ERA proposes Nu 5.63 per unit unsubsidized tariff for Low Voltage users

2026-03-09 - 09:04

After taking tariff submissions from the Bhutan Power Corporation (BPC) and Druk Green Power Corporation (DGPC) for the three-year tariff revision cycle, doing a public consultation and its own analysis and number crunching, the Electricity Regulatory Authority (ERA) has proposed domestic tariff for High Voltage (HV) users, Medium Voltage (MV) users and Low Voltage (LV) users. The LV tariff covers the majority of small users in the country like households, businesses, offices, restaurants, etc. The current LV tariff is Nu 1.28 for the first 100 units (free for rural areas and 200 units free for highlands) and Nu 2.66 per unit for anything above 100 units. This Nu 2.66 tariff is after heavy subsidization from the government as the actual LV tariff approved by ERA in 2022 is actually Nu 4.85, which means the government is paying around 45 percent of the tariff at Nu 2.19 per unit. BPC had proposed an unsubsidized LV tariff of Nu 5.73 per unit this time around, but the ERA decided to approve Nu 5.63 per unit. This, however, is not the final LV tariff because like in the past, it has been sent to the Department of Energy (DoE) under the Ministry of Energy and Renewable Resources (MoENR) which will consult the Cabinet to see how much subsidy the government can give. The government has been given some options and calculations on possible subsidy figures by the ERA. The final LV tariff likely approved by the Cabinet will be much lower than what ERA is proposing after adding the subsidy, but it is expected to increase from the current rate of Nu 2.66. The subsidy comes from the 13 percent Royalty Power that each hydropower station is supposed to give free to the government. This is sold by DGPC at commercial rates and the money is handed over to the government. The current Royalty Power is worth around Nu 2.5 billion (bn) to Nu 3 bn a year but will go up to Nu 4 bn plus once P II is also included. The ERA approved Nu 5.63 LV tariff is divided into the generation tariff at Nu 2.37 per unit which is DGPC’s cost of generating the tariff and Nu 3.26 as the network cost of BPC to distribute and supply that power, maintain the existing infrastructure and build new ones. The DGPC had proposed a generation tariff of Nu 2.48 per unit for power from Basochu, Kurichu, Chukha, Tala, Mangdechu, Suchhu and the upcoming projects of Yungichhu, Burgangchu and a higher separate Nu 4.28 generation tariff from Punatsangchu II. The generation tariff is usually derived from the cost of construction and return on equity. The final tariff had to blend DGPC’s proposed generation tariffs of Nu 2.48 and Nu 4.28. ERA kept the DGPC generation tariff low at 2.37 for LV, HV and MV by only adding 15 to 20 percent of the power from P II for the domestic tariff mix. As on 31st December 2024, BPC has 255,517 customers in total of which the sheer majority at 255,421 are LV or household consumers who despite the numbers only consume 10 percent of the total domestic power. HV and MV Tariffs There are 23 HV consumers who take 2 MW and above who consume the bulk of the local energy at 88 percent and 73 MV consumers who are below 2 MW and at 300 KV or above and consume 2 percent of the power. HV consumers are usually big industries like in Pasakha, Ferro Silicone plants, big factories, etc. The HV tariff is currently Nu 2.66 per unit and this has been increased to Nu 2.88 per unit as per ERA. BPC had proposed a lower Nu 2.80 per unit but DGPC’s generation tariff was higher than what BPC proposed. This comprises of the Nu 2.37 generation tariff and Nu 0.51 network cost of BPC. The HV tariff will not have any subsidy and has been sent directly to the BPC for effective implementation from 1st March. The HV tariff is low because of the much lower distribution cost for BPC as most of the factories are in one location and also consume a large amount of power. However, a HV customer has to pay 95 percent of the BPC distribution cost or demand charge per month even if the project does not use power. The demand charge has been reduced from Nu 497 per kilo volt to Nu 316 per kilo volt due to reduced distribution cost. So, if a factory books 10 MW then the demand charge will be Nu 3.16 million (mn) per month and if the factory does not use it then the factory will still have to pay 95 percent of this which is Nu 3 mn. The MV tariff is for mainly small scale industries, small factories and cottage industries. This tariff has been increased from Nu 2.66 to Nu 4.78 per unit and has also been sent directly to the BPC for implementation as a subsidy here is considered unlikely. BPC had proposed the MV tariff at Nu 5.24 earlier. While the tariff increase is substantial, the advantage is that the demand charge component for MVs has been removed. Earlier the demand charge was Nu 175 per KV or Nu 1,75,000 per MW per month with 80 percent or Nu 140,000 to be paid for not using it but this has been removed. So now even if a MV user does not use its quota then there will be no demand charge. As on 31st December 2024, BPC sold 7,125 Million Units (MU) of electricity, which is an increase by 25.23 percent from 2023. BPC’s energy purchase has also increased by 27.47 percent in 2024 showing increased domestic demand. Changes in Tariff Policy Until 2022, the tariff was charged differently for LV, MV and HV with the same cost of generation for all but differing costs of distribution. However, in 2022 which was the last tariff revision cycle the former government decided to combine the three different tariff rates into one at Nu 2.66 which is what we are currently paying. This did not go down well with the HV industries and clients who felt that they were cross-subsidizing the LV and MV customers and they made that well known in meetings and also petitions. Now as per the National Energy Policy 2025 Bhutan will go back to different tariff for different categories like before. In fact, it was the formulation of this policy that delayed the tariff revision which was due by July 2025 but had to be delayed as would lead to changes in the Tariff Determination Regulation (TDR) 2025. A factor in the tariff has been the increase in domestic power demand mainly from HV consumers as Bhutan builds more factories and industries and also digital mining. Bhutan effectively imports power for around six months from November till April. A change this time under the TDR 2025, is that BPC and DGPC can ask for return on equity between 13 to 15 percent. Earlier, this return was calculated using the average bank lending rate with the ERA having the option to add 2.5 percent additional interest rate or not. The higher return on equity is expected to make investments more attractive in hydropower and also bring it in line with regional norms and with competitors. Another change in TDR 2025 is that earlier the Royalty Power or free power to be given to the government was 15 percent of the generation, which has been reduced to 13 percent. It is hoped that reduction on Royalty Power will reduce power tariff and be regionally competitive.