The sponsors of smaller hydropower projects have complained to the prime minister about the discouraging response from power purchasing agencies, amid a focus on large projects using imported fuels.
In a representation to Prime Minister Shahid Khaqan Abbasi, a group of investors complained that public sector companies under the Ministry of Energy were creating all sorts of hurdles to discourage procurement of electricity from small hydropower projects, which was against the power policy currently in place.
“Government agencies create fresh hurdles every six months to 12 months — in violation of the power policy. As soon as one issue is resolved, another one crops up,” said the sponsor of a small hydropower project.
He said these hydropower projects had an average tariff of about eight cents per unit without fuel impact, even though the government agencies were running plants on imported fuel that cost in access of 12 cents per unit.
This is despite the fact that the sponsors have spent enough resources out of their limited budgets to bring themselves in line with the power policies of the government and conform with the upfront tariff determined by the power regulator.
In its latest move, hydropower producers say the Central Power Purchasing Agency (CPPA) decided, a few days ago, to revert to the Council of Common Interests (CCI) for a fresh decision against the existing policy and upfront tariff, while refusing to purchase electricity from small hydropower projects on a ‘take or pay’ basis.
The CPPA now wants to transfer the hydrological risk to the power producers and is willing to purchase electricity from small hydropower producers only on a ‘take and pay’ basis.
Projects like Katahi, Riyali, Jing, Bardara and others with a production capacity of 6-10MW are directly affected by the latest decision.
“The CPPA decision is contradictory to the government’s own policies and National Electric Power Regulatory Authority (Nepra) regulations. It highlights their prejudice towards the development of small hydropower projects,” said their communiqué to the prime minister.
It said that the ‘take and pay’ provision was in conflict with all relevant government power policies. As per Section 6.3 of the Power Generation Policy 2002 and Section 10 of Power Generation Policy 2015, the tariff for hydel projects shall consist of two parts — the capacity purchase price (CPP) and energy purchase price (EPP).
The CPP is payable provided the plant is made available for dispatch by the company regardless of whether energy is procured by the system operator. Only the EPP is payable on the basis of electricity dispatched. Further, as per Section 8.2.1 of the Renewable Energy Policy 2006, it is mandatory to purchase electricity from small hydropower projects.
In addition, the ‘take and pay’ condition deviates from Nepra’s upfront tariff determination for small hydropower projects, published on Oct 14, 2015. The tariff tables in the determination are clearly structured on the basis of a two-part tariff.
The CPPA decisions were also “discriminatory and arbitrary in nature”, alleged the sponsors of small hydropower projects, because the same ‘take and pay’ proviso had not been imposed on any other hydel projects recently executed or negotiated, such as 870MW Suki Kinari and 1,124MW Kohala projects.
The tariff for these projects were also two-part while their plant factors were much lower than small hydropower projects.
Further, the CPPA also recently finalised concession agreements with various coal and re-liquefied natural gas (RLNG) projects amounting to thousands of megawatts. The upfront coal tariff and cost-plus tariff awarded by Nepra to RLNG projects was also two-part and the CPPA has not imposed any ‘take and pay’ condition on these projects.
The new decision is inconsistent with global dispatch norms for small hydropower projects, which are treated as “must-run” under regulatory orders and policy decisions and are exempt from scheduling.
The sponsors have urged the prime minister to review the CPPA’s refusal to buy electricity from small hydropower projects under the normal regime, saying that taking a fresh case to the CCI would cause further delays for projects that are near to achieving financial closure.