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Small hydropower plants exempted from penalties for falling short of production forecasts

   October 4, 2019        1394        Prahlad Rijal

Kathmandu– Small hydropower plants with an installed capacity of less than 10 megawatts will not be penalised for falling short of production forecasts, the Electricity Regulatory Commission said.

Bowing to complaints from promoters of independent power projects over the high fines amid falling revenues due to reduced output and losses caused by poor transmission infrastructure, the commission inserted the provision in its new power purchase bylaws issued on Wednesday.

Last month, the operators of 20 projects with a combined capacity of 69.8 megawatts urged the government to acquire their projects citing heavy financial stress, besides calling for the removal of the availability declaration system for plants below 10 megawatts.

“The projects are witnessing a 55 percent fall in the power projections noted in the power purchase agreement, and their income has declined in line with the fall in output,” said a struggle committee formed by the troubled developers. “A 17 percent output loss because of poor transmission infrastructure, and 14 percent penalties owing to the fall in energy output due to the decline in river flow have led to the situation.”

The Electricity Regulatory Commission, although silent about transmission infrastructure, has scrapped the provision of imposing penalties against such hydel schemes if they fail to deliver the amount of energy specified in the power purchase agreement made with the Nepal Electricity Authority.

“The power seller must make an availability declaration to the purchaser,” states the bylaws. “Te off taker of power cannot seek penalties from both run-of-the-river and peaking run-of-the-river schemes below 10 megawatts basing its decision on the availability declaration.”

In the event of the private transmission lines and substations of such schemes being destroyed by natural disasters, they will be exempted from paying penalties for failing to generate power.

Also, the electricity regulator has scrapped the provision of the spinning reserve for such small and frail independent power projects, which required them to reserve 10 percent of their generating capacity annually and 30 percent in the dry season.

As per the bylaws, the provisions requiring developers to produce electricity up to a maximum of 70 percent of the total annual energy output in the dry season will not be implemented for 10-megawatt schemes.

The provisions were implemented to limit the state-owned utility’s power purchase expenses as it pays more for electricity during the dry season.

Independent power producers welcomed the move by the Electricity Regulatory Commission.

“The commission has addressed our major concerns and the bylaws are progressive and have come as a relief to many independent producers,” said Kumar Pandey, vice-president of the Independent Power Producers’ Association of Nepal. “Now, it is up to the management of the Nepal Electricity Authority to revise the power purchase contracts of such schemes and implement the revised rule. We hope it happens soon.”

The regulatory body has not made any changes or increments in the current power purchase tariffs paid by both independent power producers and consumers, which are among the demands of private producers.

“Tariffs are sensitive issues as the impact will be felt directly by the consumers, and maybe the regulator is mindful of that or reluctant to up the power tariffs,” said Pandey. “But we hope the rates will be increased eventually for the good of the private power sector in line with the power utility’s added financial strength in recent years.”

The bylaws also state that the power utility must pay compensation for undelivered energy to small hydel schemes by calculating the amount using a uniform formula for transmission lines.

Also, the off taker of power must carry out a technical and financial assessment of the power scheme in question and send a draft of the power purchase agreement to the commission before signing it. In the case of schemes below 100 megawatts, the utility is not required to prepare a financial assessment report.

The Kathmandu Post