Kathmandu: Despite the government’s decision to promote small-scale hydropower projects by reopening Power Purchase Agreements (PPAs) for projects of up to 10 MW, the policy has yet to be implemented.
Through the budget announced on May 29, Finance Minister Swarnim Wagle had declared that PPAs for hydropower projects with capacities of up to 10 MW would be reopened immediately. However, nearly a month has passed since the announcement, and the Nepal Electricity Authority (NEA) has yet to make any decision on the matter.
The government decided to reopen PPAs for projects of up to 10 MW in a bid to encourage small investors and attract fresh investment into the hydropower sector. The decision was to allow PPAs under the “take-or-pay” modality.
Why has it been delayed?
According to the budget for the current fiscal year, electricity generated during the wet season is to be procured through a competitive mechanism. Acting Managing Director of the NEA, Dirghayu Kumar Shrestha, said this provision has created uncertainty regarding the reopening of PPAs.
“It is still unclear whether the provision of procuring electricity competitively during the wet season applies to projects below 10 MW or only to larger projects,” Shrestha said. “If electricity is purchased through competitive bidding during the wet season, smaller projects may fail to achieve financial closure. Therefore, this issue requires detailed discussion.”
Shrestha stated that PPAs for projects up to 10 MW would only be reopened once the government provides clear written instructions.
Energy Minister Biraj Bhakta Shrestha has already discussed the issue with Finance Minister Wagle. The Ministry of Energy has reportedly urged the NEA to proceed with an appropriate decision. NEA officials say PPAs are likely to reopen once the energy minister issues formal instructions.
In the previous budget, the government had decided to sign PPAs under the “take-and-pay” modality, which effectively halted PPAs for all categories of hydropower projects.
The government maintains that small hydropower projects form the foundation of Nepal’s hydropower development and therefore deserve priority. Private sector developers that initially started with small-scale projects have now grown capable of developing projects with capacities of several hundred megawatts.
At present, the private sector is also actively involved in developing reservoir and large-scale hydropower projects. Examples include the 341 MW Budhigandaki Hydropower Project and the 285 MW Upper Tamor Hydropower Project, both currently under construction.
According to the Department of Electricity Development (DoED), 23 projects with capacities below 1 MW have already obtained generation licenses, with a combined installed capacity of 17.65 MW. Likewise, 59 projects with a combined capacity of around 50 MW have applied for survey licenses.
The government classifies projects ranging from 10 kW to 100 kW as micro-hydro and those between 100 kW and 1 MW as mini-hydro projects. The Alternative Energy Promotion Centre (AEPC) has also been playing a role in promoting such projects.
Shrestha said that reopening PPAs for projects of up to 10 MW could facilitate around 300 MW worth of projects.
President of the Independent Power Producers’ Association, Nepal (IPPAN), Mohan Dangi, said the private sector remains optimistic that the NEA will reopen PPAs, as the provision has already been included in the national budget.
Nepalpurbadhar