Wind power tariff announced

National Electric Power Regulatory Authority (Nepra) has announced benchmark levelised tariff of 6.7467 cents per unit KWh for wind power plant on 100% foreign financing discounted at 10% per annum and 7.7342 cents per unit on 100% local financing. The new tariff has been decided in response to a suo motu notice by the regulator which used three months LIBOR of 0.6% and three months KIBOR of 6% respectively whereas reference TT & OD selling rate has been used at $105. Around 20 companies were waiting for new tariff.
This tariff will be applicable on wind power generation only. The relevant agencies will conduct the bidding under Nepra Competitive Bidding (Approval Procedure) Regulations, 2014. The validity period for the tariff is 365 days from the date of issuance of this determination. The power purchaser will not take the wind risk and relevant wind power generation company will be required to account for this risk.
According to Nepra, majority of interveners in suo motu hearing were of the view that to ensure a transparent and competitive bidding, one of the most important factors is the creation of a level playing field for all the potential investors which is not presently the case in Pakistan. A number of projects have been issued Letter of Intents (LoIs) and are at different stages of project development. These developers have in most cases installed wind masts and conducted detailed feasibility studies (eg topographic study, soil study, transportation study, NTDCL''s approved grid studies etc.) Hence, introducing competitive bidding at this stage will result in loss to the investors and delay in the development of wind sector.
The participants of hearing further submitted that carrying out an effective competitive bidding process requires extensive planning, standard documentation, simple framework and clear policies and stated that in the absence of proper framework, initiating competitive bidding process would only cause uncertainty and delays. The participants also submitted that international experience in certain developing markets show that in some cases competitive bidding attracts low quality equipment due to price sensitivity of the bidding process, because of this wind resource is not effectively utilised and the benefit to the consumers is not materialised. The interveners further submitted that it has also been seen in the international bidding that bidders proposed the lowest tariff on aggressive financial structuring, however, majority of such projects do not mature which does not only spoil the chances of realistic investors to put up projects but also delays the progress of deployment of wind energy.
The representative of AEDB during the hearing, inter alia, submitted that the preparation of framework for competitive bidding shall take 9 to 12 months.
The GoS also supported this point and submitted that a number of sites are already being developed (at various stages) and these cannot be shifted under the terms and conditions set under the LoI, therefore, requested to determine upfront tariff for those projects and competitive bidding could be considered for new projects. The CPPA-G on the contrary advocated that it is now the right time to introduce a benchmark tariff for competitive bidding as the sector has gained much more confidence and the wind risk factor has markedly reduced due to the availability of reliable wind data for the last few years. The CPPA-G also submitted that concerned agencies should be allowed to conduct feasibility studies at their own cost to make the site solicited. The transfer of technology may also be encouraged in the competitive bidding process through the award of certain incentives.
The Ministry of Water and Power (MoW&P) in its initial comments on October 20, 2016 submitted that specific time may be allowed to AEDB for development of auction framework arid, in the meanwhile the Nepra may consider announcement of upfront tariff for the same period. Subsequently, AEDB in its letter of December 16, 2016, submitted that it has initiated the process of developing competitive bidding framework with the support of technical expertise available through donor agencies for which it would take 10-12 months. The AEDB further submitted that the mechanism for disposal of remaining LoIs for wind and solar power projects would also be developed in the course of development of aforesaid framework.
Contrary to above, Punjab Power Development Board in its letter on December 16, 2016 informed that it has invited applications for the award of land in Quaid-e-Azam Solar Park (Extension) for the development of 100MW Solar Power Project (SPP) from those project developers who are willing to sell energy at US 6 cents/kWh or below, ie quite lower than the new tariff advertised by the Authority for public hearing to seek views of the commentators. Later, the MoW&P in its letter on January 12, 2017 proposed that competitive bidding in reverse auction, being the prudent step in prevailing circumstances, be carried out through the AEDB against the remaining cushion of wind power projects as well as against any future capacity as determined by Grid Code Review Panel for sport year-I and subsequent years.
Having considered the arguments put forth by some of the stakeholders, the Authority was not inclined to accept their concerns that international prices are quoted less to win the project. The Authority further considered that the procurement of power under transparent competitive process was most appropriate as it could fetch realistic prices based on the prevailing conditions of the market. It has also been observed that competitive bidding mode has been the most successful and preferred mode for arriving at fair and judicious prices and after announcing three upfront tariffs for wind technology, this is the appropriate time for a logical shift towards competitive regime.
The Authority stated that in its opinion, the issuance of LoIs should not to be considered an impediment for the shift towards competition for which the AEDB has also submitted that the mechanism for disposal of LOIs would be developed in the course of development of auction framework. In view of this, the Authority has decided to declare the determined tariff in this decision as benchmark Levelised tariff which will be used to carry out competitive bidding under the NEPRA Competitive Bidding (Approval Procedure) Regulations, 2014 by the relevant agencies.
The Authority has analysed in detail the data of project costs and energy yields of wind power plants installed world-wide in the last few years. Regarding project cost, the Authority has noted that the global prices have seen a noticeable decrease since 2008. The major cost component ie the turbine prices are found to be in the range of $0.90 to 1.2 million per MW and the corresponding project cost was around $1.5 to 1.6 million per MW. Nevertheless, the local factors such as the existing market conditions, local manufacturing bases and other technological and economic factors were also considered. Regarding the efficiencies, the data of energy yields in different regions of the world and their trend in last couple of years were reviewed. It has been noted that worldwide, the capacity factors have improved over time among projects located within a given wind resource regime. The primary reason of this improvement has been the change in turbine design through improvement in hub height, nameplate capacity and especially through enhancement in rotor diameters. Further the Authority has also analysed the data of energy yields of currently operational wind power plants in the country and it has noted that the capacity factors vary among the wind farms and the energy yields of up to 35% has been achieved.