High-voltage (HV) industrial consumers in Bhutan were required to pay an additional Nu 881 million in electricity charges during the first two years of the current tariff cycle after fluctuations in hydropower generation and rising domestic demand pushed up power purchase costs, according to the Ministry of Energy and Natural Resources (MoENR). This includes Nu 233 million for the period from July 2022 to June 2023 and a further Nu 648 million from July 2023 to June 2024 under the tariff truing-up process.
This was informed ensuing the National Council’s (NC) question on the truing-up mechanism applied to electricity tariffs between 2022 and 2025, with the NC saying these additional costs were imposed even during periods when electricity generated from Druk Green Power Corporation (DGPC) plants was reportedly adequate to meet domestic demand.
The MoENR clarified that the tariff structure for the 2022–2025 cycle was originally based on a weighted average power purchase price (PPP) of Nu 1.60 per kilowatt hour (kWh).
The approved tariff calculation relied primarily on cheaper DGPC hydropower generation priced at Nu 1.34 per kWh, supplemented by additional electricity from the Mangdechhu Hydropower Plant (MHP) at a significantly higher cost of Nu 3.64 per kWh.
According to the ministry, this pricing structure was fully aligned with the Domestic Electricity Tariff Policy 2015, which requires the allocation of the least-cost power source first before drawing from higher-cost sources.
The ministry explained that actual hydropower generation during implementation deviated sharply from forecasts, forcing utilities to procure additional higher-cost electricity to meet rising industrial and domestic demand.
“In practice, lower-cost power is always utilized first, with higher-cost sources used only to meet residual demand,” the ministry stated.
During the 2022–2023 period, DGPC generation fell by 43% while electricity demand increased by four percent. This shortfall required increased procurement from the Mangdechhu plant, resulting in a 25% rise in power purchase prices in May 2023. Similar pressures continued into 2023–2024.
The ministry stated that DGPC’s actual generation dropped by 18% in November 2023 while demand increased by seven percent, causing the PPP to rise by 11%.
The situation worsened in May and June 2024, when DGPC generation reportedly declined by 67% and 30% respectively compared to initial projections. During the same period, electricity demand increased by three to five percent, forcing utilities to rely more heavily on higher-cost electricity sources.
As a result, the PPP increased sharply by 39% in May 2024 and 23% in June 2024, ultimately leading to the substantial truing-up adjustments imposed on HV consumers.
The ministry emphasized that the additional payments were driven by reduced availability of low-cost hydropower and increased demand, rather than any departure from the least-cost allocation principle.
To improve the responsiveness and predictability of future tariff adjustments, the government has introduced the Tariff Determination Regulation 2025, which mandates quarterly truing-up of power purchase costs for the 2025–2028 tariff cycle.
The ministry pointed out that the revised mechanism would allow electricity tariffs to better reflect actual generation and demand conditions on a more regular basis, with resulting benefits or additional costs passed on to either consumers or utilities as applicable.
The NC also raised concerns regarding billing discrepancies faced by HV industries when actual electricity consumption falls below committed demand levels due to power outages or supply-side fluctuations.
In response, the MoENR stated that Bhutan’s Grid Discipline Mechanism (GDM) Regulation 2024 already provides compensation measures for industries affected by such disruptions.
Under the regulation, generators and consumers are required to schedule electricity generation and demand on a day-ahead basis. Any deviations are settled through incentive and penalty mechanisms designed to maintain grid stability and accountability.
For HV industries, if outages result in actual consumption falling below committed demand, the shortfall is treated as under-drawal and compensated through the GDM framework.
Additionally, BPC’s HV and MV Supply Rules 2023 provide relief measures when electricity restrictions imposed by the utility exceed 60 cumulative hours in a month. In such cases, monthly demand charges are prorated based on the duration and extent of supply restrictions.
The Electricity Regulatory Authority (ERA) has also initiated a broader technical and operational review of the issue. The ministry stated that future regulatory reforms will be introduced following stakeholder consultations and further technical studies to strengthen consumer protection while ensuring a balanced and efficient power system.
Tashi Namgyal, Thimphu
