Introduction Nepal has abundant potential for hydropower generation owing to the availability of water resources and the country’s geographical terrain. At present, only around 4,120 MW of electricity is being generated in the country. A study conducted by the Water and Energy Commission has estimated Nepal’s electricity generation potential at 120,093 MW. Of this, 72,544 MW is estimated to be from run-of-river projects and 48,149 MW from reservoir-based projects.
Similarly, a study conducted by the Asian Development Bank has estimated the country’s solar energy potential at around 30,000 MW. The electricity currently being generated represents only 3.85% of the country’s run-of-river potential. At present, electricity projects with a combined capacity of 6,472 MW (213 projects) are under construction. According to the Nepal Electricity Authority, power purchase agreements have so far been concluded for more than 1,200 MW, while projects with a further 1,200 MW capacity are in the process of obtaining licences for electricity generation.
Data show that 60% of the total electricity currently generated in the
country is consumed for household purposes, including cooking and lighting. Industry accounts for 21.17% of consumption, transport 10.49%, commercial activities 4.79%, the construction sector 1.02%, and other sectors 0.94%. In terms of electricity exports, Nepal has recently reached a position where it can sell 452 MW of electricity in India’s open market.
1. How much electricity is currently being generated, and how much additional capacity will be added this year?
The country’s total installed electricity generation capacity has currently reached 4,120 MW, although some statistics put the figure at 4,296 MW. Of this, 53 MW is being generated from thermal energy, 100 MW from solar energy and 6 MW from bioenergy.
According to the Nepal Electricity Authority, power purchase agreements have so far been concluded for more than 1,200 MW, while projects with a capacity of 1,200 MW are in the process of obtaining licences for electricity generation. At present, electricity projects with a combined capacity of 6,472 MW are under construction.
2. What should be done to eliminate load-shedding during the winter?
Despite the country’s enormous potential to generate electricity, the state has been forced to face load-shedding during the winter months every year. To address this, the Government of Nepal should focus its investment particularly on reservoir-based projects and adopt policies to encourage private-sector electricity producers as well.
Considering the situation in which surplus electricity generated during the rainy season, after meeting domestic demand, can be sold to neighbouring countries, this opportunity can be utilised further. Electricity imports can also be increased to reduce load-shedding during the winter. In addition, increasing large- scale solar power generation can help balance the electricity supply and demand.
3. Unannounced load-shedding is occurring. What are the reasons for this? What measures can be taken to address it?
People in the country are currently experiencing load-shedding in an undeclared manner. The main reasons are electricity leakage and the decline in
water flow in streams and rivers during the winter. Problems with machinery and the lack of regular maintenance may also be other causes.
This can be addressed through diversification of technology, efficient administration, employee management, and the use of modern technologies. By giving priority to reservoir-based projects and attracting and encouraging private- sector investment in electricity generation, electricity can be generated during the dry season, thereby reducing load-shedding.
4. Role of the Department of Electricity Development, Electricity Regulatory Commission and Nepal Electricity Authority
Whenever the country’s politics becomes unstable, the government also becomes unstable, and every state mechanism is affected as a result. We all understand the issue through the saying that when the source of water becomes muddy, the water coming through the tap also becomes muddy.
In the 13 years since the promulgation of the country’s existing Constitution, 15 governments have changed. This has created political instability. Along with changes in government, changes in the minister and secretary of the Ministry of Energy, Water Resources and Irrigation have also affected the leadership of the subordinate agencies, departments and commissions.
It is the political leadership that must guarantee transparency and good
governance to the people and establish a culture of zero tolerance towards corruption by implementing these principles in practice. When laxity begins at the top in the aforementioned matters, and appointments start being made without valuing merit and competence, but instead on the basis of nepotism, favouritism, ‘setting’ and payment of money (bags of cash), or through the distribution of positions among political parties, government agencies begin to become ineffective. This creates a situation in which citizens and entrepreneurs have to suffer.
However, the employees and experts working in the aforementioned agencies are among those who best understand the fact that the hydropower and energy sector can become the fundamental basis for building a self-reliant economy in Nepal.
5. What would be appropriate to do to reform this sector? f. Ensure fair competition in hydropower development
When government companies are allowed to obtain licences without competition while only the private sector is subjected to competition, the government and its affiliated companies have a monopoly whereby they can selectively take the better projects. This creates a situation in which the private sector is left to compete for the inferior projects that have been rejected.
This indirectly discourages the private
sector from developing hydropower. Since hydropower projects constructed by the government sector have been found to cost up to three times more than those constructed by the private sector, if the government takes the better projects and constructs them at a higher cost, Nepal’s electricity will become expensive and face challenges in competing in the international market.
Likewise, it is necessary to use environmentally friendly technologies in electricity generation, make legal complexities faster and easier to resolve, eliminate contradictions among the state’s inter-organisational structures, and extend access to electricity to the general public. For this, the state and private sector must move forward by working together.
b. Open up power purchase and sales agreements
At present, the authority to enter into power purchase and sales agreements rests solely with the Nepal Electricity Authority. Therefore, in order to make the system more competitive and conducive to good governance, it would be appropriate to provide opportunities to other sectors as well.
c. Make cross-border electricity trading competitive
Until now, ‘cross-border electricity purchase and sales agreements’ have been concluded only between governments. The existing monopoly should therefore be transformed into a pluralistic and competitive system in which electricity purchase and sales can also take place between electricity-generating companies and industries/businesses, as well as with foreign companies or industries.
d. Make transmission-line construction competitive
A policy should be adopted to construct transmission lines in a
competitive manner, and organisational and legal structures should be established accordingly.
e. Simplify procedures at the local level
If a system is introduced whereby discussions, approvals and other procedures at the local level are conducted through rural municipalities, it appears that this could eliminate multiple centres of authority and make it easier and less burdensome for companies undertaking project construction.
f. Develop greater ownership within the bureaucracy
When will the day come when we see a sense of ownership within Nepal’s bureaucracy towards this sector, which can become the lifeline of Nepal and Nepalis? At present, entrepreneurs have to pass through the doors of nearly seven ministries, 25 departments and more than 100 sections.
g. Clarify the 35-year project period
Under Nepal’s existing laws, the duration of hydropower projects is 35 years. However, uncertainty still exists regarding the status of investors’ ownership and returns after 35 years. The Energy Bill currently under consideration in Parliament needs to resolve this issue.
h. Expand transmission infrastructure
The fact that electricity generated by some projects is being wasted because of insufficient transmission-line capacity appears to create a risk of investors losing their investments. Therefore, it is necessary for the Government of Nepal to make additional investment in the construction of transmission lines or to formulate a policy allowing their construction by the private sector through competition.
i. Ensure equal treatment of reservoir-based projects
The issue of providing state support to reservoir-based projects with a capacity of 200 MW, including the construction of access roads and other facilities, should not result in a situation where smaller
Until now, ‘cross- border electricity purchase and sales agreements’ have been concluded only between governments.
projects and projects of a similar nature are deprived of such facilities. This situation should be brought to an end.
6. Electricity exports can become a window of opportunity for Nepal’s economic prosperity.
In FY 2082/83, Nepal sold 3.87 billion units of electricity to Bangladesh and India, generating total revenue of Rs. 29.32 billion. During the same period, electricity worth Rs. 10.55 billion was imported from India to maintain a balance in electricity demand during the dry season. As a result, the net saving (income) amounted to Rs. 18.76 billion. Nepal has concluded agreements under which it will export surplus electricity during the rainy season and import electricity to maintain supply balance during the winter. Under these arrangements, India has guaranteed the purchase of 10,000 MW of electricity from Nepal over the next 10 years, while an agreement has been reached with Bangladesh to sell 5,000 MW of electricity over the next 10 years.
Considering that the sale of electricity in a relatively small volume has resulted in annual net savings of nearly Rs. 19 billion, it appears that the sale of a minimum of 15,000 MW of electricity over the next 10 years could generally generate net savings of around Rs. 400 billion.
Furthermore, if national consensus is maintained and progress is made to create opportunities for private-sector companies to enter into electricity purchase and sales agreements, including cross-border electricity trading, the hydropower sector could become a lifeline for the nation and help create the
foundation for a prosperous Nepal.
7. Conclusion Before constructing an electricity project, the following activities need to be undertaken:
1. Preliminary desk study report (electricity generation survey permit) and amendment of the electricity generation survey permit. 2. Electricity generation licence/ permit and its renewal. 3. Grid connection. 4. Environmental Impact Assessment, public hearing, report and approval. 5. Electricity generation permit. 6. Right of way/easement. 7. Power purchase and sales agreement. 8. Detailed engineering report of the project. 9. Industry operation permit. 10. n the case of hydropower projects with a cost exceeding Rs. 6 billion, approval from the Investment Board Nepal. 11. Loan/financing and co-financing agreement with banks and financial institutions. 12. Power lock approval from the Nepal Electricity Authority. 13. Invitation of tenders. 14. Formal commencement of construction work. To complete the aforementioned activities, one can move forward in the hydropower sector only with considerable patience and courage, the ability and skill to establish cordial relations and maintain contact with local communities, and the willingness and courage to withstand demands or pressures, whether related or unrelated to hydropower.
Therefore, if the Government of Nepal is to create a simple, convenient and good-governance-oriented environment for entrepreneurs seeking to invest in or manage activities in the hydropower sector, it appears necessary to adopt a one- window system.
(Shah is chairperson of Summit Energy Solutions.)
