The upfront Thar coal power tariff will expire on 19 January, 2017 with the regulator deciding against extending it. The table shows the original upfront tariff for Thar coal projects that was notified at the start of 2015.
The recently published notice, which seeks comments from stakeholders raises some interesting questions. For starters, should the National Regulatory and Power Authority (NEPRA) come up with another upfront tariff with revised parameters? The regulator rightly points out that the improvements in technology and reduction in risk should be kept in view while deciding the future tariff.
However, more importantly the regulator also asks whether a benchmark tariff for competitive bidding should be determined under the Competitive Bidding Tariff Regulations 2014 instead of an upfront tariff. This column feels that the way to go for coming up with a new tariff for Thar coal projects should be through competitive bidding.
As we have expressed in the past, NEPRA upfront tariffs have frequently been criticised for being on the higher side. Even the government decided to hold competitive bidding for R-LNG projects, which resulted in a lower tariff as compared to the one determined by the regulator. The same held true for determining renewable tariffs for wind and solar that were slashed by 20 percent later on in the same year the tariffs were determined. This happened due to new evidence coming to light, which was unavailable to NEPRA earlier when the original hearing took place.
It is crucial that all relevant stakeholders including government departments provide their input that the regulator primarily relies on in coming up with an upfront tariff. But this has seldom been the case with hearings that are usually one sided affairs dominated by private sector participation.
More importantly, from an economic angle, competitive bidding serves to be more efficient in tariff determination due to increased competition amongst bidders. NEPRA itself notes the the importance of increasing generation capacity at the least possible cost through competitive bidding in its recent draft guidelines. Even the changes proposed to the NEPRA Act 1997 by the government include the introduction of a market operator and electricity trading. To make that a reality, the role of the regulator in pricing and tariff would be minimum and competitive bidding would become the norm for coming up with the tariff.
This column will take up the other issues raised in the notice in the coming week, which include whether the cost-plus tariff should continue being an option along with upfront or competitive bidding tariff.
Once again, we will remind the importance for all relevant stakeholders and energy experts to provide their input to the regulator for choosing the right methodology of coming up with the most efficient tariff. For this purpose, NEPRA per its procedure has provided two weeks for all relevant parties to send their written comments. Rather than complaining about it later, it will be beneficial for all affected parties to participate in this exchange with the regulator.
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