Consumers in the country could expect lower electricity tariff rates, when the new rates are implemented on July 1 for the next three-year cycle after the current rates expire on June 30.
The power utility companies, Druk Green Power Corporation (DGPC), Mangdechhu Hydro Project Authority (MHPA), and Bhutan Power Corporation (BPC) have proposed to increase the domestic electricity tariff rates for July 2022 to June 2025 to Bhutan Electricity Authority (BEA).
However, the Association of Bhutanese Industries (ABI), representing the consumers, had also submitted a proposal for a reduction in the rates.
BEA’s chief executive officer, Samdrup K Thinley said the authority was reviewing the cost of supply along with the Domestic Electricity Tariff Policy 2016, the Tariff Determination Regulation 2016, and the present economic situation like interest rate and inflation, among others.
“The consumers always wanted lower tariff rates and power utilities want higher,” Samdrup K Thinley said, adding that the approved cost would be submitted to the government for the allocation of subsidy by the end of this month.
As per the general electricity tariff rate trends, he said that the tariff rates have to be in decreasing trend with no new addition of the power plants. “There will be a sharp decrease when the hydropower plant loans are paid off.” Most of the hydropower plants in Bhutan have a loan period of 12 years.
Similarly, ABI President, Pema Tenzin said that the power tariff rates should be reduced for all consumers because it is a cost-plus model, and without the addition of any new plants, it has to be depreciated.
“The lifeline of the industry is power. One of the comparative advantages for the manufacturers in Bhutan is power as we do not have minerals logistically,” he said. “Any change in power has a direct impact on the viability of the industry.”
More than 60 percent of the electricity generated in the country is consumed by the industries.
Samdrup K Thinley also said that if the Punatsangchhu hydropower plants become operational during the cycle period, there is a provision to review in determining the tariff in the current revision.
However, he added that the addition of Punatsangchhu plants would come with a high generation tariff.
In terms of electricity pricing in the country, the domestic electricity tariff policy, and tariff determination regulations were put in place to ensure fairness and transparency.
It also ensures that unnecessary and unreasonable costs incurred by the power utility companies are not passed down to the consumers.
DGPC, as operator of hydropower plants, bears the cost of generating electricity and determines the generating cost in accordance with tariff determination rules and regulations.
DGPC sells electricity to BPC, a utility company responsible for transmission and distribution, that charges the consumers.
DGPC, in its tariff revision, proposed a generation cost of Nu 1.54 per unit (KWh) of electricity. According to DGPC, it is a reasonable increase of 8.45 percent from the current tariff of Nu 1.42 per unit.
It was determined based on the total cost of the existing hydropower plants, Basochhu, Kurichhu, Chukha, and Tala, and the plants’ average annual generation. The cost also takes into account the cost of debt financing the DGPC caters to, its cost of equity, and returns.
DGPC, in its proposal, stated that the upward revision considered the cost of generation reflecting the cost of efficient business operation while ensuring the increase in tariff within the permissible limits of the Tariff Policy and regulatory framework.
“This will also ensure that the national revenues are safeguarded and prevent the erosion of export revenues by domestic sales and help ensure a steady flow of revenues to the government from the hydropower sector,” it added.
Similarly, the MHPA proposed Nu 3.85 per unit which is an increase of 2 percent over the prevailing tariff of Nu 3.77 per unit based on the recovery of the cost of generation reflecting the cost of efficient business operation.
The ABI proposed Nu 1.38 per unit as a generation tariff for DGPC and Nu 3.61 per unit for MHPA. This is a decrease of 2.82 percent and 4.24 percent from the current level of Nu 1.42 per unit and Nu 3.77 per unit for DGPC and MHPA respectively.
“There was no clarity from a regulatory perspective, the same values that were approved by BEA for the current tariff period (2019-2022), have been considered for the proposed tariff period,” the proposal stated.
The BPC categorises its consumers based on electricity consumption into light voltage (LV), medium voltage (MV), high voltage (HV), and wheeling. The wheeling charge is applied for exported energy.
The current tariff for LV block I (urban) is Nu 1.28 per unit, Nu 2.68 for block II, and Nu 3.57 for block III.
The actual cost of supply to the LV consumers is Nu 5.06 per unit of electricity, which is the unsubsidised cost.
The ABI proposed an average unsubsidised tariff for LV consumers of Nu 4.94 per unit. This translates into a decrease of about 2.37 percent from the current level of Nu 5.06 per unit.
Similarly, Nu 4.89 per unit for MV consumers. It was a decrease of about 5.05 percent from the current level of Nu 5.15 per unit.
For HV consumers, Nu 2 per unit of electricity was recommended. It was a decrease of 11.5 percent from the current level of Nu 2.26 per unit.
However, the ABI stated that the tariff calculated and recommended is the upper limit as there is room for a lot of the other input variables to be optimised.
The government gets royalty of 15 percent from the hydropower earnings and the government uses this amount to subsidise the cost.
For instance, the BPC charges LV consumers Nu 5.06 per unit of electricity at the current rate but because of the subsidy, the consumers in the LV block are charged less than Nu 3.6 per unit.
For the free 100 units of electricity for the rural block I consumers, BPC charges the government the actual cost of supply (Nu 5.06 a unit) which accounts for Nu 506.
Similarly, for highlanders in block I consumers, who receive free 200 units of electricity, the government provides Nu 1,012 to the BPC.