policy, tariff regime and incentives for solar energy

8/19/2019 Policy, Tariff Regime and Incentives for Solar Energy

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Policy, tariff regime, and incentives

for solar energy

Waqas Bin Najib

1 Solarenergie in Pakistan – Munich; September 11 2012


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Contents

Solarenergie in Pakistan - Waqas Bin Najib2

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


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Overview of situation



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An attractive market

4

Fast track - project development at highestPriority

Guaranteed purchase of electricity backed byGovernment of Pakistan

Modes of ownership Public Private Partnershipmodels available ‘OR ‘

Independent power producer (IPP)

Price setting model employed - “Cost plustariff” 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 powerpurchaser

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


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Excellent Solar Resource

5

2,000 hectares land

for a cluster of solar

power projects



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Power sector –

Institutionalstructure



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Power sector – Institutional structure

7 Solarenergie in Pakistan - Waqas Bin Najib


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Power sector – Institutional structure

8

Direct sale todistribution companiespossible

Wheeling and

distributed generationcode is beingapproved

Roadblocks to REpower projects arebeing removed bywind IPPs



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Power policies


Conventional Power Projects Policy for Power Generation Projects 2002

Renewable Energy Power Projects

Policy for Development of Renewable Energy for PowerGeneration – 2006 (Short-term policy)

Alternative and Renewable Energy Policy 2011 – DRAFT

(Medium-term policy) Medium-term policy has beenmade more attractive than the

short-term policy


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Grid-connected IndependentPower Projects (IPPs)



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Unsolicited RE-IPP processing route

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UnsolicitedExpression of

InterestIssuance of LoI

Submission offeasibility study

Indicative/referencetariff approval

Energy PurchaseAgreement

Issuance of LoS

Execution ofsecurity package

and power/energypurchase agreement

Financial Close

Final tariff approvalStart of

construction



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Unsolicited RE-IPP processing route

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Activity Indicative Process time

Submission of proposal on raw site by sponsors

Review of proposal and intimation of

qualification of sponsors by AEDBWithin 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 NEPRAAny 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



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Tariff structure for grid-connectIPPs



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Cost-Plus tariff model

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Energy Tariff

(PKR/kWh)

Non-escalablecomponent

Debt servicing

Floating interestrate

Exchange ratevariation (PKR-

US$)

Return onequity (ROE)

Exchange rate

variation (PKR-US$)

Escalablecomponent

Fixed O&Mcosts

Inflation (WPI)

Variable O&Mcosts

Inflation (WPI)

80:20 Debt to

Equity ratio

>18% Return

on Equity

Coverage of

currency risk

Cost escalation

coverage



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Tariff for solar PV based power projects


A feed-in/upfront tariff is being considered by theregulator (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


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Overview of fiscal incentives forIPPs



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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 ismandatory for Power Purchaser to off-take)

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

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

Exemption from income tax, including turnover rate tax andwithholding tax on imports.

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


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19/21Information Source(s): AEDB, PPDB


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

Policy/regulations well

established

Cost-plus tariff model withminimum 18% ROE guaranteednet of taxes (US$ based); 30-50years concession

Solar grid code, draft EPA, andother documents alreadyprepared

Licenses for 5 solar powerprojects issued and feasibility isbeing conducted (LoIs)

International companies part of

the project consortiumimplementing the solar powerprojects DACC (US)

CWE (China)

Wellbeing Green (Aus)

TechAccess (UAE)



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Market opportunity overview

Solarenergie in Pakistan, Waqas Bin Najib20


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Understanding the market opportunities

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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

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