Renewable energy investors at odds with Nepra over tariff

LAHORE: The output of a solar power project located in a certain area, cannot be standardised in a country mainly comprising two distinct northern and southern regions, having variant meteorological conditions, said renewable energy industry sources on Tuesday.
Several investors reiterated their point of view which they had raised earlier at the hearing of National Electric Power Regulatory Authority (Nepra) held on October 15, 2015 about the determination of upfront tariff for solar plants. There were about 12 solar companies working on various solar power plants who filed an intervention with the Nepra against the suo moto proceedings to revise the upfront tariff downward.
In general, all investors argued that the downward revision of tariff would adversely affect the investment environment in Pakistan. Investors, who have initiated work on solar projects based on the current reasonable and justified tariff, said that downwards revision of tariff would strongly discourage new investment, and might lead to exit of local as well as foreign investors.
They lamented that inconsistent investment policies have remained a stumbling block in attracting investors in the energy sector.
The investors specifically argued that the benchmark of project cost and capacity factor set by Nepra were not feasible and bankable for development of new solar projects. The project cost has been kept at $1.067 million/MW, while the market rate of engineering procurement and construction (EPC) quotes received by various developers was on average at $1.38 million/MW which leads to a total project development cost of $1.5 million/MW, they argued.
This clearly indicates that the project will not remain feasible if the project cost was revised downwards. Moreover, Nepra has just assumed the cost of different equipment panels, invertors etc, but not the integration cost of EPC, which highly understates the project cost, they added.
In an investment environment like Pakistan, they observed, lenders require a turnkey bankable EPC Contract which is not taken into consideration in the revised tariff.
Talking about the capacity factor of the solar plant, which has been increased to 19 per cent from 16.78 per cent, based on the data of Quaid-e-Azam Solar Plant, potential investors said that this data of only a few months cannot be used as an analogy for rest of the plants. It is not bankable as lenders require p-90 capacity factor for lending, and the p-90 is a lot less than the proposed 19 per cent, they maintained. Investors also suggested presenting QA Solar’s actual data to international data analysts to determine a fair capacity factor which is bankable.
Moreover, they said, variation in plant size and north/south zone differences have not been taken into consideration in this proposed capacity factor. Previously in the tariff determined in May 2015, the numbers were based on meteorological data from bankable data sets such as Meteonorm and SolarGIS, and the country was split into north and south zones, they said.
It was argued how can the data change within six months of determining the tariff? The proposed 19 per cent will clearly lead to the exit of all companies in the solar sector, as there are severe liquidity damages levied in the Energy Purchase Agreement if the IPP is not able to achieve the benchmark capacity factor in the Nepra Tariff, investors said emphatically. The Nepra should keep in view that 19 per cent plant factor was not attainable in most parts of Pakistan.
Investors reminded that India had made similar mistakes a few years back and virtually discouraged renewable energy investors. Owing to such hurdles, several Indian states could not make headway towards achieving the solar target. Investment in solar projects was stalled after their regulator tried to lower tariffs, ignoring market rates.
However, in early 2015, Indian government announced a very ambitious target of producing 100,000MW of solar energy by 2022. India now wants local as well as companies from China, Japan, Germany, and the United States to lead investments of $100 billion over seven years to boost solar energy capacity by 33 times to 100,000MW.
This is a unique policy initiative by the neighbouring country for attractive investment in the solar energy sector, local investors said, adding that a similar approach was the need of the hour if we really want to kick start development of solar projects in the country.