The meeting of the board of directors of Nepal Electricity Authority (NEA), the state-owned power utility on Wednesday has approved the draft of power purchase agreement (PPA) to be signed with Tanahu Hydropower Project, allowing the power utility to purchase hydro electricity from first ever storage type project.

The 140 MW Tanahu Hydropower Project is a storage type plant planned to be built on the Seti River in Tanahu district in central Nepal.

The NEA will pay Rs12.40 per unit of electricity during the dry season which lasts from December to May, and Rs7.10 per unit during the wet season which lasts from June to November to the Tanahu Hydropower, as per the power purchase guidelines issued by the Energy Ministry. The guidelines also state that if the energy output during the dry season drops below 50 percent of the installed capacity, the payment rate during the wet season will be reduced by the percentage point of the decline.

For example, if electricity generation during the dry season falls to 36 percent of capacity, or a drop of 14 percentage points below the threshold, the NEA will pay 14 percent less for the power produced during the wet season. This means the purchase rate for the energy produced during the wet season will be Rs6.10, which is 14 percent less than the fixed rate of Rs7.10.

Likewise, if the project fails to generate 35 percent of the total energy during the dry period, it will be considered as a peaking run of the river type project, according to Prabal Adhikari, spokesperson of the NEA.

If it is considered as a peaking run of the river type project, the Tanahu Hydro will get Rs10.55 per unit during the dry season and Rs8.40 per unit during the wet season.Tanahu Hydropower Limited may have sealed a power purchase deal with the NEA, but the construction of the power station is in limbo due to delays in appointing contractors. The company has signed a memorandum of understanding with Sinohydro Corporation to implement the hydro and electromechanical works of the Tanahu Hydroelectric Project, but it is yet to sign the actual contract.

Likewise, there has been no progress in appointing a contractor for the first package of the project

which includes the preparation of a detailed design and the construction of the headworks. The Tanahu Hydroelectric Project will be one of the biggest reservoir projects in the country with an estimated annual energy generation capacity of 587.7 GWh in the first 10 years of operation. The project can generate energy for six hours daily during the dry season. The project is being built using credit extended jointly by the ADB, the Japan International Cooperation Agency (Jica) and European Investment Bank (EIB).