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Bhutan Electricity Authority

Electricity Tariff in Bhutan 

December 2017

TABLE OF CONTENTS 

LIST OF FIGURES................................................................................... i 

LIST OF TABLES..................................................................................... i 

LIST OF ABBREVIATIONS.................................................................... iii 

1  BACKGROUND................................................................................... 1 

2  INTRODUCTION TO ELECTRICITY TARIFF....................................... 2 

2.1  Cost of supply.................................................................................. 3 

2.2  Subsidy........................................................................................... 3 

3  INSTITUTIONAL SET UP..................................................................... 4 

4  REGULATORY FRAMEWORK............................................................ 6 

5  TARIFF DETERMINATION PROCESS.................................................. 6 

6  DEVELOPMENT OF ELECTRICITY TARIFF........................................ 9 

7  COMPARATIVE ANALYSIS.............................................................. 11 

7.1  Generation Tariff............................................................................ 11 

7.2  End User Tariff.............................................................................. 13 

8  ANNEXURES..................................................................................... 18 

8.1  Annexure: Domestic Power Tariff..................................................... 18 

8.2  Annexure: Comparison of Generation tariffs...................................... 23 

8.3 Annexure: Comparison of end user tariffs........................................... 24 

9 REFERENCES..................................................................................... 25 

LIST OF FIGURES

Figure 1: Electricity Tariff Components .................................................................................... 3

Figure 2: Electricity Sector in Bhutan ........................................................................................ 5

Figure 3 : Tariff Approval Process ............................................................................................. 8

Figure 4 : Electricity Demand growth ........................................................................................ 9

Figure 5 : LV Residential Tariff ............................................................................................... 10

Figure 6 : HV Industrial Tariff ................................................................................................. 11

Figure 7 : Comparison of Generation Tariff ............................................................................ 12

Figure 8 : Comparison of LV Energy Charge .......................................................................... 13

Figure 9 : Comparison of LV Demand Charge ........................................................................ 14

Figure 10 : Comparison of MV Energy Charge ....................................................................... 15

Figure 11 : Comparison of MV Demand Charge ..................................................................... 15

Figure 12 : Comparison of HV Energy Charge ........................................................................ 16 

Figure 13 : Comparison of HV Demand Charge ...................................................................... 17

Page 

LIST OF TABLES 

Table 1  :  Current Tariff Structure ............................................................................................. 2

Table 2  :  Computation of end user tariffs ................................................................................. 4

Table 3  :  Transmission and Distribution Lines ........................................................................ 9

Table 4  :  DGPC plant wise tariff ............................................................................................ 12

LIST OF ABBREVIATIONS  

Page 

1               BACKGROUND 

The Royal Government of Bhutan started to develop its hydropower sector in the early 1960s with the assistance from the Government of India. With the development of the hydropower projects, the transmission and distribution network expanded across the country under the Department of Power (DoP), Ministry of Trade and Industry (MTI) which was responsible for policy, planning, operation and maintenance of the power system. The electricity tariff was proposed by the MTI and approved by the Royal Government for the first time in 1982 and tariffs were revised by the Royal Government in 1987, 1995, 1997, 2000 and 2001.  

In 2001, the National Assembly enacted the Electricity Act of Bhutan (EAB) which required the restructuring of the electricity supply industry by separating the regulatory and operational activities of the power sector. This resulted in the erstwhile DoP to be restructured into three agencies namely; Department of Energy (DoE), Bhutan Power Corporation Limited (BPC) and Bhutan Electricity Authority (BEA). 

The DoE was responsible for formulation of policies, planning and coordination of activities for the energy sector. In addition, DoE was responsible for implementing the rural electrification program and development of new export-oriented hydropower projects.

BPC was established as a public utility company and made responsible for electricity transmission, distribution and supply within the country and the management of the operations of embedded generation (off-grid mini/micro/small hydro and diesel generating units).  

BEA as a division under the DoE looked after the regulatory issues and development of the regulatory framework for tariff determination. While the development of the Tariff Determination Regulation (TDR) was going on, a Domestic Tariff Review Committee (DTRC) was established in 2003 to review the tariff revision proposals submitted by Bhutan Power Corporation Ltd. The recommendations of proposals were submitted to the Lhengye Zhungtshog for approval. Thus, the electricity tariffs for the year 2003 - 2006 were approved by the Royal Government based on the recommendations of the DTRC.

The year 2006 marked the establishment of Bhutan Electricity Authority consisting of members from relevant agencies. The BEA approved the TDR in 2007. Based on the approved TDR, the BEA reviewed the BPC tariff for the first time in 2007 for the period 1^st July 2007 to 30^th June 2010. 

Meanwhile, in 2008 all the existing hydro power plants (Chukha, Kurichhu, Basochhu and Tala Hydropower Plants) were amalgamated to form the Druk Green Power Corporation Limited (DGPC). The DGPC was made responsible for operation of hydropower plants fully owned by the Royal Government and for accelerating hydropower development by developing new hydropower projects independently, through joint ventures or through any other arrangements with domestic and international partners. The generation tariff for DGPC was approved by BEA for the first time in 2010 for a period of three years. 

Since then the BEA has been reviewing the Druk Green Power Corporation and Bhutan Power Corporation tariffs every three years and the last review was conducted in 2016 which resulted in the determination of the tariffs for the period 1^st January 2017 to 30^th June 2019. 

2               INTRODUCTION TO ELECTRICITY TARIFF 

Electricity tariff is the pricing structure the BPC charges a customer for energy consumption on a monthly basis. The BPC currently charges its customers based on the supply voltage level, i.e. Low Voltage (230/415 V), Medium Voltage (6.6/11/33 kV) and High Voltage (66 kV and above). The tariff structure for the period 1^st July 2017 to 30^th June 2018 is provided in the table below. 

Table 1: Current Tariff Structure 

The Low Voltage (LV) customers are billed only an Energy Charge (EC) and the Medium Voltage 

(MV) and High Voltage (HV) customers are billed both Energy and Demand Charge (DC). The EC is levied as Nu./kWh consumption basis, whereas the DC is levied according to the peak demand of the consumer in kVA.  

The LV rural domestic households, rural cooperatives, rural micro trade and community lhakhangs are provided first 100 units free and charged at LV block II and LV block III tariff for consumption beyond 100 units. The LV (others) includes urban households, religious institutions which are charged a progressive tariff Block I – III. The LV customers such as commercial, industrial, institution, agriculture, street lighting, temporary connection for non-residential purpose, etc. are charged at Block III rate. The LV bulk includes customers with more than 100 kW load including government/corporate/private institutions/commercial complexes, armed forces complexes, etc. and are charged higher than the LV Block III tariff. 

The MV customers are mostly small industrial units requiring power supply between three (3) MW to 15 MW which are charged both energy and demand charge. The HV customers are the large-scale industries which requires power supply more than 15 MW and charged both energy and demand charge.  

This electricity tariff payable to BPC is derived as cost of supply less subsidies provided by the Royal Government as illustrated in Figure 1.  

                                                    Figure 1: Electricity Tariff Components

2.1       Cost of supply

The Cost of Supply (CoS) of a customer category is computed as the sum of DGPC cost of generation and BPC network cost (transmission and distribution cost). 

The DGPC cost of supply is determined as the sum of allowances for operation and maintenance costs, depreciation, return on fixed assets i.e. including an allowance for company taxation, cost of working capital and any regulatory fees, duties or levies that the Licensee is liable to pay under the Laws of Bhutan. 

The BPC network cost includes the operation and maintenance costs, depreciation, return on fixed assets i.e. including an allowance for company taxation, cost of working capital and any regulatory fees, duties or levies that the Licensee is liable to pay under the Laws of Bhutan, cost of losses to transmit, distribute and supply electricity to the customers.  

2.2       Subsidy

A subsidy is a financial support granted to BPC by the Royal Government to keep the Medium Voltage and Low Voltage customer tariffs lower than the Cost of Supply.  

The existing LV, MV and HV tariff works out as DGPC generation cost plus BPC network cost less subsidy as provided in the Table 2. 

Table 2: Computation of end user tariffs 

3        INSTITUTIONAL SET UP 

The Ministry of Economic Affairs (MoEA) is the nodal ministry of the electricity sector and the Minister is empowered to provide policy guidelines associated with the electricity sector as per EAB, 2001. In addition, as per Section 17 of the EAB, 2001 the Minister, MoEA is empowered to set general policies, targets and strategies for the electricity industry operation and general policies on tariff determination. The roles of the various agencies in the implementation of tariffs are as follows: 

1. Department of Hydropower and Power Systems (DHPS) is responsible for granting approval to the utility companies for development of hydropower, up-gradation and expansion of transmission systems. It is also responsible for examining the BEA’s proposal for subsidies requirement and allocation of customers to be submitted to the Minister for approval. 

1. Department of Renewable Energy (DRE) is responsible for development of rural electrification, small/mini/micro hydro (below 25 MW), expansion and up-gradation of non-conventional renewal energy. DRE is also responsible for development of policy and feed-in tariff framework of renewable energy. 

1. Bhutan Electricity Authority (BEA) is responsible for development of the tariff determination regulations for setting domestic tariff. The BEA is also responsible for submitting the subsidy allocation proposal to the Royal Government for consideration.  

1. Druk Green Power Corporation Limited (DGPC) is responsible for ensuring domestic electricity supply security and provision of the royalty energy obligations and implementing the approved tariff set by BEA. Besides, DGPC operates and manages the hydropower plants fully owned by the Royal Government and responsible for development of new hydropower projects independently, through joint ventures and through any other arrangements with domestic and international partners on behalf of the Royal Government as may be directed.  

1. Bhutan Power Corporation Limited (BPC) is responsible for electricity transmission, distribution and supply functions including management and operations of embedded generation units consisting of micro/mini/small hydro and diesel generating units. Further, it’s responsible for implementation of the national plans and programs as directed/approved by MoEA. 

The figure below shows an over view of the electricity sector in Bhutan.  

4        REGULATORY FRAMEWORK 

The Section 7 of EAB, 2001 mandated the establishment of BEA to regulate the electricity generation, transmission and supply industry in Bhutan. One of the main functions of the BEA is to develop regulations for the electricity tariffs for generations not regulated by power purchase agreements (PPA), transmission and retail sale which is fair to both customers and service providers through a price system that reflects the actual cost of efficient business operation. The BEA determines tariff according to the principles set out in Section 14.1 of EAB, 2001. The Section 17 of the EAB, 2001 empowers the Minister to determine general policies, targets and strategies of the electricity industry operation and general policies on tariff determination and service provision of Licensee as well. The Minister is also empowered to approve power system expansion plan, provide policy on customer service standards and Licensee standards and provide electricity services for the underprivileged, etc as per the Section 17 of the EAB, 2001.  

The MoEA issued the Domestic Electricity Tariff Policy (DETP), 2016 to provide guidelines for domestic tariff determination. This guideline through its rationalized and subsidy mechanism was issued to facilitate the Royal Government to provide affordable electricity through subsidized tariff and improve the quality of life of the people. 

The Tariff Determination Regulation (TDR), 2007 was developed to provide for determination of electricity prices in accordance with the EAB, 2001. The schedules in TDR were reviewed and updated at each tariff review. Upon issuance of the DETP in 2016, the BEA issued TDR, 2016 incorporating the policy provisions. 

The TDR, 2016 outlines the objectives, general conditions, tariff principles, tariff approval process, form of economic regulation, cost of supply methodology, application of subsidy, determination of generation prices and determination of end-user prices. The TDR also contains 

Schedules from A to F (A – Benchmarks for O&M costs, B – Depreciation rates, C – Return Allowances, D – Allowances for Auxiliary Consumption, E – Loss Allowances and F – Allocation Factors) and public hearing procedure. 

The Licensee files tariff applications as per the Guidelines for Filing Tariff Application to BEA for the determination of electricity prices in accordance with TDR. The Guideline for filing tariff application outlines the procedure and format for the tariff applications to be used by the Licensees. The objective of the Guideline for filing tariff application is that the Licensees are guided appropriately to submit Tariff Application along with necessary information for the proper conduct of the tariff review. 

5        TARIFF DETERMINATION PROCESS 

As per the Tariff Determination Regulation, the Licensees are required to submit their investment plan for the upcoming tariff period at least nine months prior to expiry of the prevailing tariffs. 

The licensees submit tariff applications for the revision of tariff schedule along with complete set of documents as per the Guidelines for Filing Tariff Application to BEA at least four months prior to the expiry of the prevailing tariffs. 

Upon receipt of the tariff applications, the BEA conducts preliminary review to identify the additional information requirements. After completion of the preliminary review and receipt of all necessary documents, the tariff proposal is considered complete and published on the BEA website for public comments.  

The BEA holds a public hearing where the Licensees present its tariff application to the consumers and other stakeholders. A period of three (3) weeks is allowed for submission of written comments to BEA after the public hearing. All comments received during public hearing and responses to the comments of consumers by Licensees are reviewed and taken into consideration for tariff review where relevant. 

The BEA approves DGPC generation tariff and BPC cost of supply for all customer categories. After approval of DGPC and BPC cost of supply, BEA submits the tariff proposal including subsidy allocations to the Minister, MoEA through DHPS. The DHPS examines the proposals for subsidy requirement and allocation for customers and then presents it to Lhengye Zhungtshog for approval. 

After the approval of subsidies by Lhengye Zhungtshog, the BEA approves new tariffs for DGPC and BPC. The BEA notifies the revised tariff schedule and issues tariff orders to BPC and DGPC. 

The Figure 3 illustrates the current tariff approval process of BEA. 

DEVELOPMENT OF ELECTRICITY TARIFF

The electricity demand in the country increased from three (3) MW in 1979 to 336 MW in 2016 due to increase in electricity connectivity to the household carried out through rural electrification programs and development of industrial sector. The Figure 4 reflects the rise of electricity demand growth since 1979 – 2016. 

In order to meet the demand growth, the erstwhile DoP invested in transmission and distribution lines and substations all over the country to transmit the power from the hydropower projects to the load centres. Following which, in the year 2002 BPC undertook the responsibility under the guidance of DoE to continue expansion of the grid (Distribution and transmission lines). Thus, from the network from 282 km of 11 kV distribution lines in early 1980s increased to network of transmission and distribution lines across the country in 2016 as provided in table below: 

Table 3: Transmission and Distribution Lines 

With the increase in investments in the transmission and distribution network to increase the connectivity and to provide reliable supply of electricity, the cost of supply to the LV, MV and HV customers has increased. This increase is reflected with the gradual increase of tariff. Despite these increase in investment, the Royal Government of Bhutan has been able to provide electricity to its customer at affordable and stable rates, through its subsidy mechanism. The Figure 5 displays the growth of the LV residential tariff over the period 1982 – 2016. 

The Figure 6 displays the growth of the HV industrial tariff over the period of 1982 – 2016. The HV industries were provided subsidy by the Royal Government till 2010 and the subsidies to HV industries were removed in 2011as per the Economic Development Policy 2010. 

6        COMPARATIVE ANALYSIS 

The tariff of hydropower plants and utilities in Bangladesh, India (Arunachal Pradesh, Assam, Himachal Pradesh, Meghalaya, Sikkim and West Bengal) and Myanmar were compared with the DGPC plant-wise generation and BPC end user tariff respectively to see how electricity tariff in Bhutan stands with respect to the neighboring countries.   

6.1       Generation Tariff 

The hydropower projects and their respective tariffs are dependent on their location, type of project (run of the river or reservoir), technology, year of commissioning and the tariff determination methodologies adopted in each country or state. The Table 4 provides the cost of supply of the four DGPC plants in Bhutan under the prevailing tariff determination methodology. 

Table 4: DGPC plant wise tariff 

While some countries provide generation tariff on plant wise basis, some determine a consolidated generation tariff for all hydropower plants under the same company. For the purpose of the analysis, the generation tariff which was available on plant wise basis has been used. The available hydropower generation tariff was ranked lowest to the highest tariff as shown in Figure 7. 

The generation tariff for Chukha Hydropower Plant is one of the lowest tariffs among researched countries. The tariff for Tala Hydro Hydropower Plant is comparable with the off-peak tariff but much lower than the peak tariff of large scale hydropower projects in Myanmar. Further, both Kurichhu Hydropower Plant and Basochhu Hydropower Plant tariff is much lower than the plants in Indian states of similar capacity and those commissioned around the same time.  

6.2       End User Tariff 

The prevailing end user tariff for LV, MV and HV consumers in Bhutan was compared with the electricity tariff rates of India (Arunachal Pradesh, Himachal Pradesh, Meghalaya, Sikkim and West Bengal), Bangladesh and Myanmar. In Bhutan, only Energy Charge is levied on LV consumers while Demand Charge is levied to the MV and HV consumers in addition to the Energy Charge.  

The figures below display the existing energy and demand charge for the LV consumers of utilities in Bangladesh, India (Arunachal Pradesh, Assam, Himachal Pradesh, Meghalaya, Sikkim and West Bengal) and Myanmar including Bhutan.  

From the Figures 8 and 9, it can be seen that the LV consumers in Bhutan enjoy much lower tariff rates than most neighboring Indian states, Bangladesh and Myanmar. Further, the LV customers are levied DC in addition to EC in Assam, Bangladesh, Himachal Pradesh, Meghalaya and West Bengal where as in Bhutan only EC is levied. 

The Figures 10 and 11 below compares the existing energy and demand charge for the MV consumers of utilities in Bhutan, Bangladesh, India (Arunachal Pradesh, Assam, Himachal Pradesh, Meghalaya, Sikkim and West Bengal) and Myanmar. 

From the Figures 10 and 11, the Energy Charge for the MV consumers in Bhutan is lowest compared to neighboring Indian states, Bangladesh and Myanmar. While it seems that the MV Demand Charge alone is higher than some of the demand charge in neighboring countries, the average tariff (Energy and Demand charge) of Nu. 3.83/kWh for MV customers in Bhutan is lower than the average tariff in the Indian states and countries in the region. 

The Figures 12 and 13 below display the existing energy and demand charge for the HV consumers of utilities in Bangladesh, India (Arunachal Pradesh, Assam, Himachal Pradesh, Meghalaya, Sikkim and West Bengal) and Myanmar including Bhutan.  

From the Figures 12 and 13, the EC for the HV consumers in Bhutan is lowest compared to neighboring Indian states and Myanmar. While it seems that the HV Demand Charge alone is higher than some of the DC in neighboring countries, the average tariff (energy and demand charge) of Nu 2.23/kWh for HV consumers in Bhutan is lower than the average tariff in the Indian States and Myanmar.