In a landmark move to liberalize Nepal’s electricity sector, the Electricity Regulatory Commission (ERC) has approved a draft of a directive that allows the private sector to participate in electricity trading through open access to the power grid. The 276th board meeting of the EC took the decision on Wednesday.
The new directive proposes allowing private producers and traders to buy and sell electricity within Nepal or export it abroad without relying solely on the Nepal Electricity Authority (NEA) for power purchase agreements. Open access refers to the provision that enables producers, power traders, and large consumers to use the national transmission and distribution infrastructure without discrimination. As per the guidelines, a wheeling charge of 39 paisa per unit has been proposed for the short term access to the power grid. Similarly, a monthly wheeling charge of Rs 283,842 per MW has been proposed for the mid-term and long-term access.
Under the proposed guideline, the minimum transaction threshold for domestic consumption is set at 5 MW, while cross-border trade requires a minimum of 10 MW. The directive aims to reduce risks faced by electricity suppliers, enhance investor confidence and encourage infrastructure development by engaging the private sector in electricity trade. Open access is also expected to pave the way for a wholesale electricity market in Nepal.
The budget for the upcoming fiscal year 2025/26 has introduced ‘take and pay’ provision for power purchase agreement (PPA) instead of ‘take or pay’. Independent power producers have opposed the provision. However, Deputy Prime Minister and Minister of Finance Bishnu Prasad Paudel said in the parliament that the decision to enforce ‘take and pay’ provision was aimed at involving the private sector in the electricity trade.
The ERC has also laid out eligibility criteria for open access users. As per the draft guidelines hydropower plants with a capacity of at least 5 MW connected to a 33 kV or higher grid, captive plants with a minimum of 1 MW capacity, and industrial or commercial consumers meeting similar standards are eligible to participate in electricity trade. Applicants must also hold a distribution or trading license.
The guidelines have categorized electricity trading contracts through open access into three categories—short-term (from 24 hours up to one year), mid-term (more than one year to up to five-years) and long-term (more than five-years). However, the draft guidelines clearly state that traders can export electricity only when domestic consumption and demand have been met. Projects permitted by the government or those exporting through NEA are exempt from this requirement.
The directive designates NEA’s System Operations Department as the nodal agency for implementing. The Department will have to publish detailed procedures and agreement drafts within 120 days of the approval of the directive. The ERC will also have to prepare additional regulatory frameworks such as metering codes, deviation settlement mechanisms and grid connectivity directives.
