Nepal’s Hydro power Sector at Great Risk of Uncertainty despite its High Potentialities

 

 

 

By Hari Prasad Shrestha

The perennial nature of rivers and the steep gradient topography provide ideal conditions for the development of some of the world’s largest hydroelectric projects in Nepal. Hydro power in Nepal is comparatively an advantageous sector. The only commodity Nepal can sell the world is hydro power. It is an exportable trading commodity.

The development of hydro power sector in Nepal is linked with other multiple benefits such as flood control, facilitating for navigation and irrigation and the opening possibility of the new cycle of economic growth in the poverty-stricken areas of the flood plains of the Ganges Basin.

Nepal has the potential of 83,000 megawatts (MW) of hydroelectricity, of which 43,000 MW is supposed to be viable from a technical and economical point of view. Nepal’s hydro power sector has completed more than hundred years of its operation. The first hydro power project in Nepal, the Pharping hydro power project, was installed in 1911 with a capacity of 500 kilowatts of electricity. It was one of the largest hydro power projects in South Asia during that time.

Hydro projects produce no more direct waste and have very less output level of a greenhouse gas than other fossil fuel powered plants. Moreover, unlike other renewable energy resources like solar and wind (intermittent energy sources), where sunlight and blowing the wind is not available every time, hydro power can ensure uninterrupted supply of energy as water always keeps on flowing. Therefore, it is one of the best renewable energy sources.

At present, around 40% of the population has access to electricity in Nepal. And most of them are the urban population. For 60% of the population, every day is load-shedding. During the dry season, electricity generating capacity has halved or depending on the level of water in the reservoir or water level in the river. The power shortage during dry season has been estimated to be 49% and 36% based on electricity and power capacity respectively.

Nepal has fixed 4000 MW power target for coming ten years to produce, excluding exports, to meet the projected domestic demand at base case scenario. Within the period, 75% of the households are to be supplied with Integrated Nepal Power System (INPS) electricity, 20% by isolated (micro and small) hydro systems and 5% of alternate energy. Moreover, per capita, electricity consumption of over 400 KWh will be achieved and export substantial amounts of electricity to earn national revenue.

Currently, the total electricity supply in the country comes to 1,000 MW including 200 MW imported from India. During a century time, producing such small quantity of power signifies the ailing nature of this sector as many factors are responsible for the impediment in this sector. Internal as well as external forces are responsible for its slow and sluggish development.

In 1995, the country’s hydro power sector received a great shock when the Communist Party of Nepal-UML government scrapped the proposed 402 MW Arun project after a deal had been struck with the World Bank to finance its construction. This was one of the prime internal causes for a great shock in the hydro power sector of Nepal. After that, Maoist insurgency started, and Nepal witnessed ten years of violent conflict. It destroyed many infrastructures as well as loss of lives and properties. By that time, investment climate was not favorable.

Due to the institutional incompetence of Nepal Electricity Authority (NEA) and the high importance given to massive export-oriented power plants proposed by foreign companies, Nepal lost its efficiency to implement even small and micro hydro power plants. The dream of large exportable power project overshadowed construction of medium and small projects to fulfill internal demands.

There is significant competition among internal and external brokers to obtain and capture the rivers through power survey license in Nepal. Since decades, no significant firm has seriously produced a considerable amount of electricity from the licensed rivers. Even after the cancellation of many licenses of fake brokers, the selling and reselling of survey licenses has not been stopped, this has also caused delays and difficulties in power project implementation.

Energy is an area where all the countries of South Asia have much to gain through cooperation, and hydro power of Nepal could fulfill considerable power demands. Nepal and India have built infrastructures for power trading as there are many cross-border transmission lines between them. Moreover, Bangladesh is also interested in importing power from Nepal, but there are no transmission lines between these two countries; India’s permission and cooperation are needed to build transmission lines. Till now, India is the only one county, where electricity export from Nepal is possible.

Following are the lists of power stations currently producing power, under construction and pipeline for future development in Nepal:

Hydroelectric project completed:

Power Plant Capacity (MW)
Kali Gandaki 144
Middle Marsyangdi 70
Marsyangdi 69
Kulekhani I 60
Upper Bhote Koshi 45
Kulekhani II 32
Trishuli 24
Gandak 15
Modi Khola 14.8
Devighat 14.1
Sunkoshi 10.05

Diesel Power Stations Completed:

Name Capacity (MW)
Duhabi Multifuel 39
Hetauda 14.41

Hydropower stations under construction:

Hydropower Station Capacity (MW)
Upper Tamakoshi Project 456
Trishuli 3A 60
Chamelia 30
Kulekhani III 14
Gamgadhi 0.4

 

Upcoming Hydro-power Projects on Pipeline

Hydro-Power Station Capacity (MW)
Seti 750
Arun III 900
Budi Gandaki 1200
Kali Gandaki II 660
Lower Arun 308
Upper Arun 335
Karnali Chisapani 10,800
Upper Karnali 300
Chameliya 30
Pancheswor 6480
Thulo Dhunga 25
Tavur/Mewa 101
Dudhkoshi 300
Budhiganga 20
Rahughat Khola 27
Likhu IV 40
Kabeli ‘A’ 30
Upper Marsyandi ‘A’ 121
Kulekhani III 14
Aandhikola 180
Khimti II 27
Upper Modi 14
Langtang Khola 218
Madisaneswor 86
Upper Seti 122
Kankai 60
Upper Tamakoshi 456
Upper Modi ‘A’ 42
Hewa Khola 10
Upper Trishuli ‘B’ 37
Karnali Phase I 1,080
Total 22,536

Source: Department of Electricity Development, Nepal

Indian policy plays a vital role regarding the export of Nepal’s electricity there. Due to unstable and protective India policy, not even a single company in Nepal has managed to export electricity there. Foreign hydropower investors in Nepal, other than Indian are not allowed by India to export electricity from Nepal there. In 1994, Snowy Mountains Engineering Corp of Australia had received a concession from Nepal to build the 750 MW West Seti project; but it returned the license in 2012 after it failed to secure a market in India even after trying for 16 years.

In 1996, a treaty was signed between the Government of Nepal and Government of India on the Integrated Development of the Mahakali Barrage Including Sarada Barrage, Tanakpur Barrage, and Pancheshwar Project to produce 6480 MW from border Mahakali River. According to power experts in Nepal, the motto of this treaty appears to reconfirm and give legal status to Tanakpur barrage for irrigation purpose of India, which it had constructed earlier occupying some part of Nepal, without permission of Nepal. To calm down the opposition in Nepal regarding the construction of Tanakpur Barrage, India staged a drama of multipurpose project of unbearable scale including old Tanakpur Barrage under the new integrated development of Mahakali barrage treaty with the objective to capture the Mahakali River. This appears to be true, because the DPR of this project, which was supposed to be completed within six months, has not been concluded even after many decades. And after decades of the MoU, only the office site for the project has been finalized. At the present rate of work, it might take even a century to construct the project.

Moreover, during Nepal visit of Indian Prime Minister Narendra Modi in 2014, Nepal signed agreements with GMR ITD Consortium of India for the construction of the 900 MW Karnali project and with Satluj Jal Vidyut Nigam of India to build the 900 MW Arun 3 project. Power Development Agreement (PDA) and Power Purchase Agreement (PPA) were also signed between Nepal and India. Power produced from these projects will be exported to India, and as agreed between GMR India and Bangladesh, around 300 MW electricity will be exported to Bangladesh.

Besides these India executed projects, Nepali companies are also constructing many hydro powers in Nepal. Currently, more than 150 hydro projects are under construction with the capacity of more than 3,000 MW. The majority of these projects are expected to be completed within three years to export power to India as NEA lacks the infrastructure to store electricity of such large scale, and Nepali market mostly relies on household consumption of electricity.

The recent regulation introduced under the ‘Guidelines on Cross Border Trade of Electricity’ issued by India’s Ministry of Power (MoP), indirectly forces stringent restrictions upon private power generators and directly hampers the growth of the electricity sector of Nepal including Bangladesh, Bhutan, and Myanmar.

Projects owned by private companies in these countries, with 51 per cent or more Indian entities ownership are eligible to participate in cross border trade of electricity after obtaining one-time approval from the designated authority in India.

The regulation also asks for INR 10 million per megawatt (MW) as bank guarantee from companies who generate above 50 MW of electricity, to utilize India’s transmission network.

The Ministry of Energy, Nepal has expressed its discontent to India’s Ministry of Power regarding the formulated such guidelines.

Nepali power developers and Nepal Federation of Commerce and Industries are against this Indian regulation and claim that it puts their investments at risk; the law is biased and comes as a shock for the Nepali investment sector. It violates the basic principles of bilateral trade and puts India in the driving seat. They say that Power Trade Agreement (PTA) between India and Nepal is a free PTA and any form of barrier is not excusable; the regulations cannot be forcibly imposed upon partner countries. This regulation is against PTA signed between two countries. According to PTA any authorized or license holder power producers, buyers or power traders of both the countries would be allowed to` participate in the energy market.

If this regulation is implemented, the Indian government will be able to export electricity from Nepal only through companies with Indian ownership. Moreover, it would be difficult for Nepali power generators to tap into markets in Bangladesh because Nepal needs to use transmission lines and grid connection within the Indian Territory and cannot conduct direct deals with Bangladesh.

India is continuously pressurizing Nepal directly and indirectly to follow, Bhutan model regarding the development of export oriented hydropower power projects in Nepal; India wants to exploit most of Nepal’s water resources solely for its one-sided benefit its investors. These are some examples and circumstances of being Nepal’s hydropower sector stagnant and underdeveloped since a long time.

Nepal’s GDP is below US$ 25 billion, and it is one of the lowest economies of the world. Consumption of less than 1500 MW of electricity also signifies the primordial nature of its economy. The nation is not capable of generating even such lower power demand and in the lack of electricity economic growth especially in the non-agriculture sector is difficult to develop considerably. Nepal became poorest of the poor country with the smallest economy in South Asia with slow production and productivity. During the independence of Bangladesh its per capita income was parallel to Nepal, but now Bangladesh economy has been ten times larger than Nepal’s; energy was one of the primary sectors to support the economic activities there.

It might be more deplorable, disastrous and dodgy years to come if more powers would not be generated to accelerate industrialization and national development as par other developing countries of Asia otherwise it would not be difficult to forecast that Nepal would remain poorer state and bottom of the world economy and development.

Due to increasing worldwide importance of hydro power sector, it would be relevant and useful to know the global scenario of hydro power, which is as follows:

  • Hydropower is the leading source of renewable energy. It provides more than 97% of all electricity generated by renewable resources. Other sources, including solar, geothermal, wind and biomass account for less than 3% of renewable electricity production.
  • Worldwide, about 20% of all electricity is generated by hydropower.
  • Hydropower provides about 10% of the power in the United States.
  • The United States is the second largest producer of hydropower in the world. Canada is number one.
  • Hydropower does not produce greenhouse gases or other air pollution.
  • Hydropower is clean. It prevents the burning of 22 billion gallons of oil or 120 million tons of coal each year.
  • Hydropower leaves behind no waste.
  • Hydropower does not experience rising or unstable fuel costs. From 1985 to 1990 the cost of operating a hydropower plant grew at less than the rate of inflation in the USA.
  • In the US, hydropower is produced for an average of 0.85 cents or less per kilowatt-hour (kWh). This is about 50% the cost of nuclear, 40% the cost of fossil fuel, and 25% the cost of natural gas.

To accelerate development of energy sector, the Government of Nepal has adopted Hydropower Development Policy, which includes institutional reform by establishing a strong regulatory body for determination of electricity tariffs; oversee the safety, quality of supply, reliability, safeguarding consumer’s interest, criteria for load dispatch and the existing Water and Energy Commission (WEC) and the Department of Electricity Development (DOED) will be developed as bodies to be overall responsible for power sector study and as promotional agencies.

Besides, the Nepal Electricity Authority (NEA) will be restructured by forming an autonomous National Grid accessible from wheeling energy to all the buyers and suppliers to create a favorable situation for foreign investors and the competitive market necessary for consumers to obtain electricity at an affordable price.

Moreover, the Hydro Development Policy of Nepal envisages the establishment of a Rural Electrification Fund appropriating some percentage of the royalties received from the production of hydropower, which will promote mini hydro power development and rural electrification program. The Nepalese water resources sector has been guided by the National Water Resource Strategy, which has an identified overall national goal for short term of 5 years, the medium term for 15 years and long term for 25 years.

To solve the problem of over power production shortly, Nepal is planning to establish energy bank. Establishment of energy bank would be advantageous to reserve excess power in the rainy season and supply it in the winter months as many power plants are going to produce electricity within two or three years. After that, NEA could do PPA of any capacity, with private power producers.

Despite high potentialities, Nepal’s power sector is still in creeping stage. Power planners in Nepal are more suspicious and have started to say that India is not a strong market for Nepali and foreign power producers. India is continuously only capturing Nepal’s major rivers for irrigation purposes; and there is no preference for electricity export there, produced by non-Indian investors in Nepal.

After more than fifty years of continued failure and being highly dependent on India, now Nepal is looking for a reliable alternative for its hydropower development. Consequently, Nepal has invited its northern neighbor China to invest in the power sector. And Chinese companies have done some agreements to construct large hydro power projects in Nepal. Three Gorges International Corp of China signed an agreement with the Investment Authority of Nepal to build West Seti 750 MW project. Recently the government of Nepal has decided to award the contract to construct the 1200 MW Budhi Gandaki Hydroelectric Project to China Gezhouba Group Corporation (CGGC) under the engineering, procurement, construction, and finance model of project development. Moreover, Nepal and China have also agreed to construct trans-Himalayan transmission lines to boost power transactions between two countries.

It is hoped that China’s support in Nepalese electricity sector could bring real meaningful change. The fast-growing economic activities in Tibet, an autonomous region of China may import Nepal’s energy in future. Moreover, other parts of China, as well as its neighboring countries, could also import Nepal’s electricity through China.

China and the foreign investors are acutely aware of the enormous profit they could earn from the export of energy from Nepal. There are tremendous opportunities investment in the power sector of Nepal. To produce 43,000 MW of economically viable potential hydro power, which will cost US$ 69 billion (43,000x$1.6 million per MW of generation cost).

Because of ailing nature of energy sector, Nepal’s electricity tariff is the highest in South Asia. The main reasons for Nepal’s high tariff are a heavy reliance on bilateral and multilateral agencies, extensive employment of international consultants and contractors, difficult terrain with non-existence infrastructures and insufficient in-house construction and manufacturing capabilities. Nepal has also been unable to capitalize on the economies of scale. Moreover, corruption, no doubt, is instrumental in padding up that tariff.

Nepal’s more than one century’s effort to produce under a thousand MW of electricity and less than 2% of its hydro power potential and buying electricity from India to meet internal demands are not an encouraging signal from a national development point of view. The real problem is also the lack of political consensus and trust inside the nation and between nations and the reluctance to deal with energy as a shared and win-win opportunity in South Asia.

Posts Carousel

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

SAJ on Facebook

SAJ Socials

   

Top Authors