policy, tariff regime, and incentives for solar energy - pv market

Policy, tariff regime, and incentives

for solar energy

Waqas Bin Najib

1 Solarenergie in Pakistan – Munich; September 11 2012

Contents

Solarenergie in Pakistan - Waqas Bin Najib 2

Overview of situation

Power sector – Institutional structure

Grid-connected Independent Power Projects (IPPs)

Tariff structure for grid-connected IPPs

Fiscal incentives for RE IPPs

Status of solar power projects

Market opportunity overview

Overview of situation


An attractive market

4

Fast track - project development at highest

Priority

Guaranteed purchase of electricity backed by

Government of Pakistan

Modes of ownership Public Private Partnership

models available ‘OR ‘

Independent power producer (IPP)

Price setting model employed - “Cost plus

tariff” over 18% ROE guaranteed net of taxes

(USD based) Many of the variable operating cost are

passed-on in the tariff model

Special incentives Tax benefits (capital-gains tax,

income tax and turnover tax exemption)

Grid interconnection is the responsibility of power

purchaser

Policy Document can be found at:

http://www.aedb.org/Policy/REpolicy.pdf

Energy deficit is 5000MW and rising

World Class Power Policy

Source: Private Power & Infrastructure Board

– Supply & Demand Position 2020

Solarenergie in Pakistan - Waqas Bin Najib

http://www.aedb.org/Policy/REpolicy.pdf

Excellent Solar Resource

5

2,000 hectares land

for a cluster of solar

power projects


Power sector – Institutional

structure



7



8

Direct sale to distribution companies possible

Wheeling and distributed generation code is being approved

Roadblocks to RE power projects are being removed by wind IPPs


Power policies


Conventional Power Projects

Policy for Power Generation Projects 2002

Renewable Energy Power Projects

Policy for Development of Renewable Energy for Power

Generation – 2006 (Short-term policy)

Alternative and Renewable Energy Policy 2011 – DRAFT

(Medium-term policy)

Medium-term policy has been

made more attractive than the

short-term policy

Grid-connected Independent

Power Projects (IPPs)


Unsolicited RE-IPP processing route

11

Unsolicited Expression of

Interest Issuance of LoI

Submission of feasibility study

Indicative/reference tariff approval

Energy Purchase Agreement

Issuance of LoS

Execution of security package

and power/energy purchase agreement

Financial Close

Final tariff approval Start of

construction


Unsolicited RE-IPP processing route

12

Activity Indicative Process time Submission of proposal on raw site by sponsors

Review of proposal and intimation of

qualification of sponsors by AEDB Within 30 days from date of receipt of complete proposal

Issuance of LOI for an initial period of 24

months Within 7 days of receipt of acceptable bank guarantee

Completion of Feasibility Study Within the time specified in LOI (Maximum of 18 Months)

Procurement of Generation License Any time within the validity period of LOI

Procurement of tariff from NEPRA Any time within the validity period of LOI.

NEPRA announces its determination within 90 days

Issuance of LOS by AEDB for a period of 18

months

Within 7 days of receipt of acceptable Performance

Guarantee

Execution of Security Package Any time during validity of LOS

Financial Close Within the time allowed in the LOS

Achieve Construction Start Within the time allowed in the LOS/Security Package

Commissioning of Project Within the time allowed in the LOS/Security

Package


Tariff structure for grid-connect

IPPs


Cost-Plus tariff model

14

Energy Tariff (PKR/kWh)

Non-escalable component

Debt servicing

Floating interest rate

Exchange rate variation (PKR-

US$)

Return on equity (ROE)

Exchange rate variation (PKR-

US$)

Escalable component

Fixed O&M costs

Inflation (WPI)

Variable O&M costs

Inflation (WPI)

80:20 Debt to

Equity ratio

>18% Return

on Equity

Coverage of

currency risk

Cost escalation

coverage


Tariff for solar PV based power projects


A feed-in/upfront tariff is being considered by the

regulator (NEPRA)

Negotiated tariff (cost-plus) would still be available for

project sponsors, if preferred

Upfront tariff for solar-PV based power projects is

expected to be around 0,22 US$/kWh

Overview of fiscal incentives for

IPPs


Incentives


An attractive tariff model with sound guarantee structures for the RE power projects Additional guarantee structures being put up my multilateral agencies for

RE power projects in the country

Guaranteed power purchase (100% of produced electricity is mandatory for Power Purchaser to off-take)

State Bank of Pakistan (SBP) has soft credit line for small renewable energy power projects

Zero rated import of all renewable energy plant, machinery, equipment, and spares (including electronics, batteries, and other machinery)

Exemption from income tax, including turnover rate tax and withholding tax on imports.

Repatriation of equity along with dividends freely allowed, subject to rules and regulations prescribed by the State Bank of Pakistan.

Information Source(s): AEDB, PPDB


19

Growing electricity supply-demand gap. Over 5,000 MW power shortage

Policy/regulations well established

Cost-plus tariff model with minimum 18% ROE guaranteed net of taxes (US$ based); 30-50 years concession

Solar grid code, draft EPA, and other documents already prepared

Licenses for 5 solar power projects issued and feasibility is being conducted (LoIs)

International companies part of the project consortium implementing the solar power projects DACC (US)

CWE (China)

Wellbeing Green (Aus)

TechAccess (UAE)


Market opportunity overview

Solarenergie in Pakistan, Waqas Bin Najib 20

Understanding the market opportunities

21

Understanding the market opportunities

Solar PV

Grid connected power projects

Off-grid rural electrification programs

On/Off-grid urban market scenario

Solar Thermal

Solar water heating program

policy, tariff regime, and incentives for solar energy - pv market

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