NEA Stands Firm: No ‘Take-or-Pay’ PPAs Without Assured Market

The Nepal Electricity Authority (NEA) has said it will not enter into further power purchase agreements (PPAs) under the ‘take-or-pay’ model unless the export of electricity to the Indian market is assured.

NEA Managing Director Hitendra Dev Shakya said in an interview with New Business Age that new PPAs cannot be pursued without ensuring access and sales of country’s electricity in the Indian market.

The NEA has so far signed PPAs largely under the take-or-pay provision, under which it must pay for electricity whether it is taken or not. However, with domestic consumption remaining limited and the capacity of existing cross-border transmission lines constraining exports to India, the state-owned power utility has shown reluctance to sign further take-or-pay agreements. The budget for the current fiscal year states that run-of-the-river hydropower projects will only be purchased on a ‘take-and-pay’ basis.

Point 227 of the budget reads, “A policy will be adopted to ensure a balance between electricity generation and consumption. Power purchase agreements for run-of-the-river projects will be made in accordance with the take-and-pay concept.”

NEA’s Trade Department Chief Rajan Dhakal said take-or-pay PPAs are not feasible. “The authority also needs market certainty,” he said.

Private sector developers, however, have been demanding the removal of the budget provision. They argue that with the NEA not guaranteeing purchases and private companies being barred from trading electricity, hydropower development is being stifled.

Shakya, however, maintained that decisions regarding take-or-pay agreements must be based on the authority’s obligations and market conditions.

Shakya said the NEA’s primary priority is to meet domestic demand. “The law authorises us only to purchase electricity for domestic consumption,” he said. “If there is a shortfall during winter, we must sign additional PPAs. But now, new projects are in a position to meet even the demand of electricity during winter.”

According to the NEA, a total of 15,200 megawatts of PPAs have already been signed, including for operational projects, those under construction, and those ready for construction. Additionally, 6,699 megawatts of projects awaiting PPAs after connection agreements and 8,426 megawatts of projects that have applied for PPAs are currently in the pipeline— accounting for a total of 15,126 megawatts.

“We can sign PPAs for an additional 1,000 megawatts only if we can sell 1,000 megawatts in India,” he added. “Currently, we have projects totalling 12,000 megawatts in the pipeline. So without market expansion, the authority cannot take on the risk of take-or-pay alone.”

He said coordination is underway with Indian trading companies such as NTPC Vidyut Vyapar Nigam and PTC India to sell electricity in the Indian market, adding that private sector participation in power trading could also be possible if permitted.

Energy producers, however, have accused the NEA of discouraging the private sector through such policies. Prakash Dulal, Deputy Secretary General of the Independent Power Producers’ Association, Nepal (IPPAN), described the authority’s stance as a mere pretext to discourage private sector participation and hinder hydropower development.

Taking issue with Shakya’s remarks, Dulal questioned, “Do we need projects first or a market to sell electricity? What will we sell without building projects? Saying the market is not assured before the product is even ready is illogical.” He noted that a long-term agreement has already been reached between the governments of Nepal and India to export 10,000 megawatts of electricity over 10 years, calling the claim that there is no market “laughable”. “It has been three to four years since the prime ministers of Nepal and India signed the 10,000-megawatt agreement. There is also an agreement with Bangladesh. Isn’t this market assurance?” Dulal asked.

According to Dulal, projects totalling around 15,000 megawatts are currently awaiting PPAs. He said around 4,000 megawatts are currently being generated, 5,600 megawatts are at various stages of construction, and 1,900 megawatts are preparing to enter construction.