Energy Ministry fixes power purchase rates


    Jan 10, 2017- Domestic hydro firms may not have to wait for prolonged period of time to sign power purchase agreements with Nepal Electricity Authority (NEA), as the Ministry of Energy has introduced a range of rates at which reservoir, peaking and run-of-the-river projects could sell electricity to the state-owned power company.

    As per the rates made public on Monday, reservoir type projects will get Rs12.40 per unit during the dry season (December to May). Power purchase rate (PPR) for the wet season (June to November) has been fixed at Rs7.10 per unit.

    PPR for peaking run-of-the-river projects, meanwhile, has been fixed at a range of Rs10.55 per unit during the dry season and Rs8.40 per unit during the wet season.

    Similarly, run-of-the-river projects exceeding 100MW in capacity will get Rs8.40 per unit during the dry season and Rs4.80 per unit during the wet season.

    These rates will be raised by 3 percent annually for a span of eight years, according to the ministry.The ministry has, however, said return on equity of individual
    project that generates revenue by selling electricity to NEA should be equivalent to or less than 17 percent.

    “The rates published today are subject to change during negotiations with the power purchaser,” MoE Deputy Spokesperson Gokarna Raj Panta said.

    The new rates have been fixed as part of the government’s initiative to implement the National Energy Crisis Reduction and Electricity Development Decade Guideline-which aims to generate 10,000 MW of energy within 10 years-introduced last year.

    A Cabinet meeting held in the third week of February last year had endorsed the guideline, paving the way for the government to introduce new power purchase rates.
    These rates were fixed on the basis of a report prepared by a committee headed by Energy Ministry Joint Secretary Chiranjibi Chataut. A statement issued by the ministry has stated that the government would seek input from stakeholders and make necessary amendments, if necessary.

    “We now intend to shift the modality of Power Purchase Agreement (PPA) from ‘take and pay’ to ‘take or pay’. This will boost confidence of project developers,” Panta said.

    NEA has so far been signing PPA with developers based on ‘take and pay’ model, which gives state-owned power utility leeway to buy energy from hydro projects whenever needed and make payments accordingly. The ‘take or pay’ system, on the other hand, is a structure under which NEA either has to buy predetermined quantum of energy from projects or pay fines.

    According to Panta, the power purchase rates fixed by the ministry will come into effect after NEA’s board endorses the price structure. NEA, however, seems to be in a state of confusion following the introduction of power purchase rates.

    “We have not officially heard from the ministry about the rates made public today. We will give our comments once we go through it thoroughly,” NEA Spokesperson Prabal Adhikari said.

    The Independent Power Producers’ Association Nepal (Ippan), an umbrella body of private hydroelectricity project developers, too isn’t upbeat about the government decision.

    “It will be interesting to see if the new rates can attract project builders, as the cost of building hydropower projects, especially reservoir, is high,” Ippan President Shailendra Guragain said.
    Source: The Kathmandu Post