National Electric Power Regulatory Authority (Nepra) has approved upfront tariff of Rs 7.1129 kWh for coal-fired Captive Power Plants (CPP), which will remain applicable till Dec 31, 2018. The tariff will comprise of reference fuel cost component of Rs 5.7310 kWh and fuel cost component of Rs 1.3819 kWh.
The fuel cost component for imported coal will be subject to adjustment for variation in the delivered coal price and calorific value from time to time in accordance with the coal price adjustment mechanism approved by the Authority dated 23rd Sep 2016. The fuel cost component for local coal will be subject to adjustment for variation in the delivered coal price and calorific value from time to time in accordance with the prescribed adjustment mechanism.
According to details a proposal for upfront tariff for captive power plants on coal, on take and pay basis was made public in leading national news papers on April 29, 2017. The proposed upfront tariff comprised of fuel cost component and fixed cost component. The fuel cost component was calculated on net LHV thermal efficiency of 31 percent, net calorific value of 22,861 BTUs/ Kg, reference coal price of US$ 93.94 per ton and exchange rate of Rs 105/$. The fuel cost component was also proposed to be adjusted for variation in delivered coal price and variation in actual calorific value. The following upfront tariff on coal was proposed for captive power plants: (i) fuel cost component Rs 4.7492 KWh; and (ii) fixed cost component of Rs 1.3819 KWh totalling Rs 6.1311 KWh. Hearing in the matter was scheduled on 11th May 2017 at NEPRA Tower, Islamabad which was participated by K-Electric, ICI Pakistan, Gadoon Textile Mills, Sitara Energy Limited, Nishat Power, PPDB, CPPA, NPCC, AQLAAL and BoI. K-Electric, Pakistan Atomic Energy Commission (PAEC) and Anwar Law Associates had filed intervention requests whereas Hyderabad Electric Supply Company (Hesco) and ICI Pakistan filed comments. HESCO appreciated and supported the Authority's proceedings in the matter and submitted that the efficiency for coal power plant should be fixed at 38 percent.
ICI submitted that the proposed delivered coal price does not include inland freight required for Punjab and the corresponding coal transportation losses. ICI submitted a break up of the same at $ 129.62 per ton. ICI submitted that the existing captive power plants are small sized and low pressure boiler technology based, therefore, the Authority should consider a net thermal efficiency of 24.5 percent at par with bagasse based cogeneration projects. ICI further submitted that the proposed fixed cost component is not reasonable, particularly when compared with Rs 1.53 kWh and Rs 1.4543 kWh for RFO and gas based CPPs and requested the Authority to revisit the same to eliminate any chances of discrimination.
Nepra observed that the proposed fuel cost component was based on net LHV thermal efficiency of 31 percent. PAEC submitted that auxiliary consumption has not been covered and requested the Authority to cover it in the fuel cost component. PAEC further submitted that fuel losses have not been incorporated and that calculation is based on LHV and requested the Authority to cover the same in fuel cost component. PAEC further submitted that thermal efficiency of low CV coal is normally less than high CV coal and requested the Authority to calculate thermal efficiency on low CV coal while considering local coal. PAEC also submitted that the CV of 22,861 Btu/Kg of imported coal is on higher side than that of local coal. The price and CV of local coal needs to be considered while determining the upfront tariff. ICI submitted that the existing captive power plants are small sized and based on low-pressure boiler technology requesting the Authority to consider a net thermal efficiency of 24.5 percent at par with bagasse based cogeneration projects. During the hearing, the representatives of ICI Pakistan submitted that the efficiency of their plant is 27 percent. HESCO in its comments requested the Authority to fix net thermal efficiency at 38 percent while in the opinion of Anwar Kamal Law Associates the proposed efficiency of 31 percent is quite low.
The Authority has considered the submissions made by the stakeholders regarding net LHV thermal efficiency. During the hearing, the stakeholders were directed to submit evidence in support of their submissions. However, none of the interveners or commentators provided any documentary evidence in support of their claims. The net LHV thermal efficiency of 31 percent was proposed after considering all the factors affecting thermal efficiency of the coal based small power plants, keeping in view the operational information of existing and upcoming captive power plants and considering the regional benchmarks. In the absence of any documentary evidence for changing the proposed thermal efficiency level, the Authority has decided to maintain the net LHV thermal efficiency of 31 percent for calculation of fuel cost component for CPPs generating electricity on coal for sale of surplus power to the system. Most of the coal in Pakistan is imported from South Africa. Based on the Argus/ McCloskey's Coal Price Index API4 for the 1st week of May 2017, the delivered coal price worked out $ 117.99/ton including freight of $ 22.31/ton and handling losses during transportation from port to the power plant @1 percent. Accordingly on the basis of net LHV thermal efficiency of 31 percent, net calorific value of 23,794 BTUs/lb., reference Ex- GST coal price of $ 117.99/ton and exchange rate of Rs 105/$, the fuel cost component works out Rs 5.7310/kWh and the same is being approved. The approved fuel cost component will be subject to adjustment for variation in the delivered coal price and calorific value from time to time in accordance with the coal price adjustment mechanism approved by the Authority on September 23, 2016.
Pakistan Atomic Energy Commission, in its intervention request submitted that it intends to utilize local coal for its power plant. In case of local coal, there is no pricing mechanism. PAEC informed that they have invited bids in the matter for supply of local coal and received 13 bids from prospective local coal suppliers from around the country. They are in the process of evaluation of bids and once the process will be completed, coal supply agreement(s) will be signed for 1 year. PAEC further submitted that local coal has higher sulphur content which requires use of limestone.
The Authority considered the submissions of PAEC regarding use of local coal in the proposed power plant. In the absence of local coal pricing mechanism, the determination of price through a transparent competitive bidding process is satisfactory. The power producer shall employ all means to ensure transparency in the bidding process. Since, the local coal is of high sulphur content, limestone needs to be used to neutralize the impact of sulphur. Actual limestone cost shall be treated as pass-through. Limestone shall also be procured through transparent bidding process. For local coal, the fuel cost component shall be subject to adjustment for variation in the coal price and calorific value from time to time.
In order to have a further check on the price of local coal and to balance the interest of the consumers, the Authority has decided that the combined financial impact of local coal price and cost of limestone will always be equal to or less than the cost of imported coal price in the respective month. In case the combined financial impact of local coal price and cost of limestone exceeds the cost of imported coal price in any month the excess shall not be passed on to the consumers and shall be borne by the power producer.
The fixed cost component of Rs 1.3819/kWh was proposed for coal based Captive Power Plants. The fixed cost component comprised of fixed and variable O&M, ash disposal, insurance and ROE. PAEC and ICI Pakistan requested higher fixed cost components. During the hearing, the representatives of ICI Pakistan submitted Rs 3.0/kWh for fixed cost component. The Authority considered the submissions made by the stakeholders regarding fixed cost components. Keeping in view the cost allowed to other coal based power plant of approximately similar size and in the absence of reliable documentary evidence, the Authority has decided to maintain the proposed fixed cost component and approved for coal based captive power plants. The proposed fixed cost component did not include cost of limestone. According to the coal specification report of South African coal, sulphur content is 0.62 percent on dry basis. Sulphur content of below 1 percent is considered within emission standards and requires no limestone for neutralizing. However, if sulphur content exceeds 1 percent, limestone shall be required for desulphurization. On the basis of coal specs and feedback from the captive power plants, cost of limestone was not included in the proposed upfront tariff and the same is being maintained.
According to Nepra any captive power plant/small power producer can opt for the upfront tariff for sale of surplus power to the system. Inland freight charges will be added to the imported coal price for calculation of delivered coal price. Coal handling loss from load port to discharge port of 1 percent or actual, whichever is lesser will be allowed for calculation of imported coal price. Coal handling loss for inland transportation of 1 percent or actual, whichever is lesser will be allowed for calculation of imported/local coal price. The term of the power purchase agreement under the upfront tariff will be for calendar years 2017 and 2018. Minimum capacity to be offered under this upfront tariff will be 3MW. The power plants under this tariff will not be entitled for any capacity charges. The EPA / PPA executed will be consistent with all applicable documents including generation Licence and Nepra's tariff determination for the power producer. Any provision of PPA / EPA which is inconsistent with Nepra's tariff determination will be void to that extent and its financial impact shall not be passed on to the end consumers. CPPs selling electricity to Discos under this upfront tariff will not be allowed to purchase electricity from Discos at the same time in the same premises. The sponsor who is interested in opting for upfront tariff will submit unconditional formal application to Nepra for approval of the Authority.
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