Solar tariff feud


AFTER an encouraging start, the growth of utility-scale solar power projects in Pakistan has hit a snag. The regulator wants to bring down the upfront tariff, which was determined at Rs14.2 in January on a levelised basis.

The first upfront tariff drew an enthusiastic response. Reportedly, Nepra wants to reduce this to Rs9.25 for the next generation of solar power projects, a large drop of more than 30pc. Investors, many of whom have already obtained Letters of Interest and have been waiting for the award of their tariff, say that the lower tariff makes their entire project unfeasible.

For whatever reason, much of the benefit of the higher tariff was availed of by projects in Punjab. Now the representatives of other provinces, especially Sindh, are furious that when their turn comes to undertake solar power projects, the regulator suddenly wants to effect a drastic reduction.

There is merit to the arguments being presented by the investors. The reported reduction offered by Nepra is difficult to justify.

They argue they want to equalise the tariff in Pakistan with neighbouring countries, but in the January determination they threw out all such considerations and decided to use the cost structures submitted by one Chinese company, which was setting up the first solar plant at the Quaid-i-Azam Solar Park in Punjab, as the basis for the entire tariff regime.

The Sindh government ought to have said more during the hearing for that tariff, but sadly it missed its chance. Nevertheless, a drastic reduction a few months down the road will only strengthen the perception that the government wants a few pet projects in Punjab to benefit and to stymie other provinces in the process.

A reduction may indeed be called for, but drastic reductions at this early stage of solar takeoff in Pakistan will damage the positive momentum that is building up behind the enterprise.

Nepra should listen carefully to the arguments presented by the intervenors in the hearing on Oct 15 before making a final decision.

Published in Dawn, October 23rd, 2015

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