Power sector hit by underutilisation of efficient plants: Nepra

The National Electric Power Regulatory Authority (Nepra) said on Thursday the country’s electricity system was adversely affected in 2020-21 by underutilisation of the most efficient power plants run by regasified liquefied natural gas (RLNG), increase in circular debt, poor governance and fuel supply challenges, which unnecessarily burdened the consumers.

In its “State of Industry Report 2020-21”, the regulator said “the power sector witnessed the underutilisation of most efficient RLNG power plants and some other cost-efficient power plants”.

Underutilisation of these power plants — that is, operating them on “part load” — is reducing their efficiency and increasing their energy purchase price on the one hand and, on the other, unutilised capacity is increasing their per unit capacity payment.

Evidently, the underutilisation is not solely for the reason of lack of demand in the system. “The pending new electricity connections, loadshedding despite availability of electric power generation capacity, non-availability of fuel, weak transmission and distribution system as well as poor governance were some major contributing factors for lower utilisation of efficient power plants,” the report said, adding that underutilisation of efficient plants was one of the major reasons for increase in consumer-end price of electricity.

During FY2020-21, the power sector also witnessed the challenge of fuel supply. During the period, the System Operator reported that it had been conveying its demand for RLNG to the quarters concerned well before time, but still it could not get the required volume of fuel. Resultantly, at times various RLNG power plants remained either unutilised or underutilised, said the Nepra report.

RLNG is an imported fuel and its supply is controllable through proper planning and scheduling, coupled with an efficient supply chain. Therefore, efforts should be made to improve the supply chain of RLNG so that non-utilisation and/or underutilisation of efficient RLNG power plants could be avoided.

In the case of RLNG, said the report, the firm gas supply agreement needed to be signed between the parties with back-to-back agreements so that burden of non-supply of gas would not be passed on to the consumers.

The generation system also continued to face the challenge of capacity payment for unutilised ‘take or pay’ capacity. The combined installed capacity of intermittent power generation plants and conventional base-load thermal power plants, including nuclear plants, as of June 30, 2021 remained around 12,062MW and 27,711MW, respectively.

The utilisation factor of intermittent power plants and base-load thermal power plants remained around 41 per cent and 45pc of their respective combined dependable capacities.

According to the report, the intermittent power plants enjoy the priority dispatch condition and in case of non-evacuation of available power from these plants, they are entitled for payment on account of non-project missed volume. Further, due to ‘take or pay’ contracts, the power plants despite their low utilisation factor qualified for capacity payments against their full available capacity.

The capacity payments to the power generation companies, as verified by CPPA-G, during FY2020-21 stood at Rs613.9 billion as compared to Rs611.56bn during FY2019-20.

The growing circular debt in the power sector is worrying not only for the sector itself but also for the entire economy. The circular debt as of June 30, 2021 stood at Rs2,280bn as compared to Rs2,150bn as of June 30, 2020. This increase in circular debt is detrimental to the financial viability of the power sector.

High transmission and distribution losses of Discos (distribution companies), lower recovery of the billed amount and nonpayment of subsidies in time were the major causes of circular debt accumulation, said the report.

The biggest challenge currently faced by the power sector is the high cost of electricity for which there is no single reason. The unutilised ‘take or pay’ power generation capacity, impact of ‘must run’ power plants, old and inefficient power plants, increasing capacity payments, whopping circular debt, weak transmission and distribution system, lack of coordination among power sector stakeholders, improper planning, poor governance, use of primitive technology, taxes, and fees and levies were among the factors that made the price of electricity unaffordable for many consumers.

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