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Wind projects: Sindh request for upfront tariff rejected

Updated July 03, 2017

ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) has rejected Sindh government’s request for continuation of upfront tariff for wind power projects, saying the competitive bidding for lower tariff will be a future principle.

In January this year, Nepra had done away with upfront tariff regime for wind power projects in view of the fact that the renewable energy sector had witnessed sufficient development and its technology costs and tariffs were on a continuous decline.

In doing so, the power regulator had set fresh benchmark levelised tariff for 100pc foreign-financed wind projects at about 6.747 cents per unit and locally financed projects at 7.734 cents per unit for use as reference for reverse bidding.

Nepra says competitive bidding for lower tariff will be a future principle

This was a departure from past practice when healthy profits were offered to attract investors to renewables. Over the past few years, wind power producers were offered upfront tariffs of 17 cents per unit, followed by 15 cents per unit and finally 9.5 cents per unit that expired on June 13 last year.

This did not go well with Sindh government which said it had already issued letters of interest (LOIs) to 34 investors on the basis of past practice and policy. In March this year, the provincial government filed a review petition challenging the regulator’s order and demanded an upfront tariff for unsolicited wind projects.

The provincial government was supported by a few investors, like Trans Atlantic Energy, Norinco International, Din Energy etc, saying “the competitive bidding process is discriminatory” and they should not be treated equal to new projects.

Reverse competitive bidding

Federal government agencies, like National Transmission and Dispatch Company (NTDC), Central Power Purchasing Agency (CPPA) and Alternate Energy Development Board (AEDB), confronted the Sindh government and supported reverse competitive bidding on the basis of regulator’s lower benchmark tariff.

NTDC said it had specified wind power evacuation capacity of 1756MW for spot year 2016-17 and it was required to set up grid to evacuate this quantity of power by 2019. It was highlighted that issuance of LOIs had been a serious concern for power purchasers and the provincial government was repeatedly warned of the challenges with the request to link LOIs with power evacuation capacity for that year.

The CPPA also supported competitive bidding tariff and reminded that the renewable policy road map required that renewable energy shall be inducted through competition beyond June 2012 in view of gradually lower renewable energy costs and tariffs.

The AEDB reported that relevant agencies had issued a large number of LOIs without taking into account the capability of the power purchaser to evacuate power. It said the NTDC system had limited interconnection capacity and hence competition was good method for the allocation of interconnection slots.

The AEDB also stated that merely the fact that a large number of LOIs had been given did not mean that it had now become mandatory to ensure interconnection capacity given the fact that terms of LOIs for unsolicited projects clearly put the entire risk and cost to the investor. It said the world power market was also heading towards competitive reverse auctions.

It was also pointed out that the regulator had already declared in 2013 that the power purchaser (respective government agencies) will no more take the wind risk and the relevant power generation company (investor) will be required to account for this risk in its bid price.

Nepra said it “considers that the request of GOS (government of Sindh) ….to determine upfront tariff for wind power projects being developed under unsolicited mode is not maintainable…stands dismissed”.

The regulator did not accept arguments that moving the competitive bidding away from the upfront tariffs would attract machinery and investors of poor quality. The “authority is not inclined to accept concerns that international prices are quoted less to win the project,” said Nepra, noting that the procurement of power under a transparent competitive process was most appropriate as it could fetch realistic prices based on the prevailing market conditions.

The regulator observed that the competitive bidding mode had been the “most successful and preferred mode for arriving at fair and judicious prices”.

Therefore, Nepra “decided to declare the determined tariff in this decision as Benchmark Levelised Tariff, which shall be used to carry out competitive bidding under Nepra Competitive Bidding (Approval Procedure) Regulations, 2014 by the relevant agencies”.

Published in Dawn, July 3rd, 2017