experiences with electricity tariff reforms - · pdf fileof pakistan. • facilitate...

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Experiences withElectricity

Tariff Reforms

ERRA Tariff / Pricing Committee meeting October 19, 2016

Bratislava, Slovakia

Presented by:

Muhammad SafdarNEPRA, Pakistan

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Experiences with electricity Tariff Reforms

• Introduction of NEPRA

• Organogram

• Mandate & Functions

• Restructuring of WAPDA

• Experiences of Tariff w.r.t Generation,

Transmission & Distribution Sector

• Q/A

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Organogram

Registrar

Vice Chairman by rotation on yearly basis

MEMBERBALOCHISTAN

MEMBERPUNJAB

CHAIRMAN

MEMBERKhyber

Pakhtunkhwa

MEMBERSINDH

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Mandate

• To develop and pursue a Regulatory Framework that

ensures provision of safe, reliable, efficient and

affordable electric power to the electricity consumers

of Pakistan.

• Facilitate transition from a protected monopoly

service structure to a competitive environment.

• Maintain balance between the interests of the

consumers and investors.

Regulatory Instruments.pptx

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Main Functional Areas

• Licensing

• Tariff

• Performance Standards

• Consumer Affairs

• Monitoring and Enforcement

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Extra High Voltage System of Pakistan

MARDANWARSAK

BANNU

DAUDKHEL

BURHANNEW RAWAT

I.S.P.R

MANGLA

TARBELA

GAKHAR

SAHOWALA

K.S.KAKU

RAVI

JAPAN

KELN.ABAD

SABA

YOUSAF WALA

VEHARI

KAPCO

ROUSCH

UCH

AES

N.G.P.SM.GARH

GUDDU

LIBERTY

DADU

HALARD

LAKHRA

JAMSHORO

KOTRI

HUBCO

KDA-33(KESC)

500 kV Grid Station

220 kV Grid Station

500/220 kV Grid Station

Hydel Power Station

Thermal Power Station

IPPs at 220, 500 kV

IPPs at 132 kV

500 kV T/LINE

220 kV T/LINE

(240)

(3408)

(1000)

(107)

(120)

(195)

(1350)

(310)

CHEP

(184)

(355)

(1348)

(695)

HCPC(126)

(548)

(1655)

(212)

(150)

(850)

(174)(1200)

GAZI BAROTHA

(1450)

CHASNUPPGATTI

BUND RD:

M.GARHGUDDU

JAMSHORO

TAPAL

G.AHMAD

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Power Sector Players

KANUPP

PUBLIC SECTOR PRIVATE SECTOR

NEPRAMinistry of

Water & Power

Pakistan Atomic

Energy CommissionK -ELEC IPPs SPPs/CPPs

CHASHNUPPPPIBPEPCOWAPDA(HYDRO)

AEDB

GENCOs

NTDC/CPPA

DISCOs

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Restructuring of WAPDA

TRANSMISSION

N T D C

1

POWER WING

GENERATION DISTRIBUTION

Grid Station / Trans. Lines

Operation & Maintenance

Thermal Power

Stations

GENCOs

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DISCOs

12

Area Electricity Boards

TRANSFORMING THESE ORGANIZATIONAL COMPONENTS

INTO INDEPENDENT CORPORATISED ENTITIES

One Hydel

Four Thermal

CPPA-G

IPPs

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Installed Generation Capacity by Type

SourceInstalled Capacity

(MW)%

Energy Generation(GWh)

%

Thermal 16,664 67.13 69,886 64.34

Hydel 7,116 28.67 32,979 30.36

Nuclear 787 3.17 5,349 4.92

Wind 106 0.43 300 0.28

Coal 150 0.60 102 0.09

TOTAL 24,823 100.00 108,616 100.00

Thermal(64.34%)

Hydel(30.36%)

Nuclear(4.92%)

Wind(0.28%)

Coal(0.09%)

Energy Generation (GWh)

Thermal(67.13%)

Hydel(28.67%)

Nuclear(3.17%) Wind

(0.43%)

Coal(0.60%)

Installed Capacity (MW)

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Chain of Cost Components

Fuel Suppliers Refineries/ Gas Cos.

Public Sector GENCOs Thermal / Hydel / Nuclear

Private SectorIPPs

Transmission / CPPA-G

IESCO LESCO GEPCO MEPCO FESCO PESCO HESCO QESCO KESC

CONSUMERSResidential/ Commercial/ Industrial/ Agriculture/ Others

Gen

erat

ion

Co

stT

ran

s. C

ost

&L

oss

Ad

j.D

ist.

Co

st &

L

oss

Ad

j.

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Pricing Mechanism Stakeholders Involvement Stipulated Timeline

Upfront Tariff Modeunder NEPRA UpfrontTariff Regulations, 2011

(Via Suo Moto Proceedingsor any GOP agency file arequest with NEPRA)

Stakeholders are invited totake part in an extensiveconsultative process, whenthe upfront tariff for eachtechnology is beingdetermined.

The Authority shalldecide within 10working days of thefiling of a completeapplication forupfront tariff.

Cost Plus Mode underNEPRA Tariff Rules – 1998

(Any person / party mayfile a petition along withdocumentary evidence toNEPRA)

Stakeholders are invited toparticipate in the proceedingsthrough public noticespublished in national dailies,in both Urdu and Englishlanguages. Individual lettersare also sent to stakeholders.

The Authority shalldecides a petitionwithin 4 months ofadmission, whichmay be extended foranother 4 months.

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Energy Charge

- Fuel

- Variable O&M

Capacity Charge

- Fixed O&M

- Local

- Foreign

- Return on Equity

- Return on Equity during Construction

- Insurance

- Debt Repayment

- Principal Amount

- Interest Payment

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Demand Supply Situation

Financial

Year ending

30th June

Planned

Generation

Capability as

per NTDC

(MW)

NTDC

Projected

Demand

Growth Rate

(%)

NTDC's

Projected

Demand

during Peak

Hours (MW)

Surplus/

(Deficit)

(MW)

2016 17,551 5.98 22,457

-4,906

201720,641 6.05

23,816-3,175

201825,077 5.56

25,140-63

201929,171 5.17

26,4392,732

202031,216 4.86

27,7253,491

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Upfront Tariff for Different Technologies

TechnologyCost/kWh(US Cents)

Cost/MW(Million

US$)

Coal Foreign Financing 8.02 – 8.64 1.53 – 1.64

Thar Coal Foreign Financing 7.99 – 8.52 1.35 – 1.51

WindForeignFinancing

10.45 2.26

Solar (Foreign Financing)

North Region 11.36 – 11.531.50

South Region 10.73 – 10.89

Bagasse (Local Financing) 10.62 1.00

Small Hydel (local financing) 10.06 – 12.78 2.8 – 4.2

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Pricing Framework Small Hydel

Incentives

IRR 20%

ROE 27.4%

Spread over LIBOR 4.5%

Spread over KIBOR 3.5%

Tariff Control Period 30 years

Insurance 1.35% of EPC

O&M CostsHigh Head = US Cents 0.9648/ kWh (50%)Low Head = US Cents 1.0389/ kWh (65%)

Timeline

Opt for Tariff One year from the date of determination

Financial Close 18 months from date of acceptance of upfront tariff

Construction Period 36 months from financial close

Coverage Inflation Risk, Exchange Rate Risk, LIBOR/ KIBOR change, Insurance etc

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Pricing Framework Wind

Tariffsx1

Project Cost

(USD Millionper MW)

EPC Cost (USD Million

per MW)

Non - EPC Cost

(USD Million per

MW)

Financing Cost

(USD Million per MW)

Capacity Factor

(%)

Levelized Tariff

(US Cents/kWh)

ProjectsAwarded

Tariff

2011 2.60 2.31 0.11 0.18 31% 14.66 100

2013 2.46 2.22 0.10 0.16 31% 13.52 1025

2015 2.15 1.92 0.10 0.13 35% 10.45 100

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Pricing Framework Wind

Incentives

IRR 17%

ROE 18.5%



Insurance 1% of EPC

O&M Costs US Cents 1.48/ kWh

Plant Factor 35%

Tariff Control Period 20 Years

Energy Benefit Sharing Mechanism 75%, 80% & 100% on each 1% increase on energy gain

TimelineOpt for Tariff 6 months from the date of issuance of determination

Financial Close One year from date of approval of upfront tariff



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Incentives for Generation Companies

Incentives (Small Hydro)

IRR 20%

ROE 27.4%



Tariff Control Period 30 years

Insurance 1.35% of EPC

Timeline

Opt for Tariff One year from the date of determination

Financial Close 18 months from date of acceptance of upfront tariff



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Response to Upfront Tariff

Technology Opted Upfront Tariff

– MW

In Operation Under Process

Wind 885 306 579

Baggasse 254 138 116

Solar 538 200 338

Coal 8,000 - 8,000

Small Hydel 150 - 150

• Coal and small hydel required longer time period 24-48 months for

achieving Commercial Operation. Similarly hydel power projects

required 4-6 years for achieving the COD.

• In addition to above 3600 MW on LNG, 1320 MW coal power projects,

3000 MW on hydel and 600 MW IPPs converted on coal through cost

plus basis has been allowed to charge such tariff which is approved by

NEPRA.

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1999 2005 2006 2013 2014 2015

Tariff on

Cost-Plus

Basis

First

Multi-year

Tariff for

KESC

(K-Electric)

Upfront

Tariff for

Wind

Upfront

Tariff for

Bagasse

Upfront Tariff

for Solar and

other

technologies

Multi-year

Tariff for

Three other

Distribution

Companies

d d d d d d

2016 Onwards Tariff based on Competitive Bidding

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• Central Asia – South Asia (CASA) a comprehensive initiative tointerconnect Tajikistan, the Kyrgyz Republic, Afghanistan andPakistan to form a Central Asia-South Asia (CASA) RegionalElectricity Market through 500 KV, 750 KM HVDC line which willdeliver 1300 MW (300 to Kabul and 1000 MW to Peshawar).

• Import of 74 MW (Jackigur – Mand) - US Cents 6.5/kWh(depending upon oil prices)

• Import of 100 MW (Polan – Gawadar) – Under process

• Import of 1000 MW (Zahedan – Quetta) – Under process

Experiences with electricity Tariff Reforms - Generation

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Experiences with electricity Tariff Reforms - Distribution

• Determination of consumer-end tariff is determined on thebasis of following steps:

• Revenue Requirement: How much is needed?

• Cost of Service: What is the each class equitable share?

• Rate Design: How should rates be adjusted to reflect cost ofservice.

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Description UnitsFinancial Year

2013-14 2014-15 2015-16

PPP-Unadjusted Rs. /kWh 11.30 10.25 8.70

Energy Comp

Fuel 7.2639 5.5199

V. O&M 0.2697 0.3063

Capacity 2.4955 2.5452

UOSC 0.2243 0.3241

Allowed Losses (National Avgerage) % 13.29% 15.27% 15.23%

PPP-Adjusted Rs. /kWh 13.00 12.10 10.26

Distribution Margin Rs. /kWh 1.04 1.43 1.43

PYA Adjustments Rs. /kWh(0.07) (1.26)

(0.78)

PPP Adjustments Rs. /kWh (0.16) 0.06 -

Avg. Determined Tariff Rs. /kWh 13.81 12.33 10.90

Avg. Notified Tariff by GoP Rs. /kWh 11.52 11.45

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• The revenue requirement for each Distribution Company isrecovered through the following consumer categories:

• Residential

• Industrial

• Commercial

• Single Supply for further distribution

• Agricultural

• Special Contract – Tariff (J)

• Others i.e. public lighting, railway traction etc.

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Customers Consumer Mix Consumption Mix Revenue Mix

%age

Domestic 81.3 41.0 34.7

Commercial 14.9 8.6 13.8

Industry 2.1 38.6 41.0

Tube-well 1.6 8.2 6.3

Others 0.1 3.5 4.2

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DESCRIPTION

Fixed Charge

LESCOFY 2014-15

Variable Charge (Rs./kWh )

Rs./kW/M.

NEPR Determined

TariffFY 2014-15

Subsidy Surcharge

Tariff Payable

by Consumer

Residential

Up to 50 Units 4.00 2.00 2.00

Load up to 5 kW - -

01-100 Units 9.25 3.46 5.79

101-200 Units 11.00 2.89 8.11

201-300 Units 11.00 0.80 10.20

301-700Units 13.33 2.67 16.00

Above 700 Units 15.00 3.00 18.00

• In order to minimize the cross subsidy one slab benefit wasintroduced:

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• Lahore Electric Supply Company (LESCO) one of the Distribution

Company examples is given hereunder:

Description Unit

Revenue Requirement

Recovered through tariff

Actual cost

% of Cross

Subsidy

No. of Consumers Million 4.1

Sales GWh 16,962

• Residential

Million

61,857 75,836 89%

• Commercial 15,961 14,216 112%

• Industrial 68,084 61,906 110%

• Single Supply 5,087 3,911 130%

• Agricultural 11,377 12,408 109%

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NEPRA Evolutionary Process & Way Forward

• After cost plus mode and Upfront tariff NEPRA is now moving

towards Competitive Mode wherein indicative tariff on specific

technology will be given for bidding.

• NEPRA has also open the transmission network to the private

investors. In this regard HVDC line tariff from Matiari to Lahore

is issued.

• NEPRA has also issued the two separate licenses to private

entities for transmission network

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NEPRA Evolutionary Process & Way Forward

• NEPRA has already issued the Multi-year tariff to the

Distribution Companies which are likely to be privatized.

• T&D targets has been set for the DISCOM. Similarly the O&M

cost and investment target have already been set vis-à-vis cost

benefit relation.

• For bringing efficiency DISCOM have been given timeframe for

achieving the targets.

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