ERC’s PPA Framework for Pumped Storage: A Turning Point for Nepal

  

 

Critical Step for Nepal’s Energy Future

 

Nepal’s total peak electricity demand, according to NEA data, currently stands at 2,859 MW, while total installed generation capacity is around 3,600 MW. At first glance, this might suggest a comfortable surplus. However, the reality is far more complex.

With a growing share of generation from run-of-river (RoR) hydropower and solar plants, the mismatch between when energy is generated and when it is needed is becoming a serious challenge.

 

The country already faces energy deficits during the dry season and excess production during the wet season. Without a balanced energy mix, these seasonal imbalances will only worsen, threatening both energy security and the financial stability of the power sector.

 

A Missed Target in Energy Mix Planning

Government plans once targeted 30–35% of generation capacity from storage and pumped storage projects. Today, reality paints a starkly different picture:

 

·      Only about 3% of capacity comes from storage projects (entirely from Kulekhani).

·      The share is actually declining, as dozens of new RoR and solar plants are set to come online in the coming years.

 

One key reason for this failure is unattractive Power Purchase Agreement (PPA) rates for storage projects, which have discouraged private investment.

 

The Electricity Regulatory Commission (ERC) has now recognized this gap and is working on revised PPA modalities for storage projects—a long-overdue. Private sector is hopeful that it will introduce justified PPA rates, which will attract private investors.

 

In addition, ERC is also preparing a PPA framework for Pumped Storage Hydropower (PSH)—a technology that can transform Nepal’s energy landscape.

 

Why Pumped Storage Hydropower (PSH) Matters

PSH acts like a giant, long-life battery:

 

·      During off-peak hours (when electricity is cheap or in surplus), it pumps water uphill.

·      During peak demand, it releases the stored water through turbines to generate electricity.

 

Globally, PSH is often powered by excess solar or wind energy, storing renewable energy for later use. For Nepal, PSH could absorb night time energy and release it during peak hour—providing the grid stability we urgently need.

 

Challenges in Making PSH Viable in Nepal

Despite its potential, PSH presents unique challenges:

 

1) High Capital Costs

·      Electromechanical components, particularly reversible Francis turbines (which serve both pumping and generation functions), are more expensive than those for RoR or storage projects.

·      Economies of scale mean PSH becomes more cost-effective only at large capacities.

 

2) Energy Sourcing

·      A 1,000 MW PSH plant with 10 hours of generation could require 4.5–5 TWh of energy annually just for pumping—an immense demand.

·      This is particularly challenging during the dry season when Nepal already struggles to meet consumption needs.

 

3) Efficiency Losses

·      PSH is a net energy consumer, typically using 1.2–1.3 units of energy for every unit generated.

 

PPA Rates

A) Sourcing Energy from NEA

·      Current NEA purchase rates are NPR 4.80/kWh (wet) and 8.40/kWh (dry) for RoR projects, with only modest escalation. Solar’s ceiling is NPR 5.94/kWh.

·      For PSH to be financially viable, an estimated net margin of NPR 15/kWh is required—implying PPA rates of NPR 19.80–23.40/kWh depending on the source energy.

 

B) Integrated Solar + PSH Models

·      Pairing PSH with dedicated solar generation could improve viability, with blended PPA rates around NPR 20.94/kWh for generation (throughout the year)

 

C) Assumptions 

·      Assumptions here are based on 10 hours of daily generation—fewer hours would require higher PPA rates.

 

The Way Forward

For Nepal to achieve a reliable, sustainable energy system, storage solutions must complement RoR and solar generation. PSH is:

·      A proven, century-old technology, unlike battery storage which remains costly and short-lived.

·      Capable of absorbing excess generation and delivering it exactly when needed.

·      Key to enabling grid stability and long-term energy security.

 

The ERC’s initiative to introduce PPA rates for PSH is a welcome and timely step. But success will depend on genuine private sector participation—without it, large-scale PSH development is unlikely.

 

Any policy or pricing framework developed without private sector input risks being nothing more than a paper exercise. If Nepal wants to move from seasonal power swings to a stable, secure grid, pumped storage hydropower must be part of the core strategy.