Private sector seeking its role for electricity trade expansion


Kathmandu, Apr. 21: For a few years now, independent power producers have been raising the voice that private companies should be allowed not only in electricity generation, but also in trade. They are institutionally waiting for the permission of the government for trading by establishing a number of electricity trading companies.

However, since there is no provision in the Electricity Act 2049 B.S. to allow the private sector to trade in electricity and the new Electricity Act has not yet been enacted, the demand of energy producers has not been met so far. 

A new Electricity Bill with a provision to allow the private sector in electricity has been tabled in the Federal Parliament and is being discussed in the Infrastructure Development Committee under the House of Representatives. However, it is not yet certain when the bill will be passed by the Parliament and be opened to the private sector in electricity trading.

"In a promising development for Nepal's energy landscape, the private sector is showing keen interest in participating in electricity trade initiatives. This enthusiasm comes as the country seeks to harness its abundant hydropower potential and explore avenues for regional energy cooperation,” said Ganesh Karki, President of Independent Power Producers' Association, Nepal (IPPAN).

Multiple private companies across Nepal have expressed eagerness to engage in electricity trading ventures, signaling a shift towards a more dynamic and market-driven approach in the energy sector. 

Private sector ready for electricity trade

"Even though IPPAN has been raising this agenda forcefully for the past few years, it has not reached a conclusion. We, the private sector, are in ready position for electricity trading and we are in 'wait and see ' situation about when the government provides license in this regard," Karki told The Rising Nepal.

Five companies are already established and waiting for license in electricity trading, he said.

The private and public-private joint companies seeking permission for electricity trading include Nepal Power Exchange Limited (NEPEX) established in 2018 by IPPAN, Power Trading Company (PTC), Power Trading and Energy Exchange Limited (PTEEL) and Himalayan Trading Company.  There is also a power trading company as a subsidiary company of Nepal Electricity Authority.

Nepal Electricity Authority (NEA) is the sole buyer of electricity generated by private companies. But now due to the uncertainty of the market, the NEA has frequently stopped the Power Purchase Agreement (PPA) with the private sector for run-of river projects. 

“If power trade is opened for the private sector, any privately-owned power trading company can also enter PPA with such developers by searching new destinations in the electricity market on their own,” said Karki.

Joint Secretary at the Ministry of Energy, Water Resources and Irrigation Sandip Kumar Dev said that the government was in favour of allowing the private sector to trade in electricity. 

"Now the Electricity Act has become essential for electricity trade and other activities. Therefore, it has given us confidence that the electricity bill will be passed soon from the parliament as it has already been tabled in the parliament after the cabinet approved the draft of it," he said.  

Former Secretary at the Ministry of Energy, Water Resources and Irrigation Devendra Karki stressed on the need of allowing private sector in electricity trade by endorsing the proposed Electricity Bill without any delay.

"There is no alternative of including private sector in electricity trade for not only exploring the production and market, but also providing electricity to citizen in competitive and cheaper rate. The government's role is to facilitate the private sector by not limiting it to production, but also broadening scope of work in hydropower," said Karki.

The participation of the private sector in power trade may open the horizon of the bulk market of electricity in the South Asian region and make it possible to realise the much-awaited dream of Nepal to export surplus hydro-electricity, he said. Karki, however, advised that the government should make certain standards of monitoring to make the private sector more responsible and transparent in electricity trade considering the country's interest.

Contribution of private sector 

Despite 113 years of experience in generating electricity in Nepal, real growth in electricity generation has accelerated only in recent years. 

The private sector has been playing an important role in the development of hydropower in Nepal since the introduction of the Electricity Act 1992 (2049 B.S.). The installed capacity of hydropower projects has now reached about 3,000 MW from the very first-ever generation of 500 KW from Chandrajyoti Hydro-electric in Pharping, the first hydropower of Nepal. 

With the progress made in the construction of hydropower projects, Nepal has started exporting power to India since last year. But during the dry season, the country still has to import power to meet domestic demand. 

According to IPPAN President Karki, Nepal's private sector has shown interest in investing in hydropower in the past decade, and now independent energy producers' account for two-thirds of the present total installed capacity of hydropower projects.

Private sector holds license for hydropower projects with capacity of 34,000 MW. Out of this , projects with a capacity of around 2,200 MW are in generation, hydropower projects having a capacity of 3,200 MW are now in  under construction phase.  

Similarly, hydropower projects with a capacity of 3,400 MW are in the stage of financial management with completion of Power Purchase Agreement and projects with capacity of 10,000 MW are waiting for PPA, according to IPPAN. 

He claimed that the private sector alone would contribute to generate 10,000 megawatts of electricity in 10 years if the government eased the policy and encouraged investors and Nepali citizens, and Nepali BFIs.

"The capacity of our private sector has been built up in the past few years. The private sector, which was initially building only small hydropower projects, is currently building projects of up to 500 megawatts, which is a matter of happiness," said Dev. 

Exploring market for electricity 

Former Secretary Karki expressed his view that the burgeoning involvement of the private sector in electricity trade was a significant step towards energy self-sufficiency and regional integration. 

"Compared to the government, the private sector will become more active and look for electricity markets inside and outside the country. It will not only identify the market for electricity trade, but it will also help to attract foreign investment in hydropower," he said.

The electricity trade could not only bolster Nepal's economy but also foster closer ties with neighbouring countries through mutually beneficial energy partnerships, he said. 

In government's preparation and plan to generate around 28,500 MW electricity by 2035 and trade power as signed between Nepal and India to export 10,000 MW electricity in 10 years, the role of private sector in electricity trade will be vital to achieve this target, Karki said.

With a substantial increase in domestic electricity production, Nepal is on the brink of meeting its energy demands and potentially becoming a net exporter of power shortly. 

“Firstly, Nepal should increase production of electricity. When production increases, it searches market itself. After the government allows the private sector in trading, they will look for the market and buyers when there is availability of products,” said IPPAN President Karki.  

“The private sector's proactive approach aligns with the government's vision to transform Nepal into a regional energy hub. By leveraging private sector expertise and investment, Nepal aims to strengthen its position in the global energy market while driving economic growth and fostering sustainable development,” said Dev.

The priority of the government is to increase consumption of domestically generated electricity. However, until the capacity of internal consumption increases, it is necessary to export the surplus power, he said. 

He said that Nepal has also ensured the regional market for hydroelectric power, and he made it clear that Nepal and India have signed an agreement to export 10,000 megawatts of electricity in 10 years and that Bangladesh has also started the process of buying electricity from Nepal.

Nepal's   progress   in   the   hydropower sector will be important in the promotion and expansion of renewable energy at the regional level. This is because the electricity generated will be used not only in Nepal but also in neighbouring countries with high energy demand such as India and Bangladesh.

Proposed provisions in Bill 

The new Electricity Bill has expanded the scope as it marks a substantial transformation within the energy industry, enabling private entities to play an active role in both purchasing and selling electricity, said Joint Secretary Dev. 

Besides granting trading licenses to the private sector, the Bill also seeks to open access to the transmission infrastructure, he said. 

The proposed Bill also includes the concept of multiple buyers and multiple sellers. Under this, a multiple-type distributor company will be formed, so that consumers can buy and consume electricity from any distributor of their choice, he said. 

Joint Secretary Dev explained that that there was no intention of the government to export power without making energy security inside the country and private sector also would not be able to export power considering rates and other aspects without fulfilling the domestic needs.

In view of the fact that electricity trading companies can sell electricity outside the country without supplying inside the country in order to get a higher price, the Ministry has also proposed a strong regulatory proposal for the new Electricity Bill.

According to IPPAN President Karki, the government and political parties should pay attention to endorse the Bill tabled in the parliament including the suggestions made by the private sector and allow the private sector in electricity trade without any delay.

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