The infrastructural issues including transmission lines and delay by India to increase energy imports from Nepal have seriously raised the issue of business sustainability in the hydropower sector.
A total of 170 MW of electricity produced by 20 hydroelectric projects is being wasted in the current wet season as the Nepal Electricity Authority (NEA) has failed to build transmission lines and substations on time. Private power producers say they will lose Rs 2.32 billion in income this monsoon season due to the lack of power transmission infrastructure.
According to the Independent Power Producers Association, Nepal (IPPAN), many producers have been forced to operate their power plants by reducing the load by 20-50 percent.
While the government and NEA are still buoyant about hydropower development in the country, the infrastructural issues including transmission lines and delay by India to increase Nepal’s electricity export quota have seriously raised the issue of business sustainability in the hydropower sector.
The last three years have been quite momentous for the Nepali energy sector with multiple developments and breakthroughs taking place one after another. While 1,227 MW has been added to the national grid in the last two fiscal years, the country also began electricity export to India.
With Nepal’s power generation capacity reaching 2,700 MW by mid-July, 2023, there are serious concerns over possible spillages of electricity unless the government step in to resolve the transmission lines and power export issues.
Nepal is waiting for India’s approval on a number of energy export issues. NEA has been seeking approval from the Indian authorities for selling electricity to the Indian market on a short-term and long-term basis. There is also a delay on the part of India to approve NEA’s proposal to export 1,000 MW of electricity from 18 hydel projects.
Nepal has been requesting the southern neighbor for a long-term power trade deal arguing that an inter-government agreement would lock in the market and end the unpredictability of the Indian market’s availability for electricity from Nepal in the long run.
On the other hand, the much-hyped 25-year-long inter-governmental framework agreement between Nepal and India is yet to be formalized. While officials of both countries have signed a preliminary power trade agreement during Prime Minister Pushpa Kamal Dahal’s recent India visit, India is delaying the signing of the final agreement which would ensure long-term market access for the Nepal-generated electricity to the Indian market.
The 25-year agreement is an umbrella agreement that will pave the way for power trading agencies in Nepal and India such as Nepal Electricity Authority and NTPC Vidyut Vyapar Nigam Limited (NVVN) to enter into a long-term power purchase agreement (PPA). NEA and NVVN will sign a separate agreement for commercial deals.
The long-term power deal has become paramount importance for Nepal with the country’s electricity generation capacity gradually increasing. If the market for Nepali electricity is not ensured, the country faces the risk of electricity spillage every year, especially during the wet season.
In the rainy season last year, the country’s electricity spillage reached as high as 800 MW, particularly during the festive period in October and November. With industrial power demand declining sharply due to the closure of industries during the holiday season, the domestic energy demand fell to as low as 700 MW.
Till last year, the total installed capacity of Nepal’s power projects was more than 2,200 MW while Indian authorities had granted approval to export 364 MW from Nepal.
Nepal’s generation capacity has already reached over 2,700 MW which requires more exports to India to avoid spillage in the rainy season when power plants start generating power at their full capacity.
IPPAN in the last week of June blamed the NEA for instructing independent power producers (IPPs) to reduce the electricity generation capacity of their plants due to low load demand. According to IPPAN office bearers, 30 hydropower projects have been forced to reduce their power generation following NEA’s instructions.
Nepal which over a decade ago faced up to 18 hours of power cut daily, has now reached a position where electricity production has exceeded the demand and can even export the excess electricity during the rainy season.
However, the problem of power spillage has persisted for the past few years, which does not bode well for the future of the energy sector, according to stakeholders. They believe that an imbalance is evident in the energy sector, particularly concerning production and distribution.
On one hand, NEA asked hydel projects not to operate fully, while on the other hand, customers, especially those in the industrial sector, have not been able to get electricity as per their demand. Furthermore, the country still needs to import electricity from India, particularly during the dry season.
If a long-term solution to the problem of power spillage is not found immediately, it will not only affect the income of private power companies but also impact the commercial banks that have invested billions in loans.
Private power producers say that when hydropower projects are not able to generate electricity at full capacity, their income will be automatically affected. Since independent power producers have largely constructed hydel projects through bank loans, they are facing difficulty in paying both the principal and interest to the banks due to the problem of power spillage.
IPPAN President Ganesh Karki explains that hydropower projects have been severely affected due to NEA’s decision to stop buying power produced by private power producers. “The power spillage problem arose after NEA did not buy the electricity generated from our projects as per the power purchase agreement,” he said.
Karki emphasizes the urgent need to strengthen and expand the transmission infrastructure. According to him, the transmission line issue has also hindered the progress of projects with private investments. As the majority of hydel projects in Nepal are run-of-the-river type, generating electricity to the installed capacity during the wet season is crucial for private developers to maintain income generation. “The lack of transmission line infrastructure has severely impacted the hydel projects promoted by the private sector. Even during the wet season, we are not able to generate electricity at full capacity,” said Karki.
NEA has signed PPAs with the majority of hydel projects on a take-or-pay model, under which it is obligated to buy the electricity produced by the projects. If not, NEA has to compensate the projects.
However, due to issues of power spillage and delays in transmission line construction, the NEA has managed to convince some of the projects to convert the PPA to a take-and-pay model, in which it will pay only for the actual quantum of electricity it purchases.
Previously, the country’s transmission line infrastructure could handle power transmission of 1800 MW. However, with the electricity generation gradually increasing, the infrastructure is unable to support the increased load.
Currently, there are approximately 9000 megawatts worth of projects under construction. Projects with a capacity of over 5,000 MW are being developed by foreign companies, and there are surveys underway for projects with a capacity of 11,000 MW.
However, the construction of the necessary transmission lines to distribute the electricity has not been completed. Transmission lines with a capacity of 400 kV have yet to be constructed to supply electricity across the country.
The Dhalkebar-Muzaffarpur cross-border transmission line with a 400 KV capacity has been constructed to facilitate electricity exchange between India and Nepal. While there are a dozen cross-border transmission lines between Nepal and India with 33kV, 132kV, and 400kV capacities, only the Dhalkebar-Muzaffarpur transmission line has 400kv capacity, which can transport around 1,000 MW. But it is important to note that no other transmission line has been built within Nepal to supply a large quantity of electricity to that particular location.
Currently, the Terai region faces a shortage of electricity supply as there is only a 132 kV transmission line serving the East-West corridor, which cannot meet the growing demand.
NEA has initiated the construction of two transmission line projects: Inaruwa-Dhalkebar-Hetauda 400 KV and Hetauda-Bharatpur-Bardghat-New Butwal 220 KV lines. However, the completion of these projects has been delayed due to obstructions from locals, an interim order from the Supreme Court, and delays in obtaining tree felling approvals.
The construction of a 400 KV Inaruwa-Dhalkebar-Hetauda line has made some progress but has not been completed yet. The same is the fate of two other 400 KV projects – the New Khimti-Bahrabise and Bahrabise-Kathmandu transmission lines.
Pradeep Kumar Thike, Deputy Executive Director at NEA, acknowledges that the current problem has arisen due to delays in constructing essential infrastructure, including transmission lines. “While electricity production and demand have both increased in recent years, the necessary transmission infrastructure to handle the increased load has not been built,” he said.
According to Thike, NEA has already commenced the construction of transmission lines to accommodate the increased load. However, they are facing numerous challenges, such as local obstacles, court orders, and delays in obtaining tree-cutting approvals, which have significantly hindered the progress of the transmission lines. “The impact of this delay is now becoming evident,” he added.
Thike said electricity cannot be supplied to many industrial areas in Birgunj, Bhairahawa, and Biratnagar due to a lack of sufficient transmission lines to bring the produced electricity to the substations and from the substations to the industries.
“The problem lies in the infrastructure, and we are actively working to construct the necessary transmission lines, some of which are expected to be completed in the next few months,” he said.
Mukesh Kafle, former Executive Director of NEA, points out that the current situation has arisen due to the concerned authorities’ failure to give timely attention.
“Despite the increasing production and demand for electricity, we have failed to build the necessary infrastructure to bring the produced electricity to the market. As the existing infrastructure cannot handle the increased load, we must expedite the construction of transmission infrastructure to address the problem,” he said.
According to Kafle, infrastructure cannot be built overnight; it will undoubtedly take a few years. “However, to expedite the construction process, it is essential to develop a special plan and strategy to overcome potential obstacles. If that can be accomplished, this problem will be resolved within a reasonable timeframe,” he said. “Otherwise, it may escalate into a serious issue in the near future.”
However, Kafle has a different opinion on electricity export. According to him, domestic consumption should be given more priority than export. “Various studies have confirmed that increasing electricity consumption in the country will contribute more to the economy than exports. Therefore, domestic power consumption is indispensable to achieve high economic growth,” he said. “We should consider the Indian and Bangladesh markets as options.