Storage-type hydropower to cost up to Rs 10.6 per KwH

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    Kulekhani ReservoirKATHMANDU, Feb 10: A high-level panel has recommended purchase prices of Rs 10.60 and Rs 7.88 per kilowatt hour (KwH) for electricity generated from storage-type hydropower projects during dry and wet seasons respectively.

    A taskforce formed at the Ministry of Energy (MoE) has recommended the new rates for Power Purchase Agreements (PPA).

    “These PPA rates are recommened on the basis of the minimum price at which Nepal Electricity Authority (NEA) can import power from India under the short-term power market by 2018,” reads a report submitted to MoE last week.

    An official at MoE,who is also a member of the panel, said the new rates were at par with those set for renewable energy sources such as solar and bio-mass.

    “No one should be confused about the fact that the newly recommended rates are applicable only for storage-type hydropower projects. They are not meant for run-of-the-river (ROR) type projects,” added the official.

    Under the new rate structure, separate PPA rates are set for the wet season — wet season peak hours and wet season off-peak hours. According to the report, the PPA rate for wet season off-peak hours can fall between Rs 2 to Rs 5.73 KPH. “The exact rate for wet season off-peak hours is subject to negotiation,” reads the report obtained by Republica.

    The report states that the dry season refers to a period between December to the end of May while a peak-hour period is any six-hour period fixed by the Load Dispatch Center of NEA.

    In a bid to attract private sector investment in storage hydropower schemes that significantly regulate monsoon water flows, the government has fixed the PPA rates for storage-type projects on the basis of the avoided cost approach. “There could be two approaches applied in such price fixing mechanisms – cost plus approach and avoided cost approach,” reads the report.

    The report further highlights that the cost plus approach was adopted in India but is not suited to our context. “In the absence of a regulatory commission, it becomes difficult, if not impossible, to adopt a cost plus approach in Nepal,” the report states. The cost plus approach is a mechanism for passing on the justified costs of projects to consumers through retail tariff.

    “In the absence of a regulatory commission, it becomes difficult, if not impossible, to adopt a cost plus approach for engaging the private sector in storage hydro or renewable power projects. Hence the taskforce used the avoided cost approach for fixing PPA rates for storage-type hydropower projects only,” adds the report.

    The government has fixed the PPA for ROR type projects that are below 25 megawatts at Rs 8.40 KPH during dry season and Rs 4.80 KPH in wet season.
    The PPA for ROR hydro projects between 25 MW to 500 MW is fixed by negotiation with the NEA.

    The private sector had long been urging the government to fix the PPA rates for storage-type hydropower projects. “We are hopeful that the private sector will be ecouraged to invest in storage-type projects once the proposed rates are endorsed by the government,” the official said.

    Source : Republica