Policy, tariff regime, and incentives

for solar energy

Waqas Bin Najib

Solarenergie in Pakistan Munich; September 11 2012

Contents
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

Solarenergie in Pakistan - Waqas Bin Najib

Overview of situation

Solarenergie in Pakistan - Waqas Bin Najib

An attractive market
World Class Power Policy
Fast track - project development at highest
Priority

Energy deficit is 5000MW and rising

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

Source: Private Power & Infrastructure Board

Supply & Demand Position 2020

purchaser
Policy Document can be found at:
http://www.aedb.org/Policy/REpolicy.pdf

Solarenergie in Pakistan - Waqas Bin Najib

Excellent Solar Resource

2,000 hectares land

for a cluster of solar
power projects

Solarenergie in Pakistan - Waqas Bin Najib

Power sector Institutional

structure

Solarenergie in Pakistan - Waqas Bin Najib

Power sector Institutional structure

Solarenergie in Pakistan - Waqas Bin Najib

Power sector Institutional structure

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
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Solarenergie in Pakistan - Waqas Bin Najib

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

Solarenergie in Pakistan - Waqas Bin Najib

Grid-connected Independent
Power Projects (IPPs)

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Solarenergie in Pakistan - Waqas Bin Najib

Unsolicited RE-IPP processing route

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

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Solarenergie in Pakistan - Waqas Bin Najib

Unsolicited RE-IPP processing route

Activity

Indicative Process time

Submission of proposal on raw site by sponsors

Review of proposal and intimation of
qualification of sponsors by AEDB
Issuance of LOI for an initial period of 24
months
Completion of Feasibility Study
Procurement of Generation License

Issuance of LOS by AEDB for a period of 18

months
Execution of Security Package
Financial Close
Achieve Construction Start

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Within 7 days of receipt of acceptable bank guarantee

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

Any time within the validity period of LOI
Any time within the validity period of LOI.
NEPRA announces its determination within 90 days

Procurement of tariff from NEPRA

Commissioning of Project

Within 30 days from date of receipt of complete proposal

Within 7 days of receipt of acceptable Performance

Guarantee
Any time during validity of LOS
Within the time allowed in the LOS
Within the time allowed in the LOS/Security Package
Within the time allowed in the LOS/Security
Package

Solarenergie in Pakistan - Waqas Bin Najib

Tariff structure for grid-connect

IPPs

13

Solarenergie in Pakistan - Waqas Bin Najib

Cost-Plus tariff model

Energy Tariff
(PKR/kWh)

80:20 Debt to
Equity ratio

Non-escalable
component

Debt servicing

Floating interest
rate

>18% Return
on Equity

Return on
equity (ROE)
Exchange rate
variation (PKRUS$)

Exchange rate Coverage of

variation (PKRcurrency risk
US$)
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Escalable
component

Fixed O&M
costs

Variable O&M
costs

Inflation (WPI)

Inflation (WPI)

Cost escalation
coverage

Solarenergie in Pakistan - Waqas Bin Najib

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

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Solarenergie in Pakistan - Waqas Bin Najib

Overview of fiscal incentives for

IPPs

16

Solarenergie in Pakistan - Waqas Bin Najib

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.

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Solarenergie in Pakistan - Waqas Bin Najib

Status of solar power projects

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Solarenergie in Pakistan - Waqas Bin Najib

Status of solar power projects

Growing electricity supplydemand 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
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Information Source(s): AEDB, PPDB

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)

Solarenergie in Pakistan - Waqas Bin Najib

Market opportunity overview

20

Solarenergie in Pakistan, Waqas Bin Najib

Understanding the market opportunities

Understanding the market opportunities

Solar PV

Solar Thermal

21

Grid connected power projects

Off-grid rural electrification programs
On/Off-grid urban market scenario
Solar water heating program