Renewable Energy Market Development Policy Note

To achieve this goal, a new Alternative and Renewable Energy (ARE) policy is expected to be announced, which will provide an overall framework for the development of indigenous energy resources, particularly solar, wind, and bagasse-based power projects. Increasing the share of RE projects in the overall generation-mix presents several challenges, including issues related to the physical and operational characteristics of RE, such as variability, intermittency, and dispersed locations. Globally, countries have deployed various policy options to promote renewables, but the required scale-up can only be achieved through more effective and comprehensive policies. International experience suggests that different countries have unique features of their own power systems, geography, and economies, but their experience can be a useful guide in developing RE policies and operational strategies. Appropriate market design is needed to foster competition and innovation, as well as attract investment at scale. A series of four Policy Notes have been developed to assess the issues for increasing the share of RE in the generation-mix in Pakistan and provide policy guidelines to decision-makers. This document summarizes the thematic area of RE Market Development, drawing on global experience, key findings, and relevance to Pakistan, and provides recommendations on the way forward. Key challenges to power system with high variable renewable energy (VRE) include managing variability and intermittency, ensuring grid stability, and addressing issues related to dispersed locations and transmission infrastructure. Diversity of power systems and implications for market design require careful consideration of different market structures, regulatory frameworks, and institutional arrangements. Renewables routes-to-market on the distribution grid involve sales to the distributor (RE-DSO), retail direct sales (RET-SALES), and wholesale distributed generation (RE-WDG). Practices and lessons from international experience highlight the importance of developing locational marginal pricing markets, ancillary services, and reactive power management. Policy issues for increasing the share of RE include short-term system operation, optimal system development and investment, governance and regulatory frameworks, and strategies for increasing RE share in the market. Strategies for increasing RE share in the market include development of locational marginal pricing markets, ancillary services, and reactive power management. Distribution companies as direct buyers of renewable energy face challenges related to wholesale and retail electricity markets, absence of integrated power system planning, lack of clarity on transitional roadmap to open access and competitive markets, financial and management issues, and barriers to alternate business models. Technology-neutral and technology-specific auctions can be used to promote RE deployment, and off-shore wind power can be a viable option for Pakistan. Overall, the development of RE markets in Pakistan requires careful consideration of policy, regulatory, and market design issues, as well as the need for investment in infrastructure and technology.