Quota for run of the river type hydro projects increased, now PPA will be opened

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June 19, Kathmandu. The government has decided to increase the limit (quota) of Power Purchase Agreement (PPA) of Run of the River type Hydropower Project (ROR). A meeting of the Council of Ministers on Tuesday decided to maintain the 35 percent quota for 15,000 MW at 45 percent, said a source close to the Prime Minister and Council of Ministers.

Sources in the Prime Minister’s Office claim that NEA can sign PPA for additional 1,500 MW project along with this decision. According to him, the quota for reservoir projects has been reduced and the quota for ROR has been increased.

Till now, 35 percent PPA quota has been fixed for reservoir projects. Now it will be reduced by 10 percent to 25 percent or 3750 MW. According to a source in the Prime Minister’s Office, the quota for picking is 30 percent or 4500 MW.

The government has so far set a target of 15,000 MW in 10 years, with a 35 per cent share (equivalent to 5,250 MW) of the Run of the River (ROR) system.

The government had twice formed a committee to review the policy of energy blending. The ministries have come to the conclusion of changing the policy of energy blending on the basis of the study report given by the same committees.

Accordingly, there is a provision to make PPA to compensate the government for not being able to buy the electricity generated. However, NEA had not been able to sign PPA with ROR projects for almost three years as it had already signed PPA equal to this quota.

The line of companies seeking to invest in hydropower has been long in recent years, but the government’s proposed ten-billion-dollar investment over the past three years has been hampered by a lack of concrete decisions on power purchase agreements (PPAs).

If the PPA is halted, there is a risk of upsetting the balance between demand, supply and consumption of electricity in the future and potentially losing the international market. The Nepal Electricity Authority (NEA) has been saying that the way should be paved for the construction of the project by signing a PPA considering the future demand and possible market conditions.

However, when the government did not take a concrete policy decision, hundreds of projects had filed applications for PPAs. The Ministry of Energy, Water Resources and Irrigation has run out of quota for the ‘Run of the River’ project, which is specified to do PPA as per ‘take or pay’ to encourage power generation. As the market is not secure, even the promoters have not dared to do PPA in line with ‘take and pay’.

NEA has not been able to sign the PPA as most of the projects have been proposed to be built in ROR.

At present, 1,825 MW projects are under construction through PPA while 2,141 MW projects are awaiting PPA through  connection agreement. Similarly, 7200 MW projects with electricity connection are waiting for PPA by applying to NEA.

NEA has been doing PPA at the prescribed rate with the first applicant (within quota) project till now. At present, NEA conducts PPA with the minimum price of Rs 4.80 per unit and maximum price of Rs 8.40 per unit for ROR system projects.

So far, PPA has been signed to purchase more than 6,000 MW of electricity. About 9,000 MW including the government level are waiting for PPA in the Planning Authority.

Despite the problems in ROR projects, the quota for picking run of the river (PROR) system and reservoir projects has not been exhausted.