For the first time in eight months, electricity monthly fuel charges adjustment (FCA) ended up in the negative. That offers some respite to the consumers who have faced continuous tariff increase in one form or another over the previous few months – from base tariff adjustments to quarterly tariff adjustments and high monthly FCAs.
Nepra has ordered 64 paisas per unit of downward adjustment in lieu of monthly FCA for March 2021, to be implemented in May 2021. The monthly FCA in FY21 prior to March adjustment had been on a relatively higher side, averaging Re1 per unit. February and March have historically been low consumption months, with least economic order violations reported, keeping FCAs in check.
The negative FCA adjustment for March 2021 is not necessarily an indication of lower actual fuel cost or improved generation mix over last two years. The fuel cost of Rs5.6 per unit for March 2021 is still 10 percent higher than March of 2020 and 2019. The change is in the reference fuel tariffs, after the recent base tariff revisions. The reference fuel tariff for March has been revised upwards by a staggering 25 percent – which is reflected in the increased base tariffs. The increase is on account of significant currency adjustment from the previous base tariff exercise that was conducted in January 2019.
With more nuclear energy becoming part of the grid sooner, consumers should expect more respite in terms of monthly FCAs. Mind you, the negative FCA does not apply to domestic consumers using up to 300 units, which excludes 78 percent of domestic consumers. industrial consumers using subsidized electricity, and agriculture consumers.
As temperatures rise, economic merit order violations will start getting more frequent, as system constraints continue to exist. The regulator has also pointed out the criminal neglect that goes on unbated in terms of significant underutilization of some of the world’s most efficient plants on RLNG. An honorable member of Nepra has written an additional note with the decision asking the concerned quarters to seriously consider the loss of national exchequer caused by under utilization of RLNG power plants, on which the regulator has also written an advisory note to the Ministry of Energy.
Summers are upon us, and time will tell if the transmission constraints have been solved from last year, in terms of carrying the load of RLNG plants operating at full throttle. If not, expect repeat of last year in terms of merit order violations and high monthly FCAs.