A R T I C L E I N F O

Keywords:Herfindahl Hirschman IndexInstitutional frameworkMarket powerPakistanResidual Supply IndexSustainable power

A B S T R A C T

Pakistan is continuously striving for sustainable and competitive power market. Under the comprehensivepower sector reform program, Pakistan shifted its power market from monopoly model to single buyer model byunbundling Water and Power Development Authority (WAPDA) and establishing National Transmission andDispatch Company (NTDC). Current severe power situation in the country is triggering the Government ofPakistan (GoP) to accelerate the implementation of intended reform program and to readily undertake nextplanned transformation i.e. from single buyer model to wholesale market model. This research endeavors thefuture dynamics of power market after the structural spin-off by pre-assessment of upcoming wholesale powermarket. Market power of both public and private electricity generators has been computed using 8-largest firmconcentration ratio, Herfindahl-Hirschman Index (HHI) and Residual Supply Index (RSI). The findings suggestthat future power market will function with non-existence of market power except in the periods of peakelectricity demand and maximum hydro generation. Furthermore, insufficient installed capacities and under-utilization of public thermal units may enable some players to exercise market power. For sustainable andcompetitive power market an empirically supported framework has been proposed based on the analysis. Theframework proposes utilization of huge available renewable energy potential for future which will protect thewhole infrastructure from market power. It recommends respective roles and responsibilities for the smoothtransition among market models. The framework will be supportive in terms of successful and smoothtransition from single buyer model to wholesale market model and potential of wind, solar, biogas to be properlyexplored and utilized to reduce energy gap.

1. Introduction

A wave of electricity reform initiated around the globe in late 80's.The constituents of reform program included unbundling of stateenterprises, introduction of competition among the market players,establishment of autonomous regulator and privatization of lessproductive generation and distribution systems. Electricity reform isstill an ongoing process and continuously needs enhancements foroptimum transfer of gains to stakeholders [1]. Experiences havevalidated that appropriate reform plan for electricity sector, alwaysbring efficiency improvements in terms of cost, service, quality andreliability [2]. Moreover, substantial reduction in line losses have alsobeen observed in transmission systems after reforms [3]. With theseadvances in restructuring, electricity market models also evolve.Initially, monopoly model (all operations under government control)shifted to single buyer model after unbundling of distribution fromtransmission and generation side. It is then followed by the develop-

ment of wholesale market model, enabling privatization in generationand transmission side. Development of wholesale electricity marketeventually creates competition, allowing power generators to utilizeadvance technologies and other resources optimally. Competitiveelectricity market always enable end users to enjoy incentives andeconomical tariffs [4]. The final stage is of development of retailelectricity market with multiple independent sellers and distributorsof electricity where consumers have variety of options to buy electricity.

In case of non-existence of market power, wholesale electricitymarket always offer incentives for all stakeholders. Market power is thecapability of generator or distributor either individually or collectivelyto control the prices over a competitive level. Consequently, it drivesthe total output and adversely affect the other stakeholders. Marketpower could restrain the competitive activities disabling the generators,suppliers and distributors towards technological advancement, servicequality and innovation. Existence of market power may lead toinappropriate transfer of wealth resulting in misallocation of resources

http://dx.doi.org/10.1016/j.rser.2016.11.152Received 9 November 2015; Received in revised form 7 August 2016; Accepted 12 November 2016

⁎ Corresponding author.E-mail addresses: waleed.kazi@yahoo.com (U. Qazi), jahan.zaib@uettaxila.edu.pk (M. Jahanzaib), wasim.ahmad@uettaxila.edu.pk (W. Ahmad),

salman.hussain@uettaxila.edu.pk (S. Hussain).

Renewable and Sustainable Energy Reviews 70 (2017) 83–95

Available online 24 November 20161364-0321/ © 2016 Elsevier Ltd. All rights reserved.

MARK

among stake holders of electricity markets [5]. Market power restrictsnew entrants in market disabling customers from more choices. Largecustomer pool of dominating player also restrain firm to bring aboutinnovation in network.

It is the responsibility of regulator to continuously monitor thegeneration behavior of electricity generators while detecting thedominant distributor and adjust the policies accordingly to avoidmarket power [6]. Literature suggest different tools and techniquesto evaluate market power while identifying the individuals or groupsinfluencing the electricity market. Most commonly used tools areconcentration ratios (CR), Herfindahl-Hirschman Index (HHI),Residual Supply Index (RSI) and lerner index. Power markets ofTurkey, Korea, Singapore, Colombia, UK, Portugal, Nordic, USA,Europe, Germany, Texas and Dutch have been analyzed by means ofthese tools. Turkish power market has been analyzed by using CR4 andCR8 for getting the insight of the market in terms of market power [7].To evaluate Korean [8]and Colombian [9] wholesale power market,Cournot-based model has been utilized to identify any existence ofmarket power. Power market of Singapore has been comprehensivelyanalyzed by employing set of these techniques including CR, HHI,Lerner Index, RSI and supply margin [10]. Keeping in view theimportance of HHI, Nordic [11]Swedish and US markets have beenresearched using HHI [12]. Uncompetitive behavior of German powermarket during 2002–2006 has been investigated by applying compe-titive benchmarking model [13]. European electricity market has beenevaluated for getting the insight of market power by using staticcomputational game theoretic model [14]. Qualitative analysis isapplied in case of UK [15], Portugal [16] and Dutch [17] for identifyingeffects of new regulation on market power.

Analysis of different power markets revealed varying causes andeffects of market power that include flaws in market structure, existingstrengths and weaknesses in electricity market and intentions ofstakeholders and policy makers. Results of this type of analysis hasallowed the policy makers to develop set of standards to mitigate theeffect of market powers.

Like other transition economies, Pakistan also initiated electricityreforms to efficiently utilize all resources for the betterment of sector.The first step was unbundling i.e. separation of generation, transmis-sion and distribution from each other letting the development of semi-liberalized electricity market. Unbundling of entities, was followed byintroduction of private participants in generation as initial step for thedevelopment of wholesale market. Over the period of time, more thantwenty four private generation companies have entered into genera-tion. However, transmission and distribution still remained undergovernment control.

Since unbundling, power market of Pakistan has been workingunder single buyer model. Now Government of Pakistan (GoP) hasdecided to step forward by transforming from single buyer model towhole sale market model. It is imperative to explore, whether thismarket will be going to operate at workable level of competitionwithout market power. If market power exists then what will be thecauses and effects of internal and external elements of market powerand secondly what preventive measures have to be considered duringtransition? To achieve this, structural indices of market power includ-ing 8-largest firm concentration ratio, Herfindahl Hirschman Index(HHI), and Residual Supply Index (RSI) have been calculated withcurrent installed capacity and annual energy generation over the periodof last five years. Based on empirical results, probable causes of marketpower have been identified followed by the development of institu-tional framework with respect to roles and responsibilities for con-cerned stakeholders. The proposed framework is an attempt to evaluatehow power market of Pakistan might react to transformation. Thisframework will facilitate the policy makers to observe certain obliga-tions prior to transition.

The remainder of paper is organized as follows: Section 2, providesa brief overview of electricity sector of Pakistan along with overall

reform progress and policy review. Section 3, discusses the importantaspects of market power. Section 4, describes the transition phases ofmarket model. Results of analysis and framework for successfultransition has been presented in Sections 5 and 6 respectively.Section 7, highlights the role of renewable energy towards developmentof competitive market in Pakistan. Concluding remarks are provided inSection 8.

2. Overview of power sector of Pakistan

Pakistan inherited generation capacity of 60 MW after indepen-dence in 1947 which was raised to 700 MW till 70's. With increase inpopulation the capacity was increased exponentially to 9000 MW in1990. At that time the entire electricity infrastructure was mainlyunder the state owned entity, namely WAPDA (Water and PowerDevelopment Authority). WAPDA had expertise in dealing with megahydel generation projects and installation of high voltage transmissionnetworks. However, lack of interest and negligence by GoP towardsnew electricity production projects, resulted in supply demand deficit.Currently installed capacity is approximately 22,000 MW. Even in thepresence of sufficient installed capacity, there is still deficit of 4000–6000 MW [18]. The up gradation of transmission and distributionnetworks was also ignored which led to inadmissible line losses [19].Several other factors that include unavailability of capital, politicalinstability, inappropriate investments, infeasible policies, poor servicequality and inefficient revenue collection affected power sector se-verely. All these factors collectively, led to the need of electricity reformfor achieving sustainable and competitive power sector.

2.1. Reform program

Pakistan initiated its electricity reforms in early 1990's named asStrategic Plan for Restructuring the Pakistan Power Sector (PPRSP). Itis clearly depicted from the Fig. 1, that prior to unbundling, WAPDAwas solely responsible for generation, transmission and distribution.After reforms, the unbundling of vertically integrated monopolyresulted into separate entities for generation, transmission and dis-tribution. The entities responsible for generation were WAPDA, gen-eration companies (GENCOs) and independent power projects (IPPs).WAPDA and GENCOs were established under government controlwhereas IPPs were invited under lucrative terms and conditions.WAPDA was restricted for hydel generation only whereas GENCOsand IPPs were responsible for generation through other resourcesincluding HSD (High Speed Diesel), RFO (Residual furnace oil), Diesel,coal etc. A separate transmission entity National Transmission andDispatch Company (NTDC) was made under state control, responsibleto transmit electricity from generation sites to distribution grid. Tosafeguard the rights of all stakeholders while maintaining the compe-titive environment of electricity market, independent regulatory bodyNational Electricity and Power Regulatory Authority (NEPRA) was alsoestablished. Nine regional state owned distribution companies(DISCOs)1 were established to distribute power from distribution gridto consumers [20]. The pace of reform program was slow towards theachievement of sustainable and competitive power market. Politicalinstability, lack of technical and financial resources and inconsistentenergy policies hindered the achievement of stated goals of reformprogram [21].

1 IESCO(Islamabad Electric Supply Company).LESCO(Lahore Electric SupplyCompany).FESCO(Faisalabad Electric Supply Company).PESCO(Peshawar ElectricSupply Company).MESCO(Multan Electric Supply Company).GEPCO(GujranwalaElectric Supply Company).QESCO(Quetta Electric Supply Company).SEPCO(SakkharElectric Supply Company).TESCO(Tribal Electric Supply Company).

U. Qazi et al. Renewable and Sustainable Energy Reviews 70 (2017) 83–95

84

2.2. Power policies review

As a part of reform program, GoP devised number of power policiesduring last two decades. The overarching theme of these policies was toattract the private sector investment and to full fill the growing demandwhile creating competitive electricity market [22]. Overall five powerpolicies have been introduced and implemented so far. The first policywas introduced in 1994 followed by second policy in 1995, focused onthe development of hydel projects. In both policies Private investorsflocked to harvest the generous licensing regime at lucrative fiscalterms and guaranteed return on investments. In this era installedcapacity of approximately 3000 MW was added to the national grid.However, instead of focusing on hydro projects the newly addedgeneration capacity mostly based on thermal power sources relyingon imported expensive fuel. This situation distraught the energy mixand developed the colossal of circular debt.

The third power policy was launched in 1998 having attractiveincentives for investors including protection against changes in taxesand duties, permission to raise local and foreign finance along withguaranteed foreign exchange conversion [23]. However, sanctions dueto nuclear tests forced the government to cease the foreign reservewhich resulted in complete failure of policy. After this, fourth powerpolicy was launched in 2002, to attract foreign investors. The majorincentives included exemption form custom duty, sales and income taxfor foreign investors. Moreover, high rate of returns offered to IPPs. Asa result of incentives approximately 2800 MW of dependable capacitywas added to the national grid. Although huge power capacity wasadded to the existing system; however this capacity was not able tomeet the energy requirement of fast growing economy. Power policy2013 aimed to eradicate the electricity shortfall by providing incentivesfor investments in alternative energy sources [24]. Subsidies given toIPPs and consumers have also been reduced to overcome circular debt.Several other measures have been introduced in this energy policywhich provided a roadmap for developing wholesale electricity market.The key features of these five policies have been presented in Fig. 2.

Furthermore, policy wise capacity addition along with nature ofgeneration mode has been provided in Table 1. It is clear from the tablethat policy wise capacity expansion and number of projects wereinconsistent. The energy mix was inefficient which resulted in highgeneration cost and shortfall. The main reasons behind the failure ofthese energy policies were political instability, inconsistency in policies,political opportunism and the most important preference to personalinterest over national interest.

2.3. Power sector crisis

Pakistan's power sector is under severe stress for almost a decade.

Over the period of last five years the number of consumers increasedfrom 19,582 million in 2009-10 to 23,519 million in 2014-15 withpercentage increase of 9% as shown in Table 2. With this increase ofconsumers, the average demand also increased by 8%. To cater the fastgrowing demand the generation capability was also increased from13,476 MW to 16,500 MW with 10% increase as compared to 2009–10. Interestingly it may be noted that the change in ratio of increase indemand, generation capability and number of consumer is approxi-mately synchronous having ratios 8%,10% and 9% respectively but stillthere exist adverse supply demand deficit of 4000–6000 MW. This maybe justified by the continuous rise in population, growing industrializa-tion, and increase in consumer's purchasing over the observed period.Moreover, distribution and transmission losses also contributed to thisadverse shortfall [25].

In addition to this, short term and biased power policies resulted inexpensive, imbalanced and inefficient energy mix which also resulted inshortfall. Fig. 3, describes the comparison of installed capacity andenergy generation of public and private sector entities. It can beobserved that the installed capacities of public and private sectorincreased approximately in equal proportion from 1997 to 2015.However, the energy generation from public sector remained40,000 GWh which was same as in 1997. On the other side, energygenerated by private sector has a tremendous increasing trend from10,000 GWh to 46,000 GWh from the period 1997–2015. It is believedthat entry of private generation in form of IPPs positively influence thesector's performance [26] but in case of Pakistan the case is converse.The extended share of private sector generation has doubled theaverage selling price of electricity. In 2009–10 the average sellingprice was 521 paisa/kWh which was raised to 1060 paisa/kWh in2014–15. All these reasons consequence in extended and unannouncedblackouts which created frustration among household and industrialconsumers. This situation also triggered the shifting of textile, softwareand related industries to neighboring countries. Moreover, it isanticipated that uneven shares in energy generation and high rate ofreturns for different IPPs may give rise to market power. Big powerhouses may dominate during peak demand hours, refraining the gainsof upcoming wholesale electricity market to end consumers.

Fig. 4, shows the fuel wise (Public and Private) energy generationsituation during the reforms of last five years. Even with the hugepotential of renewable energy resources (discussed in Section 7)Pakistan still relies heavily on thermal (HSD, RFO, NG, DO)2 genera-tion. It is evident that over the past few years, share of thermalelectricity in energy mix has increased [27]. It may also be noted thatshare of private thermal electricity production dominates the publicthermal generation, conveying the existence of market power after

Fig. 1. Administrative structure of electricity sector before (a) and after (b) unbundling.

2 High speed diesel, residual fuel oil, natural gas, diesel oil.

U. Qazi et al. Renewable and Sustainable Energy Reviews 70 (2017) 83–95

85

development of wholesale market. Under these circumstances it isnecessary to evaluate the current electricity market structure to getaware of consequences after this transformation.

3. Literature review on market power

Market power abate the economic efficiency of the sector and pavethe way for biased and discriminative competition. Market power alsoresults in higher electricity prices and enable unequal transfer of wealthamong stakeholders. Economists, regulatory bodies and legal institu-tions interpret market power differently. Some economists describemarket power as ‘‘The ability to profitably alter prices away fromcompetitive levels’’ [28]. Department of Justice and Federal TradeCommission (DJFTC) of US describe market power as ‘‘The ability toprofitably maintain prices above competitive levels for a significantperiod of time’’ [29]. Another concept of market power is defined as‘‘the ability to affect the market price even a little and even for a fewminutes. Two more qualifications are needed to complete this defini-tion: The effect must be profitable, and the price must be moved awayfrom the competitive level’’ [30]. Federal Energy RegulatoryCommission (FERC) describe the concept of market power as theability of producer to exercise market power, while industrial regula-tion sees the market power as combination of capability and incentiveof exercising market power. Although different interpretations of thisconcept, there is unanimity on the adverse consequences of marketpower.

The roots of market power in the electricity sector can be traced inthe industry concentration (evaluated by the size of suppliers andnumber generating companies), periodic supply and demand trends,high inelastic short-term demand along with the high inelastic portionsof aggregate supply curves, transmission network externalities andbarriers to entry. Electricity market is considerably more vulnerable tomarket power as the storage of electricity is impossible. The low priceelasticity of demand and need of balancing demand and supply for eachsecond make the resulting market prices volatile [12].

For efficient operation of wholesale electricity markets, there must

Fig. 2. Key features of energy policies of Pakistan from 1994 to 2013.

Table 1Statistics of various power policies in Pakistan.Source: NEPRA and NTDC annual reports

Powerpolicy

Capacityaddition(MW)

Numberofprojects

Generation mode Remarks

Oil Gas Hydro

1994 2898 14 63% 27% – Import of oilresulted inhighgeneration cost

1995 84 1 – – 100% Insufficientaddition insystem

1998 Nil Nil Nil Nil Nil No addition ingeneration dueto suddenchange ofgovernment

2002 2782 13 42% 58% – Expensivegeneration dueto inefficientenergy mixinstability

2013 2019 11 58% 19% 17% Dominatingthermalgenerationwith smallshare of 6% ofRE

U. Qazi et al. Renewable and Sustainable Energy Reviews 70 (2017) 83–95

86

be an appropriate market assessment mechanism. Market power mustbe detected, quantified and restricted in timely manner. Well estab-lished methods and tools are available for the detection and identifica-tion of market power [31]. Electricity regulatory bodies considerdetection of market power as important as mitigating the effects ofmarket power.

On the basis of time period and geographical restrictions marketpower indices may be characterized to short-term measures for localmarkets level or long-term measures for the whole electricity systemlevel indices. These market power indices may be classified on the basisof structure and behavior of the electricity market. Structural indicesidentify the market power potential and utilizes the dimension, numberand some other features while behavioral indices examine the actualbehavior of entities and try to locate the evidence of the existence ofmarket power by investigating into individual bid price and quantity[32].

The most common structural methods for measuring market powerbase upon market share are i). the largest market share, ii). 4- and 8-firm concentration ratios, iii). Entropy coefficient iv). Residual SupplyIndex, and v). Herfindahl- Hirschman Index (HHI) [10,33]. Thoughthese indices are good measures of market power but ignores some keyaspects of competition, like electricity demand, natural monopoly

constraints and prevailing market situation. Currently, market mon-itoring units and regulators use a combination of structural orbehavioral indices to discover, identify, evaluate and quantify thepotential and actual drivers of market power [34].

Evaluation of power market before or at initial stages of transitionhas not been found in literature using structural indices. This facttriggers the need for the development of framework based on theseindices which has to be used in systematic and coherent manner for thesuccessful achievement of goal. This framework aid all stakeholdersincluding policy makers, regulators, investors and consumers towardsachievement of sustainable and competitive wholesale electricity sectorwithout market power.

4. Transition towards competitive electricity market

Unbundling of WAPDA in early 90's, resulted in transformation ofmonopoly model to single buyer model. After a large gap a needobserved to move forward for the development of wholesale marketwhere consumers have choice to purchase from desired supplier. Thephase wise plan to achieve competitive power market is depicted inFig. 5. Existing single buyer model is a primitive step or forerunner forcompetitive electricity market in Pakistan. NEPRA under the GoPdirectives is planning to shift from single buyer model to wholesalecompetitive model. This structural shift will further pave the way forthe achievement of retail market (Phase 4). It is envisioned that withthe attainment of wholesale competitive power market, there will be arevolution in power sector leading towards economic growth andsustainability. This structural spin-off necessitates to evaluate thefuture of power market to identify whether this market will be goingto operate at workable level of competition. If market power exists thenwhat will be the causes and effects of internal and external elements ofmarket power and what preventive measures, in terms of roles andresponsibilities, have to be considered during transition. The upcomingsection analyses the Pakistan's power market using structural indices.

5. Analyzing structural indices of market power in Pakistan

Currently power market comprises of public and private electricitygeneration companies with share of 49% and 51% respectively. Publicsector generation is mostly dependent on hydro generation followed by

Table 2Electricity sector growth in Pakistan.Source: NEPRA state of industry report 2015

Years/variables 2009–10 2010–11 2011–12 2012–13 2013–14 2014–15 Change (%)

Peak demand (MW) 18,467 18,521 18,940 18,827 20,576 21,701 8Generation capability (MW) 13,476 13,193 12,320 14,600 16,170 16,500 10No. consumer (''000) 19,582 20,309 21,047 21,876 22,588 23,519 9Supply demand −4991 −5328 −6620 −4227 −4406 −5201Average sale price (Paisa/kW h) 521.9 703 803 894 1035 1060 34

0

10000

20000

30000

40000

50000

60000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Year

IPP Installed Capacity(MW) Public Installed Capacity(MW)

IPP Energy Generation(GWh) Public Energy Generation(GWh)

Fig. 3. Comparision of installed capacity and energy generation of public and privatesector.

MW

0

2000

4000

6000

8000

10000

2010 2011 2012 2013 2014

Hydro Thermal (Public) Thermal (Private) Nuclear Wind

Fig. 4. Dynamics of electricity generation resource mix.

20

40

60

80

100

120

HH

I

0

00

00

00

00

00

00

Jan FFeb Mar A

2011

Apr May Ju

2012

un Jul Au

2013

Sep,

De

ug Sep Oc

2014

, 1020

ec, 437

ct Nov Deec

Fig. 5. Restructuring plan for Pakistan power market.

U. Qazi et al. Renewable and Sustainable Energy Reviews 70 (2017) 83–95

87

thermal generation with installed capacity of 6902 MW and 5017 MWrespectively. Nuclear energy has little contribution with installedcapacity of 787 MW. The private generation, on the other hand, mainlydepends on thermal generation along with other sources includinghydel and wind having installed capacities of 8732 MW, 214 MW and106 MW respectively. The details of existing power generation bydifferent energy resources are presented in Table 3. The successfultransformation from single buyer model to whole sale is possible onlyin the non-existence of market power. For this purpose, threestructural indices including i). Market share concentration ratio ii).HHI, and iii). RSI have been used for market power identification.

5.1. Market share concentration ratio

Market share concentration ratio is the percentage of market shareof the largest companies in the market. The ratio is employed toidentify firms having maximum shares in the power market andconsequently their potential to influence the price setting. Its calcula-tions are based upon either installed capacity or net energy generation.Where installed capacity is the actual energy generation capability ofany company; whereas, the energy generation is the total energygenerated on daily, monthly or annual basis. Because of transmissionconstraints along with different tariff mechanism for various electricitysuppliers, the energy based calculations do not serve better assessmentas compared to installed capacity based calculations. Although capacitybased market shares have indirect relationship with firm's ability forsetting tariffs above marginal costs; however for a certain level ofdemand elasticity, capacity market share increases as firm's own-demand elasticity decreases [33]. Consequently, for any given demandelasticity, greater capacity market shares depicts greater ability to settariffs above marginal cost.

In this type of analysis for market power, market share concentra-tion ratio is compared against a threshold value which is 20%established by Federal Energy Regulatory Commission (FERC) [32].If there exist no single entity with more than 20% market shareconcentration ratio, the aggregate of 8- largest firm concentration ratiois compared against the threshold. Value above threshold either single

or aggregate indicate market power.For the current research, market share concentration ratio of public

and private electricity generation companies have been calculated inboth concerns i.e. installed capacity and annual energy generated forthe period 2010–2014. During this period, the minor expansion ininstalled capacity of generation units assumed to be constant. Capacitywise and generation wise market share concentration ratio has beenpresented in Table 4. Evidently, largest market share concentrationratio based on installed capacity and generation capacity are 16.1 and16.9 respectively. This value is acceptable and is less than the FERC'sstated standard for identifying existence of market power. These resultsindicates the non-existence of market power which conveys that theupcoming wholesale market will be competitive.

There exists significant capacity wise difference of market sharesamong 1st (Tarbela 16.1%) and 2nd (KAPCO 7.6%) largest firms whichconveys an unevenness in generation capacity. It is evident thatpossession of largest generation capacity does not necessarily produceaccordingly. For instance, HUBCO with 5th largest capacity wisemarket share has got the opportunity to generate electricity as secondlargest shareholder. The data confirms the forced underutilization ofpower companies by GoP. The reason behind inefficient recovery fromconsumers is also making it harder for government to pay for bothcapacity and energy charge as per “Take or Pay” agreement with IPPs.This policy constraint leads to forced shutdown of these power plants toavoid energy charge payments while paying capacity charge only. Thissituation leads to malpractice of planned blackouts to normalize thedemand. This policy constraints often triggers to rely much oninefficient public generators which ultimately leads toward rise inconsumer end tariff.

From past few years, Pakistan has been facing shortage of naturalgas. It is an interesting fact that among leading shareholders i.e. theKAPCO,3 TPS4 Muzaffargarh, TPS Guddu and TPS Jamshoro operateson dual fuel i.e. gas and furnace oil. Non availability of natural gas,

Table 3Public and private electricity installed capacity in Pakistan.Source: NEPRA state of industry report 2015

Public powergeneration

Installedcapacity(MW)

Public powergeneration

Installedcapacity(MW)

Private powergeneration

Installedcapacity(MW)

Private powergeneration

Installedcapacity(MW)

HYDEL Tarbela 3478 Khurram Ghari 4 HYDEL Jagran AJ &K 30 Laraib Energy 84Mangla 1000 Renala 1 Malakand III 81 Garam Chashma 1Ghazi Brotha 1450 Chitral 1 Pehur 18 6027Warsak 243 Khan Khawar 72 Lal Pir Power 362 Attock Gen. 164Chashma 184 Jinnah 96 Pak Gen. Power 365 Atlas Power 224Dargai 20 Allai Khawar 121 Altern Energy 31 Engro Power 227Rasul 22 Gomal Zam 17 Fauji Kabirwala 157 Saif Power 225Shadiwal 14 Jabban 22 Habibullah

Coastal140 Orient Power 225

Chichoki Malian 13 Duber Khawar 130 HUBCO 1292 Nishat Power 202Nandipur 14 Japan Power 135 Nishat Chunian 202

Thermal TPS Jamshoro 850 SPS Faislabad 132 Thermal KAPCO 1638 Sapphire Electric 235GTPS Kotri 174 NGPS Multan 195 Kohinoor Energy 131 Halmore Power 225TPS Guddu(Units1–4)

640 FBC Lakhra 150 Rousch Power 450 HUBCO Narowal 225

TPS Guddu(Units5–13)

1015 GTPS Shahdra 44 Saba Power 134 Liberty Power 202

TPS Muzaffargarh 1350 TPS Quetta 35 Southern Electric 136 FoundationPower

183

GTPS Faislabad 244 TPS Pasni 17 TNB LibertyPower

235 Davis Energen 11

SPS Faislabad 132 GTPS Panjgoor 39 Uch Power 586 Uch Power-II 381Nuclear CHASNUPP-I 325 KANUPP 137 Wind Zorlu Enerji 106

CHASNUPP-I 325 Total=9043 MWTotal=12706 MW Total Sum=21749

3 Kot Addu Power Company.4 Thermal Power Station.

U. Qazi et al. Renewable and Sustainable Energy Reviews 70 (2017) 83–95

88

push these power plants to generate expensive electricity utilizingimported furnace oil. Generation of costly electricity ultimately rise theconsumer end tariff. If this situation prevails, may lead KAPCO toexercise market power as being 2nd largest shareholder, by gettingmore revenue as compared to others. Expensive electricity beforetransition of market model (single buyer model to whole sale competi-tion) will be a great challenge to cope with.

It is clear from Table 4 that, approximately 50% of Pakistan's 8-largest generators comprises of hydro based entities. This share is quitelarge, conveying the huge hydro potential in the country. If this sourceutilized aptly, may generate cheap electricity. Share of public GENCOsamongst largest market players is quite high, depicting the dominanceof public sector in generation. This indicates the existence marketpower by public GENCOs but as a whole this fact is not evident frommarket share concentration ratio.

It is quite interesting fact that UCH (name of place) power planthold a position amongst the 8-largest electricity producers even nothaving enough generation capacity to be amongst 8-largest generationcapacity holders. This depicts the efficient operation of plant duringpast few years. Optimal functioning of uch plant displaced TPSJamshoro from 8-largest market share holders providing evidence ofinefficient operations from public GENCOs. Ghazi brotha retained the2nd position in largest generation for the observed period, due to itsunique nature (run of river hydel generation). The water flow remainsalmost constant throughout the year in this canal which allowscontinuous and smooth generation. The assessment of 8-largestconcentration ration clearly indicates the non-existence of marketpower in current power market structure. Power market of Pakistanmay face the problem of dominance, during the final step of horizontalunbundling if above mentioned issues did not get resolve in timelymanner.

Though 8- largest firm concentration ratio demonstrate that,currently power market is working at competitive level but it doesnot clearly predict the future. Similarly it provide limited evidenceabout the dominance of certain market players who can exercisemarket power in peak demand. It is imperative to address this issuewhen single buyer market be transformed to wholesale market. Ananalysis is carried out using HHI for the sake of identifying key playershaving potential of exercising market power in certain conditions.Moreover HHI, not only investigates the firm's market share but alsoidentify the number of participants who may exercise market power.Similarly it also provides evidence of existing inequalities amongmarket players.

5.2. Herfindahl Hirschman Index (HHI)

HHI is conventional method used by regulators and analysts for theassessment of market concentration. It is calculated as the sum of

market participants' squared shares on overall market.

HHI ΣS S S S= + + … … …12

22

32

n

HHI: Herfindahl Hirschman index,S1= Market share of 1st Entity,S2= Market Share of 2nd Entity,Sn=Market Share of nth Entity.

U.S. Department of Justice has defined range in which, HHI lessthan 1000 shows unconcentrated market representing competitivemarket with more than ten equal sized effective competitors. HHIbetween 1000 and 1800 shows moderately concentrated marketdepicting reasonable competition in market. Number of equal sizeeffective competitors in this case ranges from 5 to 10. HHI above 1800represents a highly concentrated market which is competition lessmarket with less than five equal competitors [35]. Usually, the installedcapacity is utilized for calculating HHI specifically for electricityindustry. However the inelastic nature of electricity demand, annual,monthly, daily or seasonal generation, serve as better assessmentindicator for HHI calculations [4]. HHI also serves as a standard forthe assessment of other market concentration indices.

The concentration of Pakistan electricity market is computed overthe period of past 5 years from 2009 to 2014. Annual electricitygeneration is employed to calculate the values for HHI. The diversenature of electricity market in Pakistan compels to analyze sector inthree different scenarios. i). Private Sector Electricity Generators ii).Public Sector Electricity Generator iii). Entire Electricity Market (BothPublic and Private Sector Generators). The purpose of this type ofanalysis is to get insight of efficiency difference among public andprivate generators. Similarly it aid in evaluating competitive level ofdifferent groups of power market.

Table 5, summarizes the results of HHI of Pakistan electricitymarket for three scenarios i.e. private sector electricity generators,public sector electricity generator and for entire electricity market(both public and private sector generators). HHI for the publicgeneration companies for the period under observation denotes thatelectricity market is concentrated with moderate competition. From thetrend of last 5 years it may be concluded that this market is headingtowards highly concentrated market. The cost plus tariff regime restrictthe central power purchase agency (CPPA) to buy expensive electricityfrom IPPs instead from public generators with cheap cost.Consequently, public generation sources are not utilized properlyintentionally, leading towards development of highly concentratedmarket. Being government entity, public generators could be utilizedto generate efficiently allowing consumers to enjoy the benefits of costreflective tariff. It is clear from Table 6, that over the period of last 5years, private power producers are contributing much in electricity

Table 48-Largest market shares of Pakistan's power market.

Period 1st Largest 2nd Largest 3rd Largest 4th Largest 5th Largest 6th Largest 7th Largest 8th Largest

Capacity base2009–14 Tarbela KAPCO Ghazi Brotha TPS Muzaffargarh HUBCO TPS Guddu Mangla TPS Jamshoro

16.1 7.6 6.7 6.3 6.0 4.7 4.6 3.9Energy base2009–10 Tarbela HUBCO KAPCO Ghazi Brotha TPS Muzaffargarh Mangla TPS Guddu TPS Jamshoro

15.7 9.4 8.8 7.7 6.9 5.4 5.1 4.82010–11 Tarbela HUBCO Ghazi Brotha Mangla KAPCO TPS Guddu Uch Power TPS Muzaffargarh

17.8 9.1 8.2 6.7 6.4 4.9 4.7 4.12011–12 Tarbela HUBCO Ghazi Brotha KAPCO TPS Guddu Mangla Uch Power TPS Muzaffargarh

15.9 8.8 7.9 6.9 6.2 5.3 4.8 3.72012–13 Tarbela HUBCO Ghazi Brotha KAPCO Mangla TPS Muzaffargarh TPS Guddu Uch Power

16.9 8.8 8.2 6.3 5.4 5.1 5.0 4.32013–14 Tarbela HUBCO Ghazi Brotha KAPCO Mangla TPS Muzaffargarh Uch Power TPS Guddu

16.1 7.5 7.4 6.9 6.2 5.4 4.6 3.3

U. Qazi et al. Renewable and Sustainable Energy Reviews 70 (2017) 83–95

89

pool by contributing more than 50%. This conveys the dominance ofprivate producers in generation even in the presence of well-developedbut poorly maintained state owned power producers. This may hampertowards achievement of future wholesale market to work at optimumlevel.

Value of HHI for Private electricity generators over the period oftime demonstrate a healthy trend towards competitive market withmore than 10 equal size power generators. The rising trend towardscompetitive environment depicts wellbeing of these independent gen-erators enjoying the lucrative terms of capacity charge from GoP.Presence of competition indicate that structural spin-off will definitelytransfer benefits to the stakeholders of wholesale market. However thepolicy of “Take or Pay” for private power houses needs to be remodeledotherwise market power problem could arise while shifting from singlebuyer market to wholesale market. Similarly the, results of entireelectricity market clearly indicate a highly competitive electricitygeneration sector conveying the suitable time for transaction.

Fig. 6, demonstrates monthly variations of HHI for last five years.During this period the market has been found as competitive, whileindicating right time for further market remodeling. The maximumvalue for HHI during observed period is 1020 and the minimum valueis 437. The maximum value is the only value which is beyond theFERC's competitive range indicating moderately concentrated market.Though results are quite stable but uneven shares of different energyproducing entities in electricity market, may lead them to exercisemarket power. Tarbela power house holds largest market share asevident from 8-largest market share concentration ratio. Tarbela powerhouse can enjoy market power after further restructuring of electricitymarket model. Fig. 6 shows that during February, March and Aprilwhen electricity demand is comparatively less, develops almost perfectcompetition among players. This is because during extreme wintersthere is scarcity of water disabling Tarbela and other hydro resources to

lessen their share in total generation. Conversely, during the highdemand months like June, July and August, market competitive leveltends to decrease. This fact is evident from the calculated values ofHHI, which are approaching towards moderately concentrated market.The high values for HHI during summer are justified by the overflowcondition of rivers due to heavy monsoon rain falls and snow melting innorthern areas. It may also be concluded that during less demand inwinters i.e. lesser load on system may help in achieving competitivemarket. While during maximum demand period in summer, systemload push the market to behave incompetently. NTDC has predictedgrowing electricity demand in upcoming years, which may lead todevelopment of highly concentrated market due to increased systemload in future.

The diverse nature of power market and seasonal variation alongwith demand, generates different behaviors in terms of market power.On the basis of HHI calculation, Table 7 depicts the future outlook ofpublic and private generators influencing power market in differentseasons depending upon variation in demand. Among public genera-tors in summer season when electricity demand is high Tarbela, Ghazibrotha and Mangla may exercise market power. Similarly, in lowdemand period in winters TPS Muzaffargarh, Tarbela and Guddumay exploit the market. On the other side for private sector generatorsit is an interesting fact that during both low and high demand periodsi.e. summers and winters HUBCO, KAPCO and UCH have the potentialto create an imbalance in terms of market power.

Largest market share and HHI though good indicator for assessingthe electricity market but these indices only depict the generation sidescenario. Conditions of power market vary on hourly basis due tochange in electricity demand patterns, generation outages and trans-mission breakups. These constraints along with other limitations raisethe need for a dynamic tool to assess the market by considering supplyside. RSI is considered as a measure that uses demand side, in additionto generation side for assessing market.

5.3. Residual Supply Index (RSI)

RSI was developed by California Independent System Operator(CAISO) and has been utilized for assessing California's power market.RSI evaluate the influence of power generator with respect to totalsystem demand and total overall electricity generation. It is calculatedby dividing total electricity generated by system less the generatorunder observation by the total system's demand [36]. RSI of ageneration unit less than unity, depicts the role of that entity asinfluential in power market. On the other hand, RSI greater than unityrepresents that, entity will not have significant influence in powermarket. Similarly, decrease in value of RSI of any entity will increasethe market power of that entity.

Using peak load (monthly) and installed capacity of generationcompanies RSI has been calculated for Pakistan electricity market. RSIis calculated for the past four years to forecast the existence of anypivotal generator in existing market. Table 8, presents the year wise

Table 5Results of HHI for electricity sector of Pakistan.

Period 2009–10 2010–11 2011–12 2102–13 2013–14

Whole marketHHI 677 677 608 629 588Effectivemarketplayers

15 15 16 16 17

Private marketHHI 1207 860 819 817 741Effectivemarketplayers

8 12 12 12 13

Public marketHHI 1401 1714 1561 1584 1536Effectivemarketplayers

7 6 6 6 7

Table 6Energy generation by sector and source.Source: NEPRA state of industry report 2015

Source 2009–10 2010–11 2011–12 2012–13 2013–14

Public sector (GWh)Public(Hydel) 27,927 31,685 28,207 29,818 31,656Public(Thermal) 19,594 13,018 12,653 12,873 13,055Public(Nuclear) 2668 3130 4872 4181 4501Total(Public) 50,189 47,833 45,732 46,872 49,212

Private sector(GWh)Private(Hydel) 565 305 445 706 1015Private(Thermal) 49,012 52,446 53,122 51,537 55,506Total(Private) 49,577 52,751 53,567 52,243 56,521

U. Qazi et al. Renewable and Sustainable Energy Reviews 70 (2017) 83–95

90

maximum and minimum monthly RSI values. It is evident that,currently there is no pivotal supplier in the market that may exercisemarket power. The overall result of RSI ranges from 2.29 to 1.08. Thevalues for RSI lie in acceptable range i.e. more than 1. The minimumvalue of RSI only belongs to Tarbela hydel power generation.

Fig. 7, describe that monthly RSI variations. It is evident that

during the high demand period (May, June, July and August) themaximum and minimum value of RSI drops and tends to approachnear 1. This fact confirms that during this period some market playersmay become pivotal while meeting the need of market. Due to over flowcondition of rivers in Pakistan during summer season hydel generationpower houses may get the opportunity to exercise market power.

6. Institutional framework for the development of wholesalepower market

It has been decided by GoP to move ahead from single buyer modelto wholesale market model for sustainable and competitive powermarket. The development of sustainable and competitive power marketnecessitates the provision of a comprehensive road map in the form ofinstitutional framework followed by its structured implementation.Analysis of empirically supported market assessment has been em-ployed for developing integrated institutional framework. Duringtransition phase, institutional framework will serve as a recipe forincumbents that enables them to successfully implement the reformprogram while involving all contributors [37]. These contributors

Fig. 6. Monthly variation of HHI from 2011 to 14.

Table 7Future outlook of dominant electricity generation entities in wholesale market ofPakistan.

Electricity generation

Season Public Private Demand

Summer 1. Tarbela 1. HUBCO High2. Ghazi Barotha 2. KAPCO3. Mangla 3. UCH

Winter 1. TPS Muzaffargarh 1. KAPCO Low2. Tarbela 2. HUBCO3. TPS GUDDU 3. UCH

Table 8Maximum and Minimum RSI values from 2011 to 14.

January February March April May June July August September October November December

2011Max 1.79 1.77 1.6 1.64 1.37 1.38 1.37 1.31 1.37 1.37 1.58 1.64Min 1.47 1.46 1.32 1.35 1.13 1.14 1.13 1.08 1.13 1.13 1.3 1.35

2012Max 1.96 1.79 1.89 1.84 1.67 1.6 1.47 1.421 1.48 1.44 1.73 1.84Min 1.64 1.5 1.58 1.54 1.39 1.34 1.23 1.19 1.24 1.2 1.45 1.53

2013Max 2.06 2.1 2.11 2.07 1.66 1.54 1.3 1.35 1.43 1.51 1.84 1.84Min 1.72 1.75 1.76 1.73 1.38 1.29 1.08 1.13 1.2 1.26 1.54 1.54

2014Max 2.29 2.15 2.22 1.96 1.74 1.55 1.46 1.47 1.62 1.55 1.98 2.09Min 1.94 1.82 1.89 1.66 1.47 1.31 1.24 1.25 1.37 1.32 1.68 1.77

U. Qazi et al. Renewable and Sustainable Energy Reviews 70 (2017) 83–95

91

include (i) government (GoP), (ii) regulator (NEPRA) and (iii) stake-holders (generators, consumers and distributors). Out of these con-tributors, government has great responsibility in utilizing its authorityin policy and decision making. The role of regulator is to set tariffsalong with devising regulatory statues for successful implementation ofpolicy. Finally all the major stakeholders of power market includingpower generators, suppliers and consumers have to perform profes-sionally and influentially towards achievement of profitable goals.

Based on market assessment in Section 5, a framework has beenproposed in terms of roles and responsibilities of contributors (Fig. 8).This framework also provides a plan of “what to do” and “what toavoid” for successful transformation from single buyer to whole salemarket.

The framework constitutes of three interlinked Tiers namely (i) Tier1: Government, (ii) Tier 2: Regulators and (iii) Tier 3: Stakeholders.

The order wise plan for the development of wholesale power marketbegins with the sincere efforts of government. Devising liberalizedpolicies and driving them in a consistent way is purely the responsi-bility of government. It is then followed by active involvement ofregulator who support the government in policy making and help toimplement the policies. Furthermore, regulators also need to act as abridge between stakeholders and government. The stakeholders lie atthe end of the chain who get direct benefits of sustainable andcompetitive market. Initially governments (Tier 1) step forward byapproving the restructuring plan followed by regulator's (Tier 2)involvement towards devising and implementation of policies.Successful implementation requires the optimistic participation of allstakeholders (Tier 3) including generators, distributors and customers.

Tier 1 includes governance and policies as shown in Fig. 8. It is thecore responsibility of government to recognize the need and active

Fig. 7. Monthly RSI variation from 2011 to 2014.

Fig. 8. Proposed institutional framework for the development of sustainable and competitive power market.

U. Qazi et al. Renewable and Sustainable Energy Reviews 70 (2017) 83–95

92

participation in power sector reform program without relying onconsultants and donor agencies. As identified in Section 5, evaluatingappropriate time and conditions for successful transformation isnecessary to be identified by government officials. Liberalized marketsneed clarity in authority of associated departments. For instance,institutional domains of NEPRA, WAPDA, PEPCO,5 PPIB,6 NTDChas to be well defined without overlapping of authorities. As evidentfrom results of market share concentration ratio, the significantdifference among the shares of 1st and 2nd largest power generatoremphasis the need for development of judicial accountability mechan-isms for all stakeholders, much before the spin-off. The detailedanalysis suggests that swift remedial program to meet surplus demandare compulsory. Similarly the energy capacity has to be full filled intimely manner for smooth transformation into whole sale market.Short-term alternate and renewable energy policies must be the focusof government. Mitigating power crisis in Pakistan using renewableenergy potential has been explained in detail in Section 7. It is evidentfrom the past experience that inconsistency in policies led to the powercrisis which should be avoided. A mechanism needs to be developed onpriority basis that ensure the continuity of policy irrespective of changein political regime. This triggers the need for an efficient policiesapplicable within local scenario.

Tier 2 consists of tariff and regulations formulated by regulators.Regulations are the set of rules and laws that enable a system tooperate smoothly. The role of regulators in power sector is to providetechnical guidelines to government on legal grounds. These guidelinesinclude tariff setting and regulations to control the market and powerplayers. Their role become more critical during transition phase. It isnecessary to introduce cost effective tariff that covers operation costswithout affecting consumers. As identified in Section 5, DISCOs wereunable to recover the energy and capacity costs from consumer due totheft and line losses. Ultimately these losses were recovered fromconsumers especially households without considering their purchasingpower. This highlights the need to gauge the purchasing power andaffordability of consumers while designing tariff along with effectiveoperational cost recovery mechanism. Moreover, performance basedregulations must be introduced for generators and distributors.Subsidies is another major factor in power crisis. The government isfacilitating consumers by offering subsidies on different tariff slabs.This practice needs to be reconsidered by regulator by devising amechanism to avoid the burden of undue subsidies. To performtransparently, regulator needs an optimum autonomy and indepen-dence enabling it for realistic and unbiased decisions without politicalinfluence. Regulator is required to accept its role as a guardian of wholesystem which is free from political opportunism. Variation in ResidualSupply Index (RSI) over the period of past four years (Section 5.3) hascreated the need of efficient information management system essentialfor continuous monitoring of different entities of power market.Moreover, it is recommended for regulator to rely on empirical marketassessment results rather than theoretical studies.

In addition to government and regulator, stakeholders (Tier 3) arealso critical in development of competitive market [38]. Generators,consumers and distributors are entities of stakeholders. Generatorsand distributors are considered as commercial entities and thereforehave more responsibility for the betterment of sector. Market shareconcentration ratio and HHI clearly indicated that public sector entitiesare not producing efficiently even though enjoying more capacity shareas compared to private sector generators. These generators anddistributors are required to expand their operations while keeping inview the regulatory statutes set by government including efficientenvironmental friendly production and congestion management rules.For the competitive market, generators must have the ability to

respond quickly with respect to inelastic and seasonal demand.Distributors should feel the responsibility to continuously monitorthe network while mitigating theft and technical losses. As far asconsumers are concerned they can participate by considering them-selves as a stakeholder of power market. Their role as stakeholder willhelp in smooth transition from single buyer model to competitivewholesale market model. In Section 5, it has been identified as need oftime that customers should respond optimistically on energy conserva-tion schemes. For this purpose, intelligent use of electricity during peakhours will help generators to get rid of sudden rise in demand.Similarly, timely bill payment from consumers will facilitate DISCOsto clear the generators energy purchasing cost.

7. Renewable energy and competitive electricity market inPakistan

A rising trend towards utilization of renewable energy has beenobserved around the globe since last decade. Renewable resources areconsidered as sustainable having no harmful effect on environment.Electricity from these resources aid to achieve the goal of ruralelectrification, especially Asian countries and have a number ofadvantages over conventional resources from emissions perspective[39,40]. It is pertinent to mention that small scale renewable energyprojects are helpful in achieving sustainable power sector for develop-ing countries [41].

As it was described in Section 6, that Pakistan requires short termbased energy projects which meet the requirements and add units tonational grid. It is worth mentioning that proper utilization of availablerenewable energy resources help in attaining long term gain [42].Similarly, the country has great potential of renewable energy re-sources which may be utilized to eradicate the power deficit [43]. Thesituation is critical as this potential has not been properly explored or isat initial stages of experimentation. To overcome energy challenges, thegovernment pay attention to renewable resources and Table 9, showsfuture renewable energy projects. It can be argued that these plannedprojects would be very beneficial and sufficient enough to lessen thepower shortage. Moreover investments, consumption and labor inrenewable energy projects will lead enhanced economic growth as well[44]. There are economic benefits associated with renewable projectstoo. As majority of these projects rely on natural resources which areabundant in Pakistan. There are no environmental issues too andadvantage of recycling of these resources, ensures no end to supply.Prevailing energy crisis condition also favors these projects as they willbe utilized to electrify local vicinities, thus no need to build hugenetworks.

Wind energy potential has been surveyed while declaring avail-ability of enormous wind for power generation especially in threeprovinces namely, Khyber Pakhtun Khwa (KPK), Sindh andBaluchistan [45]. The coastal belt of Pakistan is considered as a windcorridor having length of around 180 km s. According to estimates, ifthis potential is utilized may add 50,000 MW of electricity annually tothe grid.

World bank has declared high potential for solar energy resourcesof Pakistan based on geographic and climatic conditions [46]. It hasbeen found that average solar irradiation in Pakistan is 5–7 kW h/m2/day, which is considered as finest of solar irradiation received anywherearound the globe.

Pakistan GDP major share comes from agriculture and also rich inlivestock. It holds a great potential of utilizing biogas obtained fromlivestock. The potential for biogas has been estimated as 8.8–17.2 bil-lion m3 which can produce electricity up to 5700 GWh [43]. The use ofbioenergy has been recommended in various studies as it has beenfound suitable for existing environment in the country. If properlyplanned, it has been found feasible to install bio gas plants in bothurban and rural areas [47]. The establishing of bio-refinery plants as amega project give more sustainable energy to the national grid. The

5 Pakistan Electric Power Company.6 Private Power and Infrastructure Board.

U. Qazi et al. Renewable and Sustainable Energy Reviews 70 (2017) 83–95

93

most important advantage of electricity from renewable resourcesminimal or no marginal costs creating a huge difference of costsbetween thermal and renewable energy resources. As per governmentpolicy, establishment of wind energy firms with a fixed capacity of50 MW will endorse a sense of competition among power producers. Inorder to get maximum benefit from available potential of RE forattaining sustainable and competitive power market government has toeradicate certain political, environmental and legal constraints [48].

8. Conclusion

This study envisage the future of upcoming power market in termsof market power and propose an institutional framework for attain-ment of power sector sustainability and competitiveness. The role ofrenewable energy resources in institutional framework is significantindeed due to environmental friendly nature with allied economicbenefits. The paper systematically examined current level of competi-tion in power market and predicted the future of upcoming wholesalemarket in Pakistan. The result of these indices indicate that withexisting installed capacity and energy generation, power market ofPakistan will be going to operate at competitive level except for certaincondition. The following conclusions have been drawn from the study:

• It is learnt that 8- largest firm concentration ratio show thesignificant difference among shareholders of electricity marketwhich may lead large power generators to exercise market power.Small number of massive generation facilities will not be sufficient tomeet the upcoming demand after this transition. Moreover, theaddition of new generation must be regulated in terms of marketshares so that none of the participants may exercise market power.

• Results of HHI imply that, current market holds competitivestructure but in future some of the players may dominate, makingit hard to develop competitiveness, consequently making it challen-ging for wholesale market to pass the gains to consumers. It is

evident that both inelastic and seasonal demand variations allowvarious public and private power houses to exercise market power.This situation necessitates the role of regulator to continuouslymonitor the market variations and introducing a mechanism whichcreates balance between supply and demand.

• RSI indicate that no such entity has ability to act as a pivotalgenerator except during peak demand i.e. during summer season.Analysis results clearly indicates that hydel installed capacity havethe potential to drive the market. During high demand months hydelpower houses can contribute much towards total generation.

• Renewable energy resources to be fully utilized which lessen thedemand-supply gap and effectively cope with existing power crises.Though wind, solar, biogas already on the priority list of thegovernment, yet a lot of efforts required utilizing potential i.e. windin coastal areas (especially wind corridors as discussed earlier), solarpotential in three big provinces of KPK, Baluchistan and Sindh andbiogas in Punjab with bio-refinery plants at mega scale. The role ofrenewable energy resources in coping with the institutional frame-work would trigger the gain as evident from the potential and helpreduce burden on hydel and thermal power.

An integrated institutional framework has been proposed for thedevelopment of wholesale electricity market that will serve as a wayforward for the development of sustainable energy in Pakistan.Framework suggests, required roles and responsibilities for all entitiesof power market including stakeholders and provide a path of “what todo” and “what to avoid” during the spin-off i.e. from single buyer modelto wholesale market model. In addition, framework also emphasis onutilization of confirmed available huge potential of renewable energyresources which enable the development of sustainable and competi-tive power market. The significance of renewable energy needs properattention due to environmental friendliness and natural availabilityduring whole year. Given the framework with rational policies, properimplementation of various index results and utilizing the potential of

Table 9Upcoming planned renewable energy generation for Pakistan power sector.

Wind power projects Solar power project

Name of company Location Capacity (MW) Name of company Location Capacity (MW)

New Pak Mirpur, Sindh 49.50 DACC Power Generation Bhawalpur, Punjab 50Foundation Energy Thatta, Sindh 50 Sanjwal Solar Power Attock, Punjab 5Milergo Pakistan Thatta, Sindh 250 Lumen Energy Jhang, Punjab 12Tenga Generation Thatta, Sindh 50 Access Solar Hattar, Punjab 12Hydro China Dawood Power Thatta, Sindh 50 Buksh Energy Bhawalpur, Punjab 12Zorlu Enerji Pakistan Thatta, Sindh 56.4 Access Electric Jehlum, Punjab 10SUNEC wind Power Chakwal Punjab 2.4 Quaid e Azam Solar Park Bhawalpur, Punjab 100Arabian Sea wind energy Thatta, Sindh 49.50 Safe Solar Power Bhawalpur, Punjab 10FFC Energy Thatta, Sindh 49.50 Roshan Power Kasur, Punjab 11Three George Thatta, Sindh 49.50 First Solar Jehlum, Punjab 2Foundation Energy Thatta, Sindh 50 Blue Star hydel Jehlum, Punjab 1Gulahmed Power Thatta, Sindh 50 Biomass power pojectMetro Power Jhampir, Sindh 50 Name of Company Location Capacity(MW)Master Energy Thatta, Sindh 49.50 SSJD Bioenergy Mirpur, Sindh 12Yunus Energy Thatta, Sindh 50 JDW-I Sugar Mill Rahim Yar Khan, Punjab 26Zephyr Power Jhampir, Sindh 49.50 JDW-II Sugar Mill Ghotki, Sindh 26Sapphire Power Thatta, Sindh 50 Faran Sugar Mill Tando Adam, Sindh 13Pakistan Wind Jhampir, Sindh 4.8 Chamber Sugar Mill Tando Adam, Sindh 5Sachal Energy Development Thatta, Sindh 50 Chinniot Power Chinniot, Punjab 62Fienergy Jhampir, Sindh 49.50 Thal Industries Chinniot, Punjab 11UEP Wind Thatta, Sindh 50 Rajanpur Sugar Mill Khairpur, Sindh 25Tapal Thatta, Sindh 50 RYK, Mills Rahim Yar Khan, Punjab 30Hawa Thatta, Sindh 50 Unicol Power Mirpur, Sindh 7NBT-I Nooriabad, Sindh 249.6 Alliance Sugar Mill Ghotki, Sindh 14NBT-II Nooriabad, Sindh 249.6 Shahmurad Sugar Mill Thatta, Sindh 16Jhimphir Power Jhampir, Sindh 49.50 Sanghar Sugar Mill Sanghar, Sindh 14Titan Nooriabad, Sindh 9 Total Installed Capacity(Solar+Biomass)=486 MWChina Sunec Energy Nooriabad, Sindh 50 Total Installed Capacity(Wind+Solar+Biomass)=2353 MWTotal Installed Capacity(Wind)=1867 MW

U. Qazi et al. Renewable and Sustainable Energy Reviews 70 (2017) 83–95

94

renewable energy resources in an orderly manner may resolve theissue; else future of energy in Pakistan would be jeopardy.

Acknowledgement

I would like to thank regulatory experts, for their valuablecomments on the early version of the paper, as well as to Tauseef urRehman from Govt. Agency for providing up to date required data.

References

[1] Jamasb T, Nepal R, Timilsina GR. A quarter century effort yet to come of age: asurvey of power sector reforms in developing countries. World Bank PolicyResearch Working Paper, 7330; 2015.

[2] Nepal R, Carvalho A, Foster J. Revisiting electricity liberalization and quality ofservice: empirical evidence from New Zealand. Appl Econ 2016;48(25):2309–20.

[3] Sultana U, et al. A review of optimum DG placement based on minimization ofpower losses and voltage stability enhancement of distribution system. RenewSustain Energy Rev 2016;63:363–78.

[4] Wolak FA. Measuring the competitiveness benefits of a transmission investmentpolicy: the case of the Alberta electricity market. Energy Policy 2015;85:426–44.

[5] Shahidehpour M, Yamin H, Li Z. Frontmatter and Index: Wiley Online Library;2002.

[6] Garrués-Irurzun J. Market power versus regulatory power in the Spanish electricitysystem, 1973–1996. Renew Sustain Energy Rev 2010;14(2):655–66.

[7] Oğuz F, Akkemik KA, Göksal K. Can law impose competition? A critical discussionand evidence from the Turkish electricity generation market. Renew Sustain EnergyRev 2014;30:381–7.

[8] Ahn N-s, Niemeyer V. Modeling market power in Korea's emerging power market.Energy Policy 2007;35(2):899–906.

[9] Garcia A, Arbelaez LE. Market power analysis for the Colombian electricity market.Energy Econ 2002;24(3):217–29.

[10] Chang Y. The new electricity market of Singapore: regulatory framework, marketpower and competition. Energy Policy 2007;35(1):403–12.

[11] Hellmer S, Wårell L. On the evaluation of market power and market dominance– the Nordic electricity market. Energy Policy 2009;37(8):3235–41.

[12] Helman U. Market power monitoring and mitigation in the US wholesale powermarkets. Energy 2006;31(6):877–904.

[13] Weigt H, Von Hirschhausen C. Price formation and market power in the Germanwholesale electricity market in 2006. Energy Policy 2008;36(11):4227–34.

[14] Lise W, Hobbs BF, Hers S. Market power in the European electricity market—theimpacts of dry weather and additional transmission capacity. Energy Policy2008;36(4):1331–43.

[15] Green R. Market power mitigation in the UK power market. Util Policy2006;14(2):76–89.

[16] Amorim F, et al. How much room for a competitive electricity generation market inPortugal?. Renew Sustain Energy Rev 2013;18:103–18.

[17] Tanrisever F, Derinkuyu K, Jongen G. Organization and functioning of liberalizedelectricity markets: an overview of the Dutch market. Renew Sustain Energy Rev2015;51:1363–74.

[18] Komal R, Abbas F. Linking financial development, economic growth and energyconsumption in Pakistan. Renew Sustain Energy Rev 2015;44:211–20.

[19] Rauf O, et al. An overview of energy status and development in Pakistan. RenewSustain Energy Rev 2015;48:892–931.

[20] Zakaria M, Noureen R. Benchmarking and regulation of power distributioncompanies in Pakistan. Renew Sustain Energy Rev 2016;58:1095–9.

[21] Naqvi I. Pathologies of development practice: higher order obstacles to governancereform in the Pakistani electrical power sector. J Dev Stud 2016:1–15.

[22] Siddique S, Wazir R. A review of the wind power developments in Pakistan. RenewSustain Energy Rev 2016;57:351–61.

[23] Shaikh F, Ji Q, Fan Y. The diagnosis of an electricity crisis and alternative energydevelopment in Pakistan. Renew Sustain Energy Rev 2015;52:1172–85.

[24] Shakeel SR, Takala J, Shakeel W. Renewable energy sources in power generation inPakistan. Renew Sustain Energy Rev 2016;64:421–34.

[25] Nayyar ZA, Zaigham NA, Qadeer A. Assessment of present conventional and non-conventional energy scenario of Pakistan. Renew Sustain Energy Rev2014;31:543–53.

[26] Erdogdu E. Electricity Market Reform: Lessons for Developing Countries; 2010.[27] Bhutto AW, Bazmi AA, Zahedi G. Greener energy: Issues and challenges for

Pakistan-Biomass energy prospective. Renew Sustain Energy Rev2011;15(6):3207–19.

[28] Mas-Colell A, Whinston MD, Green JR. Microeconomic theory, 1. New York:Oxford University Press; 1995.

[29] Schmalensee R. Sunk costs and antitrust barriers to entry. Am Econ Rev2004:471–5.

[30] Stoft S. Power system economics. J Energy Lit 2002;8:94–9.[31] Ahmed,K.S. et al. Prediction of market power using SVM as regressor under

deregulated electricity market. In: Proceedings of fifth international conference onsoft computing for problem solving. Springer; 2016.

[32] Newbery D. et al., A review of the monitoring of market power. Report prepared atthe request of ETSO, ⟨www.etso-net.org⟩; 2004.

[33] Kirschen D, Strbac G. Front Matter: Wiley Online Library; 2004.[34] Bigerna S, Bollino CA. Demand market power and renewables in the Italian

electricity market. Renew Sustain Energy Rev 2016;55:1154–62.[35] Shapiro C. The 2010 horizontal merger guidelines: from hedgehog to fox in forty

years. Antitrust Law J 2010:49–107.[36] Sheffrin A. Preliminary study of reserve margin requirements necessary to promote

workable competition. Market Analysis. CAISO; 2001.[37] Emodi NV, Boo K-J. Sustainable energy development in Nigeria: current status and

policy options. Renew Sustain Energy Rev 2015;51:356–81.[38] Muratori M, Schuelke-Leech B-A, Rizzoni G. Role of residential demand response

in modern electricity markets. Renew Sustain Energy Rev 2014;33:546–53.[39] Nepal R. Roles and potentials of renewable energy in less-developed economies: the

case of Nepal. Renew Sustain Energy Rev 2012;16(4):2200–6.[40] Petinrin J, Shaaban M. Renewable energy for continuous energy sustainability in

Malaysia. Renew Sustain Energy Rev 2015;50:967–81.[41] Terrapon-Pfaff J, et al. A cross-sectional review: impacts and sustainability of

small-scale renewable energy projects in developing countries. Renew SustainEnergy Rev 2014;40:1–10.

[42] Ghafoor A, et al. Current status and overview of renewable energy potential inPakistan for continuous energy sustainability. Renew Sustain Energy Rev2016;60:1332–42.

[43] Zaigham NA, Nayyar Z. Prospects of renewable energy sources in Pakistan.Renewable-energy technologies and sustainable development. Islamabad:COMSATS; 2005. p. 65–86.

[44] Shahbaz M, et al. Does renewable energy consumption add in economic growth? Anapplication of auto-regressive distributed lag model in Pakistan. Renew SustainEnergy Rev 2015;44:576–85.

[45] Shami SH, et al. Evaluating wind energy potential in Pakistan's three provinces,with proposal for integration into national power grid. Renew Sustain Energy Rev2016;53:408–21.

[46] Stökler S, Schillings C, Kraas B. Solar resource assessment study for Pakistan.Renew Sustain Energy Rev 2016;58:1184–8.

[47] Raheem A, Hassan MY, Shakoor R. Bioenergy from anaerobic digestion inPakistan: potential, development and prospects. Renew Sustain Energy Rev2016;59:264–75.

[48] Gabriel C-A. What is challenging renewable energy entrepreneurs in developingcountries?. Renew Sustain Energy Rev 2016;64:362–71.

U. Qazi et al. Renewable and Sustainable Energy Reviews 70 (2017) 83–95

95