A spillage of 200 MW of electricity isn’t a big problem. But next year, 1,000 MW of electricity will be added to the national grid. The important question is how the government plans to use all this power.
Hydropower is one of the sectors that can reduce Nepal’s trade deficit by increasing power trade with its neighbors. In this context, minimizing power spillage becomes paramount. As said by the Energy Secretary, our current total installed capacity rests at an impressive 2,850 MW. However, our actual power consumption fluctuates between 1,700-1,800 MW, and 400 MW is exported to India. Unfortunately, hydropower projects producing a total of 200 MW have suffered damages due to recent monsoon floods.
We also face challenges in fully consuming the generated energy. There can be three scenarios. In one, transmission lines stand ready, yet energy remains trapped by capacity constraints. In the second, the transmission lines possess capacity, yet lie dormant due to lack of consumption. Lastly, energy production thrives but the supply potential goes unharnessed as transmission lines are absent.
The primary challenge faced by private investors revolves around the concept of power purchase agreements (PPAs) in a risk-free environment. When investing, both the investors and banks operate under the assumption that the Nepal Electricity Authority (NEA) will secure the electricity purchase as per the PPA agreement. The element of risk primarily arises during the construction phase. However, the private sector envisions a transition to a risk-free state upon project completion.
As outlined in the PPA agreement, NEA is liable to pay five percent compensation in case the construction of the transmission line is not completed till the construction of the project. In instances where the transmission line construction fails or its functionality becomes impaired, NEA has to fulfill the five percent compensation requirement. However, a new development has emerged. The NEA has put forth a proposal, suggesting that even if the private sector transmits a limited amount of power through these transmission lines, it could result in a beneficial outcome for the private sector. This proposition stands as a distinct and separate agreement, separate from the initial terms. Also, the hydropower developers thought that rather than opting for the conventional five percent penalty, transmitting power—potentially ranging between 40 to 50 percent—through these transmission lines would be beneficial.
This scenario has unfortunately compounded the challenges faced by the hydropower investors, leading to a prolonged period of unprofitability that will hinder the returns and dividends of the companies producing electricity. In this context, even the banks have faced problems and bankers have said that there should be no other agreements other than the initial PPA agreement. NEA must purchase power, irrespective of the associated costs, in order to alleviate the burdens borne by the private sector.
A promising shift in Nepal’s hydro sector is underway as India has expressed interest in procuring 10,000 MW of power and Bangladesh is eager to follow suit. Also, domestic power consumption in Nepal is poised for a notable upswing. But then, to fulfill the energy demands, a surge in investments is required within the sector. If the government can’t finish building the transmission lines, it could ask private companies to construct the power infrastructure. And if the government has trouble selling electricity, they could let private companies handle that too. Private companies can help when the government can’t do everything by itself. This way, both the government and private companies can help each other and make things better for everyone.
Right now, having a spillage of 200 MW of electricity isn’t a big problem. But next year, we’re going to add about 1,000 MW of electricity to the national grid. The important question is how the government plans to use all this power. We need proper transmission lines to make use of it. If the government can’t use or sell this extra power, it could lead to a disaster. The private companies might struggle to repay their loans, and the banks will have a hard time dealing with this. This could also cause trouble for the public. It’s like a chain reaction. So, the government needs to start thinking about this situation now.
The government has alternatives for the construction of transmission lines as early as possible. They can involve security agencies in this work. Also, they can motivate people to switch from using LPG gas to using induction stoves. This way, we can make progress on solving the electricity challenge.
At first, the Nepal Rastra Bank made a policy that banks must invest in hydro projects. But then, the rule changed to say that a mix of agriculture, hydro, and tourism should get a certain amount of investment. This made banks invest in different areas. If the government really wants to generate more energy, it should make sure that at least 20 percent of a bank’s money goes into hydropower projects. If this happens, the general public might also start investing in this sector.
In the past two years, the interest rate has gone up, but the price of electricity hasn’t gone up. To help the hydropower projects, the government should stabilize the interest rate for loans to power producers. Also, NEA should keep buying electricity as they agreed in the PPAs with the promoters of the projects. The central bank should also make a rule that banks have to invest in hydropower projects. This way, things could get better for the energy sector.
Recently, the government decided to sign PPA agreements for projects totaling a capacity of 1,500 MW which will require around Rs 300 billion. There are also 2,000 MW projects that are waiting for financial closure, which would need about Rs 400 billion. However, not all projects might get the money they need. This is a serious matter for the government to think about. If they sign PPA agreements but the projects don’t get the funding, it won’t be a good situation.
The recent floods and landslides damaged hydropower projects, and they need funds for repairs. The government should help make financing easier for this. The hydro projects also have to pay interest on these projects. So, there should be a refinancing facility from the central bank. If we don’t fix these projects, it could create problems for banks too, because they might not get their money back. This is something important to consider.
Building better transmission lines is crucial. Especially in urban areas, we can increase power usage if we improve these lines. With proper transmission, city consumption could even double from what it is now. If we don’t upgrade transmission, we might waste 1,000 MW of power next year. We’re uncertain if India will buy our power, and even if they do, our infrastructure might not be ready for it. So, it’s important to focus on improving transmission lines.
Expanding charging stations and prioritizing electric vehicles (EVs) are essential for boosting power consumption significantly. We should remain optimistic and actively work towards the belief that India will purchase power from Nepal. As the global trend shifts toward green energy, this possibility becomes more likely. To facilitate power exports to both India and Bangladesh, we must invest in projects. Preparing ourselves to send electricity to these neighboring countries requires strategic planning and sizable investments. It’s important to be proactive and ready for this opportunity.
Right now, there are potential PPAs of 10,000 MW waiting for approval. We need to enhance our energy production, revamp policies, and ensure a secure environment for investors. With focused efforts over the next decade, the government can create conditions to export 10,000 MW of power to foreign markets. This requires proactive measures and long-term planning.
The issue of power cuts still persists in our country, particularly in the industrial sector, and this has been ongoing for the past eight months. To meet the demand, we’ve been importing electricity from India. Strangely, even though we have sufficient energy, we struggle to use it effectively. This leads to wastage, which is a significant concern in Nepal. It’s crucial to address this challenge promptly. Otherwise, the consequences could be severe and far-reaching.
Karki is the President of the Independent Power Producers’ Association, Nepal (IPPAN).
