Domestic tariff expected to reach Nu 4.51 per unit by 2040

The average increase in generation price and cost of supply in each tariff cycle is 9% and 8% respectively

The domestic tariff is expected to increase from 2025’s prices of Nu 2.39 per unit for weighted generation price and Nu 3.38 per unit for the cost of supply to Nu 3.33 per unit for generation price and Nu 4.51 per unit cost of supply by 2040.

This is according to the ministry of economic affairs’ brief analysis study of domestic tariff projection 2040. The projection is for 15 years from 2025 to 2040.

The average increase in generation price and cost of supply in each tariff cycle is 9% and 8% respectively.

The domestic tariff projections till 2040, for five tariff cycles starting from July 2025, are carried out considering three generation scenarios and two demand scenarios, the study report states.

The study is to provide relevant and realistic tariff projections of market projections of power tariff projection using the existing cost-plus model and power purchase agreement (PPA) model – power tariff projection based on percentage increment on the actual cost of HV tariff as of 2025.

Under the generation scenario I, existing generating plants and under-construction hydropower, as well as solar projects. In scenario II, additional capacities from planned hydroelectric projects are also considered, and in scenario III, further addition of two large hydropower projects are considered.

For demand scenarios, all planned loads as per the signed capacity reserve agreements or valid power sanctions are classified as scenario A, while further load addition from industries whose power clearances have been issued are taken into consideration in scenario B.

According to the domestic tariff projection report, the seasonal demands exceed generation capacity, and import scenarios from the Indian energy exchanges have been factored in at the long-term marginal cost.

In addition, to derive the generation tariff of Druk Green Power Corporation Limited (DGPC) plants including Mangdichhu Hydroelectric Project Authority (MHPA) and embedded generations, the cost parameters approved by Bhutan Electricity Authority (BEA) for the tariff period 2022-2025 is used as a baseline.

For the planned hydropower projects, the costs of the projects have been escalated using the inflation rate till 2021 and projected based on the past five years, moving average inflation rates published by National Statistics Bureau (NSB).

Further, the weighted generation costs of scenarios are considered as the energy purchase price. The domestic tariff is computed based on the cost-plus model using the BEA tariff determination regulations.

“If an industrial proponent chooses to follow the PPA model, the tariff framework with an annual increment of around 4% to 7% over the next 15 years (2025 – 2040) is expected to be applicable,” the study report states.

However, this model does not take into account the evolving world energy markets which are subject to frequent and steep changes as is being experienced at the moment with the prices of fossil fuel (especially coal, gas, and petroleum products) and high inflation rates.

“The tariff figures may experience unexpected change. Due to the increasing domestic demand, power shortages in the lean seasons are expected to continue up to 2030-2031,” the report states.

The power deficit is expected to be met by the import of power. Assuming that India will approve the import of power from the Indian Power Exchange markets, the cost of imported power during off-peak hours in the lean months could be around Nu 4.11 per unit to Nu 6.39 per unit on an average by 2040.

The report states that it is possible that in the distant future, the regional power market may be established from which power trade could happen.

As of 2022, the installed capacity stands at 2,326 MW with the last major addition of installed capacity being the 720MW Mangdechhu Hydropower Project in mid-2019.

A capacity addition of 2,938MW is envisaged from the under-construction hydroelectric projects. However, two of these four projects viz. Punatsangchhu-I and Kholongchhu are delayed due to various challenges and thus the commissioning dates of these two projects are uncertain at the present juncture.

According to the Power System Master Plan-2040, Bhutan is endowed with significant hydropower repositories with the potential of about 37GW out of which 33GW is techno-economically viable for development.

There are four major projects with a total capacity of 2,938 MW under construction which are expected to be commissioned between 2023 and 2028. In addition, there are eight projects in the pipeline.

The National Transmission Grid Master Plan-2018 reflects eight hydroelectric projects with a total capacity of 8,814 MW whose DPR are either under the advanced stage of completion or completed and can be pursued for construction.

However, the power system master plan 2040 has identified 18 suitable sites with an installed capacity of 6,130MW and annual energy of 26,849 GWh to be developed within the 2040 timeframe.

Meanwhile, the domestic tariff projection presented in this study is a reasonably realistic forecast based on information at hand at the moment.

The report states that the sheer number of parameters and its influencing factors may render the forecast uncertain and therefore, should be understood in conjunction with the assumptions taken.

Kinley Yonten from Thimphu