We need a new approach to Karachi’s electricity woes

What happened to Karachi warrants serious reflection. The urban flooding wiping out Karachi’s entire electric power infrastructure should in no way become an acceptable norm. The ensuing power outages have come with heavy economic costs and the entire system collapsing is a stark reminder that Karachi remains susceptible to large scale electric system shocks that needs a new approach and a novel governance model.

Japan provides an excellent example

Japan provides an excellent reminder and a way forward. Back in 2011, the fatal earthquake and tsunami resulted in large-scale blackouts and loss of lives. As per the estimates, the city suffered the loss of 1,100 and nearly 75 percent of the city’s homes were gone. After the tsunami, the Government set up the “National Resilience Program”, which would fund the reconstruction of the cities affected by the disaster and would focus on building back-up capabilities in the event of another natural disaster. The entire focus shifted from large scale monopolistic distribution to small scale distributed generation. Later, Reuters reported that in the city of Higashi Matsushima, a ‘silent’ revolution has happened with more and more municipalities setting up distributed energy systems to reduce reliance on the main grid and securing supplies indigenously during natural disasters.

Karachi’s fragile grid remains vulnerable to wide shocks

In Karachi, K-Electric’s fragile grid is not a new news. But what is now abundantly clear is that the weak grid poses a national security risk that needs a course correction. Evidence show that fragile energy systems are vulnerable to a wide range of shocks – including natural ones that can be responsible for a large number of disruptions. Though limited data availability makes it difficult to quantify the link between power outages and torrential rains in Karachi, K-Electric’s power systems woes are compounded by aging equipment, lack of maintenance, rapid expansion of the city, and insufficient generation that all contribute as factors that reduce the reliability of service in general and increase grid vulnerabilities in particular.

The higher susceptibility means that infrequent events (such as rains) would have large, disruptive impacts. In Karachi, the rains have damaged infrastructure, grid stations and power distribution networks. In the aftermath of a strong shock, now even a mild storm event would significantly increase the incidence of power outage. As Schweikert et al outlined in 2019 that during a natural hazard, three main types of incidents can lead to system breakdowns: transmission and distribution grid failure, generation plant failure, and fuel and maintenance supply chain failures. Unfortunately, KE remains vulnerable to all three.

Also, consider the ripple effect of grid disturbances. Electricity outages can affect supply chains and ports, which in turn can affect fuel supply availability. If the port infrastructure is damaged, plant operations are generally reduced or shut down completely. In Puerto Rico, for instance, following Hurricanes Irma and Maria, port closures resulted in an estimated loss of 1.2 million barrels per day over 11 days that directly affected the major generation stations. The interdependency other way round is also strong. Due to power outages, infrastructures such as ports, pipelines, oil terminals, storage tanks and filling stations can hardly function. A weak infrastructure results in a vicious cycle that is hard to break.

Repercussions of a weak transmission and distribution infrastructure has been catastrophic

In Karachi, T&D failures are responsible for most outages. Transmission is generally more resilient than distribution and can withstand natural disasters. The real problem lies with the distribution sector. Most of the KE’s distribution sector has not been able to cope with torrential heats and rains with outages of 36 hours and longer reported during the last week. Many parts of the city have not been fixed as yet. Restoring electricity has become a bigger problem as different substations have completely submerged in the rain. When substation components are not properly anchored, rains can cause substantial damages. For instance, it is reported that tall components of electrical substations are susceptible to damages with floating water having the potential to damage expensive components and resulting in far-reaching service interruptions.

In Karachi, the cost of economic disruptions has also reached disproportionate levels. Firms and households are forced to spend an additional sum on self-generation electricity to cope with outages, often backing up between UPS and diesel generators. For households, the impact of power outages can result in additional sums spent on cooling and heating (which in turn may have health implications if fuels are below electricity standards). Outages also affect economic activities and income, children’s educational outcomes, social and leisure activities, and regular household tasks, such as cooking and cleaning. It is time to rethink service delivery and take bold steps.

To aid service delivery, think of ending the distribution monopoly

It is time to rethink KE’s distribution monopoly. The world has moved away from monopolies to competitive markets and in the process, has improved service delivery manifolds. The historical Public Utilities Regulatory Policies Act (PURPA) of 1978 in the United States has already provided a guiding path. Before PURPA, energy companies were classified as natural monopolies, and for this reason, were established as vertically integrated. Utilities became protected as monopolies because it was thought that a single company could produce power more efficiently and economically as one company than as several. But PURPA changed all that by adding a series of provisions that enabled non-utility operators to participate and break previous monopoly function. The results have been staggering. The average cost of power has come down, service delivery has improved, and market forces have led to competition, enabling innovation and modernization.

What is now clear is that Karachi’s weak grid managed in a monopolistic fashion is beyond unsustainable and is in need of a similar like overhaul as PURPA. The reasons are straightforward. Natural monopolies should only exist when cheaper alternatives can’t be provided by multiple, competing firm. In Karachi’s case, this is not the case. The behemoth natural monopoly has not been agile enough to prevent losses or augur confidence in its services, showing recurrently that it can no longer bear the burden of a sprawling city. If consumer delivery is any important, the answer should now lie in multiple utilities coordinating for their respective territories, managing small systems, preparing and mitigating threats in advance and leaving the room for innovation to improve utility sales and returns.

The lack of competition in electricity distribution business has proved the death knell of reforms. Unlike in Pakistan’s telecommunication sector where consumers have the choice to choose between multiple service providers, where all compete for the same market share, the power consumers, especially households and commercial consumers of Karachi, have been left to the mercy of a single distributor who secures all the rights. The monopoly of the power distributor then implies that it has no incentive to ensure quality power to consumers or improve efficiency let alone charge market competitive tariffs. NEPRA which is to decide upon tariff generally has little choice but to often allow monopoly distribution companies a pass-through tariff in the absence of any clear, competitive benchmark emerging from market forces.

What is also clear that it is not legally difficult to restructure this model. The power sector has been on this transition before when it witnessed cheaper and smaller electric generating technologies and competition from independent power producers (IPPs) to erode the utility natural monopoly in generation. In much the same way, continued capabilities emerging from technological advances in distributed resources and smaller utilities can create widespread competitive alternatives to monopolistic electric utility service. If and when that happens, the distribution natural monopoly should fade, as a simple matter of economics. This does not mean the distribution system or the grid itself will disappear or that it will no longer provide for critical value to consumers. But new regulatory paradigms and business models should emerge to ensure and enhance the benefits the grid can continue to deliver. And that will only benefit the consumers of Karachi.