Tuesday, 04 October 2022

Single Buyer

  • Single Buyer:

    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 following:

                • 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. 

    • 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.

    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.