PPA: Take It Or Not

The decision of Nepal Electricty Authority (NEA) to stop take or pay Power Purchasing Agreement (PPA) for hydropower projects has sparked a row

June 10, 2019, 10:43 a.m. Published in Magazine Issue: VOL 12 No.20, Jun 07 –27 June, 2019 (Jestha 24, 2076/074-75) Online Register Number: DOI 584

As Minister for Energy, Water Resources and Irrigation Barshaman Pun is luring the national and international investors to invest in the energy sector by showing the government’s readiness to purchase power because of its huge market in Nepal, the Nepal Electricity Authority has stopped the take or pay PPA.

NEA claims that the limit set for the take or pay PPA for Run of the River (RoR) projects is over. However, investors are saying that without take or pay PPA, financial closure is impossible for all the hydropower projects as banks don't finance that type of projects.

According to the NEA, the government has fixed the target to produce 15000 MW within 10 years and the RoR ratio is only 35 percent of the total or only 5250 MW. The limitation for PPA has already reached.

NEA signed the last PPA with Kalika Construction Company for developing Upper Daraudi project of 8.3 MW capacity but limitation of RoR, only 5.442 MW is in take or pay and 2.858 MW is in take and pay .

Prabal Adhikari, spokesperson of NEA, said that after finishing of RoR projects in take or pay PPA limitation decided by NEA board committee, NEA is going to PPA in take and pay.

"The government has taken the aim of producing 15,000 MW in 10 years and kept the RoR limit of 35 percent of projects and according to the decision taken by the Authority, it will now be take and pay PPA," he said.

According to NEA, despite crossing the limitation of RoR, peaking RoR has enough place for take or pay PPA. Some 30 percent of total or 45 hundred MW has limitation but only 910 MW has done PPA and 7 projects with 1090 MW are in PPA pipeline.

Here some 2500 MW space is there for take or pay PPA. Similarly, 35 percent of total of 5250 MW for storage project but only 140 MW has been PPA. In the storage projects, there is a possibility of take or pay PPA at large capacity but most projects are RoR.

According to the NEA, 133 RoR projects with 4167 MW are in PPA pipeline. Private developers have been telling that the banks don’t invest in take and pay PPA and projects cannot manage money without financial closure. For project construction, there are no limitations in PPA and government withdraws these types of restriction. “Energy minister, secretary and managing director of NEA have been always telling about take and pay, they assured us but in reality, they are telling one thing and doing another thing," said Shailendra Guragain, chairman of the Independent Power Producers Nepal (IPPAN)- “10% of energy is not purchased with condition of NEA now and take and pay PPA brings other conditions of NEA, it shows that the authority does not want to purchase electricity. This is the major obstacle for hydropower development.”

He argued that without take or pay PPA, there will be no hydropower projects and without hydropower projects, the government's dream of economic prosperity, including the promotion of less developed country to developing status is impossible and it will fail. "Instead, the government has to create other mechanisms for purchasing of all produced power and to sell to national and international markets, and without doing so, economic prosperity through hydropower will be become meaningless."

According the Department of Electricity (DoED), most license holders of hydropower projects are RoR. So if the government doesn’t open the take of pay PPA, it creates huge problems in hydropower sectors. The Energy Ministry has said that the government is searching for an alternative way for purchasing all power and discussion has been already started. "The Ministry has begun to end restriction of electricity procurement and reason of fulfilling of limitation take or pay PPA, blocking of electricity purchasing is impossible," said spokesperson and joint secretary of Ministry of Energy, Water Resources and Irrigation Pravin Raj Aryal. "There have been many opportunities including electricity trade in neighbouring countries, it should increase the limit, now we are at the discussion phase and we will solve these problems soon."

Three years ago, the government announced the national energy action plan for developing hydropower with the target of 10 thousand MW within 10 years. The action plan declared the ratio of RoR, PRoR and storage projects. Limitation of RoR was 30%, but the limitation has crossed. After that the private sector demanded an end to the limitation. Again one year ago, energy minister Pun announced the energy production plan of 15,000 MW in the next 10 years. There was also the limitation of PPA of RoR projects.

The latest five-year plan of the National Planning Commission has declared that 40 thousand MW power will be produced within 25 years as hydropower is the key driver for economic growth of Nepal. Nepal had already signed power trade agreement (PTA) with India and Bangladesh has proposed to Nepal for purchasing 9 thousand MW within 20 years. The energy minister is also telling the national and international investors and others for investing in the hydropower projects in most of his meetings with them but in reality, there have been restrictions in take or pay PPA.

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Bhim Gautam

He writes on economic issues

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