Off-peak hours: PD moving proposal on seasonal energy pricing

Islamabad: The Power Division is moving a proposal for seasonal energy pricing for domestic and commercial consumers to encourage power consumption during off-peak hours.

This was announced by Minister for Energy Hammad Azhar on Friday and is aimed at providing cheap electricity to the domestic consumers for heating in winter due to gas availability issues. In addition, commercial consumers will also be encouraged to consume maximum electricity in off-peak hours.

The main purpose of this incentive will be encouraging maximum use of surplus power, so that capacity payment to the power producers may be reduced which is one of the key factors of increase inflow of circular debt. The government has already announced industrial support package recently.

“The success of industrial support package demonstrates that such incentives provide relief and absorb part of surplus capacity,” said Azhar.

SAPM on Power and Petroleum Tabish Gauhar has already supported such type of packages, saying that would minimise capacity payments.

Sharing the details, sources in Power Division said the ECC on November 2, 2020, approved support package for industrial electricity consumers at the rate of Rs l2.96/Kwh and approved its application for ToU industrial consumers of Discos from Nov 2020 till Oct 2023. However, the applicability of the same for industrial consumers of K-Electric (KE) was limited till June 30, 2021.

Nepra agrees to allow Discos Rs1.38/unit hike

The decision for K-Electric is as follows: discount of Rs 4.96/kWh from the base rate will be offered for industrial consumer categories (B1, B2 & amp; B3) from November 1, 2020 to June 30, 2021 for off-peak hours on incremental consumption in corresponding months of the period March 2019 to February 2020. In this case, an estimated subsidy requirement for K-Electric shall be approximately Rs 7 billion which shall be provided by the Finance Division from Covid Economic Stimulus Package on actual consumption basis for each month.

The Federal Cabinet ratified the decision, with inclusion of industrial consumer category B4 and B5 for K-Electric at rate of Rs12.96/Kwh with applicability from Nov 2020 to June 2021.

Power Division claimed that incremental consumption package for industrial consumers yielded an average growth of 9.9 percent in off-peak hours during the period from Nov 2020 to Apr 2021 against the reference months. K-Electric has witnessed higher incremental sales growth compared to Discos. At the same time, spurred growth of industrial consumption, on account of the offered incentive scheme, also showed positive correlation with the economic indicators of the country.

Power Division further argued that extension of incremental consumption package for industrial consumers of KE requires consideration of technical and commercial dynamics of power system. With planned addition of BQPS III power plant in KE’s fleet and additional supply of power from the national grid, KE expects to meet the incremental growth without any load management. However extreme weather conditions and exceptional growth scenario may result in constrained loadshedding for KE consumers.

The extension of incremental consumption package for industrial consumers (ToU), consumers only of K-Electric, at concessionary rate of Rs12.96/kWh will generate a subsidy requirement of approx. Rs32.87 billion from Jul-21 till Oct-23. However, in view of existing merit order for K-Electric, average marginal cost for supplying each incremental unit comes out to be Rs14.61/Kwh (at current fuel prices) which may have temporal variations on account of variables such as fuel prices, incremental demand etc. The respective subsidy requirement for extending the incremental consumption package at rate of Rs14.61/kWh will generate a subsidy requirement of Rs21.66 billion from Jul-21 till Oct-23. Existing tariff for K-Electric is based on price cap mechanism with multi-year horizon and gain/loss on above/below the regulatory benchmarks rests with K-Electric. Further, the regulator has devised the claw back mechanism which results in mutual sharing of annual return on average Regulatory Asset Base.

In addition to Industrial Support Package for incremental consumption, Cabinet Committee for Energy (CCoE) on April 15, 2021 approved abolishment of Time-of-Use tariff scheme for industrial consumers and extended the existing ToU tariff package from May 1, 2021 to June 2022 with the subsequent evaluation in May 2022 across the country. Approval also reflected that abolishment of ToU tariff scheme for industrial consumers of both K-Electric and Discos will generate a cumulative subsidy requirement of Rs26 billion from May-2l till Jun-22.

Following CCoE decision, the petition was filed with NEPRA by the Power Division and K-Electric. With respect to the recommendations of CCoE, NEPRA shared its decision on the proposals regarding the extension of ToU tariff scheme till June 30, 2022, for industrial consumers of Discos and K-Electric.

NEPRA in its decision of June 17, 2021 also extended incremental consumption package to B-1 (non-ToU) industrial consumers of both Discos and KE. Keeping in view the direction in field for conversion of Industrial Non-ToU consumers to ToU metering arrangement, and extended incremental consumption package to B-1(Non-ToU) consumers till Dec-21 with the provision that such conversion shall be completed by Dec-21. For Discos, the incentivized rate for incremental consumption is subsidy neutral, however, for K-electric consumers, implementation of this package for B-1 (Non-ToU) consumers will generate an estimated subsidy requirement of Rs20 million till Dec-21.

PBIF for controlling energy prices to improve exports

After explaining the case, Power Division submitted the following proposal to the ECC: (i) rate of Rs12.96/kWh shall be charged to industrial consumer categories (B1, B2, B3, B4 and B5) of K-Electric from July 1, 2021 to October 31, 2023 for off-peak incremental consumption basis over their consumption in corresponding months of the period March 2019 to February 2020. New consumers having no reference consumption available in period of March 2019 to February 2020 shall be offered the same package through slab-wise consumption structure. The package will be applicable to all hours of the day, during the period when time of use tariff for industrial users is discontinued; (ii) budget the cumulative subsidy of approx. Rs32.87 billion as a result of extension of incremental consumption package for industrial consumers K- Electric (July 1, 2021 till October 31, 2023); (iii) on incremental consumptions, only positive fuel price adjustments shall be passed on consumers availing the incremental consumption package; (iv) Rate of Rs 12.96/Kwh shall be charged to existing B1 (Non-ToU) industrial consumers of Discos and K-Electric from July 1, 2021 to December 31, 2021 for incremental consumption basis over their consumption in corresponding months of period July 2019 to December 2019. B1 (Non-ToU) consumers having no reference consumption available in period of July 2019 to December 2019 shall be offered the same package through slab-wise consumption structure; (v) existing B1 (Non-ToU) consumers converting to ToU metering arrangement, shall be offered the same package at the concessionary rate of Rs12.96/kWh for off-peak incremental consumption through slab-wise consumption structure till the applicability of incremental consumption package for Discos and K-Electric respectively; (vi) budget the cumulative subsidy of approx. Rs20 million as a result of application of incremental consumption package for B1 (Non-ToU) industrial consumers of K-Electric (July 1, 2021 till December 31, 2021); (vii) for Zero Rated Industrial (ZRI) consumer categories, rate of Rs12.96/kWh or the PKR equivalent of applicable rate, whichever is lesser, shall be charged on incremental consumption till the applicability of incremental consumption package for Discos and K-Electric respectively; (viii) subsidy requirement for extension of industrial packages has been computed using existing applicable tariffs for industrial consumers, and any increase/amendments in tariff would lead to change in subsidy requirements. Resulting subsidy amount on account of extension of incremental consumption package and time of use tariff scheme shall be reconciled every month on actual basis between Power Division and Finance Division, which shall be timely paid by the Finance Division; and (ix) actual subsidy realized for given proposals shall be independent of all other budgeted subsidies for the power sector.

On August 16, 2021, the ECC approved all the proposals of Power Division including extension of rate of Rs12.96/Kwh to existing B1 (Non-ToU) industrial consumers of Discos and K-Electric from July 1, 2021 to December 31, 2021 for incremental consumption basis over their consumption in corresponding months of period July 2019 to December 2019.

Copyright Business Recorder, 2021