THE Alternate Energy Develop­ment Board has so far issued 24 letters of interest for power projects with consolidated capacity of 793MW. But it will take quite some time before solar power projects come on-line.

After receiving LOIs, the project sponsors have to approach Nepra for generation licences. The power regulator has issued licences for about 10 projects, with aggregate capacity of 200MW.

One such project had earlier approached Nepra for tariff determination on a cost-plus basis, but the decision is pending. Meanwhile, the process of determining upfront solar tariff by the regular has also been initiated, and this project has the first option to accept the upfront solar tariff.

To minimise distribution losses, solar electricity may not be fed into the national grid and instead used in areas close to the plants

For tariff determination purposes, the country has been divided into north and south regions. Areas roughly including Balochistan, Sindh and South Punjab comprise the south region. All other areas comprise the north region.

From an irradiation point of view, the north region is less attractive and therefore has a slightly higher upfront tariff. Nepra determined and approved on January 21 the upfront tariff and adjustments and indexations for solar power generation based on a 10-megawatt-peak (MWp) solar power plant on the rated capacity of the installed solar photovoltaic (PV) panels.

For the north region, the upfront tariff is Rs22.0197/kWh for the first 10 years, and Rs9.1325/kWh for years 11-25. For the south region, the tariff is Rs21.1138 for years 1-10 and Rs8.7568/kWh for years 11-25.

The upfront solar tariff is exceptionally high for both the regions. The tariff determination process took nearly two years to be finalised. The AEDB had approached Nepra during early 2012 for developing and announcing the upfront solar tariff for solar PV projects.

Nepra, after determining the tariff, specified the terms and conditions that will be incorporated in the energy purchase agreement (EPA) between the power purchaser and producer. The draft, standardised version of this, along with the implementation agreement (IA), is to be finalised by the AEDB in consultation with stakeholders within 45 days of the publication of the determination.

The main terms and conditions of the upfront tariff specify, among others, that the upfront tariff granted to the applicant will no longer remain valid if financial close is not achieved by March 31, 2015 or if the applicant’s generation licence is declined; and the targeted maximum construction period after financial close is eight months.

As part of the terms and conditions, the power regulator has prescribed that the upfront tariff will only be valid for approvals given for the first 50MW. Projects under this tariff shall not exceed 10MWp (minimum 1MWp).

It may be mentioned here that five projects with generation licences and consolidated capacity of nearly 50MW have already unconditionally accepted the upfront tariff. Unless the specified limits are suitably extended, no further solar power project can presumably be entertained by the regulator. It is believed that at this juncture, Nepra and other stakeholders have the opportunity to reconsider the determination of the upfront tariff.

Abnormally high tariffs with plant capacity factor at 17.5pc would be considered highly attractive by project sponsors as well as local and foreign creditors. As compared to oil-based thermal plants, solar plants will be supplying less-than-half the energy, but their debt servicing burden would be equal or greater than those for oil-based plants.

It would also overburden the end-consumer with relatively higher tariff. In addition to projects already in the pipeline, it is presumed that there will be more applications with much bigger plant capacities. The government is urged to reconsider the policy and make it feasible and balanced for all stakeholders.

Nepra had planned a public hearing towards end-September for extending the financial close date on the request of a project sponsor which has unconditionally accepted the upfront tariff. The sponsor requested for an extension for a minimum of 12 months from the date of receipt of the EPA (approved by the Economic Coordination Committee) and the IA (from the AEDB).

The AEDB has also requested Nepra to consider giving suitable extension in deadline of financial close in order to provide sufficient time to the IPPs to complete formalities. The resolution of these matters will take time and it is expected that solar power projects may not possibly start commercial operation in 2015.

Expectations are that the electricity generated by solar plants with 17.5pc capacity factor will be fed into the national grid. With current line losses nearing 30pc, one can imagine what little electricity will be left for distribution to the end-consumer.

Solar power could be beneficial in areas that are far away from the national grid, such as most of Balochistan and large parts of Sindh and South Punjab, where electricity is badly needed for lighting and other uses. To minimise distribution losses, solar electricity may not be fed into the national grid and instead used in areas close to the plants.

Published in Dawn, Economic & Business, November 3rd, 2014