Electricity authority decides to buy solar power through competitive bidding citing falling pricesSolar power producers are worried that a possible reduction in the electricity price may affect their payback period and hit the profits.
The Nepal Electricity Authority has decided to procure solar energy only through competitive bidding by ending the fixed rate regime of the last three years.
A board meeting of the power utility body chaired by Energy Minister Pampha Bhusal decided to procure solar-based electricity only through a competitive bidding process, a press statement of the Energy Ministry said on Monday.
As per the authority’s decision, it will buy solar energy through competition by setting a new maximum price per unit. On June 10, 2018, the state-owned power utility had decided to purchase solar power at Rs7.30 per unit for three years as provisioned in the Working Procedure on Grid Connected Alternative Electric Energy Development-2017.
As the three-year term has already expired, the authority has decided to go for competitive bidding to buy electricity.
Kulman Ghising, managing director of the authority, told the Post that the authority’s board decided to implement a competitive pricing mechanism considering decreasing prices of solar energy internationally.
In November 2020, solar energy price in India was maintained at a record low of INR2 per unit through competitive bidding.
“We had to revise the rate amid decreasing solar energy prices internationally,” said Ghising. “A competition will help determine the market price of solar energy.”
According to him, the authority decided to go for competitive bidding as it was in no position to procure energy from all the solar manufacturers who have applied for power purchase agreement (PPA) with the authority.
“We have received applications for PPA for more than 300MW in total,” said Ghising.
According to the energy ministry’s statement, the power utility body has already signed PPAs with 21 solar energy producers for a total of 110MW.
As much as 21 MW of electricity has already been connected to the national grid, the ministry said.
The government has a strategy of maintaining the contribution of solar energy at 10 percent of the total energy under the concept of Generation Mix.
The authority’s decision to buy electricity only through competitive bidding has however worried some solar energy producers, particularly those who have already invested with the hope of selling their electricity at Rs7.30 per unit.
They said they were not against competitive bidding in principle, but are concerned about the security of their investment made with the hope of getting the existing price for solar energy.
Harmony Solar Pvt Ltd is one of the solar companies applying for a PPA. The company is preparing to develop a 5MW solar farm in Bardiya. “We have invested as much as Rs80 million just for purchasing 12 bigha of land and for setting up a solar plant,” said Nabin Bhujel, director of the company.
“We invested with the hope that we would get Rs7.30 per unit. Our expectation was to recover the investment in 8-9 years. But if we are not able to sell our electricity at the current price, then it may take us longer to recover our investment,” he said.
As per the new Working Procedure on Grid Connected Alternative Electric Energy Development-2021, solar power producers can receive payment of energy generated from their solar plants for 25 years. After that period, they have to hand over the solar plant along with the land occupied by the plant to the government. So, solar power producers are worried that a possible reduction in the electricity price may affect their payback period and hit the profits.
Bhujel argued that the government should ensure that those who have already invested in solar farms do not suffer losses.
Solar power producers argue that the government should not compare the solar energy price in Nepal with that in India.
“The Indian government provides land for solar farms at cheaper rates and also as India is a big country, the solar electricity prices are lower there due to the economy of scale,” said Bhujel.
Solar manufacturers argue that the cost for the solar manufacturers has not gone down as being reported. “The cost of civil works and inverters are growing even though the price of solar plates are decreasing,” said Prakash Bikram Basnet, president of Solar Electric Manufacturers Association Nepal.