Wind power

Wind turbine prices fall to their lowest in recent years. This is the caption of a report released recently by Bloomberg, a highly respectable organisation in the energy finance sector. The report reveals that the wind turbine prices have come down by 18%, and are lower than the pre-commodity price hike period. However we tend to live in a different world.
Project promoters of wind projects are demanding higher prices than approved earlier. A Nepra hearing for a 25% increase in approved tariff is scheduled for next month. NEPRA has till recently approved wind tariff at around 12 cents per kWh, and only in last August approved tariff for Fauji Fertiliser at 16 cents, giving cause to the others to share in the loot, so to say.
The recent petition asks for an enhancement of 25% ie from 12 cents to 15 cents per unit. I do not have the details of the new petition for the increase in tariff (except for what has been provided in the advertisement), as NEPRA has not posted the details on its web-site. There seems to be a trend in avoiding providing timely data and information to the stakeholders; so much for transparency.
In Pakistan, people and other stakeholders make protests at the wrong time, normally when NEPRA awards tariff to the distribution companies. There is no use crying over spilt milk, the die is cast usually much earlier when Tariffs are awarded to power generating companies. Piece-by-piece individual tariff decisions cumulate to an unaffordable bulk.
We need energy including renewable energy but at reasonably competitive prices. Ideally it should be lower, keeping in view the low paying capacities of the consumer, but that is not possible. Everything is imported, plant, fuel and the know-how. Neither subsidies are feasible; as government does not have the money. Unpaid subsidies have created circular debt problems, which affect electricity supply through underutilisation of an already low installed capacity. Therefore, the relevant authorities have to be careful and judicious in making tariff awards.
Wind is free and abundant. Pakistan wind resource at Gharo is better than many countries in the world with a capacity factor exceeding 30%, while in India it is under 25% at most locations. Similar is the situation of quite a few European countries on which data is available. Why should wind power cost be more expensive than in other countries? In Europe, typical wind tariff is less than 12 cents and in the US even lower. In India, it is under 5 Indian rupees per unit, which makes it under 11 cents. It would have been still lower than this figure by a good 25% if India had the same resources as we have. In many countries, wind power has started competing with coal and gas, having come as low as 7 cents per unit. It is widely known in Renewable Energy circuits and being talked about.
Why is it so that we get a higher energy tariff? In the US the average consumer tariff is 10 cents .We are the only unfortunate country other than the oil-rich countries, which produce electricity based on oil. Earlier oil had a 33% share in our electricity production and now it has increased to 50%. Most of the countries produce their electricity from coal, nuclear, gas and hydro. We have abundant coal but let us keep the sordid details for some other moment.
The other reason for expensive energy in Pakistan is what we are facing in the case of wind power. The unabated tendency in Pakistan is to book higher capital cost. Regulatory agencies are supposed to check this trend. Earlier, there was a requirement of three quotations, now there is a requirement of open tendering. All can be managed in a country which is still one of the least documented. As it is Pakistan offers probably the highest return on equity at 18% IRR and that in foreign currency. Add a 5% annual long-term currency depreciation, the allowed IRR on equity becomes 23%. In India, return on equity of 16% is allowed in most of the states, and that is in local currency. In the US, return on equity for wind power is typically at 7.5%, in Germany 9.5% and Spain 10%. In the most wind friendly country Denmark, it is 11%. Thus allowed rate of return should be enough of an incentive.
Coming back to wind power, it may be advisable for the agencies to either auction the projects or announce pre-tariffs. In India, auctioning has been done in the case of solar power. The received bids were considerably lower than the reference price. Auctioning is very simple for wind, as all projects have the same basic data that affects cost. But nothing absolves officialdom from doing the necessary homework and adequate verification and seeking expert neutral advice where it is required. There is yet another issue that is current and the public ought to think about it.
Nepra notices of public hearing on fuel adjustment charges Nepra has advertised its public hearing on fuel charges adjustment for the month of March 2011. This is a recent development that they are holding a public hearing on this subject. And we should compliment them on this. However, the style and mode in which this seems to be conducted is rather questionable. No documents or data is being made available to the public, as is customary for such hearings.
The logic behind such withholding of actual data from the public is that the composite prices are based on the already approved reference tariffs. Actual payments made to the IPPs and Gencos differ than the reference-approved tariffs. There is a strong case, therefore that somebody examines such variations under a due process.
As per the Justice Bhagwandas report, refineries do not declare their import prices and the whole oil sector is beyond an effective regulatory regime despite Ogra, except for gasoline and kerosene. There is now an opportunity of opening up fuel oil prices secrets under NEPRA processes, which the latter is squandering. It is the public pressure, which is going to strengthen the hands and domain of our regulatory agencies. It is only the PSO, which imports furnace oil.
Either the laws of the Competition Commission of Pakistan should apply to PSO or it should subject its pricing process to Ogra/Nepra jurisdiction. Also I have questioned many times in these columns as to why is HSD pricing beyond the Ogra purview? For whatever worth it may be. On this occasion of public hearing of fuel surcharge adjustment, Nepra must make the CPPA demand data available to the public.
Otherwise what useful purpose would be achieved, merely checking the calculations of CPPA? Nepra used to have a better record in holding public hearings. It seems to be learning but the other way round. Concluding, the regulatory processes, transparency and public oversight must be strengthened and expanded beyond its perfunctory lackadaisical tendencies, if energy problems are to be managed effectively in the public interest.