Competitive bidding upheld for wind power

This year saw a positive paradigm shift in the tariff determination for wind power projects by the National Electric and Power Regulatory Authority (NEPRA). The regulator shifted from the redundant upfront tariff methodology to the competitive bidding mode.

The new benchmark levelised tariff for the purpose of competitive bidding through reverse based auction mechanism was determined as follows: for 100 percent foreign financing at 7.08 Rs/kWh (6.7467/US cents kWh) and local financing at 8.12 Rs/kWh (7.73/US cents/kWh) on a built, operate, own (BOO) basis.

Even though this step was heralded as a major success by most quarters, the Government of Sindh (GoS) objected during the hearing on the fairness of applying this tariff to projects being developed under unsolicited mode.

Subsequently, when the order was passed for the new tariff regime, the GoS filed a review motion with the regulator in March against this determination arguing that it put companies that had already made significant investments at a disadvantage if they were subject to competitive bidding. However, this review motion has recently been rejected by NEPRA which considers this request to determine upfront tariff for projects developed under unsolicited mode not maintainable.

GoS’s major argument was that under the Renewable Policy 2006 competitive bidding was only for “solicited proposals” (Bid invited through RFP from IPPs by relevant government department) and did not apply to “unsolicited proposals” (Submitted on own behalf of company rather than in response to RFP).

However, the Alternative Energy Development Board (AEDB) did not concur with GoS over the matter. It maintained that the paragraphs of the policy on which the GoS based its arguments were in fact overridden by sections 7 and 34 of the NEPRA Act. It argued that the regulator is only supposed to comply with the guidelines issues by the federal government if it considers them to “practicable and consistent with the NEPRA Act”.

In addition, it also maintained that the policy should not be used selectively but rather taken as a whole when arriving upon tariff determinations. The major aim was to encourage competition and as evident by the relevant text it provides that beyond June, 2012, renewable energy shall be inducted through competition. NEPRA has also taken a similar view and maintained it is not bound by the policy but rather the NEPRA Act, but even in the policy itself the long term aim is making the power generation more competitive.

Even though this may be the case, yet investors spend a considerable amount of resources and capital on making feasibilities of proposals and some were already at an advanced stage.

It seems that though competition should be the longer term aim, better coordination between the provincial departments and the regulator would have served to avoid denting investor confidence and wasted resources.