On 27th January 2017 National Electric Power Regulatory Authority (Nepra) announced a 20 percent lower benchmark tariff for competitive bidding for all future wind power projects. The objective: to take advantage of the declining international technology prices with Nepra giving the example of turbine costs, a major tariff component, whose international price has dropped from 1.6 million dollars per megawatt to 0.9 million dollars per megawatt.

Previously, the upfront wind power tariff was 17 cents per unit, which was reduced to 15 cents per unit and then again to 9.5 cents per unit – a rate that expired on 13th June 2016. The new benchmark for wind power projects would be as follows: for 100 percent foreign financing 6.747 cents and for locally financed projects 7.734 cents. This tariff would remain in place for one year, clearly a departure from past practice when healthy profits were offered to attract investors of renewable energy, and, subsequently, would become the basis for competitive bidding for future wind power projects. However, once an agreement is signed, the tariff will be applicable for 20 years of the life of the project. In addition, Nepra also announced that those government agencies that purchase power would no longer be the risk takers and it would be the generation companies that would bear the entire risk in their bid price.

Nepra’s decision was opposed by the Sindh government that contended that a number of sites were under various stages of development and the benchmark tariff-based bidding could not be shifted under the terms of their letters of interest. Rejecting the Sindh government’s concerns, Nepra argued that issuance of Letters of Interest (LOIs) to existing investors should not be considered an impediment to the shift towards competition.

Punjab government’s opposition to the Nepra tariff was based on its revelation that the bids it had received for 100MW Quaid-e-Azam Solar Park from developers offered a rate less than 6 cents for wind power projects and hence the Nepra determined tariff was on the higher side. And the Ministry of Water and Power, the Central Power Purchasing Agency (CPPA) and Alternative Energy Development Board (AEDB) proposed “competitive bidding in reverse auction” urging Nepra to allow AEDB to carry out bidding against the remaining cushion of wind power projects as well as against any future capacity as determined by the Grid Code Review Panel for the first and subsequent years. Additionally, some prospective investors argued that competitive bidding would attract machinery and investors of poor quality.

Nepra, however, remained steadfast in its decision to move away from the upfront tariffs and maintained that the “Authority is not inclined to accept concerns that international prices are quoted less to win the project,” and emphasized that competitive bidding mode had been the “most successful and preferred mode for arriving at fair and judicious prices.”

Nepra further pointed out that its decision was premised on a careful analysis of project costs and energy yields of wind power plants installed worldwide during the last few years. Business Recorder fully supports Nepra’s decision which is periodically reviewed to ensure that market conditions are allowed to prevail to the benefit of consumers. The latest Nepra decision has not been uploaded on its website yet and one would hope that it would be uploaded soon after the decision was taken (Monday 30th January was the first working day after the Nepra decision) and that it would not be tampered with by the Ministry of Water and Power under whose administrative control Nepra comes after the 20th December 2016 notification issued by the Prime Minister’s office that transferred control of Nepra to the Ministry.