The government is preparing legal measures that would help reduce the consumer price of electricity.

A bill prepared by the Ministry of Energy, Water Resources and Irrigation states that distributors must buy electricity from power developers through competitive bidding for supply in the domestic market.

The Nepal Electricity Authority (NEA) currently has a fixed pricing regime while signing a power purchase agreement (PPA) with developers. It buys power from the run-of-the-river type projects at Rs4.40 per unit in the wet season and Rs8.40 per unit in the dry season. It signs a power purchase agreement (PPA) on a first-come-first-served basis.

If the proposed bill becomes law, the NEA and other distribution companies will have to buy power from the developers based on competitive pricing, which is expected to lower their electricity bills and, subsequently, those of the consumers.

Currently, the NEA has more or less a monopoly in the distribution of electricity, although Butwal Power Company is also involved in the distribution of electricity in Syangja, Palpa, Pyuthan and Arghakhanchi districts.

“The main logic behind the proposed provision is that distribution companies cannot sign the PPA with all the developers. Whosoever proposes competitive prices will be able to sign PPA with distribution companies early,” said Madhu Bhetuwal, spokesperson for the NEA. “This will help not only to lower the electricity price but also develop the projects which can offer power at lower rates early.”

In January last year, the state-owned power utility decided to procure solar energy only through competitive bidding, ending the fixed rate regime of the previous three years.

Issuing a tender notice on November 28 last year, the state-owned power utility had invited bids from solar power generators to build grid-connected plants and supply up to 100MW of solar energy by capping the maximum price at Rs5.94 per unit. However, the power utility continues to rely on a fixed PPA regime in the case of hydropower.

“With the proposed legal provision, we aim to replicate the PPA system that NEA adopted for solar power,” said Bhetuwal. The measure is expected to encourage faster development of cheaper and more feasible projects, irrespective of which projects get survey and generation licence first.

“Cheaper tariffs will also help boost wider adoption of electricity in operating vehicles and kitchens,” said Bhetuwal. “Lower electricity price means the cost of production for industries will also go down.”

Nepal has made a national commitment to net zero carbon emissions by 2045. For this, a broader use of electricity than fossil fuel will be required.

An NEA official, however, said that even though going for a competitive bidding process in determining the price of electricity for a developer is a good move, it would not only determine the factor of cost for the buyer of electricity like the NEA.

“If you need 100MW power, for example, in Nepalgunj and the generation company offers you the cheapest rate in Birtamod, it will not make sense,” said Suresh Bhattarai, spokesperson for the NEA. “Paying a slightly higher price for the power generated close to Nepalgunj might be more desirable because buying in Birtamod and transmitting power to Nepalgunj might be costlier because of transmission losses.”

He suggested that the competition should be only among the projects that are close to the market where the electricity is consumed.