National Electric Power Regulatory Authority Islamic Republic of Pakistan

Transcription

1 National Electric Power Regulatory Authority Islamic Republic of Pakistan Registrar NEPRA Tower, Attaturk Avenue (East), G-511, Islamabad. Ph: , Fax: Web: No. NEPRA/TRF-409/ZPNECL-2017/ August 13, 2018 Subject: Determination of National Electric Power Regulatory Authority in the matter of Tariff Petition filed by M/s. Zhenfa Pakistan New Energy Company (Pvt.) Limited for Determination of Reference Generation Tariff in respect of 100 MWp Solar Power Project [Case # NEPRA/TRF-409/ZPNECL Dear Sir, Please find enclosed herewith the subject Determination of the Authority along with Annexure-I & II (27 pages) in. 2. The Determination is being intimated to the Federal Government for the purpose of notification in the official gazette pursuant to Section 31(7) of the Regulation of Generation. Transmission and Distribution of Electric Power Act, The Order part along with Annexure-I & II of the Authority's Determination needs to be notified in the official Gazette. Enclosure: As above 144,0 Secretary Ministry of Energy (Power Division) `A' Block, Pak Secretariat Islamabad CC: 1. Secretary, Cabinet Division, Cabinet Secretariat, Islamabad. 2. Secretary, Ministry of Finance, 'Q' Block, Pak Secretariat, Islamabad. u75 ( Syed Safeer Hussain )

2 DETERMINATION OF NATIONAL ELECTRIC POWER REGULATORY AUTHORITY IN THE MATTER OF TARIFF PETITION FILED BY M/S ZHENFA PAKISTAN NEW ENERGY COMPANY (PVT.) LIMITED FOR DETERMINATION OF REFERENCE GENERATION TARIFF IN RESPECT OF 100 MWp SOLAR POWER PROJECT 1. M/s (hereinafter referred to as the "ZPNECL" or "the petitioner/company") filed a tariff petition before National Electric Power Regulatory Authority ("NEPRA/the Authority") on September 26, 2017 for determination of reference generation tariff in respect of its 100 MWp solar power project ("the project") to be set up at Rakh Chaubara, District Layyah, Punjab under NEPRA (Tariff Standards and Procedure) Rules, 1998 ("Tariff Rules, 1998") and other applicable NEPRA laws. SUBMISSIONS OF THE PETITIONER 2. The petitioner submitted that Letter of Intent (101") was issued to it on March 19, 2015 by Energy Department, Punjab Power Development Board ("PPDB") under Punjab Power Generation Policy, 2006 (revised 2009). In accordance with the LOI, feasibility study of the project was carried out and submitted to PPDB for its approval. The petitioner submitted that after detailed review of the feasibility study by its Panel of Experts ("POE"), PPDB vide its letter No. PPDB/1627/2015 dated December 1, 2015 has approved the same. 3. Summary of the key information provided in the tariff petition is as follows: Project company Sponsors Capacity Project location Land area Concession period Purchaser PV Modules Inverter : : Zhenfa Energy Group Co. Ltd. and Zhenfa New Energy Science and Technology Co. Ltd. 100 MWp Rakh Chaubara, District Layyah, Punjab 650 Acres Plant capacity factor 19.25% Annual Energy production 25 years from COD Central Power Purchasing Agency (Guarantee) Ltd. : Zhangjiagang's SEG-P60 260W & 265W Si-poly solar modules Sung row SG 630 MX PV inverter GWh per annum EPC contractor : Zhengjiagang SEG PV Co. Ltd. (offshore), HydroChina International Engineering Co. Ltd. (onshore), Zhenfa Science & Technology (design) 1

3 O&M contractor Zhenfa Pakistan New Energy Co. (Pvt.) Ltd. Project cost US$ in millions Offshore Contract Onshore Contract ' Designing EPC cost Non-EPC & Project Development Cost Insurance during construction : Financial Charges Sinosure fee Interest during construction Total Project Cost Financing structure Debt: 70% : Equity: 30% Debt composition 100% Foreign loan Interest rate 6 months LIBOR + 3.5% Debt tenure 15 years (door to door) Grace period Up to 12 months Return on equity 14% IRR based Operations cost (US$ million): Year 1-14 Year O&M cost (foreign) O&M cost (local) Insurance cost Total annual operational cost Levelized Tariff (US cents/kwh) ' Exchange rate 1 USD = PKR 105 PROCEEDINGS 4. The tariff petition was admitted by the Authority on October 11, Notice of Admission was published in the daily national newspapers on October 28, 2017 providing salient features of the petition and inviting comments/intervention request from the interested parties. In response to the Notice of Admission, AEDB vide its letter dated November 06, 2017 submitted comments which are discussed in the relevant paragraphs discussed below. 5. Based on the submissions of the petitioner and comments from AEDB, a number of issues were framed by the Authority. Notice of hearing was published in daily national newspapers on February 22, 2018 conveying schedule of hearing and approved issues for hearing. Individual 2

4 Notices of hearing were also served to the relevant stakeholders on February 26, 2018 for participation in the hearing. 6. The hearing in the matter was held on March 8, 2018 (Thursday) at 11:00 A.M. at NEPRA Tower, G-5/1, Islamabad which was attended by a Large number of participants including the petitioner, representatives of Alternative Energy Development Board ("AEDB"), Punjab Power Development Board ("PPDB"), National Transmission & Despatch Co. Ltd. ("NTDCL") and others. 7. The Authority during the hearing inquired from PPDB regarding the bidding process for award of project land to the petitioner. In response, PPDB vide letter No. PPDB/DRE/MRE/233/2018 dated March 15, 2018 submitted that ZPNECL was awarded LOI by PPDB for the development of 100 MW solar PV power project at raw site in Punjab. Later, the public land was identified by the project company. Then Energy Department, Government of Punjab ("GoPb") through public advertisement (published in three daily newspapers of Pakistan) invited applications from the LOI holders of PPDB and AEDB interested for allocation of land for development of project at the identified site. The competition was held in November 2015 in accordance with the criteria approved by Energy Department, GoPb. The petitioner was qualified for allocation of land which was allotted on December 31, 2015 by the district collector Layyah, in accordance with the requirement of Statement of Conditions under Colonization Act, PPDB further submitted that the petitioner submitted revised feasibility study on cost plus basis which has been approved on January 04, Post hearing, CPPA-G vide letter dated March 12, 2018 submitted comments in relation to the subject petition which are discussed in detail in ensuing relevant paragraphs of this determination. ISSUES FOR HEARING 9. Following are the approved issues which was deliberated during the course of hearing: Whether the claimed EPC cost is competitive, comparative and based on the firm and final agreement(s)? Whether the claimed Non-EPC cost is justified? Whether the claimed capacity utilization factor of 19.25% is reasonable and justified? 3

5 Whether the proposed solar modules and inverter technology satisfies the international standards of quality and operation? Whether the assumed degradation factor of 0.7% per annum is reasonable and justified? Whether calculation/study of ground irradiance data is carried out or otherwise? Whether the claimed O&M costs are justified? Whether the claimed insurance during operation cost is justified? Whether the claimed return on equity of 14% is justified? Whether the financing/debt terms are justified? Whether the claimed sinosure fee 0.76% per annum on debt is justified? Whether the claimed construction period is justified? Any other issue with the approval of the Authority Whether the claimed EPC cost is competitive, comparative and based on the firm and final agreement(s)? 10. ZPNECL has claimed USD million on account of EPC cost comprising of offshore supply portion of USD million, onshore service portion of USD million and project design services cost of USD million. On a per MW basis, the claimed EPC cost comes out to be around USD million. 11. In its petition, ZPNECL submitted that the claimed EPC cost includes the cost of 382,437 Nos. PV Modules, 142 PV inverters, electrical equipment, together with ancillary equipment and other goods, systems and machinery and includes the cost of, inter alia, the erection and completion of the equipment and construction of the facility that is fit for the intended purpose. The petitioner submitted that claimed EPC cost also includes the cost of staff accommodation, supply of drinking water and electricity, catering services for the staff, certain project vehicles, standby generator including fuel, site security during construction period and internal access roads. The project design services include all the cost associated with conceptual design of the plant including design of mechanical, electrical and civil works for the project. 12. The petitioner submitted that based on sponsor's expertise in implementation of solar power projects, the subject project shall be implemented through a non-traditional arrangement whereby ZPNECL will be entering into separate contracts for project design, supply of equipment, and for construction, installation and commissioning services. The petitioner 4

6 submitted that for the selection of contractors in respect of supply of equipment and for construction, installation and commissioning services, a comprehensive procurement process was followed which included issuance of the Request for Proposal (RFP), receiving of bids from various bidders, technical and financial evaluation of the bids, negotiations with shortlisted bidders and execution of contracts with selected bidders. Along with the petition, ZPNECL submitted the Bid Evaluation Report of September 2017 prepared by the project consultant namely Renewable Resources (Pvt.) Ltd. 13. Post hearing, the petitioner was directed to provide the detailed summary along with complete documents with respect to the bidding process followed for the selection of the EPC contractors. In response, the project company on May 14, 2018 submitted that it initiated the process of selection through approaching different contractors and suppliers of solar power industry in March, 2017 to assess their interest in the project. After initial skimming of the market, ZPNECL engaged Jiangsu Chengxin Engineering Consulting Management Co. Ltd as consultant for preparing the RFP and responding to the related queries. Advertisement for seeking bids was hosted on the company's website on May 15, In response to initial discussion and advertisement, a total of nine (09) companies showed their interest. After initial screening of their profiles, complete RFP package was shared with interested parties on which seven (7) bidders submitted their proposals. After completion of bids collection phase by the project company, all the bids were shared with Renewable Resources (RE2) who carried out the evaluation against technical, commercial and management considerations and provided its findings and recommendations in the form of Bid Evaluation Report on September 17, Based on the recommendation of the consultant, the project company selected separate contractors for Off-Shore and On-Shore services. Zhangjiagang SEG PV Co. Ltd ("SEG") with lowest quote for Off-shore Service and HydroChina International Engineering Co. Ltd. ("HydroChina") offering lowest quotation for onshore services were selected. ZPNECL submitted that based on the vast expertise of the sponsors, design services of the plant will be carried out by project team from Zhenfa Science and Technology. 14. The onshore service contract was signed on September 22, 2017 with HydroChina at USD million and offshore supply contract was signed on September 25, 2017 with SEG at USD million. The contract in respect of design services was signed on September 25, 2017 at USD million. Signed copies of offshore supply, onshore services and design services contracts were submitted along with the petition. 5

7 15. The petitioner submitted that SEG is one of the leading global players in the solar power industry, established in 2004 and specializes in manufacturing and sales of solar modules ranging from 5W up to 320W that can meet various PV application used for utility scale projects and solar home system. According to the petitioner, the selected PV modules Si-poly model P W & 265W have proven energy yield, special kind of material that can be installed at the desert, high resistance at extreme weather and lower annual power degradation. These modules have passed various tests and are IEC certified. Further, the petitioner submitted that SEG provides a 25 years linear performance warrantee and a 10 years limited product warrantee for the selected modules. The petitioner submitted that inverters of model SG 630 MX from Sungrow shall be installed for this project which is a global leading PV inverter system solution supplier and the selected inverters provide secured yield and flexibility of operations. Further, the petitioner stated that onshore contractor HydroChina is affiliated with PowerChina, a global leader in the development of clean and renewable energy resources and is a key player in global infrastructure development as well as ranked in the Fortune Global 500. In addition, the petitioner submitted that out of 100 MW installed capacity, 70 MW will be fixed mounting system and 30 MW with single-axis sun tracking device. During the hearing, ZPNECL submitted that it will install 52 sets of tracking device manufactured by Changjian Electrical Appliance Co. Ltd. model GR20/22 for the project. 16. The petitioner submitted that it will implement the project under self-epc mode through direct supervision and management of multiple contractors and consultants for design, supply of equipment and for construction, installation and commissioning services. The contractors are solely responsible for provision of specified and limited services whilst the risk is being borne by the project company. During the hearing, the Authority inquired the petitioner that whether the process of EPC contractor has been followed in accordance with the NEPRA (Selection of Engineering, Procurement and Construction Contractor by Independent Power Producers) Guidelines, 2017 ("Guidelines, 2017"). In response, the petitioner submitted that Guidelines, 2017 provides selection process for turnkey EPC contractor on lump sum basis whereas the project company has entered into three separate contracts. They also referred the case of Gharo Solar Private Limited ("GSPL") and submitted that in the said case the Authority has approved tariff on self EPC mode. 17. To evaluate the EPC cost claim of ZPNECL, the Authority has relied upon the EPC cost and project cost data in different countries. The prices of different types of modules, inverters and mounting structures in different parts of the world were researched through a number of reports published by credible organizations. Moreover, a number of online sources providing 6

8 Zhenfa Pakistan New Energy Company (Pvt.) Ltd spot prices data of equipment of solar power system were also surfed. Furthermore, the costs allowed by the Authority in recently determined comparable solar power projects were also examined. Analysing all this data, the Authority is of the view that EPC cost of USD million/mw claimed by ZPNECL is relatively on the higher side when compared with prevailing market conditions. The process of selection of contractors followed by the petitioner may have been transparent; however, the same has not yielded prices which are competitive and comparative. In view thereof, the Authority has considered that claimed EPC cost is not reasonable and requires assessment. 18. The Authority has noted that the average prices of solar modules of different types and brands have gone as low as USD 0.24 million per MW and are expected to go further down in future primarily due to oversupply of panels from China. The costs of inverters have been found reported as low as USD 0.04 million per MW. For mounting structures, the prices were found as USD 0.09 million per MW fixed tilt and USD 0.15 million per MW for tracking technologies. Nevertheless, the factors such as transportation cost, existing local market conditions, local manufacturing base etc. were given due consideration. The costs of civil and electrical works as allowed by the Authority in the recent tariffs of comparable scale being setup at different locations have been kept same. In view thereof, the Authority has assessed the EPC cost of ZPNECL as USD million per MW (USD million) which is hereby approved. 19. The allowed EPC cost is the maximum limit on overall basis. Applicable foreign portion of this cost, if any, shall be allowed variations at Commercial Operations Date ("COD") due to change in PKR/USD parity during the allowed construction period, on production of authentic documentary evidence to the satisfaction of the Authority. Whether the claimed Non-EPC cost is justified? 20. The petitioner has claimed USD million on account of non-epc cost. The break-up of cost components provided by the petitioner is as follows: Non-EPC cost (USD Million) Project Development Cost Insurance during construction Financial Charges Sinosure Fee Interest during construction Total non-epc cost

9 Project development cost 21. The petitioner has submitted following break-up of non-epc and project development cost in its tariff petition: Project Development Cost Consultancy cost & technical studies-pre-financial close Owner's engineer supervision-post financial close Independent engineer-pursuant to the EPA Permits, permissions and related costs Site, security and infrastructure (USD Million) Administration cost Travelling costs Others Total i) Consultancy & technical studies cost of USD million has been claimed related to project consultants/advisors engaged for project planning, engineering, financial, legal and technical matters. ZPNECL has submitted that based on the requirements of the technical consultants, it has already completed electrical, geotechnical, topographical, soil and other related studies for the purpose of completing project's feasibility study. The Authority has assessed this claim while comparing it with the cost that has been allowed in similar projects and decided to allow the same as being reasonable. ii) Owner's Engineer Supervision cost of USD million has been claimed. ZPNECL has submitted that it will engage an experienced engineering supervision team to ensure the contractors compliance with the relevant contracts as well as reporting on progress and budget. The Owner's Engineer will also conduct review of proposed designs, construction, monitoring and witnessing of key test to ensure project's success. The Authority assessed this claim while comparing it with the cost that has been allowed in similar projects and found it on relatively higher side. The Authority has decided to allow USD 0.25 million under this head as being reasonable. iii) Independent engineer cost of USD million has been claimed. ZPNECL has submitted that it is required to engage an Independent Engineer pursuant to the standard EPA. Independent Engineer will be a firm of engineering consultants that would be appointed 8

10 Zhenfa Pakistan New Energy Company (Pvt.) Ltd Case No. NEPRA/TRF-409/ZPNECL and hired by ZPNECL with the approval of the CPPA-G to perform a number of duties as specified in EPA. The Authority has assessed this claim while comparing it with the cost that has been allowed in similar projects and decided to allow the same as being reasonable. iv) The petitioner has claimed USD million on account of permits, permissions and related costs. ZPNECL has submitted that during development and construction of the project, it will incur costs related to various fees and charges payable in respect of permits and permissions required from various authorities and regulatory bodies including but not limited to cost of bank guarantees for LOI and LOS, SBLC in favour of power purchaser, NOC from competition commission, LOI Fee, AEDB/PPDB facilitation and legal fee, NTDCL vetting charges for Grid Electrical Grid Studies, NEPRA fees and charges, registration and other charges to SECP etc. The Authority assessed this claim while comparing it with the cost that has been allowed in similar projects and found it on relatively higher side. The Authority has decided to allow USD 0.05 million under this head as being reasonable. v) The petitioner has claimed USD million for site, security and infrastructure. In its petition, ZPNECL submitted that this cost head includes the upfront payment for site lease for 25 years, site levelling and preparation, site access, infrastructure, electricity connection, etc. and security costs for local, foreign personnel and contractor staff. The Authority has assessed this claim while comparing it with the cost that has been allowed in similar projects and decided to allow the same being reasonable. vi) The petitioner has claimed USD million on account of administration cost. The petitioner submitted that its head office is based in Lahore which will coordinate and liaise with government agencies and lenders. In addition, there will be a site office with limited accommodation to coordinate the construction and monitoring activities at site. Further, this item also includes the costs associated with accounting and admin staff, rent, utilities, equipment inspection, communication, printing & stationery, supplies, vehicle fuel & maintenance and allied expenses during the construction period. After taken into consideration the cost allowed to comparable projects, the Authority has decided to allow USD million to ZPNECL in respect of administration expense. vii) The petitioner claimed USD on account of travelling costs of Chinese and local staff for travelling and accommodation expenses. After taking into consideration the cost 9

11 Zhenfa Pakistan New Energy Company (Pvt.) Ltd allowed to comparable projects, the Authority has decided to allow USD million to ZPNECL in respect of administration expense. viii) The petitioner claimed USD on account of other cost, however, no detail was provided in the petition. The Authority has noted that no such cost has been allowed in the tariffs of comparable projects recently determined by the Authority. Hence, the Authority considered that the claim of the petitioner in this regard is not justifiable and is not being taken into account. 22. In view of above, the Authority has decided to allow project development cost of USD million to the petitioner. Project development (item-wise) cost shall be adjusted at actual, up to the maximum allowed cost, based on production of verifiable documents at the time of COD. Insurance during construction 23. The petitioner has claimed USD million on account of insurance during construction of the project. The petitioner submitted that claimed insurance cost during construction is on relatively lower rates (0.6% of EPC cost) due to the strength of Zhenfa Group. ZPNECL has also requested to allow the said cost at actual up to 1.0% of EPC in case it cannot arrange insurance at 0.60% due to any reason beyond its control. Following insurance coverage has been requested by the petitioner: a) Construction All Risk Insurances (CAR) b) CAR delay in start-up insurance c) Terrorism insurance d) Marine and inland transit insurance e) Marine-delay-in start-up insurance f) Comprehensive General Liability 24. The Authority has noted that in cases of recent solar tariff determinations, insurance during operation has been allowed at 0.5% of the approved EPC cost. Likewise, the Authority has decided to allow insurance during construction at the rate of 0.5% of the approved EPC cost to ZPNECL which works out to be around USD million. Insurance during construction shall be adjusted at actual, subject to allowed amount as maximum limit, at the time of COD on production of authentic documentary evidence to the satisfaction of the Authority. 10

12 Financing Charges 25. The petitioner has claimed USD million on account of financial charges. The company submitted that the claimed cost includes lenders up-front fee, arrangement fee and commitment fee, mandate and processing fee, fees payable and stamp duty applicable on the finance documents, agency fee, security trustee fee, lenders project monitoring fee and the fees for the lender's various advisors. The petitioner has submitted that these financial charges are in line with the prevailing market conditions and practices applicable for project financing transactions and as allowed by NEPRA in its other tariff determinations. ZPNECL also submitted the letter of intent (indicative loan term sheet) for arrangement of debt financing issued/agreed by the lender (China Exim Bank) with the petition. 26. The Authority noted that other recent solar projects were allowed financial charges (2.5%) considering debt portion as 75% of the capital cost. Likewise, the Authority has decided to allow financing fee and charges at the rate of 2.5% to ZPNECL on the debt portion of the approved capital cost for the petitioner. However, the debt : equity of 80:20 has been taken into account in the case of the petitioner for which discussion is given in the ensuing relevant section. Accordingly, the allowed amount under this head works out to be around USD million. Financing charges shall be adjusted at actual, subject to allowed amount as maximum limit, at the time of COD on production of authentic documentary evidences to the satisfaction of the Authority. Sinosure Fee 27. The petitioner has claimed USD million on account of Sinosure fee. The petitioner submitted that Sinosure is China's official export credit insurance agency offering export credit insurance and overseas investment insurance. The policy covers equity and debt portion of the project and is intended to provide the insured with risk guarantee when they suffer economic losses because of war, currency exchange ban, requisition, or breach of contract by the government or related counterparts in countries where the insured have made investments. The petitioner submitted that this scheme is designed to support and promote Chinese companies and financial organizations to invest and lend outside the country. ZPNECL submitted that as the loan is being arranged from a Chinese bank; therefore in order to comply with the requirement, it has opted for overseas investment insurance for the loan, which provides cover for political and commercial risks. The petitioner submitted that the project has been offered 11

13 Zhenfa Pakistan New Energy Company (Pvt) Ltd. the Sinosure rate of 0.72% and the same has been grossed up as 0.76% while including therein withholding tax of 5%. 28. In support of this claim, the petitioner has submitted a letter of China Export & Credit Insurance Corporation dated July 4, 2017 which states that the estimated insurance premium rate of 0.72% annually on the investment amount shall be charged by the said bank. During the hearing the petitioner submitted that since it is not a state owned company, therefore, the premium rate of 0.72% is little high as compared to the premium of 0.6% which has been offered to the projects being setup under China Pakistan Economic Corridor ("CPEC"). In addition, the petitioner submitted that even after considering the Sinosure of 0.72%, the total claimed interest rate of the project is lower than what has been allowed by the Authority in comparable cases. 29. The Authority noted that in earlier cases, it has been allowing Sinosure either including by that fee as a lump sum amount in the project cost or in form of annual payments. In the upfront solar tariffs, Sinsoure fee was approved by the Authority as a lump sum amount as part of the project cost. In the recent cases of hydro power projects, the Authority considering the fact that annual payment has a favourable impact on tariff allowed Sinosure fee on the yearly outstanding amount of foreign debt and interest. 30. The Authority has gone through the recent cases where the provision of Sinosure has been allowed both for projects under CPEC and otherwise. Most importantly, the Authority has noted that there a number of solar power projects that have secured Sinosure at the rate of 0.6% of the yearly outstanding principle and interest. On the basis thereof, the Authority has decided to allow Sinosure fee at the maximum limit of 0.6% of yearly outstanding principle and interest amount. On the said basis, the Sinosure fee during construction works out to be around USD million. Interest during construction (IDC) 31. The petitioner has claimed USD million on account of interest during construction (IDC) based on the agreed term sheet with lenders for a construction period of ten (10) months while using 6 months LIBOR (1.45%) plus spread of 3.5%. ZPNECL has submitted that the actual IDC shall change subject to fluctuation of base interest, actual drawdowns during construction, taxes & duties and variation in PKR/USD exchange rate. 12

14 Zhenfa Pakistan New Energy Company (Pvt.) Ltd 32. Based on the approved EPC and corresponding capital cost, assumed drawdowns schedule and taking into account the claimed construction period of ten months, the interest during construction works out to be around USD million and is hereby approved. The terms of financing used to work out the aforesaid amount of IDC is discussed in the ensuing relevant sections. The allowed IDC shall be re-computed at COD, for the allowed construction period starting from the date of financial close, on the basis of actual drawdowns (within the overall debt allowed by the Authority at COD) by applying 6 month LIBOR applicable at the day of the respective drawdowns. 33. Recapitulating above, the approved project cost under various heads is given hereunder: Project Cost (USD million) EPC Cost Project Development Cost Insurance during construction Financing Charges Sinosure fee Interest During Construction Total Whether the claimed capacity utilization factor of 19.25% is reasonable and justified? & whether the proposed solar modules and inverter technology satisfies the international standards of quality and operation? Whether calculation/study of ground irradiance data was carried out or otherwise? 34. The petitioner submitted that the project's technical consultant has carried out detailed evaluations to estimate the energy production for the project and the summary of the results is as follows: Project capacity Annual energy generation 100 MWp GWh Net capacity factor 19.25% 13

15 35. The petitioner submitted that in order to conduct the detailed resource assessment, site assessment surveys were conducted. In addition, solar resource from commonly used meteorological database was reviewed and conceptual PV Plant design was modelled in PVsyst. The long term annual average solar resources i.e. Global Horizontal Irradiation (GHI) estimated based on 10 years of solar data ( ) is found to be 1,754.4 kwh/sqmeter. Based on the said solar resource, proposed technology and taking into account all losses, the estimated energy of GWh is worked out during the 1st year of operations using professional software PVSyst AEDB submitted that capacity factor of 19.25% claimed by the petitioner is likely to achieve keeping in view the solar resource potential and technology selected by the petitioner. AEDB requested that solar resource and generation risk should be borne by the power producer. 37. The Authority has considered the modules and inverters proposed by ZPNECL with respect to their quality and energy yield. The solar resource figure submitted by the petitioner has also been studied. The plant capacity factor that has been allowed in the recent tariff cases of south region has also been examined and found to be in the range of 20.5% (fixed tilt) to 22.21% (single axis). During the hearing, the petitioner submitted that the project is in north region therefore the irradiance level and resultant plant factor is relatively on the lower side than other solar projects being setup in south region. The Authority has noted that under upfront tariffs approved in 2014 and 2015, the difference of 0.72% in plant factors for south and north regions was allowed by the Authority. In solar upfront tariff of 2016, the difference in plant factor of south and north regions was kept at 1%. In view of that practice, it can be inferred that the plant factor claimed by the petitioner especially with partial single axis technology is quite on the lower side and should be way better than claimed capacity factor of 19.25%. However, the Authority also noted that under the regime of upfront tariff, broad classification of south and north regions was made. The projects in different locations of those regions could have opted for upfront tariffs finding that viable based on their technology and locations. Whereas while determining tariff under Tariff Rules, 1998, the Authority is of the view that wide classifications made in the regime of upfront tariffs cannot be applied as such and specific conditions of each project needs to be taken into account. For that purpose, the Authority has considered and analysed the information about resource data specific to the site of the project and technology as submitted by the petitioner. Based on the said analyses, the Authority has decided to approve plant capacity factor of 20% for the project. 14

16 Determination of the Authority in the matter of Tariff Petition filed by Whether the claimed degradation factor of 0.7% per annum is reasonable and justified? 38. The petitioner stated in the petition that ageing and degradation of PV modules would impact electricity generation and revenue inflows during the project's life. The petitioner requested to allow the actual degradation subject to a cap of 0.7% per annum of initial power through adjustment in reference tariff in respective years. 39. AEDB submitted that renowned solar PV manufacturers are now guaranteeing degradation factor maximum of 0.5%. AEDB further suggested that instead of adjustment of tariff on annual basis, the impact on account of degradation may be capitalized as the Authority has already done in upfront tariff for solar PV power projects for the year The Authority has noted that degradation factor of 0.5% has been approved in the recently approved tariff cases of solar power projects and decided to account for the same for ZPNECL's tariff. The Authority has also considered the submissions of the petitioner and AEDB with respect to adjustment of degradation factor and has decided to capitalize its impact in the approved project cost. The amount of USD million has been made part of the approved project cost while calculating the same at the levelized rate of 3.62% of the approved EPC cost. Whether the claimed O&M cost is justified? 38. The petitioner has submitted following break-up of O&M cost per annum: O&M cost USD (million)/annum Year 1-14 Year & M (foreign component) 0 & M (local component) Total The petitioner has claimed indexation with PKR/USD and US CPI for the foreign O&M portion and indexation with respect to local CPI for local portion of O&M. 42. In its petition, the petitioner submitted that it will take the responsibility for operation and maintenance and bear the risk for performance ratio. The petitioner submitted that initial term of 14 years for O&M is to match the debt repayment period and provide additional comfort to the lenders. The petitioner requested to allow claimed O&M cost for smooth, efficient and 15

17 Determination of the Authority in the matter of Tariff Petition filed by effective functioning of the project. Justifying its claim, the petitioner stated that the claimed O&M cost of USD 12,250/MW/annum is quite tower than costs earlier approved by NEPRA in its upfront tariffs. 44. To evaluate this claim of ZPNECL, the O&M cost being allowed in other parts of the world has been referred while keeping in view the local market conditions, required skilled manpower, spare parts, inverters etc. As this cost component constitutes significant portion of the cost of human resource, hence, it was noted that doing comparison of O&M cost with the developed countries may not be appropriate due to higher labour costs in those countries. Further, the Authority also examined that O&M cost approved in the recent tariff cases of comparable projects both with single axis and fixed tilt technologies. Based on the analysis of these factors, the Authority has decided to approve USD million per year in respect of O&M cost to ZPNECL. Further, the allowed O&M cost has been divided into local and foreign components in the ratio of 50:50 as was done in the cases of comparable projects. Whether the claimed insurance during operation is justified? 45. The petitioner submitted that the insurance cost during operation has been estimated at 0.40% of the EPC Cost (equivalent to USD million/year), however any increase therefrom up to 0.75% of the EPC Cost may kindly be allowed upon submission of evidence at the time of COD. 46. The petitioner submitted that this claim consists of the insurances required under the Implementation Agreement ("IA") and EPA coupled with those customarily required for project financing transactions. ZPNECL, referring the practices set by the other IPPs in Pakistan and in accordance with the requirements set by the lenders, proposes to procure the following insurance during the operational phase of the Project: Property Damage and Comprehensive Machinery Insurance (including Business Interruption insurance); Third Party Liability; Terrorism insurance; Group Personal Accident Insurance; and Motor Comprehensive Insurance 47. ZPNECL submitted that it intends to acquire insurance from one of the leading insurance companies in the country. The petitioner submitted that it is standard practice for local insurers 16

18 Determination of the Authority in the matter of Tariff Petition filed by to only retain 5% of the risk and acquire reinsurance for the remaining 95% through foreign reinsurer. Further, ZPNECL submitted that the lenders financing the project will inevitably require the project cost denominated in US dollars to be insured on replacement cost basis. Stating these reasons, it has requested the Authority to allow the insurance cost in US dollars. 48. It was noted that NEPRA has allowed insurance during operation at the rate of 0.5% of the EPC cost in the recent cases of comparable renewable energy projects. However, the data of solar insurances, recently approved by NEPRA, reveal that the said component is way lower than the limit earlier approved by the Authority. In view thereof and considering the claim of the petitioner, the Authority has decided to allow insurance during operation at maximum limit of 0.4% of the approved EPC cost to ZPNECL. This cost shall be allowed adjustment on annual basis as per the mechanism given in the order part of this determination. Whether the claimed return on equity of 14% is justified? 49. The petitioner has submitted that while applying the internationally accepted Capital Asset Pricing Model ("CAPM"), the required return for this project works out to be 19.43%. However, the petitioner submitted that it is claiming Return on Equity (ROE) of 14% (IRR basis) subject to the condition that the claimed project costs is accepted and allowed by NEPRA. For the calculation of the claimed tariff, the petitioner did not include the impact of Return on Equity during Construction ("ROEDC") and requested the Authority to allow the same at the time of COD. 50. During the hearing, the Authority asked the petitioner to accept the IRR of 14%. In response, the petitioner referred the other cases where conditional request for IRR of as low as 12% was made but the return of 15% was approved by NEPRA. It was noted that over the passage of time, the Authority has revised the equity returns downward for a number of generation technologies. Further, the Authority noted that a number of under process wind power companies have claimed ROE of even less than 14%. Considering the claim of wind projects as well of the petitioner, the Authority has decided to approve the ROE for the petitioner at the rate of 14%. Whether the financing/debt terms are justified? 51. The petitioner has submitted that the capital structure of the project is envisaged at debt to equity ratio of 70:30. China Eximbank will provide 100% loan requirement with door to door tenor of 15 years. The financing will be based on 6-month LIBOR plus a margin of 3.5%. To 17

19 support the claim of its financing cost, the petitioner submitted the letter of intent issued by the lenders on July 07, The Authority has considered the claimed cost of financing and decided to allow LIBOR plus premium of 3.5% to ZPNECL as being reasonable. For capital structure, the Authority has considered that a number of wind power projects have claimed their tariffs on debt : equity ratio of 80 : 20. Further, the Authority has considered that a number of benchmark/upfront tariff determinations of renewable power projects have been approved at the debt : equity ratio of 80:20. In view thereof, the Authority has decided to approve ZPNECL's tariff on debt to equity proportion of 80:20. Debt servicing tenor of fourteen years is found reasonable and hereby approved. Whether the claimed construction period is justified? 53. The petitioner has claimed the construction period of ten (10) months and submitted that the claimed construction period is lower than other projects of same size except ZSPL. The Authority has found this claim of the petitioner reasonable and has decided to allow the same. Comments of CPPA-G 54. CPPA-G in its comments dated March 12, 2018 submitted that it has not issued consent for the purchase of power, Further, CPPA-G requested NEPRA to review Demand vs Supply situation coupled with quantum of RE to be inducted in the Grid according to the recommendations of Grid Code Review Panel ("GCRP"). 55. Regarding the submission of CPPA-G with respect to non-issuance of consent for purchase of power to ZPNECL, the Authority noted that there is no requirement of submission of purchaser's consent letter for the determination of tariff filed under Tariff Rules, Regarding the submission of CPPA-G with respect to demand supply position, the Authority noted that NTDCL vide its letter dated June 23, 2017 submitted tentative demand supply analysis with the report namely Power Balance Position Upto In that report, NTDCL has submitted that it plans to induct additional 600 MW of solar power projects in (competitive bidding). 18

20 S Determination of the Authority in the matter of Tariff Petition filed by Case No. NEPRA/TRF-409/ZPNECL Regarding quantum of renewable energy induction in the Grid, the Authority considered minutes of GCRP's meeting held on September 11, 2017, circulated on July 09, 2018, whereby GCRP decided to inform NEPRA and other stakeholders that the share of solar should be equal to 5% of the total installed grid connected power capacity. The Authority also noted that NTDCL issued grid connectivity approval of the project company on March 31, Further, NTDCL has issued certificate of approval of system studies on April 6, 2017 while stating that the power be generated by ZPNECL will not have any adverse effect on the National Grid as required under the prevailing Grid Code. Comments of AEDB 58. AEDB submitted that NEPRA vide decision dated March 3, 2017 directed the relevant agencies to carry out competitive bidding for award of tariff to new solar PV power projects in the country under competitive bidding regulations, Later on, Ministry of Energy ("MOE") also directed the AEDB to prepared bidding documents and call bidding for the new solar PV power projects. AEDB submitted that it has already taken steps in this regard and requested the Authority to decide the petition of ZPNECL in view of these submissions. It was noted that vide its decision dated March 3, 2017 in the matter of Solar PV Power Generation Tariff, the Authority decided to allow induction of solar energy through competitive bidding and directed the relevant agencies to develop Request For Proposal (RFP) for that purpose. Due to nonfinalization of RFP by any agency after the lapse of considerable time period, the process of competitive bidding has not taken place. Therefore, it may not be considered appropriate to stop entertaining applications under Tariff Rules, 1998 merely on the basis of the submission that AEDB has already taken steps in this regard without any concrete justification. ORDER 59. In pursuance of section 7(3)(a) read with Rule 3 of the Tariff Standards & Procedure Rules, 1998, the Authority hereby determines and approves the following generation tariff along with terms and conditions for Zhenfa Pakistan New Energy Company (Pvt.) Limited (ZPNECL) for its 100 MWp power project for delivery of electricity to the power purchaser as per Annex-I: Levelized tariff works out to be US Cents /kWh. The aforementioned tariff is applicable for twenty five (25) years. Debt Service shall be paid in the first 14 years of commercial operation of the plant. Debt Servicing has been worked out using 6 months LIBOR ( %) + Spread (3.5%). 19

21 Debt to Equity of 80:20 has been used. Return on equity during construction and operation of 14% has been allowed. Construction period of ten (10) months has been allowed for the workings of ROEDC and IDC. Insurance during Operation has been calculated as 0.40% of the allowed EPC Cost. Reference Exchange Rates of 120 PKR/USD has been used. Detailed component wise tariff is attached as Annex-I of this decision. Debt Servicing Schedule is attached as Annex-II of this decision. A. One Time Adjustments at COD Applicable foreign portion, if any, of the allowed EPC cost will be adjusted at COD on account of variation in PKR/USD parity, on production of authentic documentary evidence to the satisfaction of the Authority. The adjustment in approved EPC cost shall be made only for the currency fluctuation against the reference parity values. For cost items other than EPC cost, the amounts allowed in USD will be converted in PKR using the reference PKR/USD rate of 120 to calculate the maximum limit of the amount to be allowed at COD. Duties and/or taxes, not being of refundable nature, relating to the construction period directly imposed on the company up to COD will be allowed at actual upon production of verifiable documentary evidence to the satisfaction of the Authority. IDC will be recomputed at COD on the basis of actual timing of debt draw downs (for the overall debt allowed by the Authority at COD), applicable LIBOR and premium. The tariff has been determined on debt : equity ratio of 80 : 20. The tariff shall be adjusted on actual debt : equity mix at the time of COD, subject to equity share of not more than 20%. For equity share of more than 20%, allowed IRR shall be neutralized for the additional cost of debt : equity ratio. The reference tariff has been worked out on the basis of 6 months LIBOR of % plus a premium of 350 basis points. In case negotiated spread is less than the said limits, the savings in the spread over LIBOR shall be shared between the power purchaser and the power producer in the ratio of 60:40 respectively. 20

22 ROEDC will be adjusted at COD on the basis of actual equity injections (within the overall equity allowed by the Authority at COD) during the project construction period of six months allowed by the Authority. B. Indexations i) Operation and Maintenance Costs O&M components of tariff shall be adjusted on account of change in local Inflation (CPI), foreign inflation (US CPI) and exchange rate quarterly on 1st July, 1st October, 1st January and 1st April based on the latest available information with respect to CPI notified by the Pakistan Bureau of Statistics (PBS), US CPI issued by US Bureau of Labor Statistics and revised TT & OD selling rate of US Dollar notified by the National Bank of Pakistan as per the following mechanism: F. O&M(REV) = F. O&M (REF) * US CPI(REV) / US CPI(REF) *ER(REV)/ER(REF) L. O&M(REV) = L. O&M (REF) * CPI (REV) / CPI (REF) Where; F V. O&M(REV) = The revised O&M Foreign Component of Tariff L. O&M(REV) = The revised O&M Local Component of Tariff F. O&M(REF) = The reference O&M Foreign Component of Tariff L. O&M(REF) = The reference O&M Local Component of Tariff US CPI(REV) = The revised US CPI (All Urban Consumers) US CPI (REF) = The reference US CPI (All Urban Consumers) of for the month of May, 2018 CPI(REV) = The revised CPI (General) CPI(REF). The reference CPI (General) of for the month of May, 2018 ER(REV) = The revised TT & OD selling rate of US dollar ER(REF) = The reference TT & OD selling rate of RS. 120/USD Note: The reference indexes shall be revised after making the required adjustments in tariff components at the time of COD. 21

23 Case No. NEPRA/TRF-409/ZPNECL ii) Insurance during Operation The actual insurance cost for the minimum cover required under contractual obligations with the Power Purchaser, not exceeding 0.4% of the EPC cost, will be treated as pass through. Insurance component of reference tariff shall be adjusted annually as per actual upon production of authentic documentary evidence according to the following formula: AIC = Ins (Ref) / P (Ref) * P (Act) Where; AIC = Adjusted insurance component of tariff Ins (Ref) = Reference insurance component of tariff P (Ref) = Reference 0.4% of EPC Cost at Rs. 120 P (Act) = Actual premium or 0.4% of the EPC Cost converted into Pak Rupees on exchange rate prevailing at the time of insurance premium payment of the insurance coverage period whichever is lower iii) Return on Equity The ROE component of the tariff will be adjusted on quarterly basis on account of change in USD/PKR parity. The variation relating to these components shall be worked out according to the following formula; ROE (Rev) = ROE (Ref) * ER(Rev)/ ER (Ref) Where; ROE (Rev) = Revised ROE Component of Tariff ROE(ReO = Reference ROE Component of Tariff ER (Rev) The revised TT & OD selling rate of US dollar as notified by the National Bank of Pakistan ER(Ref) = The reference TT & OD selling rate of Rs. 120/USD Note: The reference tariff component shall be revised after making the required adjustments at the time of COD. 22

24 iv) lndexations applicable to debt Foreign debt and its interest will be adjusted on quarterly basis, on account of revised TT & OD selling rate of US Dollar, as notified by the National Bank of Pakistan as at the last day of the preceding quarter, over the applicable reference exchange rate. v) Variations in LIBOR The interest part of capacity charge component for the loan shall remain unchanged throughout the term except for the adjustment due to variation in interest rate as a result of variation in LIBOR according to the following formula: A I = P(REV)* (LIBOR(REv)_ %) /2 Where; AI = P (REV) = LIBOR (REV) = The variation in interest charges applicable corresponding to variation in 6 month LIBOR. AI can be positive or negative depending upon whether 6 month LIBOR (REV) per annum > or < %. The interest payment obligation will be enhanced or reduced to the extent of AI for each period under adjustment. The outstanding principal (as indicated in the attached debt service schedule to this order), at the relevant period calculations date. Period 1 shall commence on the commercial operations date (i.e. the first figure will be used for the purposes of calculation of interest for the first period after commercial operations date). Revised 6 month LIBOR as at the last day of the preceding quarter Note: The reference tariff component shall be revised after making the required adjustments at the time of COD. vi) Indexation of Sinosure Component Sinosure fee component will be adjusted based on the revised principle and interest components. 23

25 C. Terms and Conditions The following terms and conditions shall apply to the determined tariff: All plant and equipment shalt be new and of acceptable standards. The verification of the plant and equipment will be done by the independent engineer at the time of the commissioning of the plant duly appointed by the power purchaser. This tariff will be limited to the extent of net annual energy generation supplied to the power purchaser up to 20% net annual plant capacity factor. Net annual energy generation supplied to the power purchaser in a year, in excess of 20% net annual plant capacity factor will be charged at the following tariffs: Net annual plant capacity factor % of prevalent tariff Above 20% to 21% 80% Above 21% to 22% 90% Above 22% 100% The risk of solar resource shall be borne by the power producer. In the tabulated above tariff no adjustment for certified emission reductions has been accounted for. However, upon actual realization of carbon credits, the same shall be distributed between the power purchaser and the power producer in accordance with the applicable GOP Policy, amended from time to time. In case the company secures full or certain portion of debt under any concessionary financing including one introduced by State bank of Pakistan, the tariff of the company shall be adjusted at COD on the terms of the said financing. Allowed limit of degradation has been made part of the approved project cost. No extra financial compensation shall be provided in the EPA. The company will have to achieve financial close within six months from the date of issuance of this tariff determination. The tariff granted to the company will no longer remain applicable/valid, if financial close is not achieved by the company in the abovementioned timeline or its generation license is declined/revoked by NEPRA. 24

26 The targeted maximum construction period after financial close is ten months. No adjustment will be allowed in this tariff to account for financial impact of any delay in project construction. However, the failure of the company to complete construction within ten months will not invalidate the tariff granted to it. Pre COD sale of electricity is allowed to the power producer, subject to the terms and conditions of Energy Purchase Agreement, at 50% of the applicable tariff. However, pre COD sale will not alter the required commercial operations date stipulated in the EPA in any manner. In case the company is obligated to pay any tax on its income from generation of electricity, or any duties and/or taxes, not being of refundable nature, are imposed on the company, the exact amount paid by the company on these accounts shall be reimbursed on production of original receipts. This payment shall be considered as a pass-through payment. However, withholding tax on dividend shall not be passed through. No provision for the payment of Workers Welfare Fund and Workers Profit Participation has been made in the tariff. In case, the company has to pay any such fund, that will be treated as pass through item in the EPA. The approved tariff along with terms & conditions shall be made part of the EPA. General assumptions, which are not covered in this determination, may be dealt with as per the standard terms of the EPA. 60. The Order part along with two Annexures is recommended for notification by the Federal Government in the official gazette in accordance with Section 31(7) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, AUTHORITY ayat Ulla Memb q.. VT (Si aullah Chattha) Member Gi?.. ' :10 2.8", 1.8 ` (Rehmatullah Bloch) Vice Chairman V\c\ ovrtia (Brig (R) Tariq Saddozai) Chairman 25

27 REFERENCE TARIFF OF ZHENFA PAKISTAN NEW ENERGY COMPANY PRIAVTE LIMITED ON 100% FOREIGN FINANCING Year O&M Local O&M Foreign Insurance Return on Equity ROEDC Loan Repayment Interest Charges Sinosure Tariff Rs. / kwh Rs. / kwh Rs. / kwh Rs. / kwh Rs. / kwh Rs. / kwh Rs. / kwh Rs. / kwh Rs. / kwh \14 ER. /-?,," ,, (._> '41 NEPRA -?'<' "I' AUTHORITY' &'.' , _41. --I _ 4, A/ * 1, Levelized Tariff

28 REFERENCE DEBT SERVICING SCHEULE Annex -II Relevant Quarters Base amount ( USD) Principal Repayment (USD) Interest (USD) Balance Principal (USD) Total Debt Service (Million USD) Annual Principal Repayment Rs./kWh Annual Interest Rs./kWh 1 54,689,233 1,273,770 1,641,019 53,415,463 2,914, ,415,463 1,311,991 1,602,798 52,103,472 2,914, ,103,472 1,351,359 1,563,430 50,752,113 2,914, ,752,113 1,391,908 1,522,881 49,360,205 2,914, ,360,205 1,433,674 1,481,115 47,926,531 2,914, ,926,531 1,476,693 1,438,095 46,449,837 2,914, ,449,837 1,521,003 1,393,785 44,928,834 2,914, ,928,834 1,566,643 1,348,146 43,362,191 2,914, ,362,191 1,613,652 1,301,137 41,748,539 2,914, ,748,539 1,662,072 1,252,717 40,086,467 2,914, ,086,467 1,711,944 1,202,845 38,374,523 2,914, ,374,523 1,763,313 1,151,476 36,611,210 2,914, ,611,210 1,816,224 1,098,565 34,794,986 2,914, ,794,986 1,870,722 1,044,067 32,924,265 2,914, ,924,265 1,926, ,934 30,997,410 2,914, ,997,410 1,984, ,116 29,012,737 2,914, ,012,737 2,044, ,563 26,968,511 2,914, ,968,511 2,105, ,224 24,862,947 2,914, ,862,947 2,168, ,044 22,694,202 2,914, ,694,202 2,233, ,968 20,460,381 2,914, ,460,381 2,300, ,939 18,159,531 2,914, ,159,531 2,369, ,899 15,789,642 2,914, ,789,642 2,441, ,788 13,348,641 2,914, ,348,641 2,514, ,543 10,834,395 2,914, ,834,395 2,589, ,100 8,244,706 2,914, ,244,706 2,667, ,393 5,577,309 2,914,789 a 27 5,577,309 2,747, ,354 2,829,875 2,914, ,829,875 2,829,875 84, ,914,