Nepal | May 25, 2020

Hydropower firms not allowed to take more than 17 per cent profit

New bylaw has scrapped the rule that required developers to pay fine if they failed to generate electricity  as per power purchase agreement

Himalayan News Service
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Kathmandu, October 3

Hydropower developers have been barred from taking more than 17 per cent profit.

Issuing a bylaw on ‘Conditions for People with Licence for Power Purchases and Sales-2019’ today Nepal Electricity Regulatory Commission (NERC) has introduced a provision that restricts hydropower developers from taking return on equity of more than 17 per cent.,

Dilli Bahadur Singh, chairman of the commission, said that if the profit made by any hydropower project is higher than 17 per cent, it will be managed by reducing the rate agreed upon in the power purchase agreement (PPA).

Before issuing approval to the developers to sign PPA with Nepal Electricity Authority (NEA), the commission will assess the tentative investment, source of money and its interest rate, clearance of loans and interests, ratio of equity and loan, recurrent expenditure, operational expenditure, maintenance costs, revenue and taxes and other service charges, additional capital that will be required, among others, to calculate the return and income.

For the final approval of PPA from the regulatory commission, the developer will need to submit technical and financial aspects of their power project and tentative rates. Before submitting the documents, they will have to hold discussions with NEA for the tentative rates. After the commission approves the final power purchase rate, the developer and NEA will sign the final PPA.

Since the last six months, PPA with NEA has been stalled as the commission had not released the bylaws. This had affected more than 40 hydropower projects.

“Now the projects will be able to sign the PPA with NEA. However, the power developers will have to get a go-ahead from NERC beforehand,” said Singh.

Earlier, the power utility could independently negotiate and determine the power purchase rates with developers.

The authority had been signing PPA with power developers earlier at around 17 per cent of return on equity. As per the Black Marketing Act 1975, no organisation can make more than 20 per cent profit.

The major change introduced through the bylaw is that the developers no longer need to pay additional fines to the NEA if the power generation drops due to change in hydrology. Earlier, they were penalised up to 80 per cent of the deficit electricity. Hence, the developers had been expressing strong reservations against the earlier rule and demanding that it be scrapped.

As per the bylaw, the commission will finalise the PPA rates within 90 days by assessing the projects’ technical
and financial aspects. However, the financial assessment is not required for projects with installed capacity of up to 100 megawatts.

Singh further said that the new PPAs will be based on old tariff till the NERC comes up with a new tariff rate.



A version of this article appears in print on October 04, 2019 of The Himalayan Times.

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