Electric Power Rates in India and Pakistan
Power Rate in Pakistan:
Rs. 3.52/unit for the month of November, 2017.
The reduction in the actual generation cost is mainly because of a decline in fuel prices, zero use of high-speed diesel in the power plants and higher contribution from the cheapest source – hydropower. The furnace oil (Rs. 9.03 per unit) has been replaced by domestic natural gas at Rs. 4.49 per unit and liquified natural gas (LNG) at Rs. 6.33 per unit.
This decision will not affect K-Electric consumers which is privately owned and generates its own power for residents of Karachi. K-Electric currently charges significantly higher rates of Rs. 12.77 per unit (11.50 US cents per unit).
Comparison With India:
Across the border in India, the nation's Central Electricity Regulatory Commission (CERC) has set the national average power purchase cost (APPC) at INR 3.48 (5.43 cents), barring a few states for open access. The APPC will apply during the financial year (FY) 2017-18 and until further orders for deviation settlement with respect to open access, according to Indian media reports.
The latest round of power rate cuts in Pakistan has brought the average electricity unit price (4.60 US cents) lower than that in neighboring India (5.43 US cents).
Future Power Rates:
The average cost per unit of power produced by new power plants being built in Pakistan as part of CPEC will likely be higher. It's mainly due to higher depreciation cost of new plant and equipment and higher guaranteed return on equity (ROE) of 17% for Chinese IPPs (Independent Power Producers). The 17% return on equity in Pakistan is higher than 4% to 15% ROE for power companies in India.
The average return on equity for almost 8,000 large US firms is 14.49%. The power utility companies – with an average of 10.13% – are on the lower end of the spectrum because they are viewed as less risky investments.
In the United States, the rate of return varies significantly from state to state, as each state regulator has exclusive authority to regulate utility operations as they choose.
In Advance Energy Economy (AEE) Power Portal database, which tracks ROE for over 100 investor-owned utilities across the country, the highest allowed ROE belongs to Alabama Power Co., at 13.75% and the lowest to United Illuminating Co. (CT) at 9.15%.
Within the US states, Alabama being seen as relatively less safe for investment, offers 13.75% return. So why is it such a surprise to see Pakistani regulator offer Chinese investors a higher rate of return of 17%?
The current per unit average cost of electricity to consumers in Pakistan is 4.60 US cents while the average in India is 5.43 US cents. Per unit cost of electricity in Pakistan is likely to be bit higher with new capacity being built as part of China Pakistan Economic Corridor due to higher guaranteed rates of return offered to attract Chinese investors. However, plentiful supply of electricity from CPEC power projects will significantly boost economic growth and create millions of new jobs.
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