The fate of three dozen hydro electric projects initiated by the Independent Power Producers (IPPs) that have already signed power purchase agreement (PPA) with Nepal Electricity Authority (NEA) is in limbo.

This is because the IPPs are unlikely to meet the deadline given by NEA to conclude financial closure for the projects.

Normally, NEA grants a period of two years to achieve financial closure of projects initiated by IPPs. The deadline given to seven projects — Upper Ingwa Khola (Taplejung), Upper Mailun (Rasuwa), Tame Khola (Dailekh), Upper Tadi (Nuwakot), Midim Khola (Lamjung), Maya Khola Hydropower (Sankhuwasabha) and Ludee Khola Hydropower (Gorkha) — has already expired. Similarly, the deadline given to six projects — Phalanku Khola (Rasuwa), Likhu-2 (Solukhumbu/Ramechhap), Likhu-1 (Solukhumbu/Ramechhap), Sabha Khola (Sankhuwasabha), Upper Myagdi (Myagdi), Chulepu Khola (Ramechhap) — is fast approaching, but they have not achieved financial closure till date.

Projects initiated by IPPs have generation capacity of below 100 megawatt (MW). The major projects initiated by IPPs that achieved financial closure recently are 86MW Dudhkoshi (Solu Khola) project, 38MW Upper Kalangagad (Bajhang) and 24MW Likhu Khola A project (Solukhumbu/Ramechhap) and 15MW Kalangagad project. A total of 23 projects had signed PPA with NEA in last fiscal.

NEA is preparing to sign PPA under ‘take or pay’ basis very soon, according to NEA Managing Director Kulman Ghising. “The projects in the pipeline will be completed within two to four years, after that we do not have projects that need to be initiated in the near future to cater to the demand of energy.”

Though financing by banks and financial institutions (BFIs) in the hydropower sector is increasing,
a significant number of projects initiated by IPPs have not achieved financial closure yet.

Kumar Pandey, secretary general of Independent Power Producers’ Association Nepal, however, said that financial closure achieved by projects initiated by IPPs in the last fiscal is encouraging. “Increasing financing from BFIs shows the availability of resources within the country,” he said.

Some of the hydroelectric projects that had signed PPA managed to achieve financial closure within six months. These include Richet Khola (Gorkha) and Rukumgad (Rukum), according to NEA.

“Two years is a standard time given to the project developers to achieve financial closure, but that does not mean that the developer needs to consume two years to achieve financial closure,” said Ghising.

IPPs have played crucial role in electricity generation in the last 10 years. While only 300MW of electricity has been added in the last 10 years, NEA was able to add only 5MW of new capacity per year on an average, while IPPs added about 25MW per year for a combined 30MW per year, according to the recent report of the World Bank Group.

On the other hand, delay in installation of transmission lines by NEA to the project sites is also considered as the major obstacle for IPPs.