A government task force has proposed that permitting the private sector to engage in electricity trading could foster a competitive pricing environment in the domestic energy market, given the private sector's growing role in Nepal's energy landscape through various initiatives.

The president of the private energy producers' association welcomed the suggestion, noting that it could help advance stalled agreements and ensure the timely completion of numerous energy projects. Currently, the Nepal Electricity Authority (NEA) holds a monopoly on electricity trading in Nepal.

Former Energy Secretary Dinesh Kumar Ghimire, who led the government-established Electricity Trade Study and Recommendation Committee, stated that the recommendation includes provisions allowing private sector participation in electricity trade within the framework of existing laws.

Why was the private sector hesitant about the Electricity Bill?

The government's actions have disrupted NEA's plan to purchase 5,000 MW of electricity from private companies.

Ghimire noted that the recommendation was made due to delays in introducing a new electricity act, an excess of national electricity production, and NEA's inability to sign power purchase agreements (PPAs) because of inadequate transmission and distribution infrastructure.

"In this situation, we have suggested - based on existing legal provisions - to allow the private sector to trade electricity from projects where investments have already been made," he said.

What the Current Law States

As per Clause 21 of the Electricity Act, 2049 (1992), if someone wants to sell the electricity they generate in bulk, the Nepal Government can buy it or help integrate it into the national grid.

Clause 22 also permits the import and export of electricity with government approval and payment of export duties. Ganesh Karki, President of the Independent Power Producers' Association of Nepal (IPPAN), stated that this has been a long-standing demand of theirs. He believes it could help revive numerous stalled PPAs.

"This will broaden the market and ensure project completion through PPAs at the very least," Karki said.

He suggested that the government could facilitate electricity purchases by foreign buyers or allow local industries, factories, and interested domestic buyers to directly purchase electricity.

How Is It Possible Now?

Ghimire suggested that the regulations in the Electricity Act could be modified to allow private sector electricity trade by expanding and reinterpreting existing clauses.

He pointed out that licenses are currently only issued for generation, transmission, and distribution, but the recommendation proposes including electricity trading licenses for the private sector. These licenses would be categorized into internal and external trade types.

Ghimire also mentioned the potential for the private sector to participate in cross-border electricity trade, similar to NEA's involvement. He emphasized the importance of market liberalization to facilitate competitive buying and selling of electricity, ultimately benefiting consumers.

IPPAN President Ganesh Karki highlighted the need to open the market to other players, especially since NEA is unable to enter into new PPAs. Companies like Power Exchange Limited (NEPEX) and NEA subsidiaries are seeking licenses for energy trading activities.

An 'Inevitable Policy'

Task force members emphasized that this should be viewed not only as an electricity trade issue but as a comprehensive reform of Nepal's energy sector.

Coordinator Ghimire stated that the recommendations were grounded in a practical assessment of what can realistically be implemented.

He elaborated that the committee also envisions involvement of the private sector not just in production and distribution but also in the establishment of power plants and transmission infrastructure.

IPPAN's Karki expressed that the task force's report has instilled hope in the private sector. "Many companies have already committed to selling electricity for 20-25 years. Therefore, a well-defined policy is now crucial," Karki remarked.

"This is achievable - the electricity that the NEA currently cannot sell could be marketed by the private sector instead."

Importance of the Transmission System

The committee also suggested that transmission system operators oversee the grid and provide open access to private energy producers, distributors, and traders for a fee.

In the context of Nepal, the Electricity Regulatory Commission would serve as the regulatory authority within this framework.