October 11 , 2012

1. A Presentation On Scenario Analysis of Bulk Electricity Pricing Based on Long Run Marginal Cost: A Case of Nepal Krishna Pd. Nepal Prof. Amrit Man Nakarmi Dr. Arbind Kumar Mishra October 11 , 2012 International Conference on TIM, 2012, Nepal

2. International Conference on TIM, 2012, Nepal Introduction • Electricity Price: The money charged for per unit electrical energy(kilowatt hour) by electric utility for its customer. • Formulation and implementation of electricity pricing structure and strategies is complex process because it has enormous macroeconomic impacts and is extremely volatile. • Long-Run Marginal Cost (LRMC) is the cost of meeting an increase in consumption or demand.

3. Overview of Nepal’s Power System • Nepal Electricity Authority (NEA) is a corporation wholly owned by GoN that is responsible for most of the country’s generation, dispatch, transmission, and distribution of electricity • Integrated Nepal Power System (INPS) has • Installed capacity: 706 MW • Currently the annual peak power demand : 946.10 MW International Conference on TIM, 2012, Nepal

4. Input for LRMC Calculation • Electricity Generation , Supply and Demand Input • As suggested by a report developed by taskforce of ten years hydropower development plan published by Government of Nepal, Ministry of Energy (MOE) in 2008 • Demand Forecasted @ High Economy Growth, @ Medium Economy Growth and @ Low Economy Growth for the periods of 8 years (2012 to 2020) based on Load Forecast Model provided by Asian Development Bank (ADB) International Conference on TIM, 2012, Nepal

5. Scenarios Development • Power Generation Capacity Availability (Power Generation Scenario) • Seven existing ROR type hydro plants • Crystal Ball Simulation of each month generation data of last seven years (2060/61 to 2066/67) • Average value • Wet season : 64% of the designed capacity • Dry season : 52% of the designed capacity International Conference on TIM, 2012, Nepal

6. New Entrant Scenario • Time Over Run Scenario • Time Over Run of 7 HPP • Simulation of % of time over run • Range of time overrun for 95 % interval : 32% to 95% • Average time overrun :63% of estimated schedule • Time Over run Scenario • @ estimated Time (Best) • @ 35% of Time Overrun (Good) • @ 65 % of Time Overrun( Bad) • @ 90% Time Overrun (Worst) International Conference on TIM, 2012, Nepal

7. International Conference on TIM, 2012, Nepal

8. LRMC Calculation • LRMC is calculated through Long Run Incremental Cost(LRIC) which is algebraically defined as LRIC= (Rt+1 –Rt)/(Qt+1 – Qt)+(r*Ik)/(Qk+1-QK)……(1) Where, t= Year for Which is being Calculated Rt= Operation and Maintenance expenditures in t Qt= Electricity produced in t r = The Capital recovery factor r= Ii * (1+i)n/ (I+i)n-1 Where I= Investment Cost, i = appropriate interest rate n = usual length of life investment, K = the year in which the very next major investment expenditure is completed (Source: Turvey and Anderson 1977). International Conference on TIM, 2012, Nepal

9. LRIC of Hydropower project by public sector (NEA) investment is calculated by using equation (1) • If X MW is new entrant from NEA and Y MW from IPP then • If Imported power is I MW and Thermal plant is used to consider deficit power Z MW then • Where, LRMC = Combined LRMC of total genertionmix • LRMC (T) = LRMC of Thermal only • R= Rate of imported Energy International Conference on TIM, 2012, Nepal

10. LRMC Results and Discussion Electricity pricing of system consisting of Hydropower only @ 35% Time Overrun @ Estimated Time International Conference on TIM, 2012, Nepal @ 90% Time Overrun @ 65% Time Overrun

11. In case of estimated time and considering hydropower only, in average the LRMC of electricity ranges NRs. 5.5/kWh to NRs 9.70/kWh • In case of 35%, 65%, and 90% time overrun price ranges from NRs. 4.00/kWh to 10.00/ kWh, NRs 6.00/KWh to NRs. 10.50/kWh and NRs 6.6/KWh to 14.00/kWh respectively. International Conference on TIM, 2012, Nepal

12. Electricity Pricing Consisting of HPP, Imported and Thermal Power • @ Estimated Time Scenario @ Low Economy Growth Demand International Conference on TIM, 2012, Nepal

13. @ Average Economy Growth Demand @ High Economy Growth Demand International Conference on TIM, 2012, Nepal

14. In case of low, average and high economy growth demand, there will be no power deficit by year 2014, 2015 and 2016 respectively and pricing of electricity will be low ranging from NRs 4.00/kWh to NRs 10.00/kWh • In case of generation mix consisting of diesel power plant and imported power as an alternative to address the growing demand, the peak hour price ranges from NRs. 14/kWh to NRs. 17/kWh International Conference on TIM, 2012, Nepal

15. @ 35% Time Overrun Scenario @ Low Economy Growth Demand International Conference on TIM, 2012, Nepal

16. @ Average Economy Growth Demand @ High Economy Growth Demand International Conference on TIM, 2012, Nepal

17. In case of low and average growth demand, there will be power surplus only by year 2018 and 2019 respectively • In case of low and average growth demand the bulk price of electricity at peak hour ranges from NRs 14/kWh to NRs 24/kWh from year 2012 to 2018 • For year 2019 and 2020 price will rangesfrom NRs 4.5/kWh to NRs 7.00/kWh • In case of high economy growth demand the bulk price of electricity at peak hour will ranges from NRs 20/kWh to NRs 28/kWh till 2020 International Conference on TIM, 2012, Nepal

18. @ 65 % Time Overrun Scenario International Conference on TIM, 2012, Nepal @ Low Economy Growth Demand

19. International Conference on TIM, 2012, Nepal @ High Economy Growth Demand @ Average Economy Growth Demand

20. In all cases, low, average and high growth demand, there will be Power deficit at peak demand hour till year 2020 • The bulk price of electricity at peak hour ranges from NRs 17/kWh to NRs 29/kWh from year 2012 to 2020 if generation mix consist of diesel power plant and imported power to meet the growing demand International Conference on TIM, 2012, Nepal

21. @ 90% Time Overrun International Conference on TIM, 2012, Nepal @ Low Economy Growth Demand

22. International Conference on TIM, 2012, Nepal @ High Economy Growth Demand @ Average Economy Growth Demand

23. In all case of low and average and high growth demand, there will be significant amount of power deficit at peak hour till year 2020 • Pricing at peak hour will ranges from NRs 17/kWh to NRs 32 /kWh International Conference on TIM, 2012, Nepal

24. Conclusion and Recommendation • High Seasonality behavior of ROR type plants so corrective study is required for optimum utilization of designed capacity • Huge Impact of Time Overrun of project on Power balance and pricing structure • There should not be any delay on developing the project of generation plan to keep power balance in healthy condition and pricing structure in reasonable limit • LRMC reflects the economic efficiency criterion so it can be one of the curative measures to improve the poor financial condition of electric utility like NEA. International Conference on TIM, 2012, Nepal

25. Limitations/Further Scope of Study • Limitations • Pricing structure at peak demand hour and only at substation level is calculated, retail pricing structure is not determined • Loss-of-load-probability (LOLP) is not considered in this study • Only diesel thermal power plant is used as an alternative source to address the power deficit in the system. • Further Scope of Study • Consideration of alternative sources other than thermal • Socio economic considerations on pricing • Retail Pricing Structure International Conference on TIM, 2012, Nepal

26. THANK YOU International Conference on TIM, 2012, Nepal