Nepra’s SOI report 2022: a comment — I

Nepra (National Electric Power Regulatory Authority) has recently released its annual State of Industry (SOI) report 2022. As the name implies, the report gives a comprehensive picture of the power sector, outlining major issues and making useful recommendations. It also provides most relevant power sector data that may not be available elsewhere. It is a must read for all those who want to develop understanding of the sector.

It may be noted that, in the following paragraphs, we would provide a review which includes both statements of the Nepra report and as well as the views and critique of this writer. For clearing any confusion, regarding the ownership of individual views and issues, the readers are referred to the original of the report.

Capacity utilisation

According to the report, during FY 2021-22, a peak demand of 28,253MW was witnessed in the system during June 2022 while in the winter season, the peak demand of the country came down to 15,962MW during December, 2021. On the other hand, the installed capacity of the country is 40,813MW. Higher installed capacity as compared to demand in the system is certainly increasing the consumer end tariff owing to ‘Take or Pay’ and ‘Must Run’ compulsions.

Part of the reason is low capacity factor of 40% or less of hydro resources which, however, matches the low demand in winter. The gap between demand and capacity would increase with more induction of renewable resources which have even lower capacity factor. Inclusion of old GENCOs, which are to be decommissioned, is also a reason for this gap.

Here, perhaps Nepra should do some work. Innovations in tariff setting may increase capacity utilization; especially, incentives for large and energy intensive consumers. It is not a subsidy, but an intelligent way of recovering some fixed costs which otherwise may go unrecovered otherwise. Nepra and Power Division have done some work in this respect. It may be worth doing extra effort in this respect.

Merit Order violation

Nepra has been advising power generation companies, NPCC (National Power Control Centre) and NTDC (National Transmission and Dispatch Company) to strictly follow Merit Order rule. But for one reason or the other (usually transmission congestions and constraints), exceptions are made here and there, although, generally the rule is followed.

The cost of such deviations is high and cannot be condoned. An example is use of furnace oil power plants instead of gas-fired combined cycle power plants (NGCCP).There is double jeopardy; furnace oil plants are less efficient (38 %) and furnace oil is more expensive while NGCCP are more efficient (50-62%) and natural gas and RLNG are cheaper than furnace oil. So either efficient power plants are not dispatched or are dispatched partially (PLAC).

Nepra estimates PLAC costs at Rs 41.73 billion. More dangerous is the trends of PLAC costs which have increased from Rs. 5 billion in 2018 to Rs 41.7 billion in 2022. A related issue is operating combined cycle power plants in single cycle mode. Guddu 747 has been under such mode and has caused fuel losses of Rs.55 billion, as per Nepra report.

However, it is not mentioned or investigated as to when these plants were operated in single cycle. It is normal to run gas turbines during peak demand period for a variety of reasons. GTs (gas turbines) have quick ramp up time, i.e., a GT can be brought to peak production faster. Sometimes, in case of unplanned outage, it may be required to replace the shutdown plant. However, if they operated in a single cycle in non-peak times and routinely, it is wrong. And in the first place, an efficient combined cycle plant should not be available, it should be busy being much earlier in the merit order.

NPCC and SCADA

Nepra appears to be placing the blame of inefficient utilization of fuel and capacity on the shoulders of NPCC. The report says that NPCC does not adequately utilize the automation of SCADA (supervisory control and data acquisition) and prefers to use telephone and fax.

Although, it is true that NPCC is responsible for running Merit Order-based dispatching, there may be other reasons such as plant maintenance issues, fuel availability and demand fluctuations, which may also contribute towards deviation from Merit Order. Nepra appears to be specially concerned about it as it is introducing electricity market system under CTBCM (competitive trading bilateral contract market) wherein scheduling requirement and penalties can be severe.

(To be continued on Sunday)

Copyright Business Recorder, 2022