In a recent move, the government has decided not to renew power purchase agreements of independent power producers (IPPs) having a cumulative capacity of 5,000-megawatt power generation, which are expiring in a few years.
The above-mentioned recommendation has been made by Special Advisor to PM on Petroleum Division Nadeem Babar and a proposal is sent to Federal Cabinet for approval.
Those Independent Power Producers who are near to expiry of their Power Purchase Agreements include HUBCO and KAPCO. The Tariff for KAPCO is going to expire in 2021, while HUBCO base plant tariff is expiring in 2027.
The New Mechanism
After the expiry of Power Purchase Agreement, the government will purchase power from these IPPs on a ‘take and pay’ basis, which gives the liberty to the government to pay charges only when electricity is purchased.
These power plants will be able to sell electricity to the Central Power Purchasing Agency (CPPA) in the summer season when demand is higher compared to the winter. No fixed Capacity payments will be given to these plants after the expiry of the PPA.
The government is expected to offer economic incentives to consumers with the new mechanism. Electricity consumers will be offered at considerably lower rates when the demand stood low to procure electricity from those power plants whose contracts have expired or going to expire.
This will help operate those plants whose PPA have expired and not renewed and will give consumers discounted rates. It will also help in meeting increasing demand in the peak Summer season.