Kathmandu — The government has initiated a process to allow the private sector to engage in electricity trading. The Ministry of Energy, Water Resources, and Irrigation has begun discussions aimed at granting the private sector permission to trade electricity.
Energy Secretary Chiranjeevi Chataut stated that discussions are underway regarding allowing the private sector to participate in electricity trading.
“The report prepared by former secretary Dinesh Ghimire has been discussed,” he said. “We will send it to the Cabinet after obtaining feedback from the Ministry of Finance and the Ministry of Law.”
The study conducted by the committee led by former secretary Ghimire had analyzed the legal framework and identified a pathway for the private sector to participate in electricity trading.
After the inclusion of the ‘take and pay’ provision in the budget and the subsequent halt in Power Purchase Agreements (PPAs) for run-of-river and semi-reservoir hydropower projects, former Energy Minister Deepak Khadka had formed a study committee under the coordination of Dinesh Ghimire.
So far, the purchase and trading of electricity have been handled solely by the state-owned Nepal Electricity Authority (NEA).
The Ghimire committee’s report, which recommended opening the way for the private sector to engage in electricity trading, was based on Clauses 21 and 22 of the 33-year-old Electricity Act of 2049 (1992).
Regarding the sale of generated electricity, Subsection (1) of Section 21 of the Electricity Act states:
“If anyone wishes to sell the electricity produced under this Act in bulk, the Government of Nepal may purchase it or cause it to be purchased in such a way that it is integrated into the national grid.”
The committee concluded that the phrase “to purchase” in that section refers to the government-owned Nepal Electricity Authority (the government) purchasing electricity, while the phrase “to cause to be purchased” opens the door for the private sector to engage in electricity trading.
Similarly, Subsection (1) of Section 22 of the Electricity Act, which concerns the import and export of electricity, states:
“If a licensed person wishes to import electricity into Nepal for distribution, they may do so with the prior approval of the Government of Nepal as prescribed.”
Likewise, Subsection (2) of Section 22 states:
“If a licensed person wishes to export the electricity they have generated abroad, they may do so by entering into an agreement with the Government of Nepal regarding the matter.”
The committee recommended that the provisions open the way for electricity import and export in the international market.
It further noted that the Electricity Act does not impose any restrictions on the private sector and recommended that the Electricity Regulations be amended, in line with the Act’s provisions, to allow the private sector to engage in electricity trading.
According to Prabal Adhikari, an expert member of the committee, the provisions in Sections 21 and 22 of the Electricity Act do not restrict the private sector. Interpreting those same sections, the study committee made its recommendations in the report.
He said, “Section 40 of the Act provides the authority to formulate necessary rules. Based on that provision, we have recommended amending the regulations accordingly.”
The committee has recommended that, even until the new Electricity Bill is passed, the private sector should be granted permission to engage in electricity trading.
“In short, Section 21 states that the electricity produced by a producer may be purchased in bulk by the Government of Nepal, or the government may cause it to be purchased by integrating it into the national grid,” Adhikari said. “The phrase ‘may purchase or cause to be purchased’ means that the government itself can purchase it, while ‘cause to be purchased’ refers to entities authorized by the government to do so.”
He added, “The committee’s recommendation is that the Electricity Act is flexible enough to allow the establishment of an agency or institution through which such trading can be conducted.”
The Electricity Act, 2049 (1992) does not include the word “trading” anywhere. The committee saw the possibility of opening the door for the private sector to engage in trading by relying on the provisions in Sections 21 and 22.
“Since the Electricity Regulations, 2050 (1993) can be amended, we have also presented the necessary provisions in the report,” Adhikari said.
The committee has recommended classifying electricity trading into six categories. Under this system:
- Those trading up to 150 gigawatts would fall under Category ‘Cha’ (च).
- Those trading between 150 and 300 gigawatts would be in Category ‘Nga’ (ङ).
- Those trading between 300 and 600 gigawatts would be in Category ‘Gha’ (घ).
- Those trading up to 1,800 gigawatts would be in Category ‘Ga’ (ग).
- Those trading up to 3,000 gigawatts would be in Category ‘Kha’ (ख).
- Those trading above 3,000 gigawatts would be in Category ‘Ka’ (क).
The net worth of a company engaged in trading has been set with a cap of two billion. Additionally, it has been recommended that the transmission line infrastructure must be adequate when granting permission for trading.
The Regulatory Commission has also been recommended to prepare directives on ‘open access,’ wheeling charges, and related matters.
The committee has suggested linking electricity trading to a systematic and long-term strategy by operating domestic and cross-border trade through separate companies, amending necessary policies and existing laws, strengthening transmission infrastructure, and ensuring access to regional markets.
In addition, the report includes a detailed study on measures to promote private sector investment, cooperation with friendly countries, and the potential for bilateral, trilateral, and multilateral trade models, according to expert member Adhikari.
After approval by the Council of Ministers and publication in the Nepal Gazette, the private sector will be granted permission to engage in electricity trading.
Recently, with the private sector beginning to enter even large projects, concerns about the market have arisen for the Authority, and policy issues have also been reflected in the budget, according to sources.
So far, the Authority has signed Power Purchase Agreements (PPAs) for nearly 12,000 megawatts. Likewise, applications for PPAs totaling 16,000 megawatts have piled up at the Authority. In the solar energy sector as well, PPAs are ongoing, but since the market cannot be fully absorbed, electricity from the private sector goes to waste during the rainy season.
According to Manoj Silwal, Managing Director of the Authority, the currently connected capacity has reached around 4,000 megawatts, and PPAs have been signed for 12,000 megawatts.
“Production has reached 4,000 megawatts, and PPAs have been signed for 12,000 megawatts,” he said. “There is a need to find markets for consumption and export, which requires a significant investment.”
He added that if the private sector is granted permission, it would be able to sell electricity in the Indian market. The Independent Power Producers’ Association Nepal (IPPAN) has also established a separate company for electricity trading.
“The private sector is ready to engage in electricity trading. We have been preparing for a long time by setting up a company and are ready for business,” said IPPAN Chairman Ganesh Karki. “If the government opens the way, we are ready to trade.”
Nearly half a dozen companies have been seeking permission from the government to conduct electricity trading.
Baahrakhari
