NEPAL: Energy Sector Scenario USAID South Asia Regional Initiative for Energy (USAID SARI/Energy

)

July, 2010 This publication was produced for review by the United States Agency for International Development. It was prepared by PA Government Services Inc.

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NEPAL: ENERGY SECTOR SCENARIO USAID South Asia Regional Initiative for Energy (USAID SARI/Energy)

July, 2010

Prepared for:

USAID/New Delhi New Delhi, India PA Government Services Inc.

PA Government Services Inc A-6 Qutab Apartments Shaheed Jeet Singh Marg. New Delhi, India

Prepared by:

DISCLAIMER This report is made possible by the support of the American People through the United States Agency for International Development (USAID). The contents of this report are the sole responsibility of PA Government Services Inc. and do not necessarily reflect the views of USAID or the United States Government.

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Table of Content 1. Country Background Country Background......................................................................................................3 A. Policy Level Institutions........................................................................................9 B. Regulatory Level Institution................................................................................10 C. Operational Level Institutions.............................................................................10 D. Implementation Level Institution........................................................................10 Generation Business Group......................................................................................12 B. Transmission and System Operation Business Group.........................................17 C. Distribution and Consumer Services Business Group.........................................18 Community Rural Electrification Department.....................................................26

Country Background
The Federal Democratic Republic of Nepal is a landlocked country in South Asia and, as of 2010, the world's most recent nation to become a republic. It is bordered to the north by the People's Republic of China, and to the south, east, and west by the Republic of India.

The political transition in April 2006 opened a new chapter in the history of Nepal. The signing of a comprehensive peace agreement in November 2006 laid out a roadmap to a lasting peace and the construction of a new governance structure. Nepal has made significant progress since the end of the conflict in maintaining the peace and moving toward political stability. In 2008, the country voted in a

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Constituent Assembly (CA), abolished the monarchy, named a President, elected a Prime Minister, formed a coalition government, and started the process of drafting a new Constitution. The Communist Party of Nepal-Maoist (CPN-M) emerged as the largest party in the elections. The current Government is formed with the CPNM, the Unified Marxist Leninist (UML) party and Madhesi parties. One of the CA’s first acts in May 2008 was to declare Nepal a Federal Democratic Republic. The Interim Constitution gives the CA two years, to 2010, to deliver a new Constitution, which will be followed by another round of elections in 2011. The political and security situation in the country remains fragile. Military integration and the reform of the armed forces remains an important unresolved issues as does a proliferation of armed groups in the Terai and continuing strikes. On May 4, 2009, the Prime Minister resigned, assuming the role of the caretaker Prime Minister.

Energy Sector Overview
Water is an important natural resource of Nepal which represents a source of potential wealth. Commercially exploitable hydropower generating potential is estimated to be about 44,000 MW from 66 hydropower project sites. Except for some lignite deposits, Nepal has no known oil, gas or coal deposits. All commercial fossil fuels (mainly oil and coal) are either imported from India or from international markets routed through India. Fuel imports absorb over one-fourth of Nepal's foreign exchange earnings. Despite the hydro potential, hydro electricity accounts for only 1 percent of total energy supplies. The bulk of Nepal's energy supplies come from traditional sources, mainly from fuel wood, agriculture waste and dung production by livestock. Fossil fuels, like petroleum and Coal, account for the remaining eight percent. Energy Statistics Energy Consumption (2005) (in 000GJ) is as follows: Traditional Energy -322105 (87.7%) Firewood- 286960(78.1%) Biomass-13964(3.8%) Animal Dung-21181(5.8%) Commercial Energy- 43195(11.8%) Petroleum – 30063(8.2%) Electricity - 6673(1.8%)

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Coal- 6459(1.8%) Renewable – 1955(0.5%) The Energy Mix of Nepal has been detailed in the below given chart.

1%

8%

7%

1%

15%

Sale of petroleum products [in KL except LPG]
Hydro Fuel wood Agriculture Waste Coal Dung

68% Petroleum

Source: Nepal Oil Corporation Consumption of Coal (in TJ) is as follows:

Source: National Energy Strategy Draft Report

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all wholly HMG/N owned entities. Nepal's domestic electricity supply system is small. The balance is composed of thermal installations using multi fuels and diesel plants. Currently. Further. Despite high level of susceptibility of run-ofriver to high rates of spillage they (albeit with sufficient pondage to be used for daily peaking) represent the least-cost development plan of the Nepal Electricity Authority (NEA) system. the Ministry of Water Resources has general responsibilities of all private and public activities related to electricity supply including NEA. Nepal enactment of Hydropower Development Policy 1992. which includes the Kathmandu Valley. The Authority is controlled by a management Board headed by the Minister himself and with members drawn both from within and outside the Government. The story of power position in Nepal is that of highest potential and lowest consumption. 1985 under NEA Act 1984 by amalgamating the Electricity Department. a 100 percent His Majesties Government of Nepal (HMG/N) owned utility which was established in August. The main transmission line is 132 kilovolts (kV) and runs for approximately 1200 kilometers parallel to the Indian border from east of Nepal (Anarmani)to west of Nepal (Mahendranagar) major sub-stations are located in Hetuda. 1992 and Electricity Regulations.Historically. The main load centre is the central zone. Electricity Act. During 1990s Nepal introduced far reaching policy changes in opening up the power sector to domestic and foreign private sectors and to boost export of power. NEA hydro generation capacity is about 381(ROR) 407 MW. Current. Nepal’s power sector has been dominated by Nepal Electricity Authority (NEA). Eastern Electricity Corporation (a wholly HMG/N owned) was also merged with NEA in later years. the NEA act was amended in 1992 to “enable the NEA to function autonomously”. 1993 marked the entry of Independent Power Producers (IPPs) in Nepal’s Power Sector through non-recourse financing. only one power station--the 92 MW Kulekhani--has seasonal storage capacity. Hydropower facilities are mostly run-of-river and account for 78 percent of total installed capacity. which constitutes 92 percent of installed capacity. incumbent Electricity Development Boards and Nepal Electricity Corporation (NEC). Since than NEAs status has been replaced from that of a sole monopoly player to that of a 6 . HMG/N. total installed electric power generating capacity is dominated by hydropower. Syuchatar and Balaju.

9 MW and Off Grid is 4. NEA has grown into the largest utility in the country supplying electricity to almost all of the electrified areas of the country with some exception. Last year in the dry season. However on totality basis NEA serves 15 percent of the total population of Nepal which implies a relatively low level of electrification. Hydro has the maximum share of. high overheads. hence promoting Independent Power Producers.5 MW and Storage is 92 MW. 635.4 MW (out of which In grid is 688. Electrification rate in urban area is 90 percent where as that in rural area is 5 percent only.. Nepal had demand of 780 MW and 893 MW and it faced deficit of 160 and 440 MW respectively. NEA and IPPs are the players in generation and contributes 381 MW and 161.5 MW and Thermal 53.5 MW in ROR hydro power generation respectively. transmission capacity constraints. Nepal imported around 80 MW capacity (50 MW though power exchange and 30 MW through treaty. high generation costs. Among the generation projects it has initiated is Upper Tamakoshi. lack of necessary investment capital etc. the capacity was 307 MW (ROR 190 MW. In hydro. high system losses. This was due to significant drop in water level in the rivers together with damage of principal transmission link for import of power from India resulted in a severe supplydemand gap in the system causing NEA to resort to an unprecedented load shedding up to sixteen hours a day.licensee with the responsibility of buying the privately generated power.) In the wet and dry season. Also it faced other challenges like high system losses. Trishuli 3A and 3B. NEA is taking long term perspective in adding its generation and transmission capacity. Even in this scenario there is a great disparity between urban and rural areas. Present Scenario Nepal Installed Capacity is 692. Storage 92 MW and thermal 25 MW). After 254 years of existence. This situation severely impacted its financial conditions. The position of power sector remains unsatisfactory because off high tariff. To overcome the load shedding. over staffing and lower domestic demand.5 MW). ROR is 542.4 MW in the grid capacity. upper seti and Rahughat. Also it is 7 .

2002 FY-2003/04 February. The Distribution and Consumer Services Business Group (DCS) was formed in a part of internal unbundling process of NEA to strengthen customer focus and operate NEA in line with commercial principles. Since than NEAs status has been replaced from that of a sole monopoly player to that of a licensee with the responsibility of buying the privately generated power. Marsyangdi and Gandak Hydropower stations are being rehabilitated.implementing various transmission projects to enhance power evaluation capacity within the country. imports of electricity from India and demand side management are some of the other measures taken by it to reduce the gap between demand and supply. FY-1993 February. and kali gandaki ‘A’. 1984 which paved the way for the formulation of Nepal Electricity Authority. Ministry of Water Resources. To address the immediate challenge of load shedding. 2003 8 . NEA is working towards rehabilitation/ overhauling of the existing generation plants. Nepal enacted Electricity Regulations. NEA implemented the profit centre concept by enacting “Distribution Centre Operation Regulation-2059”. related Development Boards and Nepal Electricity Corporation Nepal enactment of Hydropower Development Policy 1992 Nepal enacted Electricity Act. 1993 which marked the noticeable entry of Independent Power Producers (IPPs) in Nepal’s Power Sector through non-recourse financing. NEA enacted “Community Distribution Regualton-2060” to promote and regulate the activities which was followed by the establishment of Community Rural Electrification Department (CRED). These are commendable efforts to meet the long term demand growth as well as to encourage private sector investment in this sector. for strengthen customer focus and commercial orientation in its operations. The multi Fuel Power plant. Time line of important development in Power sector Year FY-1984 August. 1984 through the merger of the Department of Electricity Development. Hetauda Diesel Plant. 1992 The NEA act was amended in 1992 to “enable the NEA to function autonomously”. Similarly. hence promoting Independent Power Producers. 1985 FY-1992 FY-1992 FY-1992 Description Nepal enacted the Nepal Electricity Authority Act. Nepal Electricity Authority (NEA) was created under the Nepal Electricity Authority Act. as well as cross-border transmission lines exchange power with India.

plan and programs for production. Ministry of Energy: It is responsible for formulation. This challenge and recognition have led Government of Nepal to establish the current institutional arrangements at four levels – A. 3. It is chaired by the Prime Minister with broad parliamentary membership. Regulatory Level Institution C. Implementation Level Institution A. implementation. It is a principal non-consumptive user and is rightly regarded as having the highest responsibility of harnessing water resources and transforming it into economic wealth. 4. Operational Level Institution D. Policy Level Institution B. National Planning Commission: It acts as a Secretariat to the National Planning Commission for coordination and development of Government of Nepal 5-year multi-sectoral investment programs. regulation and utilization of energy.Existing Institutional Arrangements The Ministry for Water Resources acts as a line Ministry with primary jurisdiction over the power sector. conservation. and monitoring and evaluation of policies. National Development Council: Its key role is in issuing policy directives to the National Planning Commission for the development of annual national plans. 2. Policy Level Institutions 1. Water and Energy Commission: 9 .

Environment Protection Council: Responsible for policy development and preparation of environmental regulations.Provides policy advice to Government of Nepal on technical. Water Resources Development Council: Advisory group constituted to provide guidance to Government of Nepal on strategic issues and policy regarding integrated water resource development. and monitoring of environmental licenses. Butwal Power Company: It is a non-profit organization established by the United Mission of Nepal (UMN). Regulatory Level Institution 7. 6. Nepal Electricity Authority: A public sector utility responsible for electricity generation. Operational Level Institutions 8. C. Also. and institutional matters related to water resource planning and development. Tariff Fixation Commission: A quasi-independent regulatory agency set up to review and approve tariff filings by NEA. D. permitting. 10. transmission and distribution throughout Nepal. financial. Department for Electricity Development: 10 . B. licensing. It is neither required to review IPP transactions nor approve power purchase agreements between IPPs and NEA. It is also responsible for energy exchanges with India and act as a single buyer of electricity from private independent power producers. Implementation Level Institution 11. Its prime objective is undertaking rural electrification in Nepal. inspection. 5. it is not required to review energy exchange arrangements between NEA and India. 9. environmental. legal. Independent Power Producers. Environment Protection guidelines for Environmental Assessments.

The Environment Protection Council and the Water Resources Development Council are new bodies.. and provides technical support to the Tariff Fixation Commission. Ministry of Water Resources. The Environment Protection Council is expected to provide authority for environment regulation. functions as a "one-stop shop" for private investors in small and medium size hydropower projects. determine and realize tariff structure for electricity consumption 11 . Policy advice arising from such Councils gets embodied in legislation. RESPONSIBILITIES In addition to achieving above primary objective. Among the institutions that directly impact upon the power sector. 1985 under the Nepal Electricity Authority Act. NEA's major responsibilities are: a) To recommend to His Majesty's Government. long and short. related Development Boards and Nepal Electricity Corporation.A Government owned entity responsible for implementation and promotion of the Government's private power policy. Merger of these individual organizations became necessary to achieve efficiency and reliable service. guides private investors through the maze of securing permits and licenses. b) To recommend. the National Planning Commission plays a key role in public sector review (i. 1984 through the merger of the Department of Electricity Development. manages Government of Nepal competitive bidding process for IPPs in small and medium size hydropower projects. issues survey licenses. set standards and provide enforcement of measures to which project design and construction and operation activities will have to subscribe. review of NEA) and the Water and Energy Commission plays a key role in policy and planning.e. Prime purpose of creation of NEA was to remedy the inherent weakness associated with incumbent fragmented electricity organizations with overlapping responsibilities and duplication of works. The various Councils are an integral part of the Government itself and play a role in establishing consensus on major policies and strategies which influence power sector development.term plans and policies in the power sector. NEPAL ELECTRICTY AUTHORITY Nepal Electricity Authority (NEA) was created on August 16.

The picture below shows the corporate structure of NEA.with prior approval of GoN. c) To arrange for training and study so as to produce skilled manpower in generation. and operation and maintenance of existing power stations under 12 . Transmission and System Operation Business Group and Electrification Business Group. high overheads. transmission. high generation costs. over staffing and lower domestic demand. Its endeavors to maximize the utilization of available resources including import through trading of power from Indian short term market has not able to offset the unbalance. high system losses. Corporate structure of NEA Generation Business Group The Generation Business Group is entrusted with the responsibility of construction of new power stations. resulting in long hours of distasteful load shedding. NEA has been always languishing with the issues of high tariff. distribution and other sectors. For proper and effective functioning. NEA has evolved into various business groups namely Generation Business Group.

4 530.24 Total 56.24 488.30 593.64 668.00 43.00 43.04 556.64 648.66 13 .4 33.86 -26.06 -108.00 43. (MW) (MW) Total (Hydro)574.00 50.00 50.66 50.94 -10.86 -76.34 621.24 43.4 14 (Planned Projects) Peaking Capacity (MW) Peak Demand (MW) Surplus (MW) Import Availability (MW) Net Surplus (MW) 488.00 43.70 757.86 -47.4 103.24 532.00 50.71 43.24 488.76 -153.00 23.1 90. Operation and Maintenance Department. Generation Construction Department and Kaligandaki-A Hydropower Department.213 488. Existing Hydro Installed Peaking 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 Cap.86 -97.There are three departments.76 -103.40 821.06 -60.00 50. namely.20 697.00 (Thermal) Total 1.60 634.00 50.5 5. Cap.00 43.NEA.24 488.70 -26.00 113.06 -58.24 488.24 488.4 (Projects Under Construction) Total 61 33.74 536.

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PEAK DEMAND 15 .

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B. 1. Government clearance for the environmental social impact assessment (EIA/SIA) studies is obtained prior to start of construction works. namely:1. 3. Transmission and System Operation Business Group Transmission and System Operation (TSO) Business Group of Nepal Electricity Authority has three key responsibilities. one of the prominent constraints faced by IPPs for development of hydropower projects has been the non feasibleness of building separate transmission lines for connecting each of the planned medium and small hydropower projects with the national grid. 2. The Transmission Line/Substation Construction Department undertakes design and construction of transmission lines and substations of 66kV and higher voltage level from the preparatory phase to final commissioning. acquiring survey/construction licenses. Dhankuta-Titire corridor 17 . Grid Operation Department and System Operation Department. In order to over come these difficulties a comprehensive transmission line identification and techno-economical feasibility needs to be done. As a result System Planning Department has identified six different transmission line corridors based on secondary information. field survey. Design and construction of transmission system of 66 kV and higher Operation and maintenance of transmission system of 66kV and higher Scheduling and dispatching of major and medium power stations voltage level voltage level connected to the grid. Works at the preparatory phase include design. environmental studies and land acquisition. However. These three functions are entrusted respectively to the Transmission Line/Substation Construction Department.

Distribution and Consumer Services Business Group The Distribution and Consumer Services Business Group (DCS) was formed in FY 2003/04 as a part of internal unbundling process of NEA to strengthen customer focus and operate NEA in line with commercial principles. Modi-Butwal corridor 4. maintenance.2. meter reading. revenue collection. DCS accounts for about 55% of the total NEA staff providing various services to about 97% of NEA customers. Sunkoshi corridor C. Marsyangdi corridor 3. Sales & Revenue contributions from various consumer categories 18 . The Business Side Management for the optimal use of electricity. DCS is headed by a General Manager and is organized into three departments at the centre and five regional offices. billing. customer grievance handling and so forth. each of which is headed by a Director. Number of customers. This is one of the core and the largest among the five business groups of NEA in terms of number of employees and business activities. together with customer service activities like new connection. DCS is entrusted with the key responsibility of overall management of electricity distribution network of NEA including operation. rehabilitation and expansion of the network up to the 33 kV voltage levels. Kabeli/Tamor corridor 5.

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Electricity Sales 20 .

Revenue 21 .

2002. enhancement of quality customer services. as a drive to strengthen customer focus and commercial orientation in its operations. These centres serve 48. increase in sales and reduction of costs were defined as the major performance areas. Reduction of system losses. the Business Group also oversees distribution and consumer service functions of 18 centres located at different districts. Presently. Electrified Business Group Electrification Business Group is mainly responsible for rural electrification in Nepal. whereby the Distribution Centres were required to operate on commercial principle and the centre chiefs were made accountable in achieving specified performance targets. improvement of overall efficiency. The ongoing donor assisted projects are: Rural Electrification. improvement in stock utilization. Distribution and Transmission Project with loan assistance from Asian Development Bank. NEA had implemented the profit centre concept by enacting “Distribution Centre Operation Regulation-2059” in February. several projects are being implemented under this Business Group. E. shortening of average collection period. Besides rural electrification.Further. 22 .297 consumers in total.

Apart from these with financing from GoN. 2 solar plants and 7 distribution branch offices carry out various activities related to operation maintenance of electricity generation. KailaliKanchanpur Rural Electrification Project funded by DANIDA and llam Rural Electrification Project with Non-project grant assistance from the Government of Japan. extension of the National Grid to remote hilly regions. 26 small hydropower plants. SHPRED is responsible for construction. 7 have been leased out to private firms and 4 have been leased out to the consumer communities.Distribution and Rural Electrification Project financed by the World Bank. which operate under the guidelines set forth by NEA. Out of 26 small hydropower plants. distribution. customer service and so forth. covering 27 districts in 12 zones of the country. 23 . many rural electrification projects are under implementation through Small Hydropower and Rural Electrification Department (SHPRED) of this Business Group. execution of rural electrification. Under the Department. operation and maintenance of isolated small hydropower plants. and the establishment of distribution system to provide electricity service to rural population.

Hence Rural electrification has figured prominently in Nepal’s national development planning since the mid-1970s. The heavy reliance on traditional fuels poses serious threats to the health of rural populations. and set goals for both small hydro and grid extension to “develop and expand agriculture development and cottage and small scale industries. The lack of access to commercial energy forces rural consumers to rely on traditional fuels. This is partly a consequence of the rugged terrain in the country. The Seventh Plan (1985-1990) dealt more extensively with rural electrification.rural electrification was recognized as a tool to contribute to the development of rural industry and agriculture.Rural Electrification About 88% of Nepal population lives in villages and only about 15% Nepalese have become fortunate to use the electric power so far. is to provide sustainable and affordable access to energy in the rural areas. but clearly providing greater access to electricity for many population groups in the country could be improved.” Under the Eighth Plan (1992-1997) rural electrification was to be carried out through the extension of the national grid as far as practical. The strong links between rural electricity and poverty reduction underscore the importance of improving electricity access to rural communities.” Significantly. The Ninth Plan (1997-2002) also emphasized the need to continue rural electrification “as a driving wheel of rural development. The main challenge therefore. the Ninth Plan focused on poverty as its number one priority. In the Fifth and Sixth National Development Plans (1975-1980 and1980-1985). especially women and children who are most exposed to indoor pollution.mainly fuel wood. agriculture waste and animal dung-for cooking and lighting needs. 24 .

The Tenth Plan specifically called for creation of a central entity with the mandate of developing rural electricity supply. and each of these sectors relates to national programs for poverty alleviation as well as for decentralization and village development services. a new Hydropower Policy had also highlighted rural electrification. but lacking in rural areas. had set the ambitious target of electrifying up to 2. The energy needs of 1. Since electricity services in urban areas are relatively adequate.000 kilometers of transmission and distribution lines were decided to be added. Its target was to reduce poverty to 30 percent of the population. however. The target set for access to electricity was also 30 percent. The organization mainly responsible for rural electrification in Nepal is Nepal Electricity Authority Electrification Business Group. it also oversees distribution and consumer services functions of 18 centers located at different districts. Implementing such general plans.000 more VDCs were proposed to meet by decentralized energy production systems during the 10th five year plan During the period of the Tenth Plan. in its tenth five year plan. Distribution and Rural Electrification Project financed by the World Bank. These were to bring the national grid to an additional 1. has proven difficult in the past. Apart from this.050 Village Development Committees. The ongoing donor assisted projects are: Rural Electrification. 25 . which made rural electrification one of HMGN’s highest development priorities. encompassing some 705. Distribution and Transmission Project with loan assistance from Asian Development Bank. Ninety-five percent of the sector’s budget for distribution is to be used for rural electrification.600 Village Development Committees (VDCs) through the extension of integrated national grid system. The GoN. Presently. there has been little coordination of effort across sectors. There is no one organization that oversees and coordinates efforts to develop the sector. It is widely perceived that a clear and consistent strategy for developing rural energy is lacking.The Tenth Plan (2003-2008) was even more firmly focused on reducing poverty and improving the rural economy. KailaliKanchanpur Rural Electrification Project funded by DANIDA and Ilam Rural Electrification Project with Non-project grant assistance from the Government of Japan. specifically calling for the creation of a central rural electrification fund to support development of rural electric supply. Apart from these. Rural electrification and alternative energy development projects have been administered by numerous government and donor-funded programs. While there are obvious complementarities between rural energy development and the development of agriculture and forestry sectors. several projects are implemented under this business group. many rural electrification projects are under implementation through Small Hydropower and Rural Electrification Department and Community Rural Electrification Department of this Business Group. during the Tenth Plan emphasis will be given to rural electrification. more than 17. with financing from GoN. In 2001. This idea was incorporated into the Tenth Plan (2003-2008). from 2003-2008.600 people.

direct hooking and other fraudulent practices of energy pilferage have made the whole episode of endeavor in rural electrification starkly weak and unproductive. Long distribution lines in rural areas beyond standards. whereby 80 percent of the capital cost of electrification will be provided by the government. To promote and regulate the activity. But off-grid micro hydro and solar photovoltaic projects are channeled through the Alternative Energy Promotion Center (AEPC). In this manner. Although Nepal has spent a huge quantum of money in rural electrification. the community bears the balance 20% of the cost. NEA has enacted "Community Distribution Regulation-2060". are now an established. which was established in 1996 under the Ministry of Science and Technology. but rural electrification is the sector where private investors do not want to spend due to the low return on investment. Hence. If it is to develop suitable and sustainable models associated with electric distribution in villages. cost effective alternative for people who are currently having no electricity access. hydropower as a natural endowment that is environmentally friendly and a potential source of electricity has been seen to enhance the sustainable development process in Nepal. Decentralized supplies. Due to the rugged mountainous terrain and scattered nature of human settlements. Rural people are encouraged to participate in grid extension and construction of integrated as well as isolated type mini scale hydropower schemes for rural electrification. 26 . extension of the National Grid to remote hilly regions and the establishment of distribution system to provide electricity service to rural population. execution of rural electrification. Hence.. it must be very careful that the models chosen should not be neither too detailed nor sophisticated nor too simple for reliable and qualitative performance. GoN has declared a policy. The NEA currently has a mandate for developing rural electric supply via extension of the national grid. operation and maintenance of isolated small hydropower plants. the national grid extension to these areas is difficult and economical. a subsidy policy and community participation in rural electrification is being promoted. Following the enactment of the regulation. Various donor-funded programs are implemented either through these channels or independently by the donor organizations themselves. as rural electrification is important part of the development strategy. provided that. In many cases renewable provide the most financially attractive means of providing that energy. Many power-purchase agreements (PPAs) have been signed in recent years.Small Hydropower and Rural Electrification Department (SHPRED) SHPRED is responsible for construction. Community Rural Electrification Department In order to promote community participation in rural electrification. Community Rural Electrification Department (CRED) was established in February 2003 to carry out community based electrification works in an organized way. still it is unable to address the real problems of commercialization in this field so far. whether at an individual household level or at community level.

after that the process for implementation of micro-hydropower schemes took new momentum as a new institution called the Alternate Energy Promotion Centre (AEPC) was established under the Ministry of Science and Technology. Funding these co-operative projects and giving them all sorts of technical assistance and legal support will certainly encourage the rural people to use electricity as a means of enhancing the quality of life and the well-being of the society. the only excellent choice Nepal has is the implementation of co-operative concept. It resulted in steady expansion of community-managed microhydro systems which provided coverage to about 40. Communities formed Micro-Hydro Functional Groups to execute the work. The main objective of AEPC is to promote and disseminate renewable/alternative energy technologies and meet basic energy needs of rural people residing in remote areas of the country. Till 1995. Further micro hydro provides round the clock electricity generation in close proximity to end users. a Micro-Hydro Village Electrification component was present. there are other institutions and organizations like the UNDP’s Rural Energy Development Program (REDP). beyond doubts. GoN used to provide subsidies of up to 75% for electromechanical equipment for micro hydropower plants through the Agriculture Development Bank to electrify remote rural areas of the country. education. which can ensure the benefits of electricity to rural people as well as the utility. The project built upon the national strategy launched through the Rural Energy Development Program in 1996. But. an integral part of the national energy policies and distribution system. 27 . with no need for expensive storage and power lines. industrialization and job opportunities leading to the elevation of the rural living standard. around 2. and the total installed capacity from electricity generation from these plants has reached to 7. To date. and lighting up households for the first time. The co-operative model is extremely required to draw good outcome from the rural electrification so that it would take its course in the genuine favour of public health. To successfully commit rural electrification. have been installed. including responsibility for supervising contractors. Apart from AEPC. These systems energized sustainable rural development by creating jobs. which was launched in 2003. the government’s Remote Area Development Committee (RADC) and the Annapurna Conservation Area Project (ACAP). which successfully increased rural access to renewable energy sources and formed a solid foundation for scaling up impact.000 households in 40 of 51 target districts with potential for this form of power generation. including 800 mechanical schemes. Rural electric co-operative models should be. protecting the environment. In an IDA-financed Nepal Power Development Project.Rural Electrification through micro-hydro is a credible option since country has exploited only 2% of its potential. AEPC administers provide subsidies to enthusiastic micro hydropower developers through its interim rural energy fund supported by the Energy Sector Assistance Program (ESAP).5 MW.200 MHPs.

metering. New service connections. In this first phase. transmission and distribution with itself and only sells the bulk power to a registered electric co -operative at a suitable rate. This second model gives the franchise to sell the electric power purchased from the NEA to its member and to perform all necessary works of maintenance regarding lines and transformers. requiring observation and acquiring knowledge.Proposed Electric Models for Nepal The co-operative concept in Nepal’s rural electrification is suggested to be implemented and completed in the following three phase. Villagers themselves will be made active to eliminate direct hooking and other types of energy thefts. The era of the old and long-existing mentality that consumers should run after us for their grievances gets virtually terminated and the consumers’ satisfaction comes out. Phase 2: Handing over LT lines and distribution system along with bulk power sale: There should be some mechanism through which the rural electric cooperatives are adequately funded. Consequently. each of them as a model in itself: 1) Phase 1: Selling bulk power to registered cooperatives NEA reserves the right of generation. Another significant achievement for the NEA will be increase in revenue collection which helps to boost its economic status. NEA treats it as a bulk consumer. The Government may nominate its representative also for these cooperatives. It is a warm-up period. lacking adequate technical knowledge. 28 . The co-operatives issue the membership to its villagers and power is sold to them at reasonable rate as per guidelines provided. co-operatives are not allowed to look after the distribution network because they are still raw and not experienced. billing. Part of the funds available needs to be spent in the trainings of their employees and these co-operatives are not expected to produce the electricity by themselves or buy it directly from the IPPs. major maintenance works of the distribution network are to be performed by the NEA itself. The Government should allocate the budget directly to reach the co-operatives and the donors’ assistance may be very helpful for it. and all the consumers of that particular area then maintain the commercial relationship with the co-operative only. However. However. Phase 3: Offering greater autonomy to electric co-operatives: The rural electric co-operatives will be assigned the following franchises: (a) Construction of new distribution liner or extension of the existing ones with prior approval from the concerned authority. revenue collection and theft vigilance in the rural areas take place smoothly under the co-operative’s management. trainings or the efficient workmanship. the system loss will be decreased.

(b) Maintenance of the electric network within their areas. NEA undertakes cross border power exchange with India under the Power Exchange Agreement with the Government of India. there is a lack of cross border power transmission lines for considerable levels of exchange which had constrained the Nepal-India power exchange. bulk power carriers (132 KV) are only at three places.000 MW in 10 yrs’ plan). Though Nepal and India have been exchanging power for mutual benefits for more than three decades. a) Gandak-Ramnagar(export) Link 29 . On the other hand. An Indo-Nepal Power Exchange Committee undertakes implementation of the Agreement.5 MW and 683. Moreover. (c) Purchase grid power from the NEA or off-grid power directly from IPPs. Nepal-India Power Exchange As mandated by the NEA Act 2041. India has a massive demand of more than 1. The National Water Plan prepared by Water and Energy Commission Secretariat (WECS) has estimated short term (by 2012) and long term (by 2027) export potentialities of Nepal as 116.6 MW. Existing High Voltage Transmission Links Though electricity exchange has been long taking place at medium voltage levels (11 and 33 KV) mainly for the supply of few cities along the border. it has been experienced that ‘exchange’ is more important and necessary for Nepal than India. the progress has been quite slow and unsatisfactory.00.000 MW(about 25000 MW in northern region alone) and hence hundreds of MW can be exported to India. This is why exchange level of 5 MW set out in 1972 has just reached to mere 50 MW in a span of 35 years. respectively (the export potential could be expected to increase in the context of recently introduced ‘10. (d) Generate electricity up to small scale by themselves. And because of inadequate generation facilities to cope with the demand.

The Power Exchange Committee has formed a Joint Technical Committee to study the technical feasibility of interconnection between Nepalese and Indian grid systems.Anandanagar(I) Link b) Birgunj(N). to export the surplus energy and secondly to have a reliable means for sufficient import of electricity to cater a possible power deficit in years to come. The agreement has provisions for any party in Nepal or India to enter into an agreement for power trade between Nepal and India. proposals on increasing the power exchange level from 50 MW to 150 MW took shape and three new links were identified. Despite this.C. A more commercial trend is expected with the appointment of Power Trading Corporation of India as the nodal agency for India to deal with the commercial aspects of the exchange. no further progress has been made in this regard. Steps towards development of three 400 KV cross-border lines (Butwal-Gorakhpur. link. Looking ahead with 400 KV links Realising the no result situation of earlier planned 132 KV lines. Duhabi-Purnea and Dhalkebar-Muzaffarpur) are in place. systems or back-to-back coupling is possible without having synchronisation problems. With the D. The DC Link: Still to Germinate The Indo-Nepal Power Exchange also attempted to explore the possibilties of D.Motihari(I) Link c) Dhalkebar(N)-Sitamadhi(I) Link Nepal gave top priority to develop the interconnection lines for two reasons: firstly. but under a different modelthe independent company model. Other acceptable methods of exchange like operating Nepalese grid in unison with Indian grid are under constant research within NEA. Unlike inter-governmental exchange modality. the exchange of agreed level of power of 150 MW has still not materialized because of lack of transmission infrastructure and commercial modalities. technology for future exchanges. the new modality involves the establishment of two transmission companies both in Nepal and India and these companies to develop these lines within their territories It has been almost three years since the conception of 400 KV cross border links and hence optimism is there about them. a) Butwal(N).D.C. development of 220 KV cross border lines (which was later upgraded to 400 KV lines) is stressed.C.C. The Power Trade Agreement An important step in Nepal-Indo Power Exchange is the power trade agreement of 1997. But despite of preliminary studies and a formal agreement to study the possibilites of interconnection using H. interconnection between the Nepal and Indian grids. superior interconnection between two A.V. With the system operation interconnected or tied to Indian Grid better tie line flows are 30 .b) Duhabi-Kataiya Link c) Lalpur (import) Link After that.

the development of hydropower has been dramatically advanced by the construction of just two hydropower plants with a combined capacity of 1. That is why Nepal has been putting utmost efforts to the early completion of said 400 KV links and to buy electricity on commercial terms in line with the power trade agreement. the solution of poverty alleviation is closely linked with hydropower development in Nepal. This will help using available power in Nepalese grid to be fully utilized and the deficit power can always be replenished from the Indian system Power-import: The only short term option The only effective measures for Nepal to take. A macro-economic study has concluded that in order to eradicate absolute poverty in households. has less than 700 MW of installed capacity. In Bhutan. This will help to bring the level of percentage of population below poverty line to 10% and by 2027 there will be no household in absolute poverty. Thus. This scenario demands rapid development of hydropower generation in Nepal as Nepal has immense hydropower potential and long hours of load shedding indicates high demand for electricity and also neighbor India is power hungry and the excess electricity generated can be easily exported to them and consumers also are very eager to substitute other fuels with electricity. to avoid load shedding for few years to come (till a power project of considerable size is commissioned). Considering the present electricity crisis in Nepal where it faced blackouts of more than 16 hrs a day in 2008 as electricity demand has steadily increased day by day due to increases in coverage as well as consumption per user.less than installed capacity of Bhutan which started development of hydropower only recently. though rich in hydropower potential with about 200 GW (900 terawatts per annum) of theoretical generation potential.380 MW. Nepal. it is expected that the per capita income 31 .expected providing multiple mutual benefits. What is needed for Nepal to emerge itself as one of the richest countries in the region is to develop water and human resources simultaneously. is power import from India. No other sector of economy other than hydropower is in a position to help achieve this goal. the country needs to register 8% economic growth rate. Hydropower development Prospects Nepal has more than 6000 rivers and rivulets with an overall average annual run of 225 billion cubic meters of water flowing to the south. for example. a country of about half a million people. As a result.

Therefore. Recently. Ltd. 95 Dhalkebar-Muzaffarpur : 400 kV T/L to be completed by the year 2010/11 95 Anarmani-Silgudhi: 400 kV T/L to be completed by the year 2010/11. This. This has increased the financing capacity of commercial banks and has also created a favorable market for new financing. which will focus on project/infrastructure financing. Furthermore. Recent Developments Recently. which they intend to sign up with Nabil Bank Ltd. This will spread the return to the mass. for power sector development in Nepal. Nepal Rastra Bank. to liaise with other local banks to enter into similar agreements. a new market for debentures. The funds available in the local market are able to support projects with a capacity of 20-50 MW only. will increase the capacity of the financial sector. for mega projects. In Nepal. has agreed to enter into an agreement to work together with Nabil Bank Ltd. the impact of hydropower development may not be that dramatic. PTC India. The Central Bank of Nepal. by the year 2010 international banks will also enter Nepal. Some of the factors attributed to the low level of hydropower development are: lack of capital. lower load factor due to lower level of productive end-use of electricity and high technical and non–technical losses. This has brought a ray of hope both to the financers and the entrepreneurs. has recently increased one obligor limit and has also provided some relaxation on provisioning of loans sanctioned to hydropower projects. the Nepal Electricity Authority and the International Leasing & Finance Services (IL&FS) of India have entered into an agreement to form joint venture companies (JVCs) for development of the following transmission links infrastructure development: 95 Butwal-Gorakhpur: 400 kV T/L to be completed by the end of 2008/09. but it has been established that it could be the driving sector in economic development and a major resource to alleviate poverty. in turn. Nepalese Banks have also started to make alliances with Indian counterparts who will not only increase their capacity to lend but will also provide the technical expertise. high cost of technology. 32 . they have to seek help from foreign institutional investors. In the event of an open market. As such. now is the right time to start lending in this sector to gain required experience and hold in the market. bonds or even mutual funds will open up. by lowering provisioning requirement in genuine cases. Problems The development of hydropower in Nepal is a very complex task as it faces numerous challenges and obstacles. This has opened up a new avenue for sharing of expertise and has also increased the total capacity to lend. a memorandum of understanding has been signed to establish an Infrastructure Development Bank.320. They have further appointed Nabil Bank Ltd. 95 Duhabi-Purnea: 400 kV T/L to be completed by the end of the 2008/09.will go up from USD 760 to 1.

800 MW) and West Seti Storage Project. Since banks collect major deposits for short periods of one to two years only. and also Power Purchase Agreements (PPA) for Upper Modi. Daram Khola. Therefore. This policy needs to be reviewed on the basis of past experiences. not personal development of politicians and bureaucrats. It will be meaningless to ask for additional comfort in the form of properties (land and building) for any project whose cost is NRs 1 billion and above. However. which delay the whole process. As 33 . which may also jeopardize viability of the project. Red tapes and policy ambiguities also serve as hindrances. We have bitter examples like Mukti Shree Pvt. and the availability of a market to sell hydropower in neighboring countries. inadequate institutional capacity and lack of a competent and transparent regulatory mechanism are other factors. Though it is hard to obtain a survey license from the GON. This ultimately leads to major cost/time overruns due to technical deficiencies in the project. Their licenses have not been cancelled yet although they are unknown company. new technology. either through hiring of consultants or making coalitions with foreign (mainly Indian) financial institutions for sharing of expertise.g. Banks also face problems due to inexperienced promoters who tend to hire lesser numbers of technical consultants for cost reduction purposes. Because of poor policy and corruption. Langtangkhola and Madi. banks are finding it very difficult to go for project financing. Too often. The policy should aid hydropower development. floating interest rates are offered to minimize the risk on the part of the financers. Project financing is relatively new concept in our country. e. it is very difficult for them to finance a fixed rate for an entire loan tenure of 10 to 15 years for hydropower projects. policy should be followed strictly. Matching funds are also problematic.There is a lack of commitment. Another hurdle is related to problems created by local communities. As such. which leaves the developer with a higher risk. recently. the government has designated the Department of Electricity Development as the single window for power development. possibility of local and foreign investments. implementation of its policies is often distorted by bureaucratic delays and inefficiency. There is lack of transparency in accounting due to various reasons. once received the license is rarely cancelled. government officials and investors make surveys. limited recourse financing or project financing is only possible. the government seems to be making some progress in penalizing such companies. transparent. Another problem is requirement of huge capital and financing. Also. as collateral and personal guarantee-backed lending is mainly done. But it has not been able to function as a single window because of capacity constraints.. priority and vision on hydropower development at the political level and also lack of transparency in hydropower planning and project preparation at the bureaucratic level. there is no any incentive to revoke their licenses. Political instability. Promoters also tend to compromise on quality for cost minimization. Financial institutions must gradually increase their expertise. licenses and taxes a means to their personal development. Although the Government of Nepal is open to foreign direct investment. Such companies get involved in “Tender Bids” and get some money from other companies by taking out their tenders. Ltd. For instance. The new policy should be clear. practical and friendly to both local and foreign investment. there is a lack of expertise. Furthermore. (an unknown company) which was awarded the license for the largest multipurpose project of Nepal (Karnali Chisapani 10.

Demonstrate economic. which ultimately translated into time/cost overruns. 3. Therefore. followed by a development strategy and a set of activities to remove those barriers. local community members tend to come forward with various demands. such as donations to the local schools and temples.soon as some developers start survey works. 5. Every political party as well as the government has recognized development of the hydropower sector as key for country’s development. the following steps are suggested to be taken by the concerned stakeholders: 1. a conducive environment has been created for developers. While fixing loan provisioning. including government authorities. etc. the need is to identify the barriers to the development of hydropower resources. the central bank should consider the issues on a case by case basis for viable projects. Banks fix their commitment of finance and tenure of loan repayment at the time of financial closure. 34 . local and international financing institutions. departments and other government authorities are involved in granting approvals and licenses at various stages of project development. Involve local and international financing institutions to support development and implementation of a supportive financing mechanism for hydropower financing. Assist in developing supportive legal and an institutional framework to develop hydropower. Various ministries. 2. Way forward Despite of all above cited problems. Any rescheduling of repayment attracts higher provisioning as per regulations of the central bank. This should be done through one or two pilot projects. At present it has been almost impossible to construct projects without satisfying such local demands. Various clubs and other parties treat developers like milking cows. financial and environmental feasibility for developing hydropower in Nepal. Train the owners and personnel of the hydropower companies to manage and operate their enterprises on a commercially viable basis. promoters are left with no other option but to satisfy their demands. in order to complete the project in time. This is a serious issue that many small hydropower financers are facing. financers. hydropower companies and end users of electricity. This results in a lengthy decision-making process. More specifically. noting logical reasons regarding project delays. for building roads. This is possible through extensive consultations with all the relevant stakeholders. This is one of the reasons why some promoters have become shy on development. Now. bilateral donors. Bureaucratic delays as well as delays due to various strikes and bandhs are also major causes of time overruns. 4. Train local stakeholders to develop project proposals.

FDI in hydropower To develop the hydropower sector. Germany. FDI may be in the form of loan. contract. Saudi Fund for Development. From the 1990s. Asian Development Bank (ADB). the government can partner with private investors or there can be international partners involved with Nepali private sector. and others. it would also enable Nepal to export water and energy to its neighboring countries thus acquiring resources so needed to alleviate its poverty. both due to 35 . Kuwait Fund. A large investment is required from foreign development agencies and private sector entrepreneurs. Prior to 1960. hydropower development took yet another turn with the private sector entering the arena. 000 MW in ten years. after the adoption of the policy of economic liberalization. Norway. and relatively low cost of their professional and other costs. The most recent private hydropower development projects are almost all proposed by Indian or Indian-Nepali joint investors. The government of Nepal has been prioritizing hydropower sector in its national plans for decades. But if the past is any indication. Canada. and for the acquisition of overseas business enterprises or its assets. The purpose of FDI may take a number of different forms. or the public sector like Chilime. Exporting hydro energy could become one of the most important “Cash Drivers” for Nepal. the government and foreign-aided hydropower development have not been that successful. Besides. Japanese Bank for International Cooperation (JBICC. Both national and international developers have been engaged in developing hydropower projects. all the hydropower stations were constructed through grant aid from friendly countries like the USSR. By endorsing foreign investment into the sector of hydro electricity generation. The financial lending agencies were the World Bank. FDI in hydropower have a history of 97 years from 1911 and have increased rapidly since 1970 with the availability of bilateral and multilateral funding sources. This is an interesting change and merits a careful review. The Indian companies are perhaps best suited to operate in Nepal due to their proximity. FDI in Nepal began in 1911 with construction of Pharping Hydroelectric Plant (500 KW). hydropower development took a new turn with the availability of bilateral and multilateral funding sources. More than 500 hydropower projects of different capacity have been identified in the country. FDI in itself is not a development but may act as a catalyst for the needed progress in the sector. South Korea. Sweden and USA. cultural and economic understanding of the Nepali situation. It has increased rapidly since 1970 with the availability of bilateral and multilateral funding sources. and the recent budget has enlisted an even more ambitious plan of generating 10. The major donor countries in the period were Japan.either as a branch or as a subsidiary. for the expansion of an existing overseas branch or subsidiary. Since 1970. such as for the establishment of new enterprises in other countries. Finland. we need foreign direct investment because Nepal’s own resources both in the public and private sector cannot meet the financial investment needed to do that. Denmark. India and China. Nepal would not only tackle its prime problem of water supply in the country (because of unsatisfactory distribution). or as a grant aid. However.

This. to overcome these barriers. Since 1992. The question of transparency is of fundamental importance for good regulation. Various hydropower projects. still draw controversies and debate in Nepal and countries involved in the respective projects. 4. Applying state of the art regulation could become a modern and respected practice in the concept of states. including hydropower. If Nepal regulates properly its own water resources. Thus. 2. important barriers to foreign investment in Nepal would be eliminated. Nepal has experienced huge increase in costs of the Mid-Marsyangdi project. which was clearly a violation of FITTA-1992 norms. Should Nepal be able to guarantee its own successful economic future via improved (corruption free) regulation and eliminate poverty as a source of conflict. may also have multiplier effects throughout Southern Asia by bringing peace and stability to the whole region. The nature of water and hydropower inevitably lead to considerations related to trans-border effects. In term of Nepal’s hydropower development. Thus. Because of the in-efficient regulatory provisions. the private sector development of the hydropower was seen as the best approach to utilize Nepal's most important economic potential while utilizing the private sector efficiency. it can contribute to security in the region. it might induce neighbour countries to imitate good regulatory practice. Competitive bids through a fair procurement procedure ensure fair market practice. would contribute to the country’s political stability. The following questions should be answered in view of optimizing the Nepalese specific regulation on water and electricity sector and to achieve regulatory efficiency: 1. 2. special attention has to be paid to two issues: costs of the projects. the most successful ventures have been the ones organized by the Nepali investors. By sufficiently addressing these topics. such as West Seti Hydropower or Pancheswor project. respecting rule of law. This statement is based on the following rationale: 1. graft). If a generation company like Mid-Marsyandi experiences additional cost to the project. regulatory provisions for incremental costs should be clearly stated and closely monitored. these issues have to be dealt with under FITTA law. An efficient water policy. and problems of maintenance. The procurement process in the case of Kaberi power station (30 MW) 36 . Nepal is still facing instability.large per unit cost (construction inefficiencies. and network externalities. Nepal needs a concrete proposal on efficient regulation in order to have better efficiency in water regulation. 3. Transparency does not relate solely to the legislative or executive decision-making processes but also implementation of the respective legislative framework. Chinese and a few other companies. Although the previous few private power development were carried out by the US. An effective water policy in Nepal can bring about superior economic results. Australian. in its turn.

Therefore. and a short-term policy for operating thermal plants to their full capacity should be adopted to meet the electricity demand. It’s particularly important because they are future natural monopolies. In order to reduce power shortage. In order to promote competition on downstream level and to contribute to the development of the internal market. In this segment. while consumers are suffering from high costs of electricity. In this way. clear regulatory provisions are needed for the Nepalese energy market with regard to the unbundling of NEA network. the capacity of the existing power houses should be enhanced. Granting access rights in only couple of districts out of 75 does not ensure competitive market.serves as a good example for a successful bidding process in electricity sector. Thus. necessary legal framework should be prepared and implemented. a different level of regulation is needed for infrastructure development (both existing and new one) which would enhance energy generation. especially during the dry season. consumer protection and infrastructure is essential for achieving competitiveness and social development. Barriers to entry also have important consequences which directly affect electricity market. Nepal can borrow some good example from Europe to regulate foreign companies thus creating an efficient and competitive market. A fundamental question of energy regulation in Nepal relates to control of foreign or domestic companies which tend to achieve huge profits by operating hydropower plants. removing barriers in the transmission and supply of NEA is the primary step in order to achieve a competitive environment. based on the European experience. The relevance of good regulations and the difficulties associated with their implementation are particularly evident in case of constructing electricity infrastructure. even by introducing competition to crossborder transmission and by removing monopolies in generation and supply the market forces may bring positive results. To conclude. bringing the regulatory regime in line with international patterns will be fulfilled. including Nepal. Nepalese sector specific regulation should provide clear understanding of terms and conditions of MoU so that the chance of emerging disputes in future is lessened. the central challenges are: improving the accountability and integrity of regulations and 37 . Terms of References (ToR) are key factors of the domestic and international Memorandum of Understanding (MoU). the regulatory provisions of HDP and FITTA-1992 have to deal with issues like those in Pancheswor and West Seti Hydropower projects. This is a major factor the NEA has to be aware of when introducing competition into certain market segments. the potential benefits of regulations hinge on the conditions of a capable regulatory state and an adequate institutional environment. 3. Thus. stimulating the private sector to liberalize and unbundle the market. Regulating foreign companies in a developing country is hard but it’s not impossible. Good regulation in areas like antitrust and competition policy. 5. a proper regulation is a central issue for developing countries. Thus. Thus. However. On the other hand. This could be set as benchmark for future power generation. For instance. 4. it is recommended to promote transparency and accountability by public participation in electricity sector.

108500). The establishment of such projects also promotes local people’s access roads.45 billions has been spent to import petroleum products. Second. Challenges Nepal must now expedite the process of hydropower development. health centers. If the same amount of money were spent for developing hydropower. If we harness 10. If these questions are resolved. 1 KW production cost = $1550 = NRs. Some facts: Recipients of FDI often gain employee training in the course of operating the new businesses. FDI allows transfer of technology— particularly in the form of new varieties of capital inputs— that cannot be achieved through financial investments or trade in goods and services. jobs and trade opportunities. etc. transfer of technology. optimizing Nepalese regulation will be ultimately fulfilled.000 MW in ten years. 38 .9 MW hydropower electricity (for instance. policy stability and political stability should be maintained. schools. the hydropower is becoming even more relevant to our lives. There are other benefits relating to human resource development. in Chilme Hydropower Project.000MW hydropower. Profits generated by FDI contribute to corporate tax revenues in the country. NRs 2. As result. in the process. improving the transparency of power generation and overcoming vested interests that benefit from bad regulation. consume 2. power export. in the fiscal year 2005/06. long-term national strategies for export-oriented hydropower development and genuine mutually beneficial partnership should be developed.regulators.7 billion a year. FDI can also promote competition in the domestic input market. assuming 2000 person for 750 MW) can get employment. due to fast-rising prices of petroleum products. India’s demand for power would grow to 200. it reduces the green house gas emission and provides a long term alternative. it could earn $2. but also its environmental and social development.000 MW itself and export the rest to India.000 MW by 2018. the project will help improve their living standards. which contributes to human capital development in the host country. encouraging of consumer advocacy and business organisations. Moreover. Hydro-electricity also offers clean energy.000 people (13000 persons on construction phase and 32000 in operation phase. First. It must now correct past mistakes. every year 132. In the long run. building sector specific regulatory expertise. If Nepal couldλ fast-track projects to generate just 10. According to Nepal Oil Corporation (NOC). Benefits The construction of hydroelectric projects contributes not only to the economy of a region. we could generate 29. They can also buy some percentage of shares in the hydropower project.

The donor-funded projects come with strings attached. It’s true that without India's cooperation. locally-built and locally-managed smaller projects we can generate electricity with minimum cost. Critics have charged that development in Nepal has miserably failed so far because of various factors. there is nothing much we can do. export power for meeting regional markets. India and Bangladesh are two major markets for hydropower. too. centralization. Own and Transfer (BOOT). Emphasis should be on implementation of the projects based on the concept of Build. First. Operate. Nepal cannot develop its hydropower. Now individual aid-funded projects are being replaced by projects that enhance our own technical and financial capacity to meet energy needs. They argue that effective and positive roles for the private sector can be learned from the experience of countries like Sri Lanka also. India is the only possible viable market for Nepal: even we produces electricity with foreign aid. The role of India is therefore critical. it should cater to domestic needs and second. HMGN should act as a facilitator for attracting investments from the private sector with more effective implementation of the single-window policy. such as over-dependence on foreign aid. Construction of smaller projects using local resources has been neglected and minimized by the politicians and policy makers because of the high-budget.Bhutan’s model may be useful in the case of Nepal. MOWR and DOED should take the lead on effective implementation of the • 39 . Nepal should adopt a two-tier approach for the development of hydropower. And the hydroelectric power generated and produced in Nepal should be developed as an item of export. without India opening its market for us. Nepali engineers. a large amount of money goes back to the donors. To summarize. HMGN should aim towards creating a predictable and stable environment for investment in hydropower sector in terms of policy stability. failure of donors to ensure the proper use of their funds and effective coordination of their activities. Past experiences show that the per KW construction costs of locally financed projects are lower than either large donor-funded projects or those funded by the International Independent Power Producers (IPPs). widespread corruption and abuse of authority by bureaucrats and politicians. they have to be designed and managed by international consultants and built by other contractors. economists and members of the civil society have concluded that only through locally-financed. Thus. • Currently. there is a lack of proper institutional arrangement and coordination among different related ministries and institutions. In recent years. aid-funded projects. Piluwa (3 MW) in Sankhuwasabha and Jhimruk (12 MW) in Pyuthan proved that Nepal can now generate cheap electricity with locally-built and locally-financed hydropower schemes. three Nepali power projects like Chilime (20 MW) in Rasuwa. Project agreements should be based on selling electricity not on the sharing of water. glamorous. The local focus also provides for people’s ownership of the projects. The cost of the construction of hydropower projects in Nepal mostly depends on the financing modalities.

. Optimize the installed capacity based on the export market. Setting up of an Independent system operator followed by an independent market operator. • • • • HMGN should develop relevant legal and regulatory provisions e. Market-oriented power trading. grid code. Expedite ratification of power trade agreements. iv. iii. wheeling policy. viii.g. Update the various River Basin Master plans to reflect recent development in India Power Sector and in the Region. Creation of a level-playing field for all. etc. • Local industries related to hydropower should be provide with tax incentives to make local products competitive with similar imported equipment. v. the complementarities and synergies of the energy generation systems of the regional countries and their demand/supply patterns need to be taken advantage of. • Public-private partnership models for development of this sector needs to be initiated. The major issues that need to be addressed in this context are: i. India has a huge energy demand and the new Electricity Act of India 2003 has opened the possibility of energy markets with Availability-Based Tariff (ABT) and Merit Order Dispatch. ii. High voltage transmission corridors into India and in the Region should be developed. Study new market situation in India and South Asia. • • • Collateral financing needs to be replaced by non-recourse project financing. This opportunity should be utilized without delay – even with the current generation facilities – for the benefit of both the countries. Institute regular meetings of Power Exchange Committee. Current power exchange limit need to enlarged to say. Therefore. 1000 MW. vi. Private sector investments in the hydropower industry is a recent phenomenon and the incentives in the previous acts should not be repealed. urgently. Enormous social and economic benefits can be achieved with regional cooperation in power sector. Power sector reforms are required to promote cooperation in this sector. ix. • Single-borrower limit imposed on banks for funding hydropower projects need to be increased. vii.provisions of the Electricity Act in coordination with other line ministries and agencies of HMGN. 40 .

Private developers as well as financing from India should be encouraged for the development of hydropower projects in Nepal. v. xii. a decentralized energy supply system becomes the natural and feasible choice. iii.x. Specifically. xi. Therefore. Set up the power pooling arrangement and power trade. iv. certain doable projects need to be taken up in the short-term as confidence-building measures (CBMs). Decentralized new and 41 . vi. Fine tune the power export laws. the recommendations for increased Nepal-India cooperation on hydropower are: i. high cost of grid connection and low and scattered population density. it should be opened up as soon as possible. The projects or actions for cooperation should be categorized as short-term. There seems to be a crisis of confidence on both sides as far as hydropower project development or energy cooperation or water resources cooperation is concerned. Because of the country's dependence on imported fossil fuel. and therefore. ii. Third party access to the transmission in Nepal must be there so that the private sector can also get into power trading. de-link from water issues. Transmission interconnections with India is currently a bottleneck for power trading. The private sector should also be included in the meetings of the Joint Committee on Water Resources (JCWR) and in the Power Exchange/Trading meetings. All possibilities for partnership between the public and private sectors on both sides of the border should be looked into. vii. Renewable energy development scenario in Nepal There is a dire need to substitute as well as supplement the traditional energy supply system by modern forms of sustainable energy in terms of resources and technology. medium-term and long-term targets. Treat power as a commodity.

solar battery charging). for extensive promotion of RETs in the rural areas." To realize this long term vision the Tenth Plan has set the objective of renewable energy development as "developing and expanding alternative energy as a powerful tool for alleviating poverty. solar cookers etc). biogas.renewable energy systems such as micro hydro. solar thermal energy (solar water heater. improved cooking stoves). solar photovoltaic (solar home systems. The most important renewable energy technology in Nepal is related to Pico hydropower and micro hydropower (up to 100 kW). Biogas has been mainly used for cooking and the bio slurry has been used as a high quality fertilizer for increasing agricultural productivity. powering computers. The Tenth Plan sole objective is to achieve a remarkable and sustainable reduction in the poverty level in Nepal from 38% of the population at the beginning of the plan period to 30% by the end of the Tenth Plan and further reduce the poverty ratio to 10% in about fifteen year's time. Solar energy has served widely as a home lighting device. The overriding objective of Nepal's developmental effort is poverty alleviation. gasifiers. increasing employment opportunities and maintaining environmental sustainability through the development of rural energy systems. Solar energy has also been used for drying and cooking food. raising purchasing power of the rural people by developing alternative energy technologies based on the local resources. provide lighting but now the productive end uses are considered as the desired priority. The improved cook stove and biogas programs initially had goals to reduce firewood consumption but now they also justify themselves on health ground and are linked to income generation as well as reduction of women's drudgery. solar photo voltaic. solar dryer. skill and increasing consumption of alternative energy 42 . The Eight Plan (1992-1997) envisaged the need for a coordinating body for large-scale promotion of alternative energy technologies in Nepal and Alternative Energy Promotion Centre (AEPC) was thus established to promote the use of Renewable Energy Technology and act as the government coordinating body. Though renewable energy programs have positive implications on poverty reduction. irrigation and drinking water systems but theses uses are very limited. The national long-term vision of alternative energy sector as outlined in Nepal Poverty Reduction Strategy paper explicitly recognizes the role of renewable energy technology in the socio economic development of rural people and aims at “Accelerating economic development. but this has not been the explicit goal of renewable energy programs in Nepal until the commencement of the Tenth Plan in 2002. Government Policies for Promotion of Renewable Energy The positive role of renewable energy technology for the fulfillment of energy needs of the rural people was recognized by the National Planning Commission/Nepal during the Seventh Five Year Plan. A separate subsidy policy has been has also been made effective by His Majesty's Government of Nepal (HMG/N) channeling through the AEPC. improved cooking stove etc provide feasible and environment friendly energy supply options in rural areas. briquettes. Few households have used the biogas for lighting. biomass energy (biogas. solar PV water pumping. Micro hydro was seen as a technology to reduce drudgery. improving living standard of rural people.

Wind power density less than or equal to 100 Watt/m2 are not useful for wind energy harnessing. yields 150 MW.400W wind and 150W solar . HMG/N plans installation of 1) 52. The potential area of wind power in the country is about 6074 sq.76 m/s.387 MWh/m2. Practical Action has invested in 18 small wind turbines of 200W capacity each since 2001. Small wind turbines and wind mills have been installed by private companies and investors. According to the SWERA (Solar and Wind Energy Resource Assessment in Nepal) report prepared by AEPC. stand-alone wind turbines. AEPC also subsidizes projects generating electricity to benefit remote areas that can't access the national grid. Studies have shown that there is high potential for area without long-term data. using local material such as sal wood. This means it can be tapped during winters when there is little sunshine after midday. Mustang alone could generate 500GWh a year. Nepal presently has some small-scale. The annual average energy potential is about 3.000 MW of electricity could be generated at 5 MW per sq km. Wind energy can be used to provide electricity for the people and Mustang would be a model village that uses sustainable power generation through wind energy. This is the highest wind velocity recorded at any place in Nepal till date.000 biogas plants 3) 250. which shines for an average of only seven hours. The army has constructed 10 larger turbines of 1KW in Nagarkot and students at Kathmandu University have designed and set up two 1. Based on the wind data of Mustang district collected by AEPC.and reducing dependency on imported energy by lowering the cost of installation through the proper utilization of local resources and means. The extreme wind speed is as high as 46. WPD greater than 200 Watt/m2 are normally taken for consideration for non grid connected power generation while greater than 300 Watt/m2 are considered as grid connectivity wind energy in developing countries. AEPC has built six wind-solar hybrids . Wind is more readily available in Nepal — for 18 hours a day — than the sun. 43 . " In the current Tenth Five Year Plan. km with wind power density greater than 300 W/m2. the annual average wind power density (WPD) of Mustang District is 332 watt/m2. More than 3. The analysis shows area above 300 Watt/m2 composed of 30 sq km and with 5 MW installed per sq km.000 improved cook stoves in 45 districts of Nepal Wind Power Development Nepal is a mountainous country with a high potential for wind energy.000 units of solar PV home systems 2) 200.5KW turbines. Wind Power System would help in conservation of environment and forest by reducing carbon emissions thereby making the area pollution free. Wind generation capacity is particularly high in the river corridors and mountain valleys that dot the country. the wind velocity at hub height of 20 m was recorded as 75 m/s at maximum. These areas have been calculated on a conservative basis so that the exploitable area for wind energy can be increased by covering greater area from the national grid and especially analyzed in specific areas with greater wind energy potential. and 238 kW/m2 power density.each capable of supplying a community of about 10 residences with enough energy to run one radio and a CFL bulb.

The country must initiate a systematic large-scale mapping of its wind resources . and wind electricity tariff rates. license distribution. To harness this high potential of wind energy. and the lack of transportation and grid infrastructure in potential sites is a barrier to developing utility-scale wind farms. It aims to attract foreign investment for producing commercial wind turbines. In terms of economic welfare.To make wind power commercially viable on a large scale. one needs to prepare a national wind map with five years of consistent data. But no measurements have been taken of elevations above 30 meters. protect the interests of local manufacturers for small wind turbines up to ten kilowatts. land ownership and subsidies need to be agreed on before the draft national wind policy is finalized. wind power seems poised to take off. Nepal is set to finalize a draft national wind policy in the few so as to solve this present energy crisis. The policy is prepared by Nepal's national wind task force (NWTF). purchasing power agreements. the establishment of these MH systems requires considerable resources. and construct a model wind farm project — a wind farm that produces more than 500 kilowatts of energy and can be used as a pilot research project for further investment in wind energy. energy from MH system is expected to be beneficial for both producers and consumers in rural economies via the opportunities to create links between them and the national economy. However. license distribution. With political will and private sector interest as much as sheer necessity. land ownership. Lack of data has also delayed reliable estimates of the Cost of Energy (CoE). so. 44 . Small Hydro Power Development There is a high potential for the utilization of hydropower in Nepal and considering that the rural communities are isolated and scattered. Tax regulation. with no individual turbine larger than ten kilowatts in capacity. however.Other unaddressed issues include tax regulation. micro-hydro (MH) systems serve as a viable alternative as an energy source. it is necessary to evaluate the systems’ economic desirability to gather its net welfare effect on the rural population. The promotion of MH system is expected to positively impact social welfare through improvements in health and education. the baseline for commercial production of wind. government funds and subsidies for wind energy. But current public and private investments remain below 40 kilowatts.

Appendix 1 45 .

Appendix 2 46 .

Appendix 3 47 .

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Appendix 5 49 .

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