• Govt concedes LNG-based electricity to cost Rs51.42 per unit this fiscal year, followed by furnace oil at Rs48.56
• Hydropower remains cheapest source at Rs6.94

ISLAMABAD: The government has formally acknowledged that imported liquefied natural gas (LNG) has become the most expensive fuel for power generation in the country, even surpassing furnace oil for whose replacement the multibillion-dollar LNG infrastructure was set up in the first place almost a decade ago.

In a major decision setting the reference power-purchase tariff for each month of the current fiscal year, the National Electric Power Regulatory Authority (Nepra) has only reinforced that hydropower, at Rs6.94 per unit, remains the cheapest source of electricity supply to the national grid.

This is way cheaper than the Rs51.42 per unit cost of power produced from imported LNG, which is regasified before being used as a fuel. It is followed by furnace oil-based power generation, projected at Rs48.56 per unit.

Most of the power generation capacity contracted by the PML-N government in its previous tenure (2013-18) that has come on line so far pertained to regasified liquefied natural gas (RLNG) and coal.

Also, the power regulator, which operates under the cabinet division, has put on record that the key factor behind the skyrocketing electricity prices is fixed capacity charges — 71pc of the total cost — that also involves exchange rate losses, while energy cost is around 29pc of the total power-purchase price.

This is despite the fact that a major chunk — 63pc — of the total power supply in the country is based on domestic resources.

Determining the reference power-purchase price is of utmost importance, according to the regulator, as it is a direct pass-through to consumers and accounts for a major (90pc) component of the consumer-end tariff. All future monthly fuel charge adjustments (FCAs) and quarterly adjustments (QTAs) are worked out based on the projected notified power-purchase price references.

The regulator said that around 30pc of total generation during the current year is expected from hydel, 17pc from local coal, 12pc from imported coal, 18pc from nuclear, 10pc from local gas, 5pc from RLNG, 2pc from furnace oil and the remaining around 6pc would be contributed by renewables, such as wind, solar and bagasse.

“The generation mix has shown considerable improvement, with around 63pc being forecasted from indigenous resources plus around 18pc from low-cost nuclear sources,” Nepra said.

The third-most expensive generation —after RLNG and furnace oil — would be from imported coal at Rs40.54 per unit, followed by wind power (Rs33.64) and then electricity imported from Iran (Rs24.73).

The sixth costliest power source is local coal (at Rs23.97 per unit), followed by nuclear fuel (Rs18.38) and solar (Rs15.04).

The next three cheapest sources of power at present are bagasse (Rs14.83 per unit), local gas (Rs13.02), and the most cost-effective hydropower at Rs6.94.

The variations in actual power-purchase price in relation to the projected references are actualised during the year through monthly FCAs and QTAs.

The regulator said the government had projected power generation growth for the national grid under the indicative generation capacity expansion plan (IGCEP) for the 2023-24 fiscal year at 4.7pc compared to the 2022-23 plan, but actual generation in the previous fiscal year remained around 9pc lower compared to the projected generation.

Therefore, Nepra has incorporated 7pc growth for 2023-24 to be realistic at 138,759 gigawatt-hours (GWh). After accounting for the allowed limit of transmission losses of 4,236 GWh, net energy available for power distribution companies (Discos) and K-Electric would be around 134,523 GWh.

This would include the share of K-Electric at 9,662 GWh and the remaining generation of 124,860 GWh for Discos.

Nepra said the total power-purchase price of Discos for 2023-24 (excluding KE) worked out at Rs2.866 trillion. This includes Rs840.462bn for fuel and variable operation and maintenance costs and Rs2.026tr as capacity charges, including those of the transmission system.

In terms of the average power-purchase price of Discos on a unit-purchased basis — i.e. before adjusting the allowed transmission and distribution losses — capacity charges work out as Rs16.22 per unit against Rs6.73 per unit, totalling the average national power-purchase price to Rs22.95 per kilowatt-hour (kWh).

The power regulator has projected average RLNG prices at Rs3,554 per million British thermal units (mmBtu) for the current fiscal year, ranging from Rs3,411 to Rs3,705 per mmBtu.

For indigenous gas, Nepra, while considering the existing price of Rs1,050 per mmBtu, has projected gas price as Rs1,103 for the power-purchase price, with just a 5pc hike on the current prevailing price.

The exchange rate has been taken at 286 rupees to the dollar, the furnace oil price at Rs110,000 per tonne, the average imported coal price at Rs1,951 per mmBtu, and the local coal price at Rs1,220 per mmBtu.

Published in Dawn, July 17th, 2023