KATHMANDU: A government committee’s recent suggestion could spell trouble for hydropower projects that have been grappling with financial closures.
The committee, headed by Sandeep Kumar Dev, Joint Secretary of the Ministry of Energy, Water Resources, and Irrigation, has proposed a radical step: revoking the power purchase agreements (PPAs) for hydropower projects above 100 MW that have struggled to secure financial backing for three consecutive years.
This proposal is based on a study report examining the policy framework surrounding electricity purchase and sale agreements.
The report calls for the Nepal Electricity Authority (NEA) to gain the authority to cancel PPAs if the financial closure isn’t achieved within three years from the PPA’s completion date for projects exceeding 100 MW, and within a maximum of two years for projects under 100 MW.
Additionally, the government panel advocates for the confiscation of bank guarantees held by these projects and suggests that the associated hydropower developers could face the revocation of survey and production permits granted for the projects.
The study reveals that out of a total of 7,757 MW in hydropower projects that signed PPAs, 33.94 percent have encountered challenges in finalizing their financial closures.
To address this, the committee proposes giving priority to projects promoted by the Government of Nepal, NEA subsidiaries, and government-owned companies when signing future PPAs.
However, this move has caused friction with private sector power producers. The Independent Power Producers’ Association, Nepal (IPPAN), representing these producers, has called for flexibility, particularly for projects that have struggled to secure financial closure within the stipulated time frame after signing PPAs.
IPPAN President Ganesh Karki points to liquidity shortages in the banking sector as a primary reason for the delays.
Furthermore, IPPAN expresses concerns over the prioritization of government and NEA-led projects in PPA negotiations, claiming that private sector companies with the capacity to generate over 12,000 MW of electricity are still awaiting their turn for PPAs with the state-owned power utility.
The association seeks revised deadlines for financial closure: three years for projects up to 100 MW, four years for projects between 100-500 MW, and five years for projects exceeding 500 MW.
IPPAN welcomes the recommendation to resume discussions regarding PPAs for private developers, which had been on hold for an extended period.
The association also approves of the proposal to ensure a minimum two-hour peaking reservoir and to revise the mandatory provision of producing a minimum of 30 percent energy during the off-season for semi-reservoir projects.