ISLAMABAD: Mathar Niaz Rana, Member (Tariff and Finance) of NEPRA, has opposed the Licensee Proposed Modifications (LPMs) for gas-based New Captive Power Projects (NCPPs), arguing that such changes would negatively impact consumers, and the commercial and economic environment of the country.
In a separate decision, the Member (Tariff) noted that NCPPs had requested the Authority to include RLNG in their generation licenses. He emphasized that power generation and procurement decisions are economic and commercial, driven by supply-demand dynamics and the state of the power sector. The NCPP policy was introduced in 2019 to address severe energy shortages, excessive load shedding, and the long gestation periods of large Independent Power Projects (IPPs) under development at that time. However, as the supply-demand balance has shifted, and the government now faces high capacity payments and excessive power generation, the policy no longer aligns with current realities.
He further argued that the government has likely made a considered decision to phase out procurement from Captive Power Plants (CPPs) in order to shift more load to the national grid. This initiative aims to reduce capacity payments, lower tariffs, create space for cheaper renewable energy projects, and better manage excessive power availability, while promoting industrial and domestic consumption.
Rana’s conclusions are drawn from the broader national debate and key correspondence, including the Petroleum Division’s letter of May 30, 2023, SSGC’s letter of August 16, 2023, the Ministry of Energy’s comments from November 5, 2024, MEPCO’s observations of November 18, 2024, and PPIB’s communication of October 31, 2023.
He further stated that RLNG, being a non-local fuel, does not meet the criteria stipulated in the earlier licenses, as highlighted in MEPCO’s comments (Section 3) in their November 18, 2024 letter.
Regarding the tariff calculations, Rana noted that the reference tariff for these power projects, as of January 1, 2023, was set at Rs. 2.0957/kWh, based on a gas price of Rs. 238.38/MMBtu. However, with the current gas price of Rs. 3000/MMBtu, as determined by OGRA’s July 1, 2024 notification, the fuel cost for these captive power projects works out to Rs. 26.3743/kWh. Under the RLNG price of Rs. 3356.6652/MMBtu, the fuel cost increases to Rs. 29.5099/kWh for the last week of November 2024. Consequently, the total tariff for these power plants works out to Rs. 27.5479/MMBtu for gas and Rs. 30.6835/MMBtu for RLNG, with an average cost increase of Rs. 7.22/MMBtu, compared to the reference of Rs. 5.2018/MMBtu.
The fixed cost component of Rs. 0.7865/kWh includes Rs. 0.6798/kWh for O&M and Rs. 0.1067/kWh for insurance. O&M costs will be indexed with the local Consumer Price Index (CPI) every two years, starting in April.
The Power Purchase Agreement (PPA) for these NCPPs operates on a “Take and Pay” basis with the Distribution Companies (DISCOs) SEPCO and HESCO, meaning the fixed cost component and Return on Equity (RoE) must be paid for every kWh of energy provided.
Rana argued that allowing these NCPPs to operate on RLNG would:
Be more expensive than energy generated on gas, considering the price differential.
Fail to address concerns raised by key stakeholders, including the Ministry of Energy’s comments from November 5, 2024, MEPCO’s observations from November 18, 2024, and PPIB’s communication of October 31, 2023.
Result in a tariff that is higher than the national grid’s available pool price for surplus energy, which was Rs. 7.22/kWh in November 2024.
Be more expensive than other RLNG plants due to lower thermal efficiencies. For example, the Haveli Bahadur Shah RLNG plant, dedicated to the national grid, has a fuel cost component of Rs. 20.9206/kWh in November 2024.
He further emphasized that these NCPPs, connected at 11 kV with their respective DISCOs, operate outside the control of the National Power Control Centre (NPCC). Without NPCC involvement, the plants do not observe the Energy Management Organization (EMO), and expensive surplus power could be injected into the system.
These decisions may set a troubling precedent for other NCPPs and contribute to higher consumer tariffs. Rana also noted that a public hearing was held to approve the tariff, but a broader public hearing should have been conducted, as the potential for a tariff hike exists, based on comments submitted by MEPCO.
Member (Law) Amina Ahmed, in her additional note, expressed agreement with approving the LPM but emphasized that energy supply to the concerned DISCOs must adhere to the least-cost principle. She noted that these captive plants, connected at the 11 kV level and not listed in the NPCC’s EMO, should only be dispatched when their cost is lower than that of other sources with take-or-pay contracts. This approach, she argued, would ensure that procurement from these sources is beneficial to the system. The Authority had previously directed all DISCOs to establish generation dispatch centers, and under Regulation 30(3) of the Procurement Regulations, the Authority can require coordination procedures among the concerned DISCO, NPCC, and these projects for effective operation and dispatch.
Wrapping up comments, Ms. Ahmed agrees to approve the energy supply from these NCPPs, it must be contingent on the implementation of necessary procedures to ensure the system benefits rather than being harmed
Ends
