NEA’s Plans to Diversify Energy Mix in a State of Suspension

Nepal Electricity Authority’s (NEA) plans to diversify the energy mix is in a state of suspension, reports The Kathmandu Post. In July 2017, NEA had prepared to sign power purchase agreements (PPA) with 22 solar projects. However, the project with the total installed capacity of 61 MW is on hold due to the government’s policy inconsistency.

The power purchase rate was fixed at Rs. 8.45 to Rs. 9.61 per unit of electricity. The rate was fixed as per the guideline of the National Energy Crisis Reduction and Electricity Development Decade declared by the government in February 2016.

The NEA had published a request for proposals seeking bids from interested parties to install solar plants and supply electricity at a base price of Rs. 9.61 per unit in June 2016. The NEA selected more than half a dozen bidders who had quoted prices ranging from Rs. 8.45 to Rs. 9.61 per unit of electricity.

However, last November, the ministry issued the new rule which fixed the power purchase rate for solar electricity at Rs. 7.30 per unit.

The NEA informed the 22 hopeful developers of solar projects that the new rate fixed by the ministry would apply when signing the PPAs and got ready to conclude the deals accordingly. But, the NEA had to stop in its tracks when the ministry instructed it to sign the PPAs at the original rates.

A highly placed NEA source informed that the ministry’s instruction confused them. Since a new guideline was fixed at a lower power purchase rate, they could not stick to the rate which was established when the country was in the midst of an energy crisis. Signing power purchase deals to pay Rs. 8.45 to Rs. 9.61 per unit would give rise to an additional financial burden of billions of rupees, the source added.

Since the decision was taken by a caretaker government, the NEA management has planned to wait until the next administration takes office in the hope that it will apply the new power purchase rates.

The hopeful solar power developers will have to install solar plants with an installed capacity ranging from 0.5 MW to 8.5 MW at 22 locations across the country after signing the PPA with the NEA. They will be given 18 months’ time to complete the installation of the power plants.

The NEA’s diversification plan is in line with the government’s policy to promote renewable energy other than hydroelectricity. The government has asked the NEA to promote energy sources like solar and wind so that they make up 10 percent of the total installed capacity in the country.