Compensation clause for 30% dry energy.

With new guidelines effective from this year, there is an option of 30% dry energy for RoR projects. In this option, hydropower projects will receive NRs. 8.40 per kWh for six months (Mangsir 16 – Jestha 15) and NRs. 4.80 for the remaining 6 months (Jestha-16 to Mangsir 15). However, the total dry energy should be more than 30% of the total energy supplied. Any projects suppling dry energy below 30% will be penalized. The formula for such compensation to NEA will be the following

Compensation Amount = (Total energy supplied in a year – Total annual estimated energy based on 30% dry season energy) x PPA rate of the wet season applicable for the fiscal year.

Apart from “Total annual estimated energy based on 30% dry season energy”, other terms are very clear. So, what is Total annual estimated energy based on 30% dry season energy?

According to NEA’s decision

Suppose: Annual contract energy (X) = 100 GWh

Minimum dry energy to be supplied = 0.3X

Suppose: dry energy supplied in a year (Y) = 29 GWh

Total annual estimated energy based on 30% dry season energy = Y/0.3=96.67

Before doing an assessment to find out its practical implications, it should be noted that many hydropower projects in Nepal are struggling to supply contracted energy. There is a huge variation in Contract Energy and the Actual Energy supplied by hydropower project (Disappointing PLF). 

Now let’s do an assessment. Before that, below are some practical assumptions

Install Capacity	1 MW
PLF*	65%

*To meet the criteria of 30% dry energy, I guess projects have to be designed above of Q40. So, I think 65% PLF is quite reasonable.

Based on above PLF, the energy generation will be the following

Details	Energy (GWh)	Percentage
Dry	1.71	30%
Wet	3.99	70%
Total	5.69	100%

Decline  in Dry  energy by	Annual Wet Energy (GWh)	Annual Dry Energy (GWh)	Total Energy Supplied in a year (GWh)	Total annual estimated energy based on 30% dry season energy	New Compensation Method NRs.	Previous Method NRs.	Difference NRs
5%	3.99	1.62	5.61	5.41	956,592	717,444	239,148
10%	3.99	1.54	5.52	5.12	1,913,184	1,434,888	478,296
15%	3.99	1.45	5.44	4.84	2,869,776	2,152,332	717,444

Above calculation is based on the first year of generation.

There will be sufficient discharge in wet season which is a typical nature of this country. However, projects are likely to suffer during wet season. The above figures show that the compensation clause on 30% dry energy option should not be taken lightly by the stakeholders (developers, investors and banks)