Kathmandu, January 25 Nepal Electricity Authority (NEA) — the country’s sole power off-taker — has decided to sign the power purchase agreement (PPA) with 216-megawatt Upper Trishuli-1 Hydroelectric Project, which is going to be developed by South Korean developer — Nepal Water and Energy Development Co Pvt Ltd — as the latter has accepted the tariff structure offered by NEA. The recent board of directors meeting has decided to sign PPA with the South Korean developer, according to Kul Man Ghising, managing director of NEA. The power utility will make payment in dollars for the electricity generated by the project for the first 10 years or till the payback period of the foreign loan since the commercial operation date (COD), whichever comes first. NEA Managing Director Ghising said that PPA in USD is to support foreign investors to pay back the loan obtained from international financial institutions. International Finance Corporation of the World Bank Group is 15 per cent equity partner in this project. After 10 years or payback period of the foreign loan since COD, NEA will make payment in Nepali rupees like to other local developers. NEA has offered tariff per unit of Rs 8.40 during dry season and Rs 4.80 during wet season. The tariff provided to Upper Trishuli-1 is similar to other run-of-the-river (RoR) projects, developed by local developers. The dry season is understood as the months between December and May and wet season from June to November. NEA has signed the PPA based on the calculation of 17 per cent return on equity made by the developer. If return on equity is found to be higher than the estimation during the audit after a year of commercial operation, NEA will revise tariff accordingly, as per Ghising. Total energy generation capacity of the project is 1,533 gigawatt hours per year and developer will supply 39 per cent of the total energy during dry season. As per the rule of Ministry of Energy (MoE), foreign investment projects must have 20 per cent of the total project cost as equity and they can obtain up to 80 per cent of the cost as loan. NEA will sign PPA after the developer submits Rs 216 million as performance guarantee to the utility. There is provision of tariff escalation by three per cent per annum for up to eight times after project starts power generation. The MoE had signed the project development agreement with the developer on December 29, 2016. Following the controversies in Khimti and Bhotekoshi Hydropower projects in which NEA has been facing a huge loss due to appreciation of US dollar, NEA has chosen a more scientific way to bring foreign direct investment to exploit country’s abundant hydro resources, which offers PPA in dollars only for payback period of foreign loans or maximum 10 years. NEA has developed the PPA templates for foreign and local developers based on the nature of the project — RoR, peaking RoR and storage. This means NEA will not negotiate with the developers on tariff, which is based on the nature of the project. Meanwhile, NEA has urged the government and Nepal Rastra Bank to set up hedging fund to bear risk caused by fluctuations in US dollar. Hedging cost and premium will be borne by government, NEA and developer, as per NEA. Till date, NEA has signed PPA in dollar terms with Khimti (60 MW), Bhotekoshi (45 MW), Lower Solu (82 MW), Upper Marsyangdi A (50 MW), Kabeli A (37.6 MW) and 120 MW-Rasuwa-Bhotekoshi project. Among them PPA rate of three projects in operation — Khimti, Bhotekoshi and Marsyangdi — has been fixed at Rs 10.95, Rs 11.16 and Rs 7.35 per unit. Tariff given for the Lower Solu in wet and dry seasons is similar to other RoR projects and the NEA is liable to pay 55 per cent of the bill in US dollars and 45 per cent in Nepali rupees. Likewise, in Kabeli A, PPA rate is $6.2985 per unit and 60 per cent of the bill amount needs to be paid in dollars and rest in Nepali rupees. The PPA for Rasuwa Bhotekoshi is similar to that of Upper Trishuli-1, as per NEA.