The Government of Pakistan, recognising the critical need for sustainable and affordable energy solutions, has established the Framework Guidelines for Fast Track Solar PV Initiatives 2022. These guidelines aim to harness Pakistan’s vast solar energy potential to address the escalating costs and environmental impacts associated with imported fossil fuels. Solar photovoltaic (PV) energy, owing to technological advancements and reduced costs, has emerged as a viable and cost-effective alternative. This initiative seeks to integrate solar PV into the national energy mix, ensuring energy security, economic stability, and environmental sustainability.
Objectives and Scope
The primary objectives of the Fast Track Solar PV Initiatives are to:
- Substitute expensive imported fossil fuels with solar PV energy, thereby lowering the average generation cost and fostering a sustainable power sector.
- Maximise the utilisation of existing transmission networks for Federally-owned public power utilities (FPUs).
- Alleviate pressure on foreign exchange reserves by reducing dependence on imported fuels.
- Ensure value for money through transparent competitive bidding processes or Government-to-Government (G2G) arrangements.
- Encourage private sector investment, both local and foreign, in renewable energy deployment.
The scope of these initiatives encompasses three main applications: substitution of imported fossil fuels, solar PV generation on 11 kV feeders, and solarization of public sector buildings.
Applications
- Substitution of Expensive Imported Fossil Fuels
Under this initiative, solar PV generation capacity will be developed to replace imported fossil fuels during the day, utilising thermal power plants at night. This substitution is expected to reduce the average basket cost of power generation and provide a more sustainable energy solution. Key guidelines include:
- Procurement of appropriate solar PV capacity based on Central Power Purchasing Agency’s (CPPA) identification of thermal plants for fuel substitution.
- Establishing projects in Independent Power Producer (IPP) mode through competitive bidding or G2G processes.
- Government-acquired land provided on lease, grid interconnection by National Transmission and Despatch Company (NTDC), and power purchase by CPPA.
- A 25-year Build-Own-Operate-Transfer (BOOT) project term, with specific financial and regulatory provisions.
- Solar PV Generation on 11 kV Feeders
This initiative addresses power quality issues by integrating medium-scale solar PV systems into the medium-voltage network. Solar PV projects up to 4 MW will be procured through competitive bidding to enhance local voltage and reduce national grid strain without significant infrastructure upgrades. Guidelines include:
- Installation of suitable solar PV capacity at 11 kV feeders of Distribution Companies (DISCOs) through competitive bidding.
- Tariff setting and adjustments by NEPRA, with project completion within 200 days from the Energy Purchase Agreement (EPA) signing.
- Fiscal incentives and a 25-year Build-Own-Operate (BOO) project term, subject to mutual extension and approval.
- Solarization of Public Sector Buildings
Solarization involves installing solar PV systems on public buildings to reduce electricity bills, alleviate distribution company dues, and promote solar deployment. This initiative is implemented through two models: Lease Model and Own-cost Model. Guidelines include:
- Installation through bidding by public sector entities on a 10-year BOOT basis or own-cost model.
- Government departments providing installation space, with guaranteed annual energy yields by vendors.
- Fixed quarterly payments determined through bidding, guaranteed in advance, with AEDB facilitating procurement and third-party validation.
Tariff and Financial Provisions
All tariffs under these procurement modes will be denominated in Pakistani Rupees (PKR). The guidelines ensure transparent financial transactions, including bid bonds, performance guarantees, and project processing fees, as detailed in the Annexure.
Questions and Answers on the Framework Guidelines for Fast Track Solar PV Initiatives 2022
- Q: What is the primary objective of the Fast Track Solar PV Initiatives 2022? A: The primary objective is to substitute expensive imported fossil fuels used for power generation with Solar PV energy deployments, thereby lowering the average system generation cost and creating a sustainable power sector.
- Q: What are the key benefits of solar PV energy mentioned in the guidelines? A: Solar PV energy is cost-effective, environmentally friendly, and helps reduce reliance on imported fuels, contributing to energy security and economic stability.
- Q: How does the initiative aim to utilise existing transmission networks? A: The initiative aims to maximise the utilisation of existing transmission networks for off-take of electric power for Federally-owned public power utilities (FPUs).
- Q: What role does the Central Power Purchasing Agency (CPPA) play in the initiative? A: CPPA identifies imported fuel-based thermal power plants whose fuel can be substituted with solar energy during the day.
- Q: How will project land for solar PV generation be acquired? A: Project land will be acquired by NTDC and provided to the project sponsors on lease by the Government of Pakistan through AEDB.
- Q: What is the term of the solar PV projects under the guidelines? A: The term of the project shall be 25 years on a Build-Own-Operate-Transfer (BOOT) basis.
- Q: What type of bidding approach will be adopted for solar PV projects? A: A single-stage, two-envelope bidding approach will be adopted.
- Q: What financial protections are provided to ensure timely payment under the Energy Purchase Agreement (EPA)? A: Payment under the EPA will be ensured on the 60th day after invoice through bank debit from a dedicated solar account maintained by CPPA.
- Q: What is the maximum capacity for solar PV projects on 11 kV feeders? A: Solar PV projects of suitable capacity up to a maximum of 4 MW will be procured.
- Q: How will the tariff for solar PV projects be determined? A: NEPRA may determine a unit-based (PKR per kWh) benchmark tariff for conducting the competitive bidding by AEDB.
- Q: What indexations/adjustments are allowed in the tariff? A: Eighty percent (80%) of the total tariff shall be indexed for exchange rate variations (USD/PKR) at COD and thereafter quarterly; the remaining twenty percent (20%) shall be adjusted one-time at COD; and interest rate indexation for LIBOR/SOFR and KIBOR shall be provided.
- Q: What is the financial closing (FC) period for projects? A: Projects are required to achieve Financial Closing (FC) within six months of issuance of the Letter of Support (LOS).
- Q: Are there any tax exemptions for solar PV projects? A: Yes, all machinery, equipment, and other related goods and materials required for deployment of Solar PV projects shall be exempted from all import-related duties and taxes.
- Q: What is the income tax rate for profits and gains derived from solar PV projects? A: Profits and gains derived from the sale of electricity by an IPP from an electric power generation project shall be subject to 15% income tax for the term of the project.
- Q: What is the role of NEPRA in the competitive bidding process? A: NEPRA will provide a unit-based (PKR per kWh) benchmark tariff for conducting the competitive bidding by DISCOs.
- Q: How long do projects have to achieve COD from the date the EPA is signed? A: Projects are required to achieve COD within 200 days from the date the EPA is signed.
- Q: What is the term of the project under the Solar PV Generation on 11 kV Feeders initiative? A: The term of the project shall be 25 years on a Build-Own-Operate (BOO) basis, which may be extended with mutual consent of the parties subject to approval by NEPRA.
- Q: What are the fiscal incentives for solar PV projects? A: Fiscal incentives for Solar PV projects under the laws of Pakistan prevalent on the date of the bid submission will continue to apply.
- Q: What payment guarantees are provided under the Solar PV Generation on 11 kV Feeders initiative? A: Payment under the EPA will be guaranteed on the 30th day after invoice through first charge on the collection account of DISCOs assigned to the IPPs in lieu of the IA/GoP Guarantee.
- Q: What is the purpose of solarizing public sector buildings? A: The purpose is to meet a certain portion of electricity load through clean solar energy technology, reduce electricity bills of public offices, and relieve electricity utilities/distribution companies from long-term dues.
- Q: What are the two models for installing Solar PV systems on public sector buildings? A: The two models are the Lease Model (10-year BOOT basis) and the Own-cost model.
- Q: What will happen to the power generated by Solar PV systems installed on public sector buildings? A: All power generated by Solar PV systems will become the property of the Government department.
- Q: What is the role of AEDB in the solarization of public sector buildings? A: AEDB will prepare the model bidding documents/contract agreements, support public sector entities in procurement, and facilitate third-party validation of installations.
- Q: What guarantees are provided for the minimum annual energy yield of Solar PV systems? A: The minimum annual energy yield will be guaranteed by the vendor/lessor.
- Q: What financial arrangement is ensured for the Lease Model in solarizing public sector buildings? A: Fixed quarterly payments determined through bidding will be guaranteed in advance for the first eight years and the remaining two years in arrears through a Revolving Bank Guarantee or any other appropriate arrangement.
- Q: How will the payment under the Lease Model be ensured? A: The payment will be ensured through a Revolving Bank Guarantee or any other appropriate arrangement ensuring timely payment to the lessor.
- Q: How will the third-party validation of Solar PV systems be conducted? A: AEDB will facilitate third-party validation of all installations prior to commissioning, after which the systems will be maintained by the relevant public sector entities.
- Q: What currency will the tariffs for solar PV projects be denominated in? A: The tariffs shall be denominated in Pakistan Rupees (PKR).
- Q: What are the instances of payment and associated fees as per Annexure-1? A: Fees and charges include issuance of RFP (US$ 500), bid processing fee (US$ 500/MW with an upper cap of US$ 50,000), bid bond (US$ 10,000/MW), performance guarantee (US$ 20,000/MW), project processing fee/LOS issuance fee (US$ 800/MW), and upon achievement of financial closing (US$ 500/MW).
- Q: What is the upper cap for the bid processing fee? A: The upper cap for the bid processing fee is US$ 50,000.
- Q: What is the performance guarantee fee? A: The performance guarantee fee is US$ 20,000/MW.
- Q: What is the project processing fee for issuance of the Letter of Support (LOS)? A: The project processing fee is US$ 800/MW, with a minimum of US$ 20,000 and a maximum of US$ 400,000.
- Q: What is the fee upon achieving financial closing? A: The fee upon achieving financial closing is US$ 500/MW, with a minimum of US$ 10,000 and a maximum of US$ 200,000.
- Q: What is the importance of solar PV energy in the national energy supply mix? A: Solar PV energy promises a higher proportion of the national energy supply mix, helping increase the share of clean indigenous power generation sources while ensuring the supply of inexpensive electricity.
- Q: How has the price of imported fuels impacted Pakistan’s foreign exchange reserves? A: The price of imported fuels has dramatically increased in recent years, sharply depleting Pakistan’s foreign exchange reserves and substantially increasing the average generation cost.
- Q: What are the GOP’s policy objectives addressed by the Fast Track Solar PV Initiatives? A: The GOP’s policy objectives include energy security, affordability of electricity, environmental protection, and sustainable development.
- Q: What is the expected impact of solar PV energy on the average generation cost? A: Solar PV energy is expected to lower the average generation cost by substituting imported fossil fuels used during the day.
- Q: What is the competitive bidding process for solar PV projects? A: The competitive bidding process involves a single-stage, two-envelope bidding approach to procure solar PV projects.
- Q: What are the technical and contractual limitations considered for fuel substitution with solar energy? A: The technical and contractual limitations include the capacity of solar PV generation that can be procured based on CPPA’s identification of thermal power plants for fuel substitution.
- Q: What are the steps to achieve the Letter of Support (LOS)? A: Steps to achieve the LOS include submitting a bid bond, performance guarantee, and project processing fee as per the specified amounts in Annexure-1.
- Q: What is the significance of the tariff benchmark for competitive bidding? A: The tariff benchmark, determined by NEPRA, ensures a fair and competitive bidding process by providing a unit-based tariff (PKR per kWh) for solar PV projects.
- Q: What is the indexation for the total tariff in solar PV projects? A: Eighty percent (80%) of the total tariff is indexed for exchange rate variations (USD/PKR), and twenty percent (20%) is adjusted one-time at COD. Interest rate indexation for LIBOR/SOFR and KIBOR is also provided.
- Q: What are the project size and timeline considerations for achieving COD? A: Projects must achieve COD within ten to twenty-four months after financial closing, depending on the project size.
- Q: What import-related benefits are provided to solar PV projects? A: All machinery, equipment, and other related goods and materials required for solar PV projects are exempted from all import-related duties and taxes.
- Q: How does the initiative address income tax for solar PV projects? A: Profits and gains derived from the sale of electricity by an IPP from an electric power generation project are subject to a 15% income tax for the term of the project.
- Q: What are the fiscal incentives for solar PV projects on the date of bid submission? A: Fiscal incentives under the laws of Pakistan prevalent on the date of the bid submission will continue to apply.
- Q: What guarantees are provided for payment under the EPA for solar PV projects on 11 kV feeders? A: Payment under the EPA is guaranteed on the 30th day after invoice through first charge on the collection account of DISCOs assigned to the IPPs.
- Q: What is the main purpose of solarizing public sector buildings? A: The main purpose is to reduce electricity bills, encourage solar PV deployment, and relieve distribution companies from long-term dues.
- Q: How is the fixed quarterly payment for the Lease Model in solarization determined? A: The fixed quarterly payment is determined through bidding and guaranteed in advance for the first eight years, with the remaining two years in arrears.
- Q: What is the role of AEDB in the procurement process for solarizing public sector buildings? A: AEDB prepares model bidding documents, supports public sector entities in procurement, and facilitates third-party validation of installations.
- Q: How does solar PV energy contribute to environmental protection? A: Solar PV energy reduces reliance on fossil fuels, lowering greenhouse gas emissions and contributing to cleaner air and environmental protection.
- Q: What is the significance of competitive bidding in the deployment of solar PV projects? A: Competitive bidding ensures transparency, value for money, and encourages private sector investment in renewable energy projects.
- Q: What is the expected impact of solar PV energy on electricity affordability? A: Solar PV energy is expected to provide affordable electricity by reducing generation costs and lowering reliance on expensive imported fuels.
- Q: What is the maximum period for achieving COD for solar PV projects under the substitution initiative? A: The maximum period for achieving COD is twenty-four months after financial closing.
- Q: How does the initiative address the pressure on foreign exchange reserves? A: The initiative reduces reliance on imported fuels, easing the pressure on foreign exchange reserves.
- Q: What is the benefit of decentralised, medium-scale solar PV power? A: It improves local losses and voltage situations, providing cheap electricity to the national grid without major infrastructure upgrades.
- Q: How are the fiscal incentives for solar PV projects maintained? A: Fiscal incentives are maintained under the laws of Pakistan prevalent on the date of the bid submission.
- Q: What is the significance of the dedicated solar account for CPPA? A: The dedicated solar account ensures timely payment for power generated under the EPA, contributing to financial stability for solar PV projects.
- Q: How does the initiative encourage private sector investment? A: By providing a transparent competitive bidding process and fiscal incentives, the initiative encourages local and foreign private sector investment in renewable energy deployment.
- Q: What is the significance of the grid interconnection provided by NTDC? A: The grid interconnection ensures the efficient off-take of solar-generated power into the national grid, facilitating the integration of renewable energy.
- Q: How does the initiative address the issue of power quality in Pakistan? A: By integrating solar PV power into the medium-voltage network, the initiative aims to alleviate power quality issues such as outages and low voltage.
- Q: What is the role of the competitive bidding process in the deployment of solar PV projects? A: The competitive bidding process ensures a fair and transparent selection of projects, promoting cost-effectiveness and value for money.
- Q: How does the initiative contribute to sustainable development? A: The initiative promotes the use of clean energy sources, reducing environmental impact and supporting long-term sustainable development goals.
- Q: What are the technical and contractual limitations considered in the solar PV substitution initiative? A: Limitations include the capacity for solar PV generation that can replace imported fuels, based on CPPA’s identification and technical feasibility.
- Q: How are tariffs for solar PV projects indexed? A: Tariffs are indexed for exchange rate variations and adjusted for interest rate changes to ensure financial viability over the project’s term.
- Q: What is the importance of the lease model in solarizing public sector buildings? A: The lease model provides a cost-effective approach for public sector entities to adopt solar energy without upfront capital expenditure.
- Q: What are the benefits of solar PV energy for public sector buildings? A: Benefits include reduced electricity bills, cleaner energy, and long-term cost savings for public offices.
- Q: How does the initiative ensure timely payment for solar PV projects? A: Payment is guaranteed through dedicated accounts and financial arrangements, ensuring reliable cash flow for project developers.
- Q: What is the role of NEPRA in the solar PV initiative? A: NEPRA sets benchmark tariffs, oversees competitive bidding processes, and ensures regulatory compliance for solar PV projects.
- Q: How does the initiative align with Pakistan’s energy security goals? A: By reducing dependence on imported fuels and promoting indigenous solar energy, the initiative enhances national energy security.
- Q: What is the importance of project land acquisition by NTDC? A: It facilitates the provision of land for solar PV projects, streamlining the development process and ensuring project viability.
- Q: How does the initiative promote environmental sustainability? A: By encouraging the use of solar PV energy, the initiative reduces carbon emissions and environmental impact, supporting sustainability goals.
- Q: What are the expected economic benefits of the solar PV initiative? A: Economic benefits include reduced energy costs, foreign exchange savings, and increased investment in the renewable energy sector.
- Q: What is the role of government-to-government (G2G) mode in the initiative? A: G2G mode provides an alternative procurement approach, ensuring competitive tariffs and fostering international collaboration.
-
Q: How does the initiative address the fluctuating prices of imported fuels? A: By substituting imported fuels with stable-cost solar energy, the initiative mitigates the impact of international fuel price volatility on electricity generation costs.
