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Power production must be based on merit order

Independent power producers (IPPs) have urged the government that power production should be based on merit order; cheaper source first criteria, to bridge the gap between supply and demand, while keeping circular debt at bay.

Sources in the IPPs advisory committee said that the interim government should provide gas supply to power producers having high efficiency to generate maximum electricity, which was in fact, a simpler formula to produce optimal power against limited gas supply. Furthermore, fuel supplies should be ensured based on merit order to generate cheaper energy at the maximum level.

The authorities did not use these IPPs at their full capacity and made Gencos run at full capacity, thus inflicting a huge loss on account of efficiency and consuming more fuel to generate as much power as IPPs would have made with less fuel.

The IPPs’ unit fuel cost under the 2002 policy on furnace-based power plants stood at Rs14.095 against Rs21.04 of Gencos, which could have saved Rs6.94 per unit from January to September last year. The savings on gas-based plants was calculated at Rs2.36 per unit, which was never availed by the government.

Similarly, if gas is supplied to power producers having less capacity to generate electricity, it would be wasted, sources added.

“If done efficiently, this would not only contain the ballooning circular debt that has reached an alarming level of Rs872 billion, but would also provide relief to power producers on temporary basis by increasing their productivity through timely payments as well as ensuring uninterrupted electricity supply to different industries,” CEO of an IPP said.

He added that the interim government should ensure maximum recovery of charges against billing to prevent the energy sector from facing further financial losses.

“Circular debt is piling up constantly, but if the recovery system is tightened, which is possible by a neutral government, the non-payment of dues could be contained,” he said.

“These measures would help the interim government to reduce hours of power outages by 30 to 35 percent in the short run.”

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