The most basic design for a wholesale market is the Single
Buyer Market that opens the sector only to competition in the entry of new
generation. This model was initially
designed to allow private investors to build power plants by selling to an
integrated electricity utility. This was
the initial market model in Pakistan, with the introduction of independent
power producers (IPPs) selling through long term PPAs to WAPDA.
The typical characteristics of this model include the
- 1. At the wholesale level, there is a single authorized buyer. An investor can only enter the market and
become a Seller if the Single Buyer agrees and signs a PPA with the IPP.
The Pakistani Power Market today is a Single
Buyer Model. The Single Buyer Market has been used in some countries as a model
to attract private financing of new generation, this being the main objective
rather than as a means of introducing greater competition and efficiency in the
electricity industry. In other countries
(like in Pakistan), the model has been implemented as a transition mechanism in
power sector reform towards increasing competition in stages, allowing the
attraction of private investment and the introduction of a regulatory framework
to reduce inefficiencies from the early stages of reform.
- 2. As the market has a single buyer, the entry mechanisms and
the only possible trading for new IPPs are long term PPAs. To ensure financial
closure and viability for the investor, the IPP needs to contractually /
legally ensure that the only allowed buyer will continue to buy and pay. If the
only rules that exist for the IPP are established in the PPA, a long-term
contract is needed, for the expected lifetime of the plant and for the recovery
of its investment costs.
- 3. The IPP sells at the connection point of a grid or network
that belongs to the Single Buyer. Therefore, the IPP connects but does not
“use” the transmission grid. The risk of
congestion or insufficient transmission to dispatch fully the power plant is
assigned to the Single Buyer.