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NO. DAE/Wind/91/2015 GOVERNMENT OF SINDH DIRECTORATE OF ALTERNATIVE ENERGY ENERGY DEPARTMENT

Karachi, dated: 2"d July, 2015

SYED SAFEER HUSSAIN Registrar National Electric Power Regulatory Authority Ata Turk Avenue Islamabad

SUB: MOTION FOR LEAVE FOR REVIEW AGAINST THE DETERMINATION OF THE AUTHORITY IN THE MATTER OF UPFROT TARIFF FOR WIND POWER GENERATION DATED: JUNE 24,2015.

Reference is made to the determination of Upfront Tariff in the matter of Upfront tariff for wind power generation notified by the Authority vide letter No. NEPRA/TRF-WPT/2015/9512-9514, dated: 24-06.2015.

2. The Energy Department, Government of Sindh has reviewed the above referred tariff determination and the following comments are submitted for consideration of the learned Authority, its motion for leave for review of the Determination in terms of Rule 16(6) of the

NEPRA (Tariff Standards & Procedure) Rules, 1998 read with Regulation 3(1), Regulation 3(2).

and Regulation 3(3) of the NEPRA (Review Procedure) Regulations, 2009, and other enabling

provisions of applicable law (the "Motion for Leave for Review").

CAPACITY FACTOR

i) As per the Tariff Determination, the Authority has approved a 35% net annual plant capacity factor for the upfront tariff allowed through the Tariff Determination. A 35% net annual capacity factor (i.e. a 12.9% increase over the previous capacity factor of 31% in the 2013 upfront tariff) appears to be on the higher side and is likely to render existing and future wind power projects opting for the upfront tariff non-bankable. Based on the data available, three wind power projects are operational in Jhampir wind corridor and none has so far achieved 35% capacity factor. Further, the lenders require the project to achieve a probability of exceedence factor (PF) of P90 in order for them to finance the project.

State Life Building No. 3, Floor 3rd, Opposite CM House, Karachi phone: 02199206449, Fax: 02199206276

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ii) Even the studies conducted in Pakistan in areas with the highest availability of wind estimate maximum capacity at around 35%, which capacity factor is based on expensive and higher efficiency equipment being used in ideal conditions. However, since this is a maximum estimate, it should not be made a benchmark or minimum standard for the purposes of the Tariff Determination. This is because a number of factors come into play while determining the capacity factor for a particular project. For example, the climatic conditions, temperatures, wind density, dust and pollution, etc. all have a bearing on the capacity of a wind power project. Given the high summer temperatures in the range of 45 to 47 Celsius in the Jhimpir region of Sindh, the efficiency of the wind turbines is reduced as even the latest turbines have their efficient running temperatures up to 40 Celsius only.

iii) While it is admitted that there have been some technological improvements over the past few years resulting in achievement of higher capacity factors, the Authority would no doubt appreciate that on average the efficiencies of wind turbines being used across the world have only increased by about 5% to 7% in the last six to eight years. Therefore, there appears to be no justification for increasing the capacity factor by over 12.9% (i.e. from 31% to 35%) over a span of only two years. Such a move will certainly discourage potential investors from investing in wind power projects in Pakistan and works against the government's commitment to address the energy crisis.

iv) Alternative Energy Development Board (AEDB), submitted its expert opinion during the Public Hearing on 16th Apri1,2015 as under:

"In view of AEDB analysis on annual energy yield, research of Global Business Intelligence and International Renewable Energy Agency's report tide "Renewable Power Generation Costs in 2014", AEDB is of the view that, the proposed capacity factor of 38% may not be achieved at P90 probability exceedance level for the wind farm sites within the Gharo—Ketibandur wind corridor in Sindh. It is expected that a capacity factor between 31-33% may be achieved at P90 probability exceedance level using the assumptions of technical consultants of Lenders/IPPs."

v) It is further submitted that even during the process of determination of the previous upfront tariff, the Authority had taken into consideration and gave due weight age to the comments from the various stakeholders (including the AEDB) while arriving at its final determination. In this regard, attention is invited to paragraphs 10 and 11 of the previous upfront tariff determination of 2013 as follows:

"10. The Authority has noted that net annual plant capacity factor of 31% was considered in th'e draft upfront tariff proposal, on the basis of information provided by AEDB regarding average of projected generation on actual wind speeds, for 13 wind power generation companies that had received tariff front the Authority. AEDB had submitted that this information was based on calculations done by RISOE (independent international consultant hired by AEDB)..."

State Life Building No. 3, Floor 3rd, Opposite CM House, Karachi phone: 02199206449, Fax: 02199206276

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11. The Authority has considered the arguments detailed in the preceding paragraph in conjunction with the arguments of the stakeholders and is of the opinion that for making the project risk/return profile fair, the draft upfront tariff proposal on this issue needs to be modified. Accordingly the Authority has decided that the upfront tariff will be limited to the extent of net annual energy generation supplied to the power purchaser upto 31% net annual plant

capacity factor... "

vi) It is clear from the above that the Authority had considered a net annual capacity factor of 31% to be just and fair for the purposes of the previous upfront tariff. As such, it is unclear as to how an increase in the same rate from 31% to 35% in a span of only two years can be termed as 'just' and 'fair', particularly when all

stakeholders and commentators have indicated that the rate should be between 31% and 33% and even the technological improvements do not merit the increase proposed by the Authority.

vii) Based on the earlier determinations of wind tariffs, and third party validation reports for the Jhimpir-Gharo wind corridor, the minimum benchmark of 35% capacity factor has never been witnessed. The Authority is requested to reconsider the capacity factor based on its earlier determination as quoted above. Moreover, the slabs for higher efficiencies prescribed by the Authority should be maintained as the same also encourages developers to use better quality equipment.

VALIDITY OF TIIE UPFRONT TARIFF AND PRE-REQUISITE OF POWER EVACUATION

CERTIFICATE FROM NTDC:

The time-window of 6 months for opting for upfront tariff is not practical because of the

following:

• The updated Grid Code for Wind is not available and its time-line is uncertain.

• NTDC is not providing base data for Grid Studies prior to the finalization of Grid

Code

• A minimum time required for assessing site data is twelve months prior to which bankable data and tariff options are fraught with inadmissible risks.

While the required certificate is a compelling requirement for all projects, its delay from NTDC can effectively subvert GoP Policy objectives It is suggested that the time-window for opting for Upfront tariff may be rationalized as follows:

The later of the two:

• One year from Gazette Notification of the upfront tariff as per previous practice.

• Nine months from availability of the new Grid Code.

• The time period may be counted from the official Gazette notification of the upfront tariff as allowed in Solar PV Upfront tariff instead of date of determination by the authority.

State Life Building No. 3, Floor 3rd, Opposite CM House, Karachi phone: 02199206449, Fax: 02199206276

N (ENGR. MEI'WOOZ A.-QAZI)

Director, Alternative Energy

PROVISION OF SINOSURE FEE

The upfront tariff determined for wind does not allow Sinosure Fee as a separate cost head as already allowed by the learned authority in Solar PV upfront tariff and Coal tariffs. Being a mandatory cost for arranging foreign debt, the insurance cover may be incorporated as a pass

through item.

RETURN ON EQUITY DURING CONSTRUCTION

The Return on Equity during construction period is an accepted element in all the tariff determinations and is in line with Government policy to secure the returns on all investments in energy sector. The tariff regime is not clear in its treatment of ROE DC. The authority is requested to consider this component and explicitly incorporate the same for the wind power developers as allowed in all other determinations.

The Govt of Sindh, being a major stakeholder requests the Authority to review the upfront tariff for wind under the NEPRA Rules on the above grounds for development of electric power through wind, as regular and continuous long hour power shortages in the province has not only severely damaged the socio-economic uplift of the people of the province. but also threatened the human survival due to variations in Climate change. Promotion and development of Environmental friendly Wind Energy is a catalyst to reduce the environmental degradation and safe guard the survival of our future generations.

The proposed amendments in the upfront tariff for wind will enable the Government of Sindh to achieve its target of increasing the share of indigenous and renewable energy as envisaged under Pakistan Vision 2025.

Cc: i) CEO, AEDB, Islamabad. ii) PS to Secretary Energy Department, Govt of Sindh.

State Life Building No. 3, Floor 3rd, Opposite CM House, Karachi phone: 02199206449, Fax: 02199206276