K-Electric wins approval for Rs392.49 billion grid upgrade plan

ISLAMABAD: K-Electric Ltd. (KE) has secured regulatory approval for a Rs392.49 billion plan to upgrade its grid infrastructure over the next seven years.

The National Electric Power Regulatory Authority (NEPRA) gave the green light for the investment plan, which spans from fiscal year 2023-24 to 2029-30, comes after rigorous scrutiny and evaluation.

According to NEPRA guidelines and the NEPRA Act of 1997, K-Electric submitted its investment plan and loss assessment on January 30, 2023, originally proposing Rs484 billion in investments.

During a public hearing on March 1, 2023, the petitioner [KE] pleaded that “Subsidy is Government of Pakistan's prerogative and is dependent on multiple factors including Government policies. Moreover, KE submitted that “if the claimed investments are approved without any cuts, then there will be an increase of Rs1.9 per unit in transmission tariff and Rs1.3 per unit in distribution tariff.

Hence, there will be a cumulative increase of Rs3.2 (@206 USD/PKR) per unit if the investment plan of Rs484 billion is approved by NEPRA.” However, this matter will be addressed and finalized during the supply tariff proceedings.

NEPRA, acknowledging the complexity of the issue, deferred the decision on subsidies to the supply tariff proceedings, focusing solely on the investment plan's approval. NEPRA will consider this investment plan while deciding on the supply tariff. K-Electric has already submitted its petition to NEPRA.

Roughly, it may have an impact of over Rs2.5/unit increase over the K-Electric consumers. Under the approved plan, K-Electric is mandated to allocate Rs238.22 billion towards upgrading its transmission system, Rs136.76 billion towards enhancing its power distribution infrastructure, and Rs17.31 billion for other support projects, including IT infrastructure and Enterprise Resource Planning (ERP) infrastructure with Rs12.85 billion, Defense, Security, Risk Assessment & Compliance Rs2.655 billion, and on property regularization & office renovations Rs1.8 billion and that will spread across the seven years.

Transmission Business

Transmission enhancements form a significant portion of the investment, with substantial allocations towards grid station development and transmission line expansion. Notable investments include Rs79.694 billion for grid station development and Rs41.112 billion for transmission line expansion over the seven years.

During fiscal years 2017 to 2023, investments of Rs17.617 billion were dedicated to enhancing the infrastructure of the 500 kV KKI Grid Station. This expenditure, initially made in previous years, has been incorporated into the plan's first year (FY24).

In the new plan, another Rs14.253 billion has been allocated for the maintenance and protection of the grid station. Moreover, investments of Rs4.754 billion were directed towards the maintenance and protection of transmission lines to ensure their longevity and functionality, while Rs2.684 billion were allocated for transmission safety measures, emphasizing the importance of security and stability in transmission infrastructure.

Other transmission projects receive significant allocations to enhance and expand infrastructure. Rs8.149 billion is allocated over seven years to reduce congestion and improve network reliability, particularly for new transmission lines meeting N-I contingency provisions. Additionally, Rs18.508 billion is prioritized for rehabilitating and augmenting existing lines for N-I provision, and Rs11.847 billion for replacements and other works. Investments include installing a third transformer at the 500 kV NKI Grid Station and a 220 kV D/C LILO line from NKI to Baldia/Surjani, each receiving Rs5.084 billion and Rs1.320 billion respectively. Rs2.556 billion is budgeted for transmission loss reduction. Interconnection projects with the National Grid (NTDC) and solar plants, like the 500 kV KKI Interconnection and 220 kV Dabeji Interconnection, are also included, with Rs1.683 billion and Rs1.643 billion allocated.

Additionally, projects aimed at integrating solar power of 350 MW allocated Rs5.18 billion; 220 kV Gharo Step-up Grid Station for Interconnection of 600 MW Solar-WPPs Rs7.16 billion and for associated transmission line Rs5.66 billion. The plan also includes investments in a Current Limiting Reactor and SCADA & other automation equipment, with budgets totaling Rs1.148 billion and Rs8.161 billion respectively.

Distribution Business Investment

In the distribution business, investments were strategically allocated to various sectors to enhance operations and efficiency. Funds were directed towards distribution growth initiatives, which saw a steady increase over the reporting period, totaling Rs29.461 billion. Energy loss reduction efforts received substantial attention, with Rs43.323 billion allocated to minimize losses within the distribution network. Additionally, investments in distribution maintenance, safety measures, AMR and digitization amounted to Rs29.919 billion, Rs20.546 billion, and Rs4.614 billion, respectively. Furthermore, the implementation of smart network technologies received Rs8.901 million in investments. Collectively, these allocations totaled Rs136.764 billion, to modernize and ensure the reliability of the distribution infrastructure.

T&D Losses Targets

NEPRA also approved targets for Transmission and Distribution (T&D) losses for K-Electric that demonstrates a gradual reduction over the fiscal years 2023-24 to 2029-30. Distribution loss percentages decrease from 13.46 percent in FY2023-24 to 11.48 percent in FY2029-30, while transmission losses remain constant at 1.30 percent throughout the period. The overall T&D loss target decreases from 14.58 percent to 12.63 percent over the same period. Notably, any additional reduction in losses beyond the target for a particular year will be shared between consumers and K-Electric in a ratio of 75:25, respectively.

Notably, NEPRA also attached some Terms and Conditions, under which the Authority solely interprets the investment plan. Petitioners and stakeholders seeking clarification should directly approach the Authority. Expenses incurred without clear provision are at the Petitioner's risk. KE must cost-effectively procure materials and services for project execution. The Petitioner must distinctly document investment and maintenance projects, verified by third-party audits. KE must modify its transmission license for 500 kV assets. Quarterly third-party audits of KE's investment plan are mandated, with indicative costs included. KE must ensure zero fatal accidents and a safe working environment using approved investments. Quarterly progress reports on investment utilization and physical progress are required, submitted to NEPRA's specified online portal.

K-Electric Response

Meanwhile, the company issued a statement where CEO K-Electric Moonis Alvi stated, “Over the next 7 years, we are looking to invest USD2 billion in Transmission and Distribution to manage the city’s needs through targeted investments and tech-based interventions. I’d like to acknowledge the efforts of all stakeholders who have been a part of this journey and who will continue to work with us to modernize our infrastructure and prepare us for the future.”

The investment plan complements the company’s Power Acquisition Program through which KE has outlined its vision to achieve a 30 percent share of renewable energy in its generation mix by 2030. In this regard, the company has also received regulatory approval on RFPs of 640MW renewable projects which is another critical link in the mission to enable access to affordable energy for all.

“Our teams at K-Electric are reviewing NEPRA’s decision in detail and will remain engaged with NEPRA, and as we move forward, a sustainable and cost-reflective tariff remains critical for timely execution of the investment plan.”