Kathmandu, January 26

Nepal Electricity Authority (NEA) — the sole power off-taker of the country — has removed the ‘take and pay’ provision and implemented the ‘take or pay’ provision for power purchase agreement (PPA) with developers.

NEA will sign PPA on ‘take or pay’ basis for up to 10,000 megawatts of energy that will be generated within 10 years. This provision will be retrospective to the PPA signed since the endorsement of ‘Energy Crisis Prevention and Electricity Development Decade’, a 10-year vision document of the Ministry of Energy, by the Cabinet on February 18, last year.

The document has provisioned the ‘take or pay’ criteria while signing PPA for up to 10,000 megawatts of energy in 10 years. The NEA board of directors meeting led by energy secretary on Wednesday endorsed the ‘take of pay’ provision, which will encourage power developers to invest in hydroelectricity generation.

NEA board of directors meeting in August 2014 had decided to implement ‘take and pay’ in PPA for projects that were scheduled to be completed after 2017 citing there will be surplus energy with the country’s only power utility. Under ‘take and pay’ provision the power off-taker is bound to pay only for the electricity used by NEA. However, in ‘take or pay’ provision NEA has to pay the power developer for the quantum of electricity mentioned in the PPA whether it is able to sell the electricity or not.

Independent power producers (IPPs) were consistently raising their voice against ‘take and pay’ provision that was introduced for projects scheduled to be completed after 2017.

Likewise, the NEA board meeting also removed the hydrology penalty for small hydroelectric projects of up to 10 megawatts. Henceforth, projects of up to 10 megawatts will not have to pay penalty if they fail to supply the quantum of electricity mentioned in the PPA. NEA still has the penalty provision on power generators of projects of over 10 megawatts if they supply less quantity than quoted in the PPA. IPPs were seeking a waiver of such penalty.