Hydel projects face risk of PPA cancellation

As one-third of the hydropower projects that have entered power purchase agreements (PPAs) with the Nepal Electricity Authority (NEA) are yet to complete their financial closure, the state-owned power utility is preparing to scrap their PPA agreements.

The NEA is taking such a decision based on the suggestions of the committee formed under the coordination of Sandeep Kumar Dev, joint secretary of the Ministry of Energy, Water Resources and Irrigation.

The Dev committee has recommended that power purchase agreements (PPAs) for projects with a capacity of up to 100 MW be revoked if they do not achieve financial closure within two years after the PPA is signed. For projects exceeding 100 MW, the committee proposes canceling their PPAs if they do not achieve financial closure within three years of signing the PPA. The committee has recently submitted its report to Energy Minister Shakti Bahadur Basnet.

According to the report, the NEA has so far entered into PPAs with hydropower projects of 7757 MW capacity. However, 33.85 percent of the projects have not completed their financial closure, according to the report. Of the total PPAs, commercial production worth 2023 MW has been started while financial closure of 3102 MW has been completed.

Along with the cancellation of PPA, the committee has also recommended the cancellation of survey and generation licenses issued for such projects. The report even recommended that the Department of Electricity Development (DoED) can scrap the project license of the projects failing to complete financial closure.

Many hydropower promoters have not been able to raise investment for their projects even after signing the PPAs. Since the government has set a quota for PPA, the delay in financial closure, according to NEA officials, has stalled the hydropower projects' construction.

“The construction of the hydropower projects will not move ahead unless the promoters complete the financial closure. Since there is a quota system in place for the PPA, the new projects’ PPA has not been carried out,” said Pradeep Kumar Thike, one of the members of the committee. “Hence, the committee recommended the cancellation of the PPA.”

The committee has also recommended giving priority to the PPA of hydropower projects promoted by the government, subsidiaries of the NEA, and companies owned by the government.  In its report, the committee has said that PPA with the private sector projects should be done only after considering the internal demand and the possibility of export of electricity.

If this policy is implemented by the government, it will be difficult to get PPA for private sector projects, said IPPAAN chairman Ganesh Karki.

The committee has recommended increasing the PPA quota for run-of-river (RoR) projects and peaking run-of-river (PRoR) projects by 3937.5 MW. As the PPA of government projects having a capacity of more than 3,000 MW is yet to be done, the new policy will benefit the state-promoted projects. “Even if the quota of PPA is increased as recommended by the committee, the private sector will get less benefit,” said Prakash Dulal, deputy secretary general of the Independent Power Producers' Association Nepal (IPPAN).

The IPPAN has demanded to extend a special period of one year for projects that could not achieve financial closure after signing the PPAs. Organizing the press conference on Sunday, the IPPAN asked the government to provide one year time for the projects to complete their financial closure.