Electricity: The Druk Green Power Corporation (DGPC) has proposed for a revision in domestic power generation tariff from Nu 1.39 a unit of electricity to Nu 1.84.
This means that DGPC would be selling electricity to the Bhutan Power Corporation (BPC) at 45 chheltrums more than the current price, should the proposal get approved.
The current three-year tariff cycle began in October 2013 and will end on June 31, this year. The proposed tariff is for the period between July 2016-June 2019.
The Bhutan Electricity Authority will have to approve the proposals for both DGPC and BPC after a public hearing scheduled on June 3. During the public hearing, BEA will also allow consumer groups to present their comments on the tariff proposals.
BEA revised the generation tariffs in 2013 from Nu 1.20 per unit to Nu. 1.39.
As is the norm, 15 percent of the total power generation will be provided as royalty energy to the government. The government uses the royalty energy as a subsidy to various consumer groups, except high voltage (HV) consumers.
DGPC, in its proposal stated that 15 percent royalty energy corresponds to an energy volume of 1,095 million units (MU) annually. If the proposed tariff is approved, royal energy is worth more than Nu 2 billion (B).
The tariff calculations were done based on the tariff determination rules and regulations and the domestic power tariff policy.
The tariff determination model considers the weighted average cost of capital (WACC). It is commonly referred to as the firm’s cost of capital.
For example, the capital funding of a company is made up of debt and equity. Lenders and equity holders expect a certain return on the funds they have invested. So WACC determines the return that both equity owners and lenders can expect. To determine WACC, various factors like cost of equity, cost of debt, return on asset and tax rate are accounted with due consideration to inflation, operation cost and investment plans among others.
In its proposal, the DGPC arrived at 15.98 percent WACC. However, the DGPC has not included its investments in new projects, for the purpose of tariff determination. The cost involved in investigation and construction of new hydropower projects is directly booked to new projects and is accounted separately.
The investment plan includes only the institutional investments pertaining to the existing Plants and the Corporate Office, it was stated in the proposal.
By the end of the year, DGPC’s loan balance is expected reach Nu 4.5B
Druk Green has forecasted an average annual generation of about 7,390 MU of energy from its four existing plants and additional generation from the Tsibjalumchhu diversion scheme.
Import of energy during the lean months is projected to increase from 26 MU in 2016 to 195 MU in 2019.
Last year, the DGPC generated a revenue of more than Nu 14B from sale of electricity against its expenditure of more than Nu 6.8B. This resulted in operating profit of Nu 7.4B. After deducting more than Nu 2B tax, the company made a profit of Nu 5.15B.
Meanwhile, the BPC has also proposed for a tariff revision. However, BPC has considered the current generation tariff of Nu 1.39 a unit in its proposal. As permitted by the regulation, any revisions of the prevailing generation tariffs will be incorporated in the final tariffs.