The Energy Crisis in 2016 and the Government of Nepal’s Policy of Prevention since 1992

The Government of Nepal (GON) has had in place a policy to prevent the country’s current energy shortage crisis since at least 1992. At that time the country boasted of an installed capacity of just 278 megawatts (MW) of energy generation (233 MW from hydropower). The GON’s hydropower development policy at the time claimed that Nepal would have to add between 300 and 400 MW more electricity to national grid system by 2001 to keep up with then current demand. Many in the hydropower development industry since that time often talk about Nepal’s great hydropower potential. In 2001, GON estimated that Nepal had a total hydropower generation potential of 83,000 MW of which 43,000 MW was financially feasible using 2001 era technology. At the beginning of 2016 and Nepal has only reached 829 MW of installed capacity, but the peak demand for electricity is at least 1,423 MW and this will reach 3,200 ten years from now according to a rather conservative estimate from the Nepal Electricity Authority (NEA). Other projections estimate the peak demand could reach three times this number. So just how does Nepal plan to meet, not only its current shortfall, but the expected increase in demand? In other words, how will Nepal generate an extra 9,000 MW of electricity by 2026?

This post will highlight some of the findings of 2016 concept paper issued by GON to address Nepal’s national energy crisis and explains how Nepal will develop enough electricity for the next ten years.

Current Developments

The big news this year is the Dhalebar-Mujaffar Transnational Transmission Line bridging the electrical grid systems of Nepal and India. The project was completed around the same time of Prime Minister K.P. Oli’s recent visit to India, but the project has long been in development. The project has introduced an extra 80 MW, mostly from geothermal sources, into Nepal’s electricity grid. Once the rest of the substations along this line are upgraded to handle the extra load, this number will increase to 200 MW. The GON’s goal is to end load shedding during the rainy season in one year and end load shedding during the dry season in three. So far the Dhalebar-Mujaffar Transnational Transmission Line has only allowed the NEA to keep up with its published load shedding schedule and occasionally beat it. Another project, the Dhalkebar-Hetauda Transmission Line, will likely be completed within two years.

Future Plans

There is a lot more hydropower in the pipeline. Currently, 48 hydropower projects are operating and generating 776 MW of power. Another 99 projects are now under construction and promise a further 2,382 MW. Surveys are underway for another 79 projects to generate 5,148 MW. Power Purchase Agreements (PPAs) have been signed between GON and project companies for another 2,568 MW and Grid Impact Studies are under way for 53 more projects expected to generate 1,100 MW.  An “all-of-the-above” strategy will plug the gaps between Nepal’s current installed capacity and the time when these future projects come online: a mix of solar, wind, biomass, and geothermal power generation.

Challenges

There are grave challenges indeed to fulfilling these lofty numbers. Currently, the NEA is the only entity that transmits and distributes electricity in Nepal and there is no independent regulatory agency. This could be why the NEA puts out a much more conservative estimate of the country’s needs or why it negotiates PPAs to buy less electricity than some planned power plants can supply. In any case, the NEA will need some help if Nepal is to reach its 10,000 MW goal within ten years. Prevailing laws are confusing and outdated at best and duplicative and inconsistent at worst. The NEA is also the only authorized wholesale buyer of electricity. Private companies cannot negotiate better deals with anyone else even if they wanted to. If private companies want to sell electricity to a thirsty South Asian energy market, they still have to pay NEA’s wheeling charges to use its already overburdened transmission lines. There are further problems relating to the environment, the government procurement process, and distribution and leakage, such as the tendency of overtaxed power transformers to explode as many Kathmandu residents well know. There is also a lack of development in alternative energy production and other issues caused by the recent earthquakes.

The Goal of Ending Load Shedding

The Government of Nepal plans to end the NEA’s current practice of load shedding. Currently Kathmandu residents face as many as 14 hours of each day without electricity, on purpose. These are planned power cuts that the NEA forces on alternating areas of the city in order to equitably share what little power it can distribute during the dry season. The GON has plans to end load shedding by addressing various issues of generation, transmission, and distribution as well as reforming various policies, administrative procedures, and laws.

Generation

The NEA and private companies plan to generate an extra 1,450 MW of hydropower within three years. The GON will also fix prices paid for wind and solar generated energy it the hope that these sources will make up around ten percent (10%) of the Nepal’s total energy production. In order to make this happen, the NEA will introduce a competitive bidding scheme for solar and wind energy companies and it will offer the winning companies favorable PPA terms. The NEA will also allow net metering in certain urban areas to account for net contributors to the grid. Households and commercial consumers will be eligible for 20,000 rupee solar panel subsidies and low interests rates for purchasing and installing solar panels. The GON will encourage sugar mills to sell excess biomass for energy production and GON itself will buy maize and other sources of bio-fuel to encourage commercial farming of these products. Finally, the government plans to phase out power bought from diesel plants, though industrial sector may still these as necessary at least until GON meets its goal of ending load shedding.

Transmission

The GON will hasten the construction of the Trishuli (Pahire Besi)-Matatirtha and the New Marsyangdi-Matatirtha Transmission Lines to Kathmandu. New Kataiya-Kushaha and Raxual-Parwanipur links with India will be constructed within one year to allow the import of another 100 MW. The GON will upgrade the transmission infrastructure of the Dhalkebar-Muzaffar Transnational Transmission Line. Transmission infrastructure upgrades throughout the grid system will take place in three phases. The first phase has already finished; Nepal is importing 80 MW more electricity from India. The second phase will enable an increase electricity imports from India to 200 MW by upgrading various transmission lines, such as the New Hetauda-Old Hetauda, Kimti-Dhalkebar, Bhaktapur-Harisiddhi-Matatirtha, Bhatatpur-Hetuada, Hetauda-Dhalkebar-Inaruwa, Hetauda-Kulekhani-Matatirtha-Syuchatar, Khimti-Lamosanghu, and a general strengthening of the Kathmandu grid system. The third phase will make importing 600 MW from India possible. The GON will expand the 200/400 kilovolt (kV) Dhalkebar Transmission Line and construct the New Khimti-Kathmandu and Hetauda-Naubise 200/400 kV Transmission Lines, along with other improvements.

Distribution

The GON will make a new master plan for energy distribution and leakage management within one year. This will include an electricity preservation program, Time-of-the-Day metering to encourage more efficient off-peak electricity use by consumers, and technical audits to target current distribution problem areas.

Policy

The GON will implement within six months a “National Energy Security Policy” for better land acquisition, Run-of-River PPAs, loan investments, force majeure provisions on the recent earthquakes, detailed actions plans for monitoring, and to address human resource problems relating to formulating necessary legal provisions and rules.

Administrative Procedure

For hydropower development projects, the GON will also ease the repatriation of foreign investment, simplify provisions on work permits and business visa for foreign investors or workers, let the Army or Armed Police Force give security to hydropower projects, improve PPA terms, and start an Industry Revitalization Fund. The GON also plans to remove requiring project company from having to seek Environmental Impact Assessments (EIA) or Initial Environmental Examination (IEE) approvals from the Village Development Committee (VDC) level.

An Energy Crisis Law

The GON also plans to push through an Energy Crisis Bill through the Constituent Assembly. This legislation would remove any restrictions on the amount of land called for in a hydropower project or transmission line. It would also create a cause of action against persons who hinder or create obstacles to hydropower projects. It would prohibit entry on electricity project sites when necessary. It would also offer certain tax incentives for the industry, make changes in the Electricity Theft Control Act of 1992, and  make it easier for the NEA’s to procure goods and construction equipment for its own projects.

Ensuring Sustainability through Reform

To ensure sustainably development of energy in Nepal, GON plans even more policy, procedural, institutional, structural, and legal reform.

Policy Reform

The GON will enact several policy reforms. The GON will give special priority to reservoir projects like the Karnali Chisapani. The GON will keep a balance over the types of projects it approves: 40-50 percent reservoir and pump storage, 15-20 percent peaking run-of-river, 20-30 percent run-of-river, and up to ten percent other projects. Policies will be made to preserve water basins for hydropower use projects, making this a national priority, revise electricity tariffs, make PPAs more favorable, make sure all projects funded by money from the Nepalese people will benefit the greatest number of Nepalese people as possible, set a fixed determination of NEA wheeling charges to carry electricity out of Nepal, encourage foreign investment in Nepal’s hydropower sector, engage the Army to build transmission lines, and reimburse community forests for lost land.  Efforts will also be made to support other community programs, revise Nepal’s procurement policies, install private transformers for large apartment blocks in urban areas, increase rural electrification, introduce smart metering, install more substations, form new policies supporting the national grid, enable high-voltage consumers to buy power directly, and fully exploit alternative sources of energy.

Procedural Reform

The GON will enact several government procedural reforms. The GON will restructure the Ministry of Energy and the Department of Electricity Development (DOED) to use more human resources for the licensing and study of hydropower projects. The GON will arrange extra support for all projects scheduled to come online in the coming years, develop government projects, and give priority to transmission lines and substations. The GON will facilitate studies of how hydropower projects will affect national parks, wildlife reserves, and environmental buffer zones. The GON will simplify the approval process for EIAs/IEEs for projects less 10 MW. The GON will expedite decisions on government land leases and permission for cutting down trees. The GON will fast track procedures for EIA/IEE approvals. The GON will no longer require community forest organizations to separately approve EIA/IEE reports. If a project company has to change the area of forestland impacted by its project by less than ten percent after its EIA/IEE is approved, then GON will not require supplemental approval. Project companies will be made to reserve ten percent of the equity in their projects for project-affected communities. The NEA will move certain electric lines underground in parts of Pokhara and Kathmandu. These and other cities, such as Biratnagar, Birgunj, Nepalgunj, Bhairahawa, Janakpur, and Hetauda will receive special 132 Kv lines.

Institutional and Structural Reform

The GON will enact several institutional reforms. The GON will form a Central Energy Crisis Prevention Coordination Committee made up of various Secretaries and headed by the Prime Minister. This committee will resolve any issues relating to hydropower development left unresolved at the Joint Secretary level. The GON will restructure the Water and Energy Commission for more discreet analysis of energy load demand forecasts, evaluation of energy consumption, and formulation of resource substitution policy. The Commission will draw up updated generation, transmission, distribution master plans. The GON will expedite the West Seti reservoir-based project with participation from the private sector. The government will also establish several new government companies: a National Electricity Generation Company, an Engineering Consultancy Service Company, a National Transmission Grid Company, and a National Power Trade Company. The GON will make other institutional improvements to support rural electrification efforts. The GON will outsource some responsibilities of the NEA to new smaller companies. Perhaps most importantly, GON will establish a Nepal Electricity Regulatory Commission complete with an appellate tribunal.

Legal Reform

Finally the GON will enact several legal reforms. A new Electricity Act to replace the now-dated 1992 Electricity Act and a bill creating the National Electricity Regulatory Commission will be submitted to the CA. These bills will address hurdles that have hindered hydropower projects in the past by allowing any difficulties to be addressed and removed by the Central Energy Crisis Prevention Coordination Committee. The roles of the Investment Board and Ministry of Energy in projects generating more than 500 MW will be revisited. Licenses will be issued consistent with GON’s transmission master plan. The Director General of DOED will be able to issue licenses directly for projects up to 25 MW.

Where does this all lead?

The Nepalese people need to understand what is being done in their name and hold the government accountable for reaching or failing to meet these goals. Just as the many Himalayan-fed rivers of Nepal boast so much hydropower promise, Nepalese politicians have made as many promises to the Nepalese people about ending load shedding through clean energy. Where I come from, when politicians fail to deliver on their promises, we remove them from office.