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ISLAMABAD: The Cabinet Committee on Energy (CCoE) has directed the Petroleum Division to explore possibilities for establishment of RLNG storage to cater for system imbalances of demand and supply and submit viable recommendations for consideration, official sources told Business Recorder.

The Committee headed by Minister for Planning, Development and Special Initiatives, Asad Umar gave these directions at a recent meeting on a proposal of Power Division titled "policy direction for operation of RLNG plants out of merit" in specific conditions.

Both the officials of NEPRA and National Power Control Centre (NPCC)/ System Operator (SO) were seen locking horns during hearing on monthly FCA on deviation of Economic Merit Order (EMO) with, on occasion, the regulator disallowing costs incurred due to operation of expensive power plants. According to Power Division, NPCC as System Operator (SO) dispatches the available power plants as per NEPRA approved Grid Code.

In this process (economic dispatch) the primary responsibility of SO is to achieve "lowest cost while ensuring system integrity, security, reliability and quality of supply. Merit order is a ranking of thermal power plants based on ascending order of specific cost (fuel cost + variable O& M) per unit of the thermal power plant/unit.

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Merit order ranking is one variable in the economic dispatch process whereas other factors which are required to be considered by SO in economic dispatch include plant availability, fuel availability, system constraints, take or pay fuel contracts, startups/shutdowns, ramping rates, stability reserves etc."

As per Grid Code, operation of generation facilities strictly according to Merit Order is desired under normal system conditions and when required, subject to some specific factors, deviation of Merit Order is allowed.

Power Sector is a major stakeholder of the RLNG supply chain and any disturbances in RLNG supply/demand affects the economic dispatch of power and high line pack issues in gas transmission system. In cases where RLNG supply is below the firm demand for RLNG, the basket price of electricity becomes higher than it would be if the supply was in accordance with demand.

On the other hand, the basket price is also affected when these plants have to be dispatched out of merit order to accommodate the RLNG over-supply issues of gas supply companies. Lower supply of RLNG also induces operational constraints and system stability issues for the system operator.

The sources said existing Take-or-Pay contractual arrangement for 3 RLNG- based power plants specifies the minimum fuel offtake requirement of 66% on annual basis as established under Annual Production Plan (APP). RLNG offtake lesser than the firm requirement of 66% invokes the financial liability on power sector, in the form of NPD (Net Proceed Differential) on account of diversion from RLNG to other sectors.

Similarly, non-compliance of firm RLNG orders by SNGPL triggers the Liquidated Damages (CDs) to be charged to SNGPL for non- supply of committed RLNG to power sector and leads to commercial disputes between government owned entities in Power and Petroleum Divisions. On September 18, 2020 waiver was approved of minimum take-or-pay commitment of 66% under PPA(s) GSA(s) with effect from January 2022 with corresponding direction to respective parties to initiate amendments in respective agreements.

Accordingly, the principles for amendments in PPA & GSA of three RLNG based power plants were approved by the Economic Coordination Committee (ECC) on April 14, 2021.

The approved amendments in PPA for three RLNG based Government Power Plants (GPPs) recognize the concept of Monthly Production Plan (MPP) as binding on Power Purchaser. The MPP specifies firm RLNG demand, 80 days ahead, before the start of respective month. Monthly offtake lesser than given MPP will invoke financial liabilities on power sector in form of NPD and similarly, non-compliance of firm RLNG orders by SNGPL will trigger LDS to be changed to SNGPL by power sector.

According to the Power Division, demand of RLNG, forecast by NPCC Annual Production Plan (APP) till CY-2021 and MPP based on 80 day-ahead forecast from CY-2022, which is considered as firm demand under the existing and proposed contractual arrangements, is subject to multi-variable/multi-constraint optimization problem due to dynamic nature of power system.

Power Division argued that despite best efforts, any later variations in the assumed variables/constraints do and would cause lower RLNG offtake by the power sector obligating payment of NPD. At the same time, lower RLNG offtake would continue to result in increase of line pack in SNGPL gas pipeline transmission system, putting the gas transmission system at higher risk of rupture. In this situation, SNGPL insists both NPCC and power plants to follow hourly flow-rate limit to regulate its line pressure and mitigate its risk.

Consequently, such constraints result into non-economic operation of RLNG plants while reducing generation from other cheaper power plants. After explaining the present scenario, Power Division has submitted following for consideration and approval of CCoE of the Cabinet: (i) flexibility to NPCC be allowed in RLNG flow rate on daily, weekly and monthly basis to adjust the unutilized RLNG on account of power system dynamics. Accordingly, SNGPL shall ensure the incorporation of flexible RLNG flow- rate requirements in its allocation of RLNG to power sector, on best effort basis.

This will enable optimal utilization of resources on least cost basis and assist in reduction of NPD on the power sector; and (ii) to safeguard SNGPL pipeline network from damage, the violation of merit order shall be allowed on account of operational system constraints leading to mandatory consumption of allocated RLNG.

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Power Division maintained that such deviations may be dealt under one of the following options: (i) cost of deviation from merit order be passed on to the other gas sector consumers (excluding power sector). Accordingly, Power Division shall claim the cost of such non-compliance on monthly basis to SNGPL, which shall be adjusted within 30 days of such claim. OGRA may be advised to recognize flow rate regulation requirement as an operational system constraint of the energy value chain and such cost maybe incorporated accordingly; or (ii) cost of deviation from merit order be passed on to the electricity sector consumers.

Power Division also recommended that NEPRA may be advised to recognize flow rate regulation requirement as an operational system constraint of the energy value chain and correspondingly the cost of such constraint shall be allowed in the monthly Fuel Charge Adjustment (FCA); or (iii) cost of deviation from merit order be passed on to other gas and electricity sector consumers in equal proportion.

NEPRA and OGRA may be advised to recognize flow rate regulation requirement as an operational system constraint of the energy value chain and correspondingly the cost of such constraint shall be allowed. Further, Power Division shall claim the proportional cost for such non-compliance on monthly basis to NGPL, which shall be adjusted within 30 days of such claim.

Power Division also proposed that cost of non-economic dispatch of RLNG plants by NPCC may be allowed to the extent of compliance with projected firm off-take commitments (APP/MPP as the case may be). Accordingly, Nepra may be advised that the corresponding cost of such constraint shall be allowed in the monthly FCA cost.

The sources said, all the concerned stakeholders had agreed to the proposal except Nepra, which maintained that as per the grid code, EMO has to be followed while giving dispatch to power plants. Nepra argues, from the submissions of SO over the course of time it appears that RLNG supply is curtailed to the alternate expensive plants, adding that the proposal of operating RLNG plants out of EMO cannot be supported.

After a detailed discussion, the CCoE did not approve the proposals and directed Power Division to revisit its recommendations in consultation with stakeholders.

Copyright Business Recorder, 2021

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