Ganesh Karki currently serves as the President of the Independent Power Producers Association Nepal (IPPAN), which is an umbrella network of power developers in the country. IPPAN has a longstanding partnership with the government, primarily focusing on electricity generation through Public-Private Partnership (PPP) arrangements, following the enactment of the Electricity Act in 1992.
Over the past three decades, generation from independent power producers has exceeded the total output of Nepal Electricity Authority (NEA)’s projects. This achievement underscores the significant role played by IPPAN in Nepal’s energy landscape. Looking ahead, IPPAN aims to further boost investment in hydroelectricity. However, this growth is contingent upon market assurance and the introduction of legislation supporting electricity development. Karki, as the president, is actively engaged in shaping these discussions and strategies.
In a recent conversation, the HRM Nepal had the opportunity to discuss these critical issues with IPPAN President Karki. His expertise and leadership are pivotal in advancing Nepal’s energy sector and ensuring sustainable growth.
Q. Is the Indian government’s endorsement of a 10,000 megawatt clean energy import agreement with Nepal encouraging for power developers?
A. Nepal has a rich history spanning over a century in electricity development. However, significant strides occurred after the enactment of the Electricity Act in 1992. This legislation empowered the private sector to invest in hydropower development, with the Nepal Electricity Authority (NEA) serving as the sole power off-taker.
Since 2001/02, the private sector has actively contributed to the national grid, making substantial gains over the past decade. Despite the extended gestation period for power plant projects, their commissioning remains a priority.
Given the national importance of the energy sector, Nepalis – including the diaspora community – and foreign investors are keen to invest. Currently, the total installed capacity stands at approximately 3,300 MW, with around 2,400 MW generated by the private sector. Additionally, approximately 3,300 MW of projects are under construction, and NEA has recently signed power purchase agreements (PPAs) for an additional 2,000 MW.
However, developers who obtained licences faced disappointment due to NEA’s reluctance to sign PPAs. The government and NEA were initially uncertain about domestic electricity consumption and lacked export options. Fortunately, recent agreements – such as selling Nepal’s clean energy in the Indian market – have bolstered the entire power sector. Encouraged by these developments, we advocate for a bold vision: planning to develop 30,000 MW over the next decade.
Q. Does this mean that the PPA which has been stalled since long will be expedited?
A. We have been engaging with the government, urging them to take decisive steps toward Nepal’s energy development. Our recommendation to the government is to introduce legislation – the sunset law on electricity development – aimed at generating 30,000 MW over the next decade.
Drawing insights from power producers and our own studies, the Ministry of Energy, Water Resources and Irrigation (MoEWRI) has outlined an ambitious plan. By 2035, they aim to generate 28,500 MW, exporting 15,000 MW to neighbouring countries while ensuring 13,500 MW for domestic consumption. To achieve this, infrastructure enhancements – such as transmission lines and distribution networks – are essential. The estimated cost for executing this plan stands at Rs 6,100 billion.
Despite our optimism, the fiscal budget for 2024/25 did not announce this critical initiative, even though the energy sector shows promise. Without implementing generation projects, we risk falling short of the 10,000 MW agreed upon for purchase by India. We must fill our export basket with actual electricity – time is of the essence.
The government faces a dilemma: expediting power purchase agreements (PPAs) despite an existing electricity market. Acknowledging the role of Nepali private sector involvement in energy generation is crucial. Foreign investors were drawn here precisely because of this collaboration, preventing the country from enduring an energy crisis. Energy security demands urgency. Let us not miss this opportunity. If we fail to exploit our potential within the next decade, the energy landscape will shift, affecting the priorities of importing nations.
Q. With the government unlikely to allocate resources for the 28,500 MW hydropower roadmap, does implementing it in 10 years still hold significance for attracting private sector investment?
A. The budget announcement isn’t merely about allocating resources; it signifies the government’s commitment. When the government explicitly outlines collaboration with the private sector to implement the 28,500 MW roadmap, it sends a powerful message. While Nepali private sector investments are essential, the government’s recent Investment Summit aimed to attract foreign investment. If this commitment is formally included in the fiscal budget, foreign investors will perceive it as a consistent policy stance. We appreciate the prime minister’s efforts to secure a deal for selling 10,000 MW to our southern neighbour. However, translating this vision into reality requires collective action – government, civil servants and the private sector working together to achieve our energy targets.
Q. Could you please elaborate on the type of ‘enabling’ environment that the private sector is seeking?
A. In the context of the fiscal budget for 2024/25, the government has taken the initiative to launch four-five hydroelectricity generation projects. However, there are critical issues that need to be addressed to ensure the success of these projects. There must be clarity regarding private sector investment in the energy sector. The government needs to sort out the power purchase agreement (PPA) issue. By doing so, the private sector can be encouraged to invest in hydroelectric projects. Efficiency is a key advantage of the private sector, provided the enabling environment is conducive.
Also, developing hydroelectricity projects in Nepal is no small feat. Various challenges hinder progress. Land acquisition is a complex process due to legal, administrative and social factors. Forest clearance is necessary for project sites, requiring proper procedures. Site clearance involves technical assessments and approvals. Additionally, addressing concerns from communities living near project sites is crucial. A recent Supreme Court ruling has significant implications. It mandates full compensation for private landowners whose properties intersect with transmission lines. While this decision protects landowners’ rights, it also increases the overall cost of transmission line development.
Moreover, considering the changing climate, hydrology, and energy landscape, we have a limited window of opportunity to benefit from hydroelectricity – approximately 30-40 years. Therefore, long-term planning is essential. To fully exploit Nepal’s hydropower potential, the government should declare an ‘electricity emergency decade’ or an ‘electricity development decade’. Implementing a sunset law for at least 10 years would streamline all relevant regulations. Under this law, both the government and private sector would work collaboratively in mission mode to accelerate project development.
Nepal has abundant water resources that can be transformed into a reliable source of electricity. However, without decisive action, the potential of hydroelectricity will remain unrealised – a myth rather than a reality. Let us harness the power of our rivers and contribute to sustainable energy for Nepal.
Q. The government is revising the Electricity Act, having recently withdrawn the Electricity Bill from Parliament. What key considerations or areas for improvement should the new bill address?
A. The proposed Bill should align with Nepal’s roadmap for harnessing hydroelectric potential, optimising the energy mix, promoting infrastructure sharing, and involving the private sector in power trade. Unfortunately, the recently withdrawn bill failed to shape the country’s energy sector due to regressive provisions. As we consider amendments, we must recognise their long-term impact.
Notably, a private sector developer recently achieved financial closure for a substantial 285 MW project, highlighting the sector’s enhanced capacity. However, the Bill’s provision granting 100 MW licences directly to foreign developers – without competition or negotiation – raises concerns. Additionally, the proposed 50-year licence period lacks rationale.
Over 4.5 million Nepalis have invested in hydropower company shares, but clarity is lacking regarding public shareholders’ investments after project handover. As we aim for 28,500 MW generation by 2035, numerous companies will emerge. If they issue shares publicly, the Bill must address public shareholders’ role. Inviting investors to Nepal requires policy consistency. Encouraging private sector investment is crucial; without it, foreign investors may hesitate. Furthermore, the government should clarify the fate of private sector developers awaiting power purchase agreements if competitive bidding becomes the norm, as suggested in the recently withdrawn Electricity Bill.
Q. Given the government’s prioritisation of large-scale reservoir hydropower projects, do you believe Nepal’s private sector, and banks and financial institutions have the capacity to invest in such projects?
A. In the private sector, there have been initiatives for up to six hours of peaking power. Previously, when Janardan Sharma was the Minister for Energy, Water Resources and Irrigation, he announced various facilities for peaking and storage projects, including different power purchase agreement rates. However, there are doubts about the government’s willingness to develop such storage projects. A few years ago, the Office of the Auditor General’s report highlighted cost escalation in government projects due to inefficiency. On average, private sector power companies spend around Rs 200 million per megawatt for electricity generation, whereas government projects cost Rs 500 million. For example, the 456 MW Upper Tamakoshi Hydroelectric Project took the government 12 years to complete, while the private sector faces time constraints and cost pressures due to interest rates and other accrued expenses.
Q. The 28,500 MW hydropower roadmap by 2035 requires a significant investment of Rs 6,100 billion. How do you envision this will be funded?
A. If the government is determined, resources won’t be lacking. These resources come from banks, private sector developers (as equity), non-banking financial institutions, innovative financial solutions, and foreign direct investment. For private sector developers, we advocate for fixed interest rates from banks and financial institutions during the gestation period. This is crucial because electricity development is a government priority, and income in this sector remains stable. However, government efficiency is lacking; electricity is wasted in some projects due to delayed transmission line development by NEA. The government’s focus should shift to favourable policies, laws, and regulatory environments, as well as improving transmission lines and distribution networks to boost electricity consumption. Private sector developers have been more effective in this regard.
Q. While IPPAN is exploring avenues for private power trading companies in Nepal, would the recent bilateral agreement with India on energy cooperation also allow independent developers to directly sign power purchase agreements with Indian utilities?
A. We advocate for NEA’s unbundling. Private sector involvement in transmission line investment and power trading is essential. We are open to direct negotiations with Indian power utilities for electricity sales. While we are obligated to sell electricity to NEA due to signed PPAs, it is a fact that NEA could not sell 500 MW of spill energy last year – our country’s valuable resource. Currently, we are working to sell that energy, which NEA could not manage. In the long term, we aim to strengthen relations with Indian power utilities and sign PPAs with them if NEA does not engage in such agreements or off-take hydroelectricity from private sector developers.
