NEA concerned by newly introduced PPA guideline

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    Feb 28, 2017- The Nepal Electricity Authority (NEA) has formed a committee to review the possible implications of the recently introduced power purchase agreement (PPA) guideline on its balance sheet and hydroelectric projects built by private power producers.

    The NEA decided to establish the panel after the Energy Ministry framed the guideline without holding consultations with the state-owned power utility.

    The NEA’s board of directors formed the committee last week to find out the probable effects that could emerge after it starts signing PPAs with power producers based on the new guideline. Currently, the NEA is the sole buyer of the electricity produced in the country.

    “We are not opposing the guideline introduced by the ministry. But as we are the implementing government agency, we want to make sure that there are no negative effects once the guideline goes into effect,” said NEA Managing Director Kulman Ghising who is also the member secretary of the NEA board. “Therefore, we have formed a committee to review the guideline and submit a report to the NEA board.”

    The authority’s major concern is the length of the dry season for run-of-the-river type projects which has been increased from four months to six months (December to May). As the power purchase rate offered to power producers during the dry period is significantly higher than that offered during the wet season, this means higher costs for the NEA.

    The power purchase rate for run-of-the-river type projects during the wet season has been fixed at Rs4.80 per unit while the dry season rate is Rs8.40 per unit.

    “After this provision goes into effect, the power purchase cost to the authority will increase by 10 to 12 percent as per our initial estimate,” said a senior NEA official.

    “This might further hit the financial health of an already weakened authority. So the review committee will explain the consequences of increasing the period of the dry season to the NEA board.”

    Another concern for the NEA is the mandatory provision requiring the hydropower developer to supply 30 percent of the total power output during the dry season and the rest during the wet season. As per the existing law, power producers have to supply only 15 percent of the total annual energy output during the dry season.

    Following the inclusion of this provision in the guideline, private power producers have complained that they might have to redesign run-of-the-river projects.

    Currently, the NEA signs PPAs with projects that can operate at full capacity 40 percent of the time. If power producers have to provide 30 percent of the total energy output during the dry season, the projects will have to be able to operate at full capacity for, say, 50 percent of the time.

    But reconfiguring the project design in this manner will raise the project development cost, which might work as a deterrent for potential investors.

    Source: The Kathmandu Post