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ISLAMABAD: Net Metering System (NMS) operators have sought help from Alternative Energy Development Board (AEDB) for an amendment in Sales Tax clause to ensuring due fiscal incentives on supply of electricity by person running distributed generating facility.

In a letter to AEDB CEO Shah Jahan Mirza, former interior minister Lt-Gen Moinuddin Haider (retd) has stated that to encourage and promote renewable energy in the country, the government had announced incentives.

The policy says "such net metering arrangements may involve separate sets of unidirectional meters for recording the electricity received and supplied to the utility by the power producer, or special bidirectional meters capable of instantaneously recording net power transfers. This facility would be particularly suitable for incentivizing dispersed small-scale RE generation, such as rooftop PV panels, helping optimize their utilization and payback rates and obviating the need for expensive on-site storage batteries."

In support of objective, Nepra issued SRO 892(1)/2015 on September 1, 2015 of which under section 2(1), following definitions have been prescribed: (2)(1)(s) ‘net energy billing’ means a billing and metering practice under which distributed generator is billed on the basis of net energy over the billing cycle; 2(1)(t) ‘net energy’ means a balance (positive or negative) of the kWh generated by distributed generator against the kWh supplied by distribution company at the end of billing cycle'; and 2(1)(u) ‘net metering facility’ a facility comprising of one or two meters for measuring the kWh generated by the distributed generator and supplied by distribution company for determining the net energy.

Subsequently, Nepra issued amendments vide SRO 1135(1)/2018 on September 13, 2018. According to Regulation 14 Sub Section 2 of SRO 1135 "the kWh supplied by a distributed generator during peak hours shall be net off against the kWh supplied by a distribution company during peak hours and the kWh supplied by a distributed generator during off peak hours shall be net off against the kWh supplied by a distribution company during off peak hours."

Encouraged by the approved policy decisions, Pakistan has seen a surge in rooftop solar installations by homeowners and SMEs and while all the Discos in compliance with AEDB guidelines and Nepra SRO commenced with netting the units in their billing process, regrettably K-Electric adopted a different approach by billing its customers on the basis of gross units on the pretext that the Sales Tax act does not contain any provision of netting.

To get this issue resolved, nine group members and Moinuddin Haider visited the offices of K-Electric on August3, 2020 followed by a meeting with the Energy Minister Omer Ayub Khan on August 9, 2020 which was arranged by Sindh governor.

A letter addressed to the minister was referred to the Nepra, upon follow up by K-Electric, the FBR issued a circular on November 12, 2020 that under the present legal dispensation Sales Tax is required to be charged on the value of supply and not the net off value.

However, it has been noted that opposed to FBR directive, to date all Discos continue to comply with the Regulation 14 sub section 2 of SRO 1135 by the Nepra whereas K-Electric's indifferent approach remains disadvantageous to its customers.

The letter says that although the Council of Common Interests (CCI) approved the Alternative & Renewable Energy (ARE) Policy in 2020, which aims to achieve 30 percent capacity from ARE by 2030, this policy lacks incentives particularly for homeowners and SMEs as unlike many developed and developing countries, and it does not provide tax credits. On the contrary and against the spirit of AEDB's guidelines to obviate the need for expensive batteries and optimize the payback rates, the Discos make 100 percent profit by purchasing excess generation during off peak hours at National Average Power Purchase Price of Rs 12.95/kWh (earlier of Rs 9.95kWh) and selling it at Rs 24.30/kWh during peak hours.

After explaining the background, the net metering system owners have requested CEO AEDB that AEDB's guidelines and Regulation 14 of sub section 2 of SRO 1135 be implemented in letter and spirit.

Net metering system owners are of the view that since FBR has invited a proposal for the upcoming Federal Budget, AEDB should extend support for following amendment in the Sales Tax Act in the Federal Budget 2021-22. “Provided that in case of supply of electricity to a person running Distributed Generating facility, as defined in National Electric Power Regulatory Authority (Alternative & Renewable Energy) distributed generation and Net Metering Regulations 2015, the amount representing the difference between amount of gross sum due against supply of electric power and value of supply purchased from the person running a distributed generating facility under a net metering agreement signed between the parties under the said regulations.

Provided further in case where the amount representing the difference between the value of supply purchased from the person running a distributed generating facility under a net metering agreement signed between the parties under said regulations higher than the amount of gross sum due against supply of electric power, no sales tax shall be charged by the supplier.”

A new entry in 6th Schedule of the Act has been proposed which is as follows: "supply of electricity by person running distributed generating facility".

Copyright Business Recorder, 2021