PHOTO CREDIT: DELOITTE

URJA NEPAL
TARIFF BASED COMPETITIVE
PROCUREMENT OF SOLAR POWER IN
NEPAL
For Nepal Electricity Authority
June 2022

Disclaimer: This document is made possible by the support of the American people through the United States Agency for
International Development (USAID). The contents are the sole responsibility of Deloitte Consulting LLP and do not
necessarily reflect the views of USAID or the United States Government.
CONTENTS
1. INTRODUCTION 1
1.1 NEPAL POWER SECTOR OVERVIEW 1
1.2 POTENTIAL OF SOLAR PV BASED POWER GENERATION IN NEPAL 2
1.3 ROLE OF SOLAR PV IN NEPAL’S ELECTRICITY DEMAND 3
2 INTERNATIONAL EXPERIENCE – SOLAR POWER PROCUREMENTMENT
6
2.1 BIDDING STRUCTURE 6
2.2 BID PREPARATION 8
2.3 BIDDING PROCESS 9
2.4 TIMELINES FOR PROJECT DEVELOPMENT 13
3 UNDERSTANDING THE NEPALESE SCENARIO FOR SOLAR POWER
PROCUREMENT 14
3.1 AS-IS ASSESSMENT OF CURRENT BIDDING PRACTICES FOR SOLAR POWER 14
3.1.1 BIDDING PROCESS AND EVALUATION CRITERIA 15
3.1.2 BIDDING MODEL 15
3.1.3 PROJECT DEVELOPMENT MODEL 15
3.2 GAP ANALYSIS & RECOMMENDATIONS 17
3.1 IMPROVE COORDINATION AMONG GON AGENCIES BY DEFINING ROLES &
RESPONSIBILITIES 17
3.2 STRUCTURED BIDDING PROCESS 17
3.3 STANDARD CRITERIA AND EVALUATION MATRIX FOR AUCTIONS 17
3.4 STREAMLINE LAND & PERMITTING PROCESSES 18
3.5 INTRODUCTION OF E-REVERSE AUCTION PLATFORM 18
3.6 DEVELOP INTERNAL FINANCIAL MODELS 18
ANNEXURE 19
ANNEX 1: SOLAR POTENTIAL IN NEPAL 19
 1. INTRODUCTION

1.1 NEPAL POWER SECTOR OVERVIEW

Electricity generation in Nepal relies primarily on run-of-river (RoR) hydropower projects (HPPs),
which depend heavily on the monsoons that fall in summer months during the country’s “wet season”.
During the “dry months” of winter when water levels are at their lowest, Nepal, then in energy deficit,
must import power from India.
Approximately 86% of Nepal’s population has access to grid electricity, while another 10% rely on
off-grid distributed generation which comes principally from renewables. 1 Between 2018 and May
2022, Nepal nearly doubled its installed capacity – from 1,069 MW to 2,100 MW. 2 It is a widely held
belief that in the near-term electricity deficits will be a relic of the past and that continuing capacity
growth can be used to feed long pent up domestic demand, as a substitute for imported fossil fuels,
and for export to the South Asian region.
In the last decade, Nepal’s peak power demand has grown at a Compounded Annual Growth Rate
(CAGR) of approximately 5.3% -- from 885 Megawatts (MW) in 2010 3 to ~1,643 MW 4 in 2022.
Although Nepal is expanding and upgrading its networks to enhance per capita electricity consumption
to 700 KWh by FY2022/23, 5 the current consumption is still near the bottom of South Asia’s league
tables. 6
Of Nepal’s 2,100 MW installed capacity, approximately 30% is generated by the Nepal Electricity
Authority (NEA), Nepal’s vertically integrated, state-owned utility, while the balance of 70% is
produced by the private sector, Nepal’s Independent Power Producers (IPPs). The Government of
Nepal (GoN) estimates that the country has 43 gigawatts (GW) of hydropower generation potential,
of which only about 5% (2.1 GW) has been developed. Owing to these vast hydropower resources
Nepal’s generation mix is quite lopsided, with hydropower contributing 95%, with the balance coming
from solar, bagasse, and thermal resources.
Although Nepal’s climate can support a significant amount of solar power, Nepal’s energy scales will
always be tipped toward hydropower development. It is also true however, that the GoN has not
completely overlooked the benefits of renewable energy (RE). In fact, in the recent past it has taken
steps to exploit its solar resources to increase Nepal’s energy security and to help meet the nation’s
climate change goals. In recent years the GoN has introduced numerous programs and policies to
promote the integration of multiple types of RE into the grid. In 2016, in its ‘National Energy Crisis
Prevention and Electricity Development Decade’ policy paper, the GoN announced a plan to incorporate
RE in amounts as high as 5-10% of the generation mix by 2026. That plan also advanced the notion of
NEA conducting tariff-based bidding for solar plants at various locations throughout Nepal. Other

1 Solar Generation for Energy Security in Nepal, Vidyut Magazine, NEA (Year 32, Issue 1, 2078 Bhadra) accessed through
https://www.nea.org.np/admin/assets/uploads/annual_publications/Bidhut_2020.pdf
2
List of completed projects, NEA Power Trade Department
3
Nepal Electricity Authority (NEA) Annual Report FY2009/10
4
https://english.khabarhub.com/2022/02/255473/
5
Nepal Electricity Authority (NEA) Annual Report FY2020/21, p. 76
6
https://nepal.gov.np:8443/NationalPortal/view-page?id=92

1 | TARIFF BASED COMPETITIVE PROCUREMENT OF SOLAR PROJECTS IN NEPAL

USAID.GOV
GoN policies geared towards the RE sector include the ‘Grid Connected Alternative Energy Procedure
2021’ and the bill for an act on Renewable Energy (development and promotion) Act, in the same
year. As a result of such policies, legislation, and incentives, Nepal has recently begun to consider the
development of large, grid-scale RE projects. Recent examples include NEA’s 2016 call for bids for
tariff-based procurement of solar projects for 64 MW in 22 locations and in 2018 for 62 MW in 22
locations. More recently, NEA announced plans to procure solar projects only through competition,
fixing the base tariff rate at Nepalese Rupees (NPR) 5.94. However, to successfully move forward in
this space, Nepal will require a robust framework that includes carefully designed policy, regulatory,
institutional, financing, and commercial incentives.
NEA, the state utility, is legally obligated to provide generation, transmission, and distribution services.
Because Nepal’s electricity sector is based on the single buyer model, NEA currently provides the
only access to the network by domestic power producers. Like all electricity generators, RE producers
are also required to sign either a power purchase agreement (PPA) or a net-metering agreement with
NEA to connect to the national grid. Finally, inconsistent messaging from policy makers with respect
to the legal, regulatory, and pricing methodologies required to promote RE has so far, left many private
sector developers disappointed and discouraged. The GoN will need to tackle these problems if it is
to make the power sector receptive to RE development.
This report will focus primarily on one such problem - the challenges of solar power procurement. It
will explore deeply the practice of tariff-based competitive bidding to award solar power projects. In
doing so, the report will analyze the current practice in Nepal and compare it with leading practices
in other parts of the world to form a gap-analysis on how Nepal needs to improve its solar licensing
regime. We believe that tariff-based bidding will provide GoN with the most transparent and efficient
way to determine the bid with the best value-for-money. Moreover, such auctions will provide the
GoN with the advantages of flexibility and real-price discovery while protecting the interest of all
stakeholders involved in the process through clearly articulated commitments and penalties.

1.2 POTENTIAL OF SOLAR PV BASED POWER GENERATION IN NEPAL

Each year on average, Nepal enjoys more than 300 days of sunlight. It has relatively high insolation of
an average of ~17 megajoules per m2 per day (1.7 TWh per km2 per year) and the national average
sunshine hours of 6.8 per day. This makes Nepal a country with moderately high solar potential. 7
The solar photovoltaic (PV) output potential for Nepal’s multiple regions are set out in Figure 1.

7 100% Renewable Energy with Pumped-hydro-energy storage in Nepal, https://academic.oup.com/ce/article/5/2/243/6275217

USAID.GOV TARIFF BASED COMPETITIVE PROCUREMENT OF SOLAR PROJECTS IN NEPAL | 2

 Figure 1: Solar PV Potential in Various Regions of Nepal

Source: Global Solar Atlas (https://globalsolaratlas.info/download/nepal)

In addition, a study was carried out by Nepal’s Alternative Energy Promotion Center (AEPC) with the
support of United Nations Environment Program and Global Environment Facility (UNEP/GEF) to
assess the solar and wind energy potential in Nepal. The study report, ‘Solar and Wind Energy Resource
Assessment in Nepal (SWERA)’ submitted by AEPC in 2008, highlights the potential for Solar PV
technologies as follows:
Grid Connected Integrated PV: 2,167 sq. km of urban areas with population density greater than
3,500 per sq km and average annual radiation of 5.28 kWh/m2/day were considered for analysis.
Assuming 2% of the land is suitable and power generation of 50 MW per sq.km of land, yield for
grid-connected integrated PV was estimated to be 2,100 MW.

1.3 ROLE OF SOLAR PV IN NEPAL’S ELECTRICITY DEMAND

Nepal’s electrification rate is one of the fastest growing in the world, as evidenced by the increase in
population with access to electricity to 93% by mid-March 2021 – as compared to 88% in mid-July
2019 and 90% in mid-July 2020. With electricity supply being extended to the country’s growing
population along with increasing per capita consumption, the demand for electricity continues to
increase. Historically hydropower has been the only source of clean electricity and because it is
intermittent, it has resulted in acute power shortages during Nepal’s dry season which were balanced
using coal sourced electricity imports from India. Although hydropower is a clean source of energy,
in most places in the world it is not considered to be “green energy” as it can often have adverse
impacts on river ecosystems and environment. Moreover, rehabilitation and resettlement issues may
prevent reaping full benefits of storage hydro projects.
Nepal’s current electricity generation mix is depicted in the Figure 3.

3 | TARIFF BASED COMPETITIVE PROCUREMENT OF SOLAR PROJECTS IN NEPAL

USAID.GOV
 Generation Mix by Installed Capacity (MW)
53 , 3%
44 , 2% 3 , 0%

2,029 , 95%

Hydropower Solar Thermal Bagasse

Figure 2: Generation Mix by Installed Capacity in Nepal as of May 2022

Source: NEA 2022
*Capacity of small-scale RE projects under AEPC are not included
Figure 3 demonstrates that the share of grid-connected solar power in the total installed capacity is
currently only about 2%. However, the recent development in solar power sector shows that the
private investors’ interest in solar technology is rising rapidly and that if proper policies are in place,
solar technology can be an important and suitable means of meeting Nepal’s growing electricity
demand. This argument is based on literature which emphasizes the feasibility of solar PV-based
electricity generation in Nepal and assessed the solar PV output potential of the country (excerpts
from the literatures have been given in the previous section of this report). In contrast, the current
data for utility-scale solar projects as given in Table 1 shows that only a very small amount of this
potential has been tapped.
Table 1. Installed Capacity and Potential Solar Power Plants in Nepal

S.N. Category and Status Capacity (MW)

1 Grid-connected IPPs’ Installed Capacity 33.14
2 Grid-connected NEA's projects 11.1
3 Survey License awarded by DOED 1,101.7
4 Projects with Construction License 124.6
5 Projects applied for Survey License 429
6 Projects applied for Construction License 15
7 Other (Forwarded by DOED to local Govt.) 0.99
8 Other Projects Studied by OIBN 550.0
Total 2,265.53
Source: DOED website as of June 8, 2022, OIBN website and NEA Data as of May 31, 2022
The arguments in favor of a greater role for solar PV technology in balancing the demand and supply
of electricity in Nepal are summarized below:
i. There is a high potential for solar power generation due to strong irradiation in major regions
of the country.

USAID.GOV TARIFF BASED COMPETITIVE PROCUREMENT OF SOLAR PROJECTS IN NEPAL | 4

 ii. Government policies are currently being put in place to increase the share of solar electricity
in the total energy mix: According to a White Paper, the GoN’s 2016 National Energy Crisis
Prevention and Electricity Development Decade policy paper, a RE target of 5-10% in
generation mix has been set to be achieved over a ten-year period. Solar projects, being the
most studied and implemented among all RE technologies in Nepal, is the energy source most
likely to contribute greatest amount towards achieving this White Paper’s target.
iii. Photovoltaic solar panel prices have fallen dramatically in recent years.
iv. The generation tariff for solar RE, determined through competitive bidding process, is a
market-determined rate, instead of GoN imposing set prices on the projects.

5 | TARIFF BASED COMPETITIVE PROCUREMENT OF SOLAR PROJECTS IN NEPAL

USAID.GOV
2 INTERNATIONAL EXPERIENCE – SOLAR POWER
PROCUREMENTMENT
International case studies are used to understand key features needed to conduct a procurement of
solar projects using a defined framework. The key components are 1) a well-defined bidding structure;
2) careful bid preparation; 3) bidding processes clarity; and 4) timelines for project completion. In the
following sub-headings these components are described together with suitable examples.

2.1 BIDDING STRUCTURE

The bidding structure should be tailored to the needs of the project and the desired volume of bidders
to attract. This structure should be well planned to ensure that the projects are completed within the
stipulated timelines, thereby achieving the purpose of the projects to be developed. The bidding
structure should attract or discourage various types of bidders according to the qualification criteria
of the structure selected.

International examples are presented below to provide insights regarding various practices adopted in
various countries to organize biddings to suit their needs:

Parameter Description International Examples

Qualification • Technical: Bangladesh: In September 2021, Bangladesh organized
requirement Experience of a tender for Engineering, Procurement and
developing similar Construction (EPC) of 68 MW solar project with a
projects, technical technical qualifying criterion for the bidder to have at
standards to be least seven years of experience as contractor and at
followed, warranties least two projects executed outside their own
to be provided. country with a minimum capacity of 50MW within
• Financial five years prior to the bid. Financial qualifying
capability– net criterion specified bidder to have at least $100 million
worth, turnover, bid turnover during the past three financial years and
bonds. bidder’s resources to meet or exceed $30 million for
• Consortium the project. 8
structure to
India: Bidders who participate in solar development
encourage
bidding in India are required to comply with several
participation from
standard technical and financial requirements. Past
diverse
technical experience of similar projects is not
players– defined
required to participate in the bid. Financial
limits on maximum
qualification typically requires net worth of the bidder
members.
to be 20% (twenty per cent) of the Central Electricity
Regulatory Commission’s Benchmark Capital Cost.

8
EPC tender in Bangladesh, accessible at: https://mercomindia.com/bangladesh-floats-epc-tender-68-mw-solar-
project/#:~:text=The%20Bangladesh%2DChina%20Renewable%20Energy,Sirajganj%20Solar%20Park%20in%20Bangladesh.&text=The%20las
t%20date%20to%20submit%20the%20bids%20is%20September%2027%2C%202021.

USAID.GOV TARIFF BASED COMPETITIVE PROCUREMENT OF SOLAR PROJECTS IN NEPAL | 6

 Consortium of the members has been set to a limit
of three members.
Project size • Bid package: Malaysia: In June 2020, tender for 1 GW of solar
constraint Minimum capacity development were released. Bidders could bid up to
that bidders would a maximum capacity of 50 MW.9
develop is defined.
• Maximum awarded
capacity: It may be
specified to allot a
maximum size that
can be allotted to a
single bidder.
Bidding • Tariff based bidding: Germany: In April 2015, bidding for solar PV was
Parameter This may be fixed organized and bids were invited for a minimum
tariff over a period installed capacity of 10 kW and a maximum capacity
of time, or it may be of 10 MW. Ceiling price of 112.9 EUR/MWh (126.2
escalating tariff USD/MWh) was set before the start of the auction. A
annually over the capacity of 156.97 MW of solar PV was contracted at
period. an average price of 91.7 EUR/MWh (102.5
• Viability Gap USD/MWh) in the bidding. This led to discovery of
Funding (VGF): new Feed In Tariff (FIT) for solar which was higher
Financial assistance than the then FIT of 90.2 EUR/MWh (100.82
is given to enable USD/MWh) for solar installations up to 10 MW.10
solar power
Sri Lanka: In March 2020, Sri Lanka invited bids for
generators to supply
150 MW solar project with a ceiling price of
power at a given
$0.08/kWh with a contract of 20 years to develop
tariff.
and maintain. Bidders could bid with capacity of 1 to
Ceiling price may be 10 MW across 20 locations. 11
specified to reject bids
beyond a price.
Bid prices may be
invited in terms of fee
per unit of power (MW)
or energy(kWh).

9
Malaysia Tender for 1GW solar plant, accessible at: https://renewablesnow.com/news/malaysia-opens-1-gw-solar-tender-under-covid-19-
recovery-plan-701119/
10
International Renewable Energy Agency. (2013): https://www.irena.org/-
/media/Files/IRENA/Agency/Publication/2015/Jun/IRENA_Renewable_Energy_Auctions_A_Guide_to_Design_2015.pdf
11
Sri Lanka tender for 150 MW solar development project, accessible at: https://mercomindia.com/sri-lanka-developers-solar-projects/

7 | TARIFF BASED COMPETITIVE PROCUREMENT OF SOLAR PROJECTS IN NEPAL

USAID.GOV
 Location Location constraint is Germany: Since 2010, Germany discouraged the
constraint added to develop the developers to construct large scale PV systems on
project at specific arable lands specified by Renewable Energy Act. As a
location rather than measure, Germany did not offer Feed in Tariff (FIT)
allowing the bidder to to projects located in the zones constructed outside
select a high resource the permitted areas by the act. This resulted in the
area which may already concentration of large PV systems on specific
be utilized. redeveloped brownfield sites or in the close vicinity
of highways and railway lines.2

2.2 BID PREPARATION

Bid preparation involves tasks that are required to be executed by the bid process coordinator before
the start of the bid. The documents should include not only the bidding documents themselves, but a
significant amount of supporting information required for bidders to submit an informed and complete
bid. The process preparation and documentation will create a smooth bidding process, leading to
streamlined negotiations and construction. With proper documentation and necessary permits, the
power from solar projects can reach commercial operations in a timely way. Various bid preparation
activities, together with international practices are listed below.
Parameter Description International Examples
Detailed bid Bid document may comprise of the Turkey: Bid document contains
document request for selection, model requirements of bid process coordinator
purchase agreement and model such as plant design, installation
power sale agreement. Document procedure, procurement, and
should contain the clearances from commissioning. It contains schedule of
authorities for land (if Govt. land), prices and schedule of supplementary
end bid process coordinator and information. For preparation of bid,
agency developing the solar plant. various guidelines are set like language of
bid documents required, bid form and
price schedules, currencies of bid, bid
validity, alternative proposal (if any), bid
process and format & signing of bids. 12

Arrangements • The project may be set up at a India: In India, if the project site is
related to specified site or project site procured by the bid process coordinator
site selected by solar power or selected by the Solar power generator
generator or a solar park. then the 100% of the land is identified with
• The bid process coordinator provision of documents/ agreements
must identify land and required indicating availability of 25% of the land

12
Tender document by Turkey for procurement of 5MW solar power plant, accessible at:
https://www.mofa.go.kr/www/brd/m_4052/down.do?brd_id=14456&seq=368192&data_tp=A&file_seq=1

USAID.GOV TARIFF BASED COMPETITIVE PROCUREMENT OF SOLAR PROJECTS IN NEPAL | 8

 documents/ agreements to during the initial bidding and 90%
indicate availability of land possession within one month of execution
during different phases of the of PPA. Rest 10% must be available within
project. 2 months thereafter. If the site specified is
• Environmental studies and grid a solar park, then the site is selected in the
studies should also be included. concentrated zone with access to
• Environment clearance and amenities and having proper
forest clearance (if required) infrastructure. Details are specified in the
have to be obtained in advance. bidding documents along with various
Approval for water for the clearances from concerned authorities. 13
project from the authorities
and letter from transmission
utilities confirming technical
feasibility of connecting plant
shall be taken.

2.3 BIDDING PROCESS

The bid process describes and defines how the bidding will take place. Bids can be taken either
electronically or by submitting of hard copies of the bids. After the bids have been received, the bidding
process should describe the criteria used to evaluate the bid and finally reach the final price and the
identity of the developer who will receive the award. Three types of bidding models accepted
internationally that might be used to procure solar projects in Nepal are described below:
1) Sealed Bid Auction
This, the simplest form of bidding, is widely used. This bidding model can be conducted either
using an offline mode of bidding (or electronic bidding (e-bidding) platform). Bidders submit
the technical specification, their project development experience, and bids in envelopes (or
e-bids) to the bid process coordinator. The content in the envelope (or e-bids) remains
undisclosed until the day of bidding. Qualified bidders are selected, and a reverse auction is
done by arranging the bids from lowest to highest price and then selecting the lowest price
offered. Sealed bid bidding can be performed by selecting the best options from the following as
per the needs of the bid process coordinator:
a. Single stage or two stage: In single stage bidding the bid process coordinator invites bids for
the project with complete project details. Bids are invited and bidders aggressively price to win
the project. In two stage process, bid process coordinator does not provide complete project
details. The first stage comprises of providing initial information and facilitating an early
collaboration between bid process coordinator and project developer to carry out
preconstruction activities. Inputs are taken before the final contract is build which would help
in ensuring complete project parameters are considered and would provide cost certainty to
contractor. The second stage of the process will be simply using the criteria agreed in initial
stage.

13
General guidelines by energy department of India for procurement of solar through competitive bidding, accessible at
https://mnre.gov.in/img/documents/uploads/62f71161a2f5482bbaa07cb77abb7258.pdf

9 | TARIFF BASED COMPETITIVE PROCUREMENT OF SOLAR PROJECTS IN NEPAL

USAID.GOV
 b. Single envelope and double envelope: In single envelope process, bidders submit their technical
and financial proposals in a single envelope. Technical specifications are evaluated and then bids
from the screened bidders are ranked from the lowest to the highest price. In double envelope
process, technical and financial proposals are submitted in two different envelopes. The first
phase is a pre-qualifying round to select eligible bidders based on technical requirements. Then,
only amongst the bidders qualified in the first phase, the second envelope is opened to select
the lowest tariff quoted.
Key advantages and dis-advantages associated with sealed bid biddings are set out below:
Table 2: Advantages and Disadvantages of Sealed Bid Biddings

Advantages Disadvantages
• It limits cartelization among participating • Non-serious bidders who are not capable of
bidders, as price bids are not disclosed. executing the project can quote
• Single stage process is advantageous when non-realistic bids.
complete details of the construction are with • It requires stronger institutional capabilities.
bid process coordinator. • These biddings take long time to declare the
• Two stage process is advantageous for results because of the process.
complex projects or projects where bid • Disadvantage of single stage process is that
process coordinator is not certain about the any additional work is to be done then the
project details. project developer may find ways to cut the
• Single envelope process is advantageous over cost which could lead to compromise in
two envelope process in terms of lesser time quality.
involved. • Disadvantage of two stage process is that
the clients are unable to benefit from early
contractor engagement since the additional
work may be considered even after having
finalized the contract in initial stage.

Sealed bid case study: Single stage two envelope bidding process in Mongolia 14

The solar park biddings conducted by the Asian Development Bank (ADB) for Engineering,
Procurement and Construction (EPC) contract for 10 MW Altai solar PV in Mongolia under the
project “Mongolia Upscaling Renewable Energy Sector Project” on 30th October 2020. Sealed bids
were invited for reverse bidding under single stage two envelope process.

2) Descending Clock Bidding or Iterative Bidding

Iterative bidding takes place using electronic bidding (e-bidding) widely. In this bidding, bidders
disclose their bids gradually in bidding round. In each bidding round bidders are given the liberty to
change their bids and offer a new price. This is a reverse bidding where rounds continue until the

14
Tender in Mongolia for solar bidding: https://www.adb.org/sites/default/files/tenders/mon3708-altai-a2-rebid-rev-ext2.pdf

USAID.GOV TARIFF BASED COMPETITIVE PROCUREMENT OF SOLAR PROJECTS IN NEPAL | 10

capacity is procured. This is a dynamic process where bids are disclosed between participants. All
bidders can observe the changes in the bidding price and adapt their bidding strategies to win the
bidding. Key advantages and disadvantages of reverse bidding include:
Table 3: Advantages and Disadvantages of Reverse Bidding Biddings

Advantages Disadvantages
• Rapid price discovery.
• Since winning bidders do not have to • Unrealistic bids may delay financial close
disclose the lowest price, they are willing to from lending institutions, leading to delay in
bid. project commissioning.

Reverse auction mechanism is a bidding approach for solar PV-based electricity procurement in which
qualified bidders (based on pre-defined qualification criteria) are eligible to submit price bids.
E-Reverse auctions conducted on an independent electronic bidding portal/platform on a real time
basis, which ensures a transparent bidding process. In e-Reverse auction process, bidders can modify
their last quoted tariff by a number of decrements, whereas quoted capacity typically remains fixed.
E-Reverse auction platform enables international bidding where multiple bidders from different
geographies can participate on real time. Electronic platforms for conducting reverse auctions can be
developed or hired as a service from a third-party service provider on a pay-per-use basis.

The following are the key features to conduct an e-Reverse auction for solar PV-based electricity
procurement:
 Bucket filling process – Based on the project capacity and initial price offered, bidders are
ranked in ascending order. Bidders are allotted their quoted capacity until the entire project
capacity available for bidding is exhausted. This feature plays a key role while initial shortlisting of
qualified bidders for next round of e- reverse auction based on their initial tariff and project
capacity.
 Ranking of bidders – Electronic platform dashboard shows a live ranking of each bidder based
on their quoted tariff, with the lowest tariff quoted bid ranking first.
 Iterative approach – Bidders can reduce their quoted tariff by a minimum decrement amount
(for example, 0.10 cents/kWh) from their last offered tariff on the platform. This enables bidders
to monitor and improve their ranking in relation to competitors in real time.

11 | TARIFF BASED COMPETITIVE PROCUREMENT OF SOLAR PROJECTS IN NEPAL

USAID.GOV
 Time stamping of bids – In the event of a tie, the e-Reverse auction platform records, and
timestamps each bid so that it may be determined which bid came first.
• e – Reverse auction bid process: Reverse auction bidding process begins with the first-round
tariff, which is based on the opening of financial bids from technically qualified bidders. Following
that, lowest first-round tariff bidders are shortlisted for the e-Reverse auction. e-Reverse auction
platform offers a transparent and iterative evaluation process in which bidders can reduce their
price bids multiple times during live bidding, resulting in better price discovery for the procuring
authority.
Iterative bidding Case Study: Bidding for solar projects to be developed in Solar Park under
National Solar Mission (NSM) Phase-II, Batch-IV India
The solar park biddings conducted by the Solar Energy Corporation of India Limited (SECI) under the
National Solar Mission (NSM) Phase-II, Batch-IV India, adopted the process of e-reverse biddings.
After a techno-commercial evaluation, an e-reverse bidding was conducted for the total project
capacity which was conducted through an online portal. Shortlisted bidders after the financial opening
round were able to login 15 minutes prior to the start of the bidding. Respective tariffs of the bidders
were displayed on its window. Bidders could mention their revised discounted tariff which had to be
at least 1 (one) paisa or 0.10 cent less than its current tariff. The initial bidding period was for one
hour, with a provision of automat extension of eight minutes. Bidders were selected in ascending
order with the lowest quoted tariff (being L1) and so on, until the capacity was exhausted. The lowest
quoting bidder was allotted its qualified project capacity, followed by allotting capacity to the next
higher bidder until the total eligible project capacity was exhausted. At the end of selection process,
a letter of Intent (LOI) was issued to the successful bidders for each project.

3) Hybrid Biddings
Hybrid bidding is a combination of single-stage sealed bid process and iterative bidding. This is a
reverse bidding process. Iterative bidding happens at the initial stage followed by the single stage
sealed bidding. Bid structure is provided in advance. In phase one, multiple rounds of bidding take place
until the capacity is procured. In phase two, bidders directly provide bid process coordinator a price
and quantity which is not disclosed to others. This can also be implemented in two phase approach
where ceiling price is determined using reverse bidding in the initial round and then tariff-based bidding
to discover the lowest price and eligible bidder in the second round.
Hybrid Bidding Case Study: Hybrid Bidding of Brazil 15
Brazil has implemented a hybrid bidding where at zero phase, quantity of energy and ceiling price is
provided in advance. The first phase is a descending clock bidding that results in the supply being met
within a certain margin. The second stage is a sealed-bid auction which is held to meet actual demand
at the lowest price. In the case of Brazil, the use of a hybrid bidding aims to take advantage of the
benefits of both bidding systems: price discovery in descending clock bidding – as it has proven to be
effective in determining the ceiling price for bids; and no collusion between small numbers of
participants for setting the final price in sealed-bid bidding.

15International Renewable Energy Agency. (2013). Hybrid Auction in Brazil. Accessible at:
https://www.globalccsinstitute.com/archive/hub/publications/138168/Renewable-energy-auctions-developing-countries.pdf

USAID.GOV TARIFF BASED COMPETITIVE PROCUREMENT OF SOLAR PROJECTS IN NEPAL | 12

 2.4 TIMELINES FOR PROJECT DEVELOPMENT
Timelines describe the duration in which the developer must develop the project and commission it
for successful supply of electricity. A few international examples are presented below that gives
insight about timelines for commissioning of project that are accepted by different countries:
Parameter Description International Examples
Part Bid process coordinator may accept California: In California, a renewable
Commissioning part commissioning of the project if power bidding took place where it was
the minimum capacity is achieved, and observed that half of the projects were
no penalty would be imposed for it rejected for not having capability to
provided that the scheduled meet required commercial operation
commissioning date is not delayed. deadline (COD) of 18 months first
Early round. This led to revision of the COD
Full or part commissioning of solar
Commissioning: to 24 months.2
generator could be accepted earlier
than commissioning date. In this case, India: As per the Indian guidelines, solar
PPA would be required revised as per project shall be commissioned within 13
the agreements made. months from the date of execution of
PPA and in case if solar project of
Commissioning The projects may be commissioned
capacity greater than 250 MW is built
Schedule within a certain period from the date
outside solar park then it would be
of execution of the PPA. Any delay in
commissioned within 15 months. Part
commissioning may invite penalties on
commissioning of minimum capacity 50
the Solar Power Generator.
MW may be accepted provided it does
not lead to delay in commissioning
schedule.6

13 | TARIFF BASED COMPETITIVE PROCUREMENT OF SOLAR PROJECTS IN NEPAL

USAID.GOV
3 UNDERSTANDING THE NEPALESE SCENARIO FOR SOLAR
POWER PROCUREMENT

3.1 AS-IS ASSESSMENT OF CURRENT BIDDING PRACTICES FOR SOLAR POWER

Nepal has adopted two different approaches to provide license for power projects – first, a
competitive bidding process or auction, and second, a first-come, first-served basis, where developers
are granted projects(s) based on the sequence of their application. Although legal provisions exist to
allow solar power procurement using both such models, only a handful of solar projects have been
developed using the latter. Almost all of the private sector led solar power projects that have signed
a Power Purchase Agreement (PPA) with NEA as of December 2021 have been procured through the
former method of auction or competitive bidding.
The history of competitive bidding to grant license for solar power development is fairly new for
Nepal. GoN has made two attempts at initiating competitive bidding for solar projects in 2016 and
2018. Both instances were borne out of the ‘National Energy Crisis Prevention and Electricity Development
Decade’ policy paper, which envisioned RE constituting 5-10% of the energy mix by 2026. 16 These two
auctions are different from the traditional hydropower auctions conducted over the years in two ways
– first, while the hydropower auctions were conducted by the Department of Electricity Development
(DoED) and Investment Board Nepal (IBN), the solar auctions were conducted by NEA as mandated
through the mentioned policy paper, second, while hydropower auctions have involved various
winning criteria such as free equity 17, free energy 18, upfront fees 19, and lowest tariff, 20 solar auctions
have been based on only lowest tariff reverse auction model. To date, NEA has auctioned a combined
total of 123 MWs of solar power for 44 different locations. Such projects have averaged approximately
3 MWs each, with 8.5 MWs being the largest capacity.
Figure 5 illustrates the method followed to procure solar power by NEA.

Bidding Bidding Model Evaluation Project

Process • Tariff-based Criteria Development
• Single (2016)/ Two Reverse Auction • Eligibility and Cost- Model
Stage (2018) based Selection • Build Own Operate
• Single (2016)/ Two (BOO)
Envelopees (2018)

Figure 3: Bidding/Auction Method Followed by NEA during 2016 and 2018 solar power auctions

16 The policy paper published in 2016 calls to make alternative energy 5-10% of the total energy mix in the next 10 years
17 Highest percentage of the project’s equity provided free to GoN
18 Highest amount of energy (from the project’s total energy) provided free to GoN
19 Highest fees provided to GoN upfront at the time of bidding
20 Reverse auction with lowest tariff quoted as the winning criteria

USAID.GOV TARIFF BASED COMPETITIVE PROCUREMENT OF SOLAR PROJECTS IN NEPAL | 14

 3.1.1 BIDDING PROCESS AND EVALUATION CRITERIA
For the 2016 auction, NEA chose a single-stage and single-envelope based bidding process, where
NEA requested for both the technical and financial proposals to be enclosed under a single envelope.
NEA first filtered the bids based on its technical criteria, which primarily included the participating
entity’s experience in developing solar power in the past. Then, the bids that passed the first screening
criteria were finally judged on the basis of the lowest tariff quoted. Finally, NEA awarded the Letter
of Intent (LOI) to those bidders that were selected from this process.
Since the 2018 auction involved Viability Gap Funding (VGF) from Asian Development Bank (ADB),
NEA followed ADB’s International Competitive Bidding (ICB) process. Under the criteria set by ADB,
NEA called for technical and financial bids in two separate envelopes. All the responsive bids were
first evaluated based on the contents of the first envelope, which contained various technical
parameters. Bidders that passed this stage of screening were then finally judged based on their second
envelope, which contained among other criteria, the tariff quoted by each as the main evaluation
criterion.

3.1.2 BIDDING MODEL

The bidding model for both 2016 and 2018 auctions were reverse auction based on the lowest tariff
quoted. While the main selection criterion used in the 2016 auction was a simple lowest tariff-based
model, the second auction in 2018 that involved VGF from ADB was a lot more complex – NEA
decided to pay NPR. 6.6/KWh throughout the project concession period, while ADB agreed to cover
the difference between the tariff bids received and NPR. 6.6/KWh until July 2022 through their VGF
program. Hence, bidders were evaluated based on the tariff quoted only until June 30, 2022.

3.1.3 PROJECT DEVELOPMENT MODEL

For both the 2016 and 2018 auctions, GoN chose the Build, Own, Operate (BOO) project
development modality. Under this model, the selected developers were offered a take-or-pay 21 PPA
contract for a period of 25 years. Developers were responsible for land acquisition, rights of way, and
acquisition of all related government permits.
The level of participation for both the auctions were not as encouraging as expected. Of various
developers that took part in both the auctions, those that we interviewed have been fairly critical of
the bidding and award processes for several reasons as outlined below.
i. Policy changes at key junctures
Based on the 2016 ‘National Energy Crisis Prevention and Electricity Development Decade’ policy
paper as discussed above, the GoN initially set the PPA prices at a benchmark rate of NPR
9.61/KWh. Bidders placed their bids based on this rate during the auction. However, a
subsequent government regime changed this rate to NPR 7.3/KWh after the bids were received.
All those who won the bids were surprised by the move and only a few developers signed PPA
with NEA based on the new tariff. Furthermore, the founding of the Electricity Regulatory

21
A take-or-pay clause is an agreement between the contracting parties that the offtaker will either 'take' power produced, 'or pay' for the
power produced if it is not required

15 | TARIFF BASED COMPETITIVE PROCUREMENT OF SOLAR PROJECTS IN NEPAL

USAID.GOV
 Commission (ERC) 22 around the same time, as well as the ensuing changes in PPA approval
procedures, contributed to long delays in PPA negotiations, prompting some to abandon the
solar projects.

In the 2018 auction held under the ADB VGF, NEA received bids that were significantly higher
than either they or ADB had anticipated. Because the tender process did not establish bid
ceilings, developers quoted tariffs ranging from NPR 17.80/KWh to NPR 49.00/KWh – tariff
rates significantly above the expected rates at the time. Hence, there were various rounds of
negotiations until a consensus was reached to fix the tariff for all the winners at NPR 16.6/KWh
until July 2022.

ii. Licensing and permits for solar power development

Some of the winning developers could not respond in time because of the changes around tariff
rates as mentioned in the preceding section. Survey license period allowed by GoN expired
before they could renegotiate new PPA terms with NEA. Furthermore, delay in tariff
negotiations meant that the project concession period became less than the allotted period of
25 years, which negatively affected the project’s anticipated financial returns.

iii. Land for solar power development

Both bid processes required developers to arrange their own land for solar installations, which
resulted in lengthy delays. Although developers were given the option of either purchasing or
leasing the land, they found it difficult to assemble large land parcels near NEA substations.

iv. Other technical issues

Developers were also critical of lack of clarity around substations to be used for connection to
the national grid and how to properly report energy tables as requested in the auction
procedures. This, again, added to the frustrations of the participating developers and added
more unneeded delay to the award process.
The GoN has taken a step in the right direction by electing to use competitive bidding to procure
solar power. However, because of various inefficiencies around bidding processes and policy decisions,
the very fundamentals of auctions – price discovery and transparency – were compromised. While
those auctions were supposed to be “tariff-based”, the fact that developers were eventually allowed to
sign PPA based on similar tariff and that only a handful of the auctioned projects have come online 4
to 6 years after the initial biddings, suggests that a careful study is needed to make the solar auction
process more efficient in the future.

22
Energy sector regulator for Nepal with jurisdiction over tariff approvals

USAID.GOV TARIFF BASED COMPETITIVE PROCUREMENT OF SOLAR PROJECTS IN NEPAL | 16

3.2 GAP ANALYSIS & RECOMMENDATIONS

3.1 IMPROVE COORDINATION AMONG GON AGENCIES BY DEFINING ROLES &

RESPONSIBILITIES
Clear roles and responsibilities, dictated by clear policies, are arguably the most important elements
of a successful bidding process. Policy frameworks which identify government responsibilities within
the sector and within the procurement process provide a stable structure for procurement. Not only
do these policies provide guidance for government actors, but the policies also serve to reduce risk
to investors, by reducing the likelihood of shifting rules, processes, or authorities.
To promote consistency and reduce both internal and external confusion, the GoN should map the
roles and responsibilities of each government organization within the electricity industry and within
the procurement process. This step provides a solid foundation upon which the procurement and a
project can be developed, by reducing risk to both government parties, and developers.

3.2 STRUCTURED BIDDING PROCESS

As a next step, following the definition of roles and responsibilities within the sector, the GoN should
also define the bidding process to be adopted. This bidding process should set out the tasks of each
involved government actor. In that way, each actor is aware of the role within the process, reducing
internal conflicts and overlap of duties. Each task should be assigned to an existing government
organization, and supported by policy, processes, and capacity within the organization.
For example, at a high level, the following tasks could be mapped as follows:
Agencies Responsibilities
ERC Approval of tariff discovered through competition.
DoED Grant of Generation License once PPP is signed.
NEA Entering Take-or-Pay PPA and completion of transmission
infrastructure for the evacuation of power.
MoEWRI Policy framework which encourages timely available for land for
development of solar electricity projects. Further policies which
encourage fair return on equity for investors.
MoFE Timely clearance of environmental and forest approvals.

Importantly, this step will reduce risk to developers and investors, and encourage investment in the
market by providing clear guidance and setting expectations.

3.3 STANDARD CRITERIA AND EVALUATION MATRIX FOR AUCTIONS

As part of the overall procurement process, which has been set out through set policies
(Recommendation 1) and a structured bidding process (Recommendation 2), the evaluation criteria
and process should similarly be standardized to promote consistency and reduce the risk of differing
outcomes among similar procurements. Standard evaluation documents and criteria would also
improve the bidding process by providing clarity for both government stakeholders and bidders.
Consistent templates which allow for slight deviations for project specifics can make the process more
efficient and predictable, thereby reducing risks and costs for all parties. Further, a set of consistent

17 | TARIFF BASED COMPETITIVE PROCUREMENT OF SOLAR PROJECTS IN NEPAL

USAID.GOV
evaluation principles can ensure that GoN achieves the desired outcomes for the project, including
political, environmental, and social outcomes.

3.4 STREAMLINE LAND & PERMITTING PROCESSES

In the past, land acquisition difficulties resulting from land scarcity and consequent rise in real estate
prices, to various permits needed to acquire government lands have resulted in time and cost
overruns. Furthermore, licenses and permits required at multiple stages of project development could
result in inefficiencies in co-ordination among government agencies and thereby add yet another layer
of hidden costs to the projects. The GoN should review the current licensing and permitting
processes and make efforts to streamline these processes to reduce costs and timelines for developers
– ultimately also reducing GoN costs. Specifically, the GoN should consider how the permitting
processes may differ for different technologies — solar may not need to follow the same process as
hydro, for instance. The current two-stage process to award feasibility study rights (survey license),
and thereafter rights over sites to allow power generation, may not be the best fit for solar projects.

3.5 INTRODUCTION OF E-REVERSE AUCTION PLATFORM

In the past solar tariff bidding conducted was not dynamic enough to accommodate revisions to the
tariff bids once the bidders submitted their bids. The gradual bidding for tariff which can be enabled
by E-reverse Auction platforms ensures transparency and allow for changes to bidding strategies. For
future bids NEA procure services from E-reverse Auction Platform providers for conducting iterative
bidding for the tariffs.

3.6 DEVELOP INTERNAL FINANCIAL MODELS

Often, government stakeholders are unaware of how changes to the procurement process or project
model might affect the expected tariff. A financial model can incorporate many project details, such
as percentage of local labor, site remediation, and weather patterns, to predict project costs, and
thereby provide insights to the expected offered tariff from developers. To better understand project
dynamics and financial impacts, the GoN should develop an internal financial model to aid in decision-
making processes, and better predict procurement outcomes.

USAID.GOV TARIFF BASED COMPETITIVE PROCUREMENT OF SOLAR PROJECTS IN NEPAL | 18

ANNEXURE

ANNEX 1: SOLAR POTENTIAL IN NEPAL

As shown in Figure 2, The World Bank/SolarGIS study ‘Global Photovoltaic Power Potential by
Country’ has described three levels of practical potential for development of utility-scale PV power
plants for Nepal.23

Distribution of area-wise PV output in Nepal

below 3.4
3.6—3.4
3.8—3.6
kWh/kWp

4—3.8
4.2—4
4.4—4.2
4.6—4.4
4.8—4.6
5—4.8
over 5

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Level 2 Level 1 Level 0

Figure 4: Distribution of Area-wise PV Output in Nepal

Source: Global PV Power Potential, Country Factsheet (https://globalsolaratlas.info/global-pv-potential-study)

Level 0 in the above diagram captures all the potential area for solar PV installation, disregarding any
limitations to the development and operation of solar power plants. As shown in the chart, at this
level, 21.3% of Nepal’s evaluated area of 147,180 km2 has the potential PV output in the range of 4
kWh/kWp to 4.2 kWh/kWp. To assess the potential more realistically, the study considers certain
constraints to the development and operation of solar power plants and hence, excludes unsuitable
land, with use of relevant global datasets. At Level 1, areas due to physical/technical constraints, such
as rugged terrain, presence of urbanized/industrial areas, forests, and areas that are too distant from
the centers of human activity have been excluded. 4.2% of the evaluated land area in Level 1 category
has PV potential of 4 kWh/kWp to 4.2 kWh/kWp. At Level 2, additionally, areas that might be
unsuitable due to regulations imposed by national or regional authorities (such as conservation of
cropland or nature conservation) has been discarded. 3.9% of the evaluated land area in Level 2
category has PV potential of 4 kWh/kWp to 4.2 kWh/kWp.

23 https://globalsolaratlas.info/global-pv-potential-study

19 | TARIFF BASED COMPETITIVE PROCUREMENT OF SOLAR PROJECTS IN NEPAL

USAID.GOV
In the World Bank Study ‘Solar Resource and Photovoltaic Potential of Nepal’, eight sites, located at
different regions of Nepal, were selected to gauge the solar irradiance in order to estimate the solar
power production potential in Nepal. The study showed that, in Nepal, the average yearly total of
specific PV power production varied between 1,200 kWh/kWp (equals to average daily total of about
3.3 kWh/kWp) and 2,200 kWh/kWp (about 6.0 kWh/kWp daily) with high values in north-western
region of the country. High PV power production was identified at Jomsom and Simikot sites; lower
potential was in Khandbari and Biratnagar. Difference in PV power production between the sites with
higher and lower elevation was quite large: Jomsom (5.07 kWh/kWp) and Biratnagar (3.62 kWh/kWp),
which is 28%.
A large partof the country has specific PV electricity outputs in the range between 1,400 kWh/kWp
and 1,600 kWh/kWp (equals to average daily totals between 3.8 and 4.4 kWh/kWp). This places Nepal
in the category of regions with very feasible potential for PV power generation. Additionally, the
seasonal variability in the country is very low, compared to other regions further away from the
equator. The ratio between months with maximum and minimum GHI is about 1.63, while the same
ratio in Upington, South Africa, is 2.29 and in Sevilla, Spain, it is 3.54 24.

24 Solar Resource and Photovoltaic Potential of Nepal, The World Bank/ESMAP, 2017

USAID.GOV TARIFF BASED COMPETITIVE PROCUREMENT OF SOLAR PROJECTS IN NEPAL | 20

About USAID’s Urja Nepal Project:
USAID’s Urja Nepal Project supports the efforts of the Government of Nepal in establishing
effective policy, regulatory and operational changes to create a financially viable electricity
sector, thereby enabling it to provide affordable, reliable, and secure electricity while
encouraging private sector investment into Nepalese energy market. The Urja Nepal Project
is supported by the American people through the United States Agency for International
Development (USAID) and is implemented by Deloitte Consulting LLP.

USAID’S URJA NEPAL PROJECT

Deloitte Consulting LLP
184/34 Niketan Marg,
Charkhal, Kamalpokhari Road
Ward Number 30
Kathmandu, Nepal