NEPRA Hearing: IPPs Capacity Payments Projected to Rise by 33% to Rs2.8 Trillion in Next Fiscal Year


ISLAMABAD: Pakistani consumers are facing escalating electricity bills as capacity payments to independent power producers (IPPs) take up a significant portion of their expenses.

In the fiscal year 2023/24, capacity payments made up a staggering 71% of the power purchase price, with only 29% attributed to energy costs. Consumers bore a heavy burden, with capacity charges reaching Rs 16.22 per unit, compared to energy charges of Rs 6.73 per unit. For the fiscal year 2024/25, capacity payments are projected to rise to Rs 2.8 trillion from Rs 2.1 trillion this fiscal year, marking a one-third increase. This surge is expected to significantly impact electricity bills, which are already heavily weighed down by these charges.

During a public hearing on Thursday, the National Electric Power Regulatory Authority (NEPRA) was informed by interveners about the detrimental effects of high electricity prices on industrial operations. Many industrial units have already shut down, and consumption is expected to decline further with the anticipated rate hikes. The Central Power Purchasing Agency (CPPA) presented scenarios for the upcoming financial year, indicating an expected hike of Rs 5 per unit. This increase would add Rs 310 billion to consumers’ bills, with the total power purchase price projected to be Rs 3.58 trillion, up from Rs 3.28 trillion this year. Capacity payments alone will constitute a substantial portion of this amount, ranging from Rs 2.1 trillion to Rs 2.8 trillion.

Despite rising capacity payments, more IPPs continue to be installed, with three new plants recently added to the national grid. The payments are indexed to the dollar, exacerbating financial strain due to the rupee’s devaluation. Alarmingly, even power plants that invested in rupees receive dollar-indexed payments due to existing agreements.

Capacity payments, made to idle power plants, significantly inflate costs. The CPPA petition for FY2024/25 outlines various scenarios based on demand growth, exchange rates, and hydrological conditions. The projections suggest that consumers will bear the brunt of 2.4% of US inflation, 12.2% of domestic inflation, and high-interest charges on electricity purchases.

Energy costs for the next fiscal year are projected to range from Rs 8.61 per unit to Rs 9.34 per unit, with capacity charges between Rs 15.49 per unit and Rs 17.42 per unit. For the current year, capacity charges were Rs 16.22 per unit, while energy charges stood at Rs 6.73 per unit.

Regarding net metering, it was noted that work began in 2015 but accelerated in the past year. As much as 870-MW from solar net metering was added over the last eight months. NEPRA stressed the need for accurate electricity demand forecasts to determine realistic electricity prices for budgeting. It was observed that consumers were reducing electricity consumption due to higher prices, and solar-based electricity was increasingly replacing industrial power sources.

The CPPA has submitted its projected power purchase for the fiscal year 2024-25, estimating a total cost of Rs 3.58 trillion, Rs 310 billion higher than the current price of Rs 3.28 trillion. The report outlines seven scenarios for determining the consumer-end tariff, considering varying demand growth (3-5%), exchange rates (rupee at 275 and 300), and hydrological conditions. The projection indicates that consumers will bear 2.4% of US inflation, 12.2% of domestic inflation, interest charges of 21.37%, and a market operator fee of Rs 3.48 per unit. Proposed fuel costs range from Rs 8.61 to Rs 9.34 per unit, and capacity charges from Rs 15.49 to Rs 17.42 per unit for 2024-25.

The projected total power purchase price for the next fiscal year ranges from Rs 25.03 to Rs 27.11 per unit, with increases between Rs 2.07 and Rs 4.16 per unit.

Additionally, the distribution margins of XWDiscos, currently Rs 3.10 per unit, are expected to rise by 15 to 20%. This could result in an additional financial burden of Rs 337 billion to Rs 358 billion for Discos consumers in 2024-25.