Find Win-Win Solution in Power Trade

Nepal has just reached a new peak in power production, generating 3,300 megawatts. However, the Nepal Electricity Authority (NEA), which controls the electrical grid, has stuck to its "take-and-pay" policy to acquire power. The new budget announced that the government-owned NEA will only buy electricity from private producers if there is a real need for it, not for all the electricity they produce. Many private hydropower developers are worried about this change because they think it would make it harder to get investment or loans for projects and put all the time and money previously spent on research or studies at risk. The Independent Power Producers’ Association Nepal (IPPAN) says that the take-and-pay approach threatens over 350 hydropower projects with a potential production of up to 17,000 megawatts. They have already spent Rs 66 billion on feasibility studies, but banks may not want to lend them money without stable revenue assurances. Many of these firms have turned down new contracts under the current terms, saying the government is shifting NEA's financial woes on to them. NEA, on the other hand, says that this move only balances electricity supply with real-time demand and won't damage producers.

The issue at the core of current controversy is that Nepal generates more power than it needs during the wet season, notably the monsoon. NEA used to pay for electricity it didn't use under the old "take-or-pay" arrangement, which worsened its losses. So now, the authority is seeking to bring costs under its control. But for private enterprises that rely on fixed long-term arrangements to receive bank loans and forecast revenues, this feels like abruptly losing ground under their feet. Things have become even more complex because private producers do not have choices to sell power directly to customers or export it to India without going through NEA first. This NEA monopoly has stopped them from selling their products directly. If they could sell to multiple buyers, the danger of getting stranded with unsold electricity when demand dips may reduce. But for present, the state controls both the price and volume of power purchased. Nepal has more than 28,000 megawatts of potential in the coming years. However, private power companies would be reluctant to join up with the government in accomplishing this ambitious goal without some assurance. For some, the risk feels too large as they depend on long-term purchase assurances to acquire financing and forecast returns.

A more flexible contract structure may bridge the gap between government and independent parties. For instance, NEA may use a mixed buying model. Part of the electricity may be taken on a “take-or-pay” basis, providing stable revenues to developers regardless of demand, while the balance stays on “take-and-pay,” adapting with seasonal changes. This hybrid strategy would reduce NEA’s financial burden and, at the same time, offer investors enough confidence to proceed forward. Moreover, if private players obtain restricted access to regional or industrial markets, that might ease some strain on NEA. It would create additional outlets, enabling developers to sell extra power that NEA can’t consume. Finally, both parties can’t afford to drag this out much longer since it may badly affect a sector that offers so much promise for Nepal’s economic progress. Both parties now require honest negotiation and balanced agreements, which can, without a doubt, convert the nation’s tremendous hydropower potential into a true engine for prosperity.