1 / 2

The IPP Agreement and Its Impact on Pakistan

Recently, an agreement has been signed between a section of Independent Power Producers (IPPs) and the Government Committee to address the undue and high cost of generation charged by the IPPs. Two separate agreements have been made: one with Wind IPPs and the other with Furnace Oil IPPs (FOIPP).

energy7
Download Presentation

The IPP Agreement and Its Impact on Pakistan

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. TheIPPAgreementandItsImpactonPakistan'sRenewableEnergySector • BySyedAkhtarAli • Recently,anagreementhasbeensignedbetweenasectionofIndependentPowerProducers (IPPs)andtheGovernmentCommitteetoaddresstheundueandhighcostofgenerationcharged bytheIPPs.Twoseparateagreementshavebeenmade:onewithWindIPPsandtheotherwith FurnaceOilIPPs(FOIPP).Therehasbeenmixedreactionfromknowledgeablecircles.Inthis article,wewillanalyzetheprosandconsoftheagreement, consideringthebroadercontextof Pakistanenergysectorandtheongoingclimatechangearticlesandtheirissues. • MajorClausesoftheAgreementwithWindIPPs • DebtTenorandInterestRates:Thedebttenoristobeextendedby5years,andthe LIBORspreadreducedby50-75points,whiletheKIBORspreadwillseeareductionof 100-125points. • OperationalandMaintenanceCosts:AreductioninO&Mexpenses by20-25%is mandated. • InsurancePremiums:Theinsurancepremiuminoperationalyearswillbereduced. • DelayedPaymentInterestRates:Thedelayedpaymentinterestratewillbereduced fromKIBOR+4.5%toKIBOR+2%forthefirsttwo months,remainingat LIBOR+4.5%forfurtherdelays. • ReturnonEquityDuringConstruction(RoEDC):Thiswillbereducedto 13%. • BreakdownofExistingWindPowerTariffs • Atypicalwindpowertariffonexistingplants(April-June2020)isRs26.39/kWh. This breaks downasfollows: • O&M:Rs3.0875 • RoE:Rs.8.5049 • DebtRepaymentandInterest:Rs14.00 • Itisnotablethatwindpowertariffforalreadyinstalledplantsunderthe2013tariffisaround Rs 25-26perunit,comparedtoRs6fornewpowerplantsunderthenewtariff.Thehighcostof earliertariffswasinternationallyacknowledged,thoughsuchpriceshave significantlydecreased recently.TheNEPRA-awardedwindpowerlevelisedtariffin2013was13.52USc,comparedto • 7.3UScinTurkeyandotherlowerratesglobally,highlightinganinitialexcessivetariff • structure. • ConcessionsandFinancialImpact • Despitethescopeformuchharsherfinancialadjustmentsduetotheabnormalprofitsmade by WindIPPs,thenegotiated concessionsarelargelyconditionalanddependon financial institutions. Reductionshave beenmade inRoEDC,aminorcomponent,butnotinRoE.The

  2. regulatoryshortcomings byNEPRA, whichfailedtoconsultthird-partyconsultantsorconduct comprehensivedataanalyses,contributedto these excessivetariffs. • RegulatoryOversightandReforms • Thereisaclearneedforregulatoryreforms,including: • PublicHearings:Theseshouldbe morerepresentativeand meaningful, ensuring adequateconsumerinterestrepresentation. • RegulatoryAgencies:Oversightisnecessarytopreventarbitrarydecisionsthatharm • publicinterest. • AppellateTribunal: ImplementationofanAppellateTribunal,asprovidedinElectricity Legislation,iscriticalandshouldextendtotheoilandgassector. • RegionalComparisonsandFutureDirections • India'sapproachtorenewableenergy,includingcompetitionandreverseauctions,has significantlyreduced solar andwind tariffsbyover100%.TheCentralElectricityRegulatory Commission(CERC)inIndiahasreducedRoEforrenewableenergyfrom17%to14%, with fossilpowerplantsseeingareductionto15.5%. • SeparateAgreementwithFurnaceOilIPPs • TheagreementwithF.O.IPPscoverslessthan5%ofthesector,excludingCPECandHydro projects.ThisagreementsetsapotentiallyharmfulprecedentforfutureCPECnegotiations, highlightingtheneedfor more beneficialarrangements. • Conclusion • Acompetitive market isessentialforfutureenergyinvestments. Establishingavoluntary electricityexchange,similartoIndia'smodel,couldgraduallyintroducecompetitioninPakistan's electricitysector.Policymakersmustdeliberatecarefullyonthe proposedCompetitiveTrading BilateralContractMarket(CTBCM)toensureit offersarobust competitiveframework.

More Related