Major Departure in Power Sector Reform

Hydropower developers have something to cheer about as the Nepal Electricity Authority (NEA) – the country’s sole power off taker— has fixed the tariff for peaking run of the river (PRoR) projects and reservoir projects for the first time. The recent decision of the NEA Board has paved the way for domestic and foreign investors to invest in PRoR and reservoir projects through which they can avail better tariffs. The government has given momentum to power sector reform as per its plan to develop 10,000MW hydroelectricity in 10 years. This, as envisioned by the ‘Energy Crisis Prevention and Electricity Development Decade’, a document of the Ministry of Energy to exploit the hydropower potential of the country. Electricity generators of reservoir projects who have completed their projects after April 27 can sell per unit of electricity at Rs 12.40 during dry season (from December to May) and at Rs 7.10 during wet season (from June to November). Likewise, for PRoR projects, rates have been set at Rs 10.55 per unit and Rs 4.80 per unit for dry and wet seasons, respectively. The PRoR projects can be operated for at least one to six hours during peak time on a daily basis. Developers now have to meet 30 percent of the total energy production in the dry season. Along with extension of the dry season period from four months to six months, NEA has also raised the dry season energy requirement from 15 percent (of the total capacity) to 30 percent. [caption id="attachment_3586" align="alignnone" width="587"] New Rates[/caption] Earlier, NEA had dry season and wet season rates only for run-of-the-river (RoR) projects. There is already domination of RoR projects in the system which generate less than one third of their rated capacity in the dry season. NEA, however, has not scrapped the earlier provision of a four-month dry season (mid-December to mid-April) and 15 percent energy requirement during dry season for RoR projects. By opting for this provision, generators will get the dry season rate of Rs 8.40 per unit for four months. This provision has also paved the way for those wanting to design high capacity projects to generate more power in the wet season at full work capacity. In wet season, RoR projects have to sell energy to NEA at Rs 4.80 per unit. As per the recent provision, RoR projects, which can meet the energy requirement of 30 percent for six months (from June to November) will also get dry season rate of Rs 8.40 per unit for six months.

Dollar PPA to attract foreign investment

As proposed by the Ministry of Energy (MoE), the NEA Board has approved power purchase agreement with foreign investors above 100 megawatts and in US dollars. Along with the provision of PPA in US dollars for foreign investment projects, developers will be able to sign grid connection agreement with NEA for the payback period of foreign loan or for 10 years whichever comes first. This provision has ended the debate to sign grid connection agreement with foreign investment projects in US dollar or not. NEA’s deal with two projects— Khimti and Bhotekosi— to purchase power in US dollars has raised NEA’s expenses in power purchase in addition to rise in interest rates of US dollars. In addition to these new rates, NEA will also provide foreign investment projects with an additional three percent as inflation adjustment for the initial eight years. The Ministry of Energy has said that it will ask the Ministry of Finance to compensate any loss that NEA could face while adopting the aforementioned tariff structure, especially for foreign investment projects due to fluctuation in exchange rates.

Standard PPA template

NEA along with introducing new rates for reservoir and PRoR projects, has started framing three standard templates for PPA for three categories of projects. NEA will provide fixed rates to the developers while signing PPA with them. NEA is going to develop a standard template for PPA based on the capacity and source of investment of the projects, according to Prabal Adhikari, Chief of Power Trade Department of NEA. Reportedly, separate templates for projects of up to 100MW and investment in local currency, for those above 100MW with investment in local currency, and for projects of above 100MW with investment in both foreign currency and local currency, will be developed in line with the recent decision of the NEA board. NEA has said that for foreign investment projects it will design the template based on the PPA of 37.6MW Kabeli A project, which was awarded through global competitive bidding and its PPA was approved by the cabinet and was included as a component of Project Development Agreement. Projects based on their nature— reservoir, PRoR and RoR will get the aforesaid rates while signing grid connection agreement with power utility.