Nepal Energy Scenario

We take a look at the current electricity production, demand and supply in Nepal with suggestive measures.

Energy Scenario of NepalThe current scenario of Energy in Nepal is

pathetic as the demand-supply gap is extremely wide due to multiple reasons which

hindered the development & execution of power projects (both Hydro and Thermal). The major hurdles came due to paralyzed

policies, government’s poor vision of Energy Economics and the decade long Maoist

insurgency (1996-2006).

Energy Scenario of NepalThe current demand stands at 1178.30 MW peak hour demand but the installed capacity

is only 1100 MW as of FY 2012-13. The Energy deficit is the main cause of power

cuts (termed popularly “LOADSHEDDING” among the mass). Power cuts in Wet season

are t an average of 3-4 hours daily and during Dry season, it shoots to 12-16 hours daily.

Energy Scenario of NepalConsumers are industries are severely affected. Even service oriented industries have to cut their office hours to maintain uniformity with

the market. Manufacturing units are compelled to go for Diesel/Fossil fuel plants

to operate industries pushing the operational costs of finished products by a whopping 25% to 40%. Majority of industries have been shut down and instead started trading of basic &

FMCG products. It has made the entire National economy import oriented.

Peak Hour Demand and Available EnergyYear Peak Demand (MW)

Change in Peak Demand

Available Energy (GWh)

Change in Available Energy

2005 557.53 2642.75

2006 603.28 ↑8.21% 2780.92 ↑5.23%

2007 648.39 ↑7.48% 3051.82 ↑9.74%

2008 721.73 ↑11.31% 3185.95 ↑4.40%

2009 812.50 ↑12.58% 3130.79 ↓1.73%

2010 885.28 ↑8.96% 3711.77 ↑18.56%

*If 10% CAGR pre-assumption consumption of energy is considered, the peak demand for the FY2012-13 is 1178.30 MW.

Where does the Energy come from?NEA (Nepal Electricity Authority) is a Govt. of

Nepal undertaking responsible for the distribution of electricity and controlling all

other derivatives of electricity to the consumers (both commercial & industrial). NEA and Nepal Govt. operate both Hydro &

Thermal power projects. NEA trades and distributes the electricity in Nepal through its

grids.

Hydro and Thermal Energy available for past 6 yearsYear NEA Hydro

(GWh)Change in NEA Hydro

NEA Thermal (GWh)

Change in NEA Thermal

2005 1522.90 13.669

2006 1568.55 ↑3.00% 16.10 ↑17.78%

2007 1747.42 ↑11.40% 13.31 ↓17.33%

2008 1793.14 ↑2.62% 9.17 ↓31.10%

2009 1839.53 ↑2.59% 9.06 ↓1.20%

2010 2108.65 ↑14.63% 13.01 ↑43.60%

NEA Energy Chart

2005 2006 2007 2008 2009 20100

500

1000

1500

2000

2500

NEA Hydro (GWh) NEA Thermal (GWh)

Where does the rest of the Energy come from?There are many private sector players in the Hydro

power. These are called Independent Power Producers (IPP). IPP are private sector operating

energy projects (both Hydro and Thermal). Private projects go through the same stages

clearances as Govt. projects. Private projects ink PPA (Power Purchase Agreement) with the NEA to sell their energy. If a private project wants to sell their energy to a third country then it can

sign agreement with the respective country. All the private projects must sell their energy to the

NEA only as NEA is the only organization in Nepal to trade and distribute electricity. But if a private company wants to develop a project for

their own industrial purpose then thy can develop and have to pay royalty and hand over the energy project after 25 years of operation to the Govt. of

Nepal.

Where does the rest of the Energy come from?

Water is a national resource so it is necessary to pay royalty to the Govt. A private project can be hold up to 25 years by the company and then hand over to the Nepal Govt. The current PPA rate for Wet Energy is NRs. 6 ($0.06) per KWh & for Dry Energy d NRs.

4.80 ($0.048) per KWh. Due to supply gap, a big share of electricity is imported from India

esp. during the dry season.

Energy purchased by NEA from IPP and India:Year IPP (GWh) Change in

IPPIndian Import (GWh)

Change in Indian Import

2005 864.795 241.389

2006 930.04 ↑7.54% 266.23 ↑10.29%

2007 962.26 ↑3.46% 328.83 ↑23.51%

2008 958.42 ↓0.40% 425.22 ↑29.31%

2009 925.74 ↓3.53% 356.46 ↓16.17%

2010 951.43 ↑2.78% 638.68 ↑79.17%

Energy Purchased by NEA from IPP and India

2005 2006 2007 2008 2009 20100

200

400

600

800

1000

1200

IPP (GWh)Indian Import (GWh)

The growth in IPP from 2005 to 2010 is only 2% CAGR. There are several hundreds of private projects in pipeline but due to lack of investment & proper planning, promoters have not been able to deliver projects & hence there is huge deficit of power in Nepal. Where as, imports from India have increased significantly to 21.50% CAGR & huge forex is invested just to pay the electricity tariff.

*Considering tariff at IRs. 4 ($0.067) per KWh then just IRs. 2555.72 million ($42.58 million) have been emptied from the forex in 2010 to pay the electricity bills to India. Nepal’s forex reserves is Indian Currency as 72% of trade is with India.

LOASHEDDINGThe most popular term and the most common excuse in

recent years. NEA and IPPs have their own hydro projects but still 3-4 hours daily power outage in Wet season and up to 12-16 hours daily in the Dry season.

Almost all the projects are run-of-river projects. During the wet season, the energy produced is almost

equivalent to the installed capacity but in the dry season, the energy production is only about 25% to

30% of the installed capacity which is why the power situation in the winter becomes critical. Since, the projects are run-of-river, the water flow and level decreases significantly during the winter so does

electricity production.

Solution to Power CrisisNepal was declared a Energy crisis state in early 2008 by the then Govt. There are many

smaller run-of-river projects coming up. Majority of them have received clearances and even concluded PPA with the Govt. but due to lack of funds, the projects have not been carried out smoothly. The investment

size of a hydro power is behemoth and up to $2 million per MW generation from detailed

survey study to project completion and electricity genertaion.

Solution to Power CrisisThe Govt. has identified few storage projects

ranging from 400 MW to 900 MW. Few have been awarded as well. West Seti 786 MW to Three Gorges (China) and Upper Karnali 900 MW to GMR (India). These projects have already signed PPA with the Indian Govt. These projects were awarded to the respective companies under BOOT model. There are other few in pipeline with negotiations on relevant issues. Upper Tamakoshi 415 MW is a project to look after where the South Koreans have invested majority and is to be in operation by mid 2016 after several delays.

Hindrances in Smaller ProjectsMany projects are not viable due to accessibility

and connectivity.Project cost gets hyped due to building of

infrastructures.Locals create problems demanding free energy and

free share.Once the deadline misses, the project cost gets

hyped.Investment is a major issue. The commercial banks

can hardly lend the 70% of a 2 MW project ($4 million). Banks are not lenient to lend on long term projects.

Major Power ProjectsThere are several measures taken by the recent Govt. to lure investment into big projects. GMR’s 900 MW Upper Karnali and Three Gorges’s 786

MW West Seti are some projects where Govt. has taken bold steps in benefit of both the promoters

and the country. For storage projects over 500 MW, the country’s Investment Board (www.

investmentboard.gov.np) looks after the project where the entire Environment clearances are

permitted by this board upon the approval from their panel and huge incentives on tax are approved on the benefit of the promoters.

What the Govt. can do?With all the past mistakes, the Govt. should

learn to be lenient to adopt policies which will allow the investors to develop projects hassle free & reap maximum benefit in the shortest time-frame possible. Nepal could become energy surplus in the next 15 years with proper execution of some 15 major projects. The Govt. is calculating the Energy economics & should come up with some few measures:

What the Govt. can do?The Govt. should approve the feasible projects

to investors with a flexible timeframe.The approved projects must come under

Govt.’s pre-assumption energy demand at a certain timeframe. Say, like 6000 MW by 2031.

India is a country which could consume as we supply. India’s current production stands at 185,000 MW and thermal power has 68% share. Hydro power is cleaner and cheaper in the long run.

Resolution of Current Energy Scenario: First, we require huge investments (esp. foreign investment)

in the small run-of-river projects so that we cold generate extra 1000-1200 MW by 2018-19. There will be deficit in winter only which can be solved by power wheeling with

India and exchange for dry-wet and vice-versa. Secondly, the Govt. must repair & build new transmission

lines as soon as possible to prevent dissipation of energy from grid & transmission lines.

Setting up and allowing foreign players to set up Captive Power Plant (CPP) at strategic locations. This will solve industrial demand by almost 90%. Biratnagar, Kalaiya,

Birganj, Bhairahwaha & Nepalganj are ideal places. A 50 MW CPP coal-based will decrease power cuts by nearly 50-

60% in the coming 5 years.

Alternative EnergyAlternative Energy implementation & projects are needed to be promoted by the Govt. These projects

require REM (Renewable Energy Mechanism) procedure to sell their energy. The Govt. must be

lenient to introduce an investment friendly REM as Nepal has a great potential in Wind Energy. Mustang &

Manang have cut rate speed to run turbines ranging from 250 KW to 1500 KW. Around 30,000 MW could be

harnessed in these districts alone. Infrastructure & accessibility to these districts have to be built first. Clearances like Avian Clearance & EIA schemes for

wind project need to be defined so that investors would be confident before committing to such projects.

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