KARACHI: The cost of power production dropped by a massive 50% in November 2016 with higher output from hydroelectric, wind and solar power plants that carried no fuel cost and the shift to imported gas fuel from costly furnace oil, shows data.
The power sector regulator, the National Electric Power Regulatory Authority (Nepra), is scheduled to review and revise power tariff downwards for distribution companies in a hearing in Islamabad on Tuesday, which will be passed on to end-consumers.
The production cost data with the regulator suggests that the tariff may be cut by Rs3.60 per unit on account of monthly fuel price adjustment.
Consumers of state-owned power distribution companies will benefit from the expected tariff reduction except for customers of privatised K-Electric that has applied for revising its tariff upwards by Rs0.60 per unit for the same month of November.
Excluding generation from hydel, wind and solar power projects, the “average fuel cost fell by 29.9% on a year-on-year basis (in November 2016) and 21.7% on a month-on-month basis given low-cost sources having a bigger share in the pie,” Rao Aamir Ali, an analyst at Arif Habib Limited, said in a note to clients.
Nuclear remained the cheapest source of electricity generation at Rs1.18 per unit, followed by coal at Rs4.50 per unit, gas at Rs5.50 per unit, re-gasified liquefied natural gas (LNG) at Rs6.90 per unit, furnace oil at Rs8.20 per unit and imported electricity at Rs10.63 per unit.
All that translated into average per unit cost of production at Rs3.70 in November and suggested a cut of Rs3.60 per unit from the reference fuel price of Rs7.30 per unit, according to Nepra.
“The government is aggressively pursuing a plan to further develop low-cost generation sources,” Ali added.
Hamza Raza, an analyst at BMA Capital, foresaw an increase in the power production cost in the months ahead as winter season, which usually impacted water flows at dams, had begun.
“The share of hydel generation is likely to decline going forward as winter affects water levels. Its share is likely to be taken up by furnace oil, resulting in a higher fuel cost,” he said in a note.
Coal-fired power plants with cumulative capacity of thousands of megawatts are expected to come online in the next couple of years that are expected to push coal-based generation to 12% in the energy mix from less than 1% at present.
“Financial close of projects having capacity of 2,640 megawatts has already been achieved. There will be subsequent reduction in the expensive furnace oil-based production as generation from coal picks up (in the long run),” he said.
Total power production increased by 3.2% to 6,935 gigawatts per hour in November 2016 from 6,722 gigawatts per hour in November 2015.
With improved water flows at dams, production from hydel projects increased to a massive 41% in total generation in November from 34.3% in the same month last year, according to data released by Nepra and compiled by local brokerage houses.
Production from other cheaper sources, including wind, solar and bagasse (dry pulpy residue after extraction of juice from sugarcane) rose to 11.9% in November from 5.6% in the same month a year ago.
On the contrary, power production from furnace oil fell to 19.4% in the total energy mix from 27.6% in November 2015.
Production from gas, including imported re-gasified LNG, which remains the second most expensive source of power production after furnace oil, also went down to 27.8% from 32.5%.
Published in The Express Tribune, December 27th, 2016.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ