National Electric Power Regulatory Authority (Nepra) on Thursday announced new levelized upfront tariff of Rs 10.6048/kWh for wind power projects which envisages substantial decrease from the previous tariff of Rs 13.1998/kWh. This would reduce the cost of electricity generated through wind energy by up to Rs 2.5 per kWh as compared to previous wind tariff.
This tariff will be limited to the extent of net annual energy generation supplied to the power purchaser up to 35% net annual plant capacity factor. According to Nepra, the new determination has preceded the previous upfront tariff which was determined on April 24, 2013 for a period of two years which lapsed in April, 2015. The new tariff will remain applicable for six months from the date of notification. The prospective investors opting for this tariff will have to achieve financial close within one year from the date of decision of the Authority awarding upfront tariff to them. The targeted maximum construction period after financial close is 18 months. This time period prescribed in the determination is to ensure early completion of the projects. This initiative besides ensuring energy security will provide clean renewable energy at an affordable price to the consumers and would facilitate in mitigating the power shortfall.
The regulator has also considered the world-wide data on operations and maintenance costs available with it and after due deliberation has decided to allow the gross indexed amount of operations and maintenance costs allowed in the upfront tariff, 2013 through this determination. Further, mechanism for indexation of insurance during operations has also been brought in line with the mechanism for indexation of insurance given in the upfront tariff for solar. Nepra has considered the proposal of Planning Commission regarding introduction of reverse auction mechanism for deciding tariffs for renewable energy sources. The Authority has noted that in the upfront tariff, 2013 it had observed that proposal regarding auctioning of wind power projects needs to be considered by AEDB. The Authority further observed that AEDB has not reverted to the Authority on this issue. The Authority has deliberated on the issue and has found that number of countries in the world have followed the path of allowing upfront tariffs for development of their renewable energy sector. The Authority has concluded that at this juncture changing the future direction ie going from determined tariff regime to reverse auction mechanism is not prudent.
For the computation of proposed upfront tariff, after taking into consideration international trend of decline in project costs of wind power generation projects, project cost of $1.97 million per MW (foreign financing) and $2.08 million per MW (local financing) was considered by the Authority. Majority of stakeholders objected to project cost considered in the upfront tariff proposal. The stakeholders contended that the proposed project cost is too low and has been reduced substantially from the project cost considered for the upfront tariff, 2013. It was also submitted by most of the stakeholders that the proposed project cost is not in tandem with the proposed plant capacity factor. Further, some of the stakeholders contended that the project cost of any other part of the world cannot be taken as a reference for Pakistan due to various factors such as absence of local manufacturing base in Pakistan, transportation cost of heavy machinery into Pakistan, country risk, expatriates insurance, Grid code requirements, etc. Most of the stakeholders suggested taking into account the project cost allowed in the upfront tariff, 2013, few recommended to just reflect the impact of improved lending terms in the project cost of upfront tariff, 2013 and one commentator submitted that $2.3 million per MW may be considered as the project cost.
The Authority also observed that the Planning Commission has proposed announcing separate tariffs for European and Chinese origin turbines and this upfront tariff is energy based and gains or losses due to quality of machinery will be passed on to the power producer, except to the extent of impact of revenue sharing mechanism for excess generation.
Accordingly no change on this account is required in the upfront tariff. The Authority has noted that withholding tax on dividend was allowed as a pass through item in the upfront tariff, 2013. However, in case of upfront tariffs for various other technologies recently determined, withholding tax on dividend has not been allowed as a pass through item by the Authority. The Authority in accordance with its recent in principle decision on this issue, has decided not to allow withholding tax on dividend as a pass through item in this upfront tariff.
The Authority has noted that withholding tax on dividend was allowed as a pass through item in the upfront tariff, 2013. However, in case of upfront tariffs for various other technologies recently determined, withholding tax on dividend has not been allowed as a pass through item by the Authority. The Authority in accordance with its recent in principle decision on this issue, has decided not to allow withholding tax on dividend as a pass through item in this upfront tariff.