ERC/ECA Discussion Paper on Storage Hydro PPA Pricing (2025)

Summary

Economic Consulting Associates Limited prepared this April 2025 discussion paper for Nepal's Electricity Regulatory Commission. Its stated purpose is to develop proposed pricing arrangements for reservoir-hydropower PPAs between the Nepal Electricity Authority and independent power producers, subject to ERC approval. The cover states that ERC could consider the findings fully or partly after stakeholder input; the paper is not itself a directive or an approved project tariff.

Key Findings

• The sector overview describes Nepal's hydro capacity as predominantly run-of-river, with a smaller set of peaking run-of-river plants providing a few hours of storage, and identifies Kulekhani I as the existing reservoir plant. The statement is a sector summary tied to the paper's 2023/24 data boundary.
• The paper records standard NEA tariffs issued in April 2017 for RoR, PRoR, and reservoir projects in NPR per kilowatt-hour. It says ERC understood the reservoir tariffs to have been intended for Kulekhani I and subsequently withdrawn.
• The introduction treats attracting reservoir investment at acceptable cost as the objective and identifies large-hydro risk, Nepal's political and macroeconomic uncertainty, reliance on international capital, and investment de-risking as tariff-design considerations.
• The paper compares value-based and cost-based pricing, estimated and actual construction costs, debt-service timing, foreign-exchange exposure, and allocation of construction and volume risk.
• Its charging-structure section considers separating fixed or capacity-based recovery from variable or energy-based recovery. It discusses available capacity as a possible basis for the fixed component and generated energy as the basis for the variable component.
• Annex A1 contains named tables of existing and planned plants with RoR, PRoR, reservoir, and pumped-storage classifications. These are useful plant records within the annex's stated date and source boundary.

Relevance

The paper is cited by PPA Pricing for the difference between energy-priced standard tariffs and the capacity-and-energy questions raised for reservoir procurement. It is also cited by Operating Fleet Is Overwhelmingly RoR/PRoR, Not True Storage as one current official-sector description of the operating mix.

Limitations

• This is a consultant discussion paper prepared for ERC, not the final 2082 directive and not a signed PPA.
• The paper proposes a pricing approach; it does not establish that ERC adopted every proposal.
• Its sector overview and annex use the capacity and project-status records available for the 2023/24 context. They are not a current operating register.
• The paper is not a retrospective causal study of why Nepal's fleet became RoR/PRoR-heavy. It supports fleet description, existing tariff form, and differentiated reservoir risk/finance—not a single-cause account.
• Illustrative tariff calculations use hypothetical project parameters and are explicitly not regulatory precedent.