Nepal Electricity Authority agrees to take-or-pay modalityA longstanding dispute between the Energy Ministry and the Nepal Electricity Authority has been resolved with the power utility agreeing to sign power purchase agreements (PPAs) with run-of-the-river hydropower projects under the take-or-pay modality until their combined installed capacity reaches 5,250 MW.
A longstanding dispute between the Energy Ministry and the Nepal Electricity Authority has been resolved with the power utility agreeing to sign power purchase agreements (PPAs) with run-of-the-river hydropower projects under the take-or-pay modality until their combined installed capacity reaches 5,250 MW.
The board of directors of the Nepal Electricity Authority on Tuesday decided to amend all the take-and-pay PPAs signed with run-of-the-river plants into take-or-pay, and sign new pacts under the take-or-pay modality, according to a highly placed source at the authority.
The ministry has been at loggerheads with the power utility over the modality of PPAs for run-of-the-river hydropower projects. The take-and-pay model allows the authority to buy energy from hydro projects as needed and pay accordingly. Under the take-or-pay system, it has to buy the contracted amount of electricity or pay a fine if it fails to do so, exposing the power utility to financial risk if it cannot evacuate and sell the energy produced.
The authority has signed PPAs for around 4,600 MW with various run-of-the-river plants owned by its subsidiaries and independent power producers. Among them, the PPAs for a combined installed capacity of 1,247 MW are in the take-and-pay format. The old dispute flared up once again after the ministry asked the state-owned utility to convert the PPAs to take-or-pay and sign similar agreements for another 650 MW.
Although the Nepal Electricity Authority had been reluctant to adopt the take-or-pay modality, the board meeting chaired by Energy Minister Barsha Man Pun made the decision. The power utility was disinclined to comply with the ministry’s order as it would expose it to financial risk due to the absence of proper transmission lines to evacuate and distribute the electricity generated by these power projects.
“Generally, the energy secretary chairs the board meeting,” said the source. “The post of energy secretary is currently vacant, and Pun himself presided over the meeting and imposed his decision.” According to the authority source, the take-or-pay PPAs for 1,247 MW of electricity means an additional liability of Rs46.55 billion to the power utility and an extra liability of Rs24.26 billion if it signs similar agreements for another 650 MW.
The meeting also decided to request the government to cover probable losses arising from such agreements in the future. The government has not agreed to cover these losses, and the authority’s financial health is expected to decline by going for take-or-pay PPAs.