Nepal | May 30, 2020

Govt tells NEA to pay for power generated by IPPs

‘Take or pay’ provision to supersede ‘take and pay’ clause in power purchase pact

Himalayan News Service
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Kathmandu, January 9

Putting to rest concerns about execution of ‘take or pay’ provision in power purchase agreement, Minister for Energy Janardan Sharma today instructed the Nepal Electricity Authority board to endorse the provision while signing PPA with developers.

Implementation of the provision, which was envisioned by ‘Energy Crisis Prevention and Electricity Development Decade’ a 10-year vision document of Ministry of Energy and already endorsed by the Cabinet had been in limbo for long since the NEA board led by the energy secretary had not okayed it.

This provision will supersede the existing ‘take and pay’ provision in PPA, under which NEA would have to pay only for the quantum of electricity it would purchase from independent power producers. The new provision, on the other hand, entails the country’s sole power off-taker to pay for the electricity generated by the IPPs, whether or not it buys power from them.

Moreover, the new provision will be implemented retrospectively with all the agreements signed since the endorsement of vision document from Cabinet on February 18, 2016.

“Henceforth, ‘take or pay’ will be applicable for all the projects up to 10,000 megawatts as envisioned by the vision document of the MoE,” said Sharma.

He added that this provision would be retrospective for all agreements signed after February 18. Reportedly, NEA has signed PPA with IPPs for around 1,100 MW projects since that date.

NEA had introduced the ‘take and pay’ provision some two years back, much to the dismay of developers, who said the move was ‘regressive’ in attracting investment in hydro-power sector.

In its defence, NEA has said the provision was introduced in view of generation of surplus energy after completion of Upper Tamakoshi Hydroelectric Project in the beginning of 2018 and as the projects that have signed PPA at present will commission power only after couple of years.

However, introduction of the vision document, which projects the country’s energy needs will surge to 10,000 MW in the next decade, contradicted NEA’s suppressed demand forecast, which had prompted it to introduce the ‘take and pay’ provision earlier.

The ‘take or pay’ provision is expected to attract investment in the hydro-power sector as it ensures guarantee of return and help projects achieve financial closure.

A version of this article appears in print on January 10, 2017 of The Himalayan Times.

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