The Power Sector to serious liquidity constraints at different points in the value chain of the power sector. This represents a classic case of breakdown of governance. 23.3. Sustaining the power sector Incentives for Higher Consumption Currently, almost 30 percent of the generation capacity is not being used. There is, therefore, a strong case for providing incentives for higher consumption by all types of consumers, in relation to the base level of consumption in the corresponding period of the previous year. The design of the incentive scheme could be as follows: Further, the differential between the peak and off-peak tariffs should be reduced. This scheme should come into effect from the 1st of July 2021. % Increase over Base Level 0 – 20% 20% or More % Discount in the Tariff on Incremental Consumption 15% 30% There is a case especially for bringing down industrial tariff. The resulting increase in output will lead to higher tax revenues than the loss in revenues from the tariff. This could be almost three times the direct revenue loss. Adhering to the Merit Order of Power Generation There is wide variation in the fuel cost per Kwh, depending upon the fuel source and the efficiency in power generation. The distribution of plants by fuel cost per Kwh is given in Table 23.11. The cost ranges from less than 1 Rs to above 30 Rs per Kwh. Given the spare capacity, if the 100 most efficient plants are used then the saving in fuel cost could exceed 20 percent. This will lead to a corresponding reduction in the fuel adjustment charge. Table 23.11: Merit Order of Plants Fuel Cost(Rs/ Kwh) 0.77 – 5.00 5.01 – 10.00 10.01 – 12.50 12.51 – 15.00 15.01 – 17.50 17.51 – 20.00 20.01 – 30.00 30.01 and above TOTAL Source: NEPRA State of Industry Report Number of Plants 4 34 27 22 19 8 13 3 130 Cumulative Number 4 38 65 87 106 114 127 130 227