ERC issues landmark open access directive to liberalize Nepal’s electricity market

KATHMANDU: In a major push to liberalize Nepal’s power sector, the Electricity Regulatory Commission (ERC) has issued a comprehensive Draft Open Access Directive 2082 (2025 AD) aimed at unlocking competition, encouraging private sector investment, and facilitating cross-border electricity trade. The directive lays the legal and procedural foundation for non-discriminatory access to Nepal’s transmission and distribution infrastructure.

The initiative aligns with Nepal’s long-standing energy reform agenda and is developed under the broader “General Network Access Framework” introduced by the Ministry of Energy, Water Resources, and Irrigation (MoEWRI).

Open Access: Who It Applies To

The directive applies to entities using the transmission system (66kV and above) and distribution system (at 33kV substations). Eligible applicants include:

Power producers with capacity of 5 MW or more

Captive power plants with minimum usage of 1 MW

Commercial and industrial consumers with contract demand of 5 MW and above

Distribution licensees and electricity traders

Additionally, cross-border electricity trade (CBET) is allowed if domestic demand is met, with a minimum quantum of 10 MW for such transactions.

Three-Tier Access Model: LTOA, MTOA, STOA

ERC has introduced a three-tier system to categorize Open Access:

Long-Term Open Access (LTOA): >5 years up to PPA period

Medium-Term Open Access (MTOA): 1–5 years

Short-Term Open Access (STOA): Up to 1 year, minimum 1 day

Priority is granted based on access duration—LTOA gets the highest, followed by MTOA and STOA. Within each category, first-come, first-served applies.

NEA’s PSOD as Nodal Agency

The Power System Operation Department (PSOD) of the Nepal Electricity Authority (NEA) is designated the nodal agency. It is responsible for receiving applications, conducting system studies, granting access, billing, and coordinating energy scheduling. However, the government holds power to redesignate this role.

Charges and Financial Framework

ERC has defined a detailed fee and surcharge mechanism to ensure cost recovery and grid sustainability:

Transmission Charges: Calculated per MW/month for long and medium term; NPR/kWh for short-term

Wheeling Charges: Based on the use of distribution infrastructure

Cross-Subsidy Surcharge: To offset loss of subsidizing consumers opting for open access

Additional Surcharge: To recover stranded costs of distribution utilities

Stand-by Power Charges: Set at 125% of tariff for initial two years

Scheduling & Operational Charges: NPR 500/day and NPR 50/MW/day respectively

Reactive Energy Charges: Waived for first two years

Deviation Settlement Charges: Will follow a separate directive

Captive power plants (CPPs) are exempted from paying Cross-Subsidy and Additional Surcharges, provided they prove compliance with criteria to be separately issued by ERC.

Curtailment and Reliability Provisions

In case of system congestion, open access will be curtailed starting from STOA, followed by MTOA, and lastly LTOA. Curtailment will be on a pro-rata basis and must be complied with instantly upon instruction by the Load Dispatch Centre (LDC).

ERC also mandates smart meters with 15-minute data recording, communication with LDC, and dual sealing. Customers must also maintain 24/7 control rooms for real-time coordination.

Payment and Security

To prevent defaults, ERC mandates:

Letter of Credit or Bank Guarantee for long and medium-term users covering 3 months of dues

Upfront payments for short-term users

Late payment surcharge of 1.25% per month

Blacklisting of defaulters from new open access applications

Information Transparency

Nodal agencies must publish daily updated data on available transmission/distribution capacities and open access schedules on a separate webpage titled “Open Access Information.”

Dispute Resolution and Future Directives

ERC will establish a Grievance Redressal Committee to resolve non-legal complaints. Legal disputes or interpretation issues will be addressed through petitions filed with the Commission.

The Commission also promises multiple new directives within 120 days, including:

Deviation Settlement Mechanism

Balancing and Settlement Code

Metering Specifications

CPP Eligibility Criteria

Connectivity Framework

Implication for Nepal’s Power Sector

The directive marks a turning point for Nepal’s power market as it:

Enables competitive power sourcing for large consumers

Facilitates private sector entry and third-party sale

Opens doors for regional electricity trade

Reduces dependency on NEA as a sole supplier

Encourages infrastructure investment by creating a clear legal regime

Global Relevance

The directive places Nepal on par with global electricity liberalization trends, making it FDI-friendly, investment-attractive, and aligned with cross-border energy integration goals under regional platforms like BBIN and SAARC.

With the draft now published, ERC has called for stakeholder inputs before formal implementation. If implemented effectively, Nepal’s electricity market could soon be transparent, decentralized, and investor-driven, contributing significantly to the country’s economic modernization.