Wind power: evacuation conundrum

The low power demand season is having its toll on the ‘upfront tariff’ wind power projects. There is no fuel (variable cost) in case of the wind, therefore all the energy produced by them should be evacuated. But, government prefers RLNG and imported coal options due to the ‘must run’ condition.

Early investors of Jhimpir corridor wind power plants are on ‘cost plus tariff’. They have protection on wind risk (to be assumed by government). Projects that came later are on ‘upfront tariff’ with the wind risk to be assumed by producers. They are to be compensated on 30 percent of Non-Project Missed Volume (NPMV).

The investors assumed NPMV on technical reasons such as grid shutdown or any other breakage in the system. “Otherwise, all the wind power plants have blanket ‘must run’ assumption”, claims an investor. “Based on this, the sponsors took risk and invested”, he added. Now with falling demand, government is partially evacuating in winters.

For ‘cost plus tariff’ plants, compensation for the loss is accruing and will be released at the end of the year.  In ‘upfront tariff’ plants, the power purchasing agreement says that dispatch is as per instruction of the power purchaser. The government is using this line to not invoice against the days when the power is not evacuated.

The investors say that the government has to evacuate or invoice for not buying. They say that the NPMV is for technical breakdown, not for demand consideration. They claim that renewable energy policy 2006 clearly says that wind power plants are ‘must run’. Now the government and these investors are at loggerheads.

In summers, there is no issue as the demand is high. The problem is of winters. The government opts for RLNG plants as these are contractually ‘must run’ and 66 percent of the power is to be evacuated or else to be fully paid without use - both import of fuel and running of plant are on ‘must run’ basis. The imported coal plants have no must condition for import of fuel; but plants are ‘must run’ at 50 percent.  Hence, RLNG and coal are to be run; otherwise penalties are too high.

The argument is effectively true for ‘cost plus tariff’ wind power plants too. The issue is for ‘upfront tariff’ wind power plants in Jhimpir. The existing capacity of these plants is 700 MW with levelized tariffs ranging between 10-13 cents per unit.

Some of these plants have investment from US based DFIs and an overseas investment organization. There are institutions like IFC involved in it. Some say that government is tweaking one line in power purchasing agreement. Their claim is that this one line is in case of technical breakage; otherwise all wind power plants are ‘must run’.

Whatever the actual legal implication, this is giving a bad taste to foreign investors. There are new plants coming in with levelized tariffs ranging from 4-6 cents. The risk associated with these plants might increase and the financiers may ask for more risk compensation.