Small Power Producers (Distributed Generation) and their Associated Micro-Grids Operation under Deregulation The Case of Pakistan Electricity Industry Restructuring Innocent E. Davidson Abimbola Odubiyi School of Electrical & Electronic Engineering Senior Commercial Analyst University of Natal PowerGen Plc Durban 4041, South Africa Coventry, United Kingdom Tel: (031) 260 1246 Tel: +44 (0) 2476 42 4898 Email: Davidsoni@nu.ac.za Email: Bola.Odubiyi@Barclays.net Abstract Global trends in the electricity delivery industry (EDI) have seen a move towards deregulation, privatization and the introduction of competition. Pakistan has embarked on the program of reforming its EDI as a means of providing lower energy prices to end-users. Like many developing countries, the EDI in Pakistan has been an industrial sector under the sole preserve of government monopoly institutions. This paper discusses issues and challenges associated with the deregulation program in Pakistan. It offers proposals to avoid pitfalls in deregulation, and proffers some solutions to specific problems, as a case study for other similar programs taking place in developing countries like South Africa. Keywords: Deregulation, privatization, distributed generation. I. Introduction Distribution (embedded) generation (DG) schemes are small modular generating machines ranging from kilowatts to few megawatts capacity. According to [1,2], DG refers to small (a few watts up to 1 MW) power plants at or near the loads, operating in a stand-alone mode or connected to a grid at the distribution or sub-transmission level. In some cases, DGs harness unconventional energy resources, such as wind, biomass, tides and waves, solar, and geothermal. DG is ideally suited to power small remote loads located far from the grid. Small power sources have been developed and employed for space, underwater, and biomedical applications. Another area for DGs is in remote rural areas of developing countries. Here, integrated renewable energy systems (IRES), a special subset of DG, are ideally suited for these situations. DG technologies and energy resources include: Wind-electric conversion systems Mini and micro hydro plant Solar PV and Solar thermal-electric conversion Geothermal Biomass Small co-generation plants powered by natural gas and supplying electrical and thermal energies. Electro-chemical energy system (e.g. fuel cells and hydrogen production) Electrical storage system Thermionics and Thermoelectrics Tidal waves and ocean flows Since DGs are located on-site or nearby the location where the energy is used, they usually operate at the low voltage (i.e. 11kV and 33kV) supply chain of bulk electric power transport infrastructure. Their on-site location provides the opportunity for greater local control and more efficient utilization to boost efficiency and reliability [3]. II. Pakistan’s Deregulation Program Distributed generation or Small Power Producers (SPP) in Pakistan is generally a point-to-point radial connection from the generating machine straight on to the load centre. Regional Electricity Distributors (RED) cover a wider geographical area involving both radial and mesh networks used to supply electricity to several customers on the low voltage end of a bulk electricity transport supply activity. As countries all over the world (including Pakistan) deregulate and restructure their electricity industry; they are confronted with the challenges of setting up the appropriate regulatory and contractual arrangement that accommodate the interest of Distributed Generators embedded within the wider geographical boundary of a franchised local RED company [3]. In most cases of deregulation, REDs are vested with the statutory responsibility of supplying electricity to customers on the low voltage supply chain of bulk electricity production, transmission and distribution network in its franchised area [4]. In Pakistan, the newly constituted National Electric Power Regulatory Authority (NEPRA) is the only federal regulator in the country. NEPRA was formed two years ago under the Act of Parliament, called the NEPRA Act. NEPRA has been charged with establishing a new regulatory framework to facilitate government policy of reforming the electric power industry under its national strategic plan of deregulation, restructuring, corporatization and eventual privatization of two large scale national state-owned entities WAPDA (Water and