ISLAMABAD: As the government nears completion of its constitutional term, its policymakers appear divided over the future of small hydropower and bagasse-based power projects, even though these are integral part of the national energy plan.

Informed sources said key federal ministers wanted to facilitate the two renewable sources of energy on a ‘take or pay’ basis, but officials in the energy ministry and subordinate agencies were reluctant to give a go-ahead to small hydropower and bagasse-based projects on the same grounds.

‘Take or pay’ means the government or its power purchaser is bound to pay for the available generation capacity of a plant even if it fails to utilise it. This facility is available to almost all the existing private sector power plants in the shape of capacity payments. The government has also guaranteed the same treatment to all large projects under various stages of implementation.

The bureaucratic circles, however, want that small hydropower and bagasse-based projects be treated as spare capacity or ‘take and pay’ basis and should be paid only in case of their capacity utilisation without any compulsion or guarantee notwithstanding their cheaper rate payable in local currency and cleaner in terms of environment.

This puts a question mark over the viability of particularly small hydropower projects given the surplus capacity already contracted by the current government for big projects based on coal, gas and LNG and already blamed for capacity trap.

The issue reached a stage where the Prime Minister Office ordered an inquiry into complaints from small hydropower producers, and the head of the Central Power Purchasing Agency (CPPA) went on leave last month under pressure, only to be called back by his supporters in officer cadres almost a month later.

In response to the inquiry, the CPPA has apparently blamed the government for its conflicting policies. Interestingly, the CPPA had last month declined to clear small hydropower projects on a ‘take or pay’ basis, even though 500MW of their capacity was part of the national energy plan for completion in 2023, while giving a go-ahead to a 1,300MW LNG project that was not part of the energy plan.

The CPPA wrote to the government that a supply-demand gap analysis “transpired that the 2015 policy conflicts with the Renewable Policy 2006 in displacement of efficient and cheap conventional resources”. It said the 2015 policy entailed “must dispatch for RLNG (re-liquefied natural gas), imported coal and mine mouth local coal power plants”.

It said the “conflict between two must run policies (to the extent of dispatch of power) i.e. Power Policy 2015 and Renewable Policy 2006 (for coal, RLNG-based plants) wherein fuel supply risk has been taken by power purchaser, whereas as per policy 2006 the hydrological risk is to be borne by the power purchaser”.

The CPPA ruled that keeping in view the demand-supply projections as well as current portfolio of power purchase commitments, the consent to small hydropower plants could be issued only on ‘take and pay’ conditions to avoid additional financial liabilities on electricity consumers.

This came to light when the sponsors of small hydropower projects complained to the prime minister that they were being discouraged after more than a decade of efforts and expenses on the basis of government policies. They said the Ministry of Energy and its departments were creating all sorts of hurdles to discourage procurement of electricity in violation of the power policy.

“Government agencies create fresh hurdles every six 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 eight cents per unit without fuel impact, while the government agencies were running plants on imported fuel that cost over 12 cents and had larger financial fiscal liabilities.

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.

Published in Dawn, November 13th, 2017