Nepra implements 5pc annual indexation on bagasse price for IPPs

ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) has notified implementation of a 5 percent annual indexation on the price of bagasse for bagasse-based Independent Power Producers (IPPs), effective from October 2022.

The decision comes after the Authority dismissed a reconsideration request from the federal government for modification of the fuel price mechanism for bagasse-based power projects.

It is to be noted that the Nepra established an Upfront Tariff for new bagasse-based co-generation IPPs on May 29, 2013, and extended it to bagasse CPPs in 2014.

In 2018, Nepra began a review to amend bagasse pricing, issuing a decision on July 16, 2019. Eight IPPs challenged this in the court, resulting in the case being sent back to Nepra.

Hearings were held in 2023, and Nepra issued a new decision on February 7, 2024. The Ministry of Energy’s reconsideration request was dismissed as time-barred and outside Nepra’s jurisdiction.

The Authority’s new mechanism aims to reduce costs by delinking bagasse pricing from the international coal prices.

Following the rejection of the federal government’s plea, Nepra Monday (June 10, 2024) issued a notification and announced a significant decision to implement a 5 percent annual indexation on the bagasse price for bagasse-based IPPs effective from October 2022 onwards.

This decision, reflecting the collective wisdom of the Authority, modifies the previous ruling dated July 16, 2019.

Nepra’s notification follows an appellate tribunal’s decision to modify the fuel price mechanism for bagasse-based power projects.

The tribunal’s ruling in November 2022 mandated Nepra to reassess the 2019 decision, ensuring all relevant parties were heard.

For the fuel cost component (FCC) adjustment, the Authority has now decided to allow the FCC from October 2018 to September 2022 in accordance with the adjustment mechanism outlined in Section 19 (111) (a) of the May 29, 2013, determination regarding the Suo-Moto Proceedings for Development of Upfront Tariff for New Bagasse Based Co-Generation Power Projects (“Upfront Tariff 2013”).

Bagasse IPPs must submit their requests in line with this mechanism, including indices such as the International Coal Price and Bunker Index for the relevant year from September to October. The reference price for the 2022-23 indexation will be based on the 2021-22 base bagasse price as determined by the coal-linked mechanism under Upfront Tariff 2013.

The revised determination maintains the bagasse price at Rs2,750 per ton with the new annual 5% indexation.

This decision aligns with the 2017 Upfront Tariff and incorporates feedback received during hearings held in 2023.

The initial controversy began in 2019 when Nepra’s decision to alter the pricing and adjustment mechanism for bagasse power projects was met with legal challenges from eight operational bagasse IPPs.

The Islamabad High Court suspended the Nepra’s decision, referring the matter to the appellate tribunal. Following the tribunal’s directives, Nepra held multiple hearings in 2023 to gather input from the stakeholders, including representatives from bagasse IPPs and the Central Power Purchasing Agency Guarantee Limited (CPPAGL).

The decision considers the indigenous nature of bagasse fuel, proposing an indexation mechanism linked to the Consumer Price Index (CPI) or sugarcane prices, rather than international coal prices.