To power Asia, wholesale electric settlement systems are critical

Published on Thursday, 02 November 2017

Published by Alan Isemonger on Thursday, 02 November 2017

The environment is now ripe for reform in Pakistan’s electric sector.
The environment is now ripe for reform in Pakistan’s electric sector.

Energy demand is projected to almost double in the Asia and Pacific by 2030. ADB has estimated the region will need to invest $14.7 trillion in power infrastructure between 2016 and 2030 to meet demand.

We will be seeing a lot of ribbon-cutting ceremonies for power plants, solar parks, and transmission lines over the next 15 years. This is good news, as 700 million people across developing Asia are still waiting for access to energy.

Integrating the output from new infrastructure into existing energy systems and making existing systems more efficient is a critical piece of the access to energy puzzle. Despite their obvious importance, the role of wholesale electric settlement systems is sometimes overlooked as an instrument of reform during energy market restructuring processes.

Wholesale electric settlement systems are responsible for coordination among all the wholesale parties involved in getting power onto the factory floor or into your home, from the generators that produce the power, to the transmission companies that move it at high voltage, and the distribution companies that retail it to their factories, businesses and small customers.

Many developing countries have opaque settlement systems and payment discipline problems of various types that knock on throughout the economy. There is no magic bullet that will solve payment discipline problems, besides perhaps political will, but wholesale settlement systems play an outsize role generally in promoting efficiency throughout the wholesale electricity sector by encouraging transparency and accountability.

A modern settlement system, at a physical level, consists of a secure database system for storing data, an application layer that sits on top of that database and hosts settlement applications, and a series of business processes that constitute the system. They are assembled from modular parts and processes.

  Modern electric settlement systems affect 4 key areas

There is rarely sufficient standardization to allow for off-the-shelf software, as wholesale electric systems are generally too different between countries, so settlement systems are highly customized.

To work efficiently, modern settlement systems need to integrate with a number of different organizations and data sources.

  • Reference data. The nature of the settlement is informed by market rules and contracts. These have to be captured in a static data repository and will serve as a reference for how the settlement is intended to operate.
  • Instruction set. Generators and distribution companies are instructed by the system operator. The instructions that guide the system have to be codified and shared with the settlement operator. The instructions will help the settlement operator form an expectation of energy supplied and consumed.
  • Metering data. Once power starts flowing, the metering service provider will record the actual production and consumption of energy by generators and distribution companies, and transfer that record to the settlement operator.
  • Statements, invoices, and financial transfers. The settlement operator will use all this information—the reference data, the expected supply and demand, and the metered supply and demand—to determine the payments to generators and the charges to demand. Invoices are then issued and monies transferred between parties.

In terms of workflow, that all sounds clear enough. But in Pakistan, the difficulties arise when it comes to coordinating data transfers from the metering provider (the National Transmission Dispatch Company) and the system operator (the National Power Control Center), to the designated settlement operator, namely the Central Power Purchase Agency, and then constructing custom applications that allow for settlement.

Institutions are often reluctant to share data with or rely on outside parties over which they have no formal authority. Installing a new settlement system is definitely “work in the weeds”, but if successful there are many positive outcomes. Two key benefits are open data and transparent revenue streams.

  Open data, transparent revenue streams are 2 key benefits of new wholesale electric settlement systems

First, a modern settlement system is far more accessible than manual methods. Financial flows are more easily seen and reports on issues far more easily constructed. The data becomes open and accessible to management and the regulator.

A host of problems, such as payment discipline, can be exposed to disinfecting rays of sunshine. Data transparency does not solve problems on its own, but it makes them easier to solve.

Second, transparent revenue streams make it easier to build associated projects such as transmission lines and generation projects. All of these physical projects lead to increases in efficiency and load served. The settlement system helps ensure that those increases in load served or operational efficiency are captured and monetized, creating a benign feedback loop between projects, loans, and repayment schedules.

Other parties, such as the settlement operator and independent power producers, also have a vested interest in a stable revenue stream to fund their obligations. Ideally, new and modern infrastructure like power plants and transmission lines should be paired with modern business processes to capture and monetize the increase in efficiency and load served.

In Pakistan, a number of settlement changes broadly in line with the ones mentioned above, have been proposed. The environment is now ripe following previous institutional reform efforts, in particular the separation of the market/settlement operator, the Central Power Purchase Agency Guarantee (CPPAG), from the NTDC.

Set up as an independent institution with an independent revenue source based on MWh served, and separated from the main state bureaucracy, it gained a sense of purpose and institutional agency that is not always present. The CPPAG is fertile ground, now it just needs modern processes to take root and grow.