Cost of electricity generation

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The average cost of fuel used for power generation doubled last month compared to January 2021, raising serious inflation concerns among commercial and residential consumers. Even if we look at Nepra data for December 2021, fuel costs were still up almost 50%.

Although the increase is mainly due to reasons beyond the government’s control — the prices of coal, natural gas and petroleum products have risen sharply around the world — it is clear, in retrospect, that the will to encouraging consumers to use electricity instead of gas during the winter could come back to bite everyone.

The impact of rising fuel prices is also magnified because fuel oil, diesel, coal and natural gas represent more than 61% of our total fuel sources for electricity generation, consumption of these fuels as a share of all sources increasing by more than 5% over last year. In fact, high-speed diesel, which accounts for just 6% of total electricity generation, has become so expensive that it has been blamed for almost single-handedly driving up the average price. A unit of electricity generated from diesel cost nearly Rs 26 last month, compared to Rs 14 for coal, which has also risen and accounts for more than a third of total electricity generation. Unfortunately, this is where the government can be balanced. Despite its small share, diesel consumption has actually increased almost 12 times since last year, thanks to a short-sighted reaction to high gasoline prices a few months ago.

Imported LNG costs nearly 17 rupees per unit, while local natural gas costs just over 7 rupees per unit, accounting for 7% and 14% of total production. Nuclear, which costs barely 1 Re per unit, accounted for 14% of total production. Reports also indicate that generation from clean sources such as hydel, wind and solar was negligible due to bad weather, which also influenced the spike in costs. Reports now suggest that consumer electricity tariffs will rise by over 6 rupees per unit in our March bills which, if approved by the government, would represent an increase of over 93%. Even the best-case scenarios for consumers are of a lesser increase, with the cash-strapped federal government absorbing some of the loss.

Published in The Express Tribune, February 22n/a2022.

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