Private Sector Initiatives Boost Electricity Trade Expansion

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For several years now, independent power producers have been advocating for the inclusion of private companies not only in electricity generation but also in trading. They have been awaiting government permission to establish electricity trading companies.

However, as there is no provision in the Electricity Act 2049 B.S. to allow the private sector to trade in electricity, and the new Electricity Act has not yet been enacted, the demands of energy producers remain unmet.

A new Electricity Bill, which includes provisions to allow the private sector to engage in electricity trading, has been presented in the Federal Parliament. It is currently under discussion in the Infrastructure Development Committee of the House of Representatives. However, it is uncertain when the bill will be passed, opening the electricity trading sector to the private sector.

“In a promising development for Nepal’s energy landscape, the private sector is showing keen interest in participating in electricity trade initiatives. This enthusiasm comes as the country seeks to harness its abundant hydropower potential and explore avenues for regional energy cooperation,” said Ganesh Karki, President of the Independent Power Producers’ Association, Nepal (IPPAN).

Multiple private companies across Nepal have expressed eagerness to engage in electricity trading ventures, signaling a shift towards a more dynamic and market-driven approach in the energy sector.

Ready for Electricity Trading

“Despite IPPAN’s forceful advocacy over the past few years, there has been no resolution. Nevertheless, the private sector stands ready for electricity trading, awaiting government licensing,” Karki told The Rising Nepal.

Five companies have already been established and are awaiting licenses for electricity trading, he said.

Private and public-private joint companies seeking permission for electricity trading include Nepal Power Exchange Limited (NEPEX), established in 2018 by IPPAN, Power Trading Company (PTC), Power Trading and Energy Exchange Limited (PTEEL), and Himalayan Trading Company. Additionally, there is a power trading company as a subsidiary of the Nepal Electricity Authority.

The Nepal Electricity Authority (NEA) is the sole buyer of electricity generated by private companies. However, due to market uncertainties, the NEA has frequently halted Power Purchase Agreements (PPAs) with private sector run-of-river projects.

“If power trade is opened to the private sector, privately-owned power trading companies can enter into PPAs with developers independently, exploring new destinations in the electricity market,” said Karki.

Sandip Kumar Dev, Joint Secretary at the Ministry of Energy, Water Resources, and Irrigation, stated that the government is in favor of allowing the private sector to trade in electricity.

“Now, the Electricity Act has become essential for electricity trade and other activities. Therefore, we are confident that the electricity bill will soon pass through parliament. The draft has already been approved by the cabinet and tabled in parliament,” he said.

Former Secretary at the Ministry of Energy, Water Resources, and Irrigation, Devendra Karki, emphasized the need to include the private sector in electricity trading by promptly endorsing the proposed Electricity Bill.

“There is no alternative to involving the private sector in electricity trading, not only for expanding production and the market but also for providing electricity to citizens at competitive and cheaper rates. The government’s role should be to facilitate the private sector, not only in production but also by expanding the scope of work in hydropower,” said Karki.

The private sector’s participation in power trade may open up the bulk electricity market in the South Asian region and help Nepal realize its long-awaited dream of exporting surplus hydro-electricity, he said. However, Karki advised that the government should establish monitoring standards to ensure the private sector operates responsibly and transparently in electricity trading, considering the country’s interests.

Private Sector Contribution

Despite 113 years of experience in generating electricity in Nepal, real growth in electricity generation has only recently accelerated.

The private sector has played a crucial role in the development of hydropower in Nepal since the introduction of the Electricity Act 1992 (2049 B.S.). The installed capacity of hydropower projects has now reached about 3,000 MW, from the first-ever generation of 500 KW from the Chandrajyoti Hydro-electric project in Pharping, Nepal’s first hydropower project.

With progress in the construction of hydropower projects, Nepal began exporting power to India last year. However, during the dry season, the country still has to import power to meet domestic demand.

According to IPPAN President Karki, Nepal’s private sector has shown interest in investing in hydropower over the past decade, and now independent energy producers account for two-thirds of the total installed capacity of hydropower projects.

The private sector holds licenses for hydropower projects with a capacity of 34,000 MW. Out of this, projects with a capacity of around 2,200 MW are in operation, and hydropower projects with a capacity of 3,200 MW are under construction.

Similarly, hydropower projects with a capacity of 3,400 MW are in the financial management stage, with Power Purchase Agreements already completed, and projects with a capacity of 10,000 MW are waiting for PPAs, according to IPPAN.

Karki claimed that if the government eases policies and encourages investors and Nepali citizens along with Nepali Banking and Financial Institutions (BFIs), the private sector alone could generate 10,000 megawatts of electricity within 10 years.

“The capacity of our private sector has been built up over the past few years. Initially, the private sector was building only small hydropower projects, but now it is constructing projects of up to 500 megawatts, which is a significant development,” said Dev.

Exploring Electricity Markets

Former Secretary Karki expressed his view that the increasing involvement of the private sector in electricity trading was a significant step towards energy self-sufficiency and regional integration.

“Compared to the government, the private sector will become more active and explore electricity markets within and outside the country. It will not only identify markets for electricity trade but also help attract foreign investment in hydropower,” he said.

Electricity trading could not only bolster Nepal’s economy but also foster closer ties with neighboring countries through mutually beneficial energy partnerships, he said.

In the government’s plans to generate around 28,500 MW of electricity by 2035 and to trade power, as agreed between Nepal and India to export 10,000 MW of electricity in 10 years, the private sector’s role in electricity trading will be vital to achieving this target, Karki said.

With a substantial increase in domestic electricity production, Nepal is on the brink of meeting its energy demands and potentially becoming a net exporter of power shortly.

“Firstly, Nepal should increase its electricity production. When production increases, it finds its own markets. After the government allows the private sector to trade, they will seek markets and buyers when there is an availability of products,” said IPPAN President Karki.

“The private sector’s proactive approach aligns with the government’s vision to transform Nepal into a regional energy hub. By leveraging private sector expertise and investment, Nepal aims to strengthen its position in the global energy market while driving economic growth and fostering sustainable development,” said Dev.

The government’s priority is to increase the consumption of domestically generated electricity. However, until internal consumption capacity increases, exporting surplus power is necessary, he said.

He also mentioned that Nepal has ensured a regional market for hydroelectric power. Nepal and India have signed an agreement to export 10,000 megawatts of electricity in 10 years, and Bangladesh has also started the