Rental power has become a highly contentious issue. Critics say, the cost is too high and there is no justification for buying expensive rental power.

Alternatives should have been explored. The existing IPPs are not being fully utilised and worn out GENCO facilities should be upgraded.

Proponents argue that load shedding is the most expensive option and costs more in terms of people's miseries and economic dislocation. They maintain that rental power plants (RPPs) are the only feasible option to bring additional capacity on time in a matter of 6-9 months. All other options would take more time, and would not be effective in meeting the load-shedding crisis within a year which may become even more severe next year.

To reduce the gap between supply and demand, the demand either has to be reduced, managed or diversified for which some quick remedial steps of advancing clocks, and time of the day -tariff (TOD) have been already taken.

Supply can be augmented by a) adding new facilities; b) extracting more from existing ones, in the short- run, through administrative measures and commercial incentives; c) medium-term balancing, modernisation and expansion (BMRe) of the existing facilities; d) acquiring rental power.

Rental power is expensive as capital/rental costs are high due to short-term nature of the contract, 3-5 years vs 25-30 years for IPPs -- extra costs are involved of freight, dismantling, revenue interruption etc.

Most RPPs are to run on expensive oil and hence the exorbitant cost of rental power of Rs15 per unit, vis-à-vis normal gas fired electricity cost of Rs5. Because oil is so expensive , the total fuel cost component in the generation cost is Rs12 per unit only for fuel.

RPPs should be treated as a medicine and not as normal food, and administered in judicious doses.

Most GENCO's plants are old and outdated and have low thermal efficiency but mostly fired by cheap natural gas. Natural gas well-head prices are at 50-60 per cent of the international (US) prices. Because GENCO'S are worn out and depreciated, these have very low fixed charges (CPP) and benefit from cheap gas also. Such plants are used sparingly, only for peak load in other countries, but in Pakistan these come highest in merit order and are the most utilised ones.

Most IPPs are oil fired, much more fuel efficient and relatively have a higher fixed cost component (CPP). The capacity utilisation of thermally more efficient plants has traditionally been very low.

There have been years when HUBCO's capacity utilisation has remained constantly at 25 per cent or even lower. With an investment of $1.6 billion and significant fixed cost payments annually, much below optimal utilisation of Hubco capacity should be matter of concern for all.

Expensive oil is a curse and not rental power: Scarcity value of electricity comes down as one reduces the supply/demand gap. While Rs15 per unit maybe justified at a gap of 2000 MW, it may not be so at 1000 MW. Therefore, one has to be judicious in buying expensive rental power.

Eliminating half of the gap by rental power may be justified, while the other half should be attempted by other available means which may take slightly longer to implement. In the end, some load -shedding would remain and cannot be eliminated in the short run due to cost constraints. Peak power is always expensive and one cannot supply it in full.

The darkest side to our energy woes is its dependence on imported fuel oil to fire most of the old and new IPPs. There is no further gas to produce gas-fired cheaper electricity. Marginally cheaper new hydro capacity is ten years off and ahead. Fuel oil has again started going up. It is in the range of $80 per barrel as compared to it's low of $40-50 some months ago. If we keep installing electrical capacity based on oil and if peak comes again, we will have to face similar hardships.

There is no denying the fact that leasing or rental is much more expensive than buying but fixed cost in only a small factor in today's electricity costing and pricing due to very high fuel costs. For oil based electricity, it may be as high as Rs10-12 per unit (12.5 - 15 cents) putting the total unit price of electricity at Rs12-15 per unit compared with Rs5 per unit of gas based electricity and Tarbela hydro electricity of Rs1.18 per unit. The (50-80 per cent ) higher fixed cost of RPPs does not translate into equally higher total price of electricity. It affects to the extent of a 12.5 per cent only.

RPPs are being installed for peak power (avoiding load-shedding). Peak power rates are higher every where in the world, both in whole sale and retail. In Pakistan also, TOD tariff has been introduced recently. In Germany t(2009), off peak rates were as low as 33 euro per MWh as against peak rate of 81 euro per MWh, against the average of 55 euro per MWh in the whole sale market/ power exchange. Hence RPP production costs should not be compared with the average rates like CPPA of Rs5-6 per unit. Peak rates are normally twice the average rate. Thus if the average/normal tariff is Rs6 per unit, peak rate (out of rental power) could be as much as Rs12-15.00 per unit. Hopefully RPPs would be used in peak-lead situation, avoiding large purchase of expensive power, thus keeping lid on average cost.

Base load plants operate 4-6000 hrs per year, and peaking plants operate for less than 1000 hours per year. Fixed costs are treated as sunk costs and plant operational decisions are based on variable costs, the one having lowest variable (fuel cost) is run most of the time i.e. in base load and the one having high fuel charge is brought in the very last; thus the low utilisation of IPPs, especially HUBCO, which runs on oil.