Electricity Crisis in Nepal: What can be a viable solution?

Posted by: BHANDARI SUSHIL on: March 12, 2009

By: Sushil Kumar Bhandari

1. INTRODUCTION
Energy is the backbone of an economy. Its availability and consumption reflects the level of development of a nation. The catalytic role it plays in advancing traditional economy towards modernization has escalated its demand. It is a vital input in the process of socio-economic prospects of a nation–the higher the availability of energy, higher is the level of development and vice versa. It is obvious to think of electricity in Nepal when we talk of energy due to its dominance. Renewable and environment-friendly nature makes it the most preferred energy source at the consumer ends. It is a basic input in production process in agricultural, commercial and industrial sectors. Therefore, it demands wide attention on part of all sections of society for uninterrupted service delivery at affordable prices. Recognizing its importance, various international agencies such as United Nations Development Programmed (UNDP) has given due weight to per capita electricity consumption in concluding Human Development Report (HDR).

Energy consumption by source in Nepal can be divided into three categories: traditional, commercial and renewable. The traditional source meets the bulk of total energy consumption with an 85.5 per cent share, followed by commercial and renewable energy sources at 13.54 per cent and 0.61 per cent, respectively. Fuel wood, agriculture residue and animal residue provide 88.68 per cent, 4.85 per cent and 6.47 per cent of the total traditional energy consumption, respectively.
Figure 1 Comparative status of per capita electricity consumption (KWh) among some SAARC countries
The hydropower generation potential of Nepal is estimated at 83,000 Mega Watts (MW) among which 42,000 MW is a commercially viable capacity. At present mere 0.75 per cent (i.e., 619 MW) of its total generation capacity is exploited. All 75 districts have access to electricity facility (MoF, 2007). The Nepal Electricity Authority (NEA), the state-owned utility has coverage of 41.5 per cent of the total 48.5 per cent people access to electricity. Nepal is at lowest in the list of ascending hierarchy in per capita electrical energy consumption among the other SAARC countries which accounts just 68 KWh in 2003, a slightly inclined from 35 in 1990 status.

2. PRESENT TREND

National energy demand of Nepal is 11.6 million units. The energy system manages to support demand of 6.2 million units of energy which account to be 55 per cent of the demand. The total installed capacity of hydro plants is 619.38 MW and runs with production capacity of 276MW at present. The annual demand of electricity has been steadily inclined by 9.3 per cent which indicates the new plant of size 60-80 MW addition to meet the growing need of domestic market. It has been a tough time to NEA to manage even 326 MW power at its mettle. The shortage of 534 MW power over the demand has pushed to darkest years in the history of electricity development and crippling hours of lead shedding has slowly turned to be way of life among people. Thus, Government of Nepal has declared ‘National Electricity Crisis’ in Nepal. The future projected demand points towards sharper inclination with no significant projects to deal with in the pipeline.

Figure 2 Supply, demand trend and installed capacity status of electricity in Nepal
When we look on the source of present electricity supply, fig.2 depicts that mere 326 MW power is available being run-off-river type plants the greatest contributor accounting 70.5 per cent on its share. NEA has observed a good number of consumers within time span of fiscal year 2062/63-2065/66 accounting 1.6 million which is increment of 25 per cent. The production side remained at shadow and just 1.3 per cent (7.85MW) power addition was installed during the same period which has asserted a huge pressure in smooth supply of power. Government has managed to contribute about 400 MW, 50 MW by national private sector and rest by international investors.

3. CAUSES

3.1 Supply lag over demand
Supply shortfall over the demand of consumer is the immediate cause of present load shedding. Demand is inclined steeply specially in the few past years where urbanization is rapid. Annual energy demand has crossed an average of 9.3% growth. Present demand exceeds over 808 MW where NEA toils to manage 326 at its best. The shortage of 482 MW pulled country to severe energy crisis and power cuts is being tending to way of life among Nepalese territory. The future need is marked on time yet the prospective plants to support the escalating demand failed to develop. The cumulated shortage remained far back and larger plants option remained only one to support the present trend.

3.2 Monopoly of NEA
The singly entity dealing with the power sector in all its three forms of development tag Nepal Electricity Authority (NEA) with the monopoly power to exercise in the energy market. Production, transmission and even distribution through national grid are the solo responsibility of NEA. Butwal Power Company (BPC) is a private enterprise which is involved in the distribution confirms within few districts with small section of coverage. The responsibility of NEA is observed to be beyond its capacity as opined by many stakeholders whose claims is supported by its inefficiency to grow as expected. The higher technical and non-technical losses of power generated and the weakening financial status threats even its future existence. Nayapatrika stated quoting Mr. Ratna Sagar Shrestha that at the efficiency of NEA to invest on 70 MW from its revenue private sector could able to generate 240 MW. Within the 24 years of its establishment (2042 B.S) about 270 MW capacity plants for electricity has been installed.

3.3 Resource deficit
Power production is heavily constrained by the availability of financial and human resource. A huge investment is deserved to carry out a project. Financial resource is set forth as the leading constraints in the power production given the high per capita energy production but the degree depends on the scale of production. The sector is envisaged as a lucrative area by private sector and even the interest of private sector to carry large projects such as Upper Tamakoshi is the recent event which is enough to answer rightly to skeptics over internal resource management. Resource analysts opine that financial resource is a manageable constrains to tackle but visionary leadership and guts to get the right thing done is much to do on it. The average cost of per KW hydro-electricity production is US $ 2481 which itself is higher figure in power production.

3.4 Inadequate private investment
Partnership with the private sector is the best possible way to fill-out the resource constraint in the liberalized economy. Resource in the private sector needs to channelize in the productive sector of national interest. Although private sector accepts power production is a lucrative sector to invest yet only about 24% of the total installed capacity is carried by national and international private sector. There is a huge trend of holding license of river intended to carry out projects after the Electricity Act, 2049 B.S but a very few gets the work done. Within the last three years, NEA manages to do Power Purchase Agreement (PPA) with just 12 MW capacity projects. Till now, there has been 46 number of PPA contract yet 18 has completed their project with 158MW out of targeted production of 266MW. It is a matter of enthusiasm to have 64 purposes for PPA at NEA desk with the accumulated target power production of 1015 MW which definitely sign towards the future power supply if materialized .10th national development plan period ended up with installation of just 39.5 (19.5+20) MW electricity out of targeted 214 MW from private investment marks towards inadequate investment from the major player of the sector.

3.5 Failure to meet development target
Policy versus implementation debate is not a new discourse in development debate while reviewing any shortcoming. Same fate evoke out even in the power development sector in Nepal. Vision to develop set target of power production in different plan period has syndrome of far away from achievement in return. 10th development had aspired to gear up the sector and push up installed capacity of 315 MW but about 40MW rest in hand as achievement with zero addition from government sector. The ninth plan resulted out with better figure of 216 out of set target of 268 MW. The figure 4 shows the failure of 10th plan in energy sector and accounts lag of 375 MW which is a blunder inefficiency triggering the darkening days left to behind to come.

3.6 Seasonal variation supply
All except one power plant are run-off-river water feeding nature. The acclaimed capacity is of 619 MW at present is just installed maximum strength. The plants are heavily depended on the nature and its production is directly proportional to precipitation level. During the winter where volume of river water declines drastically, so does the generation of power. The run-off-river type just supports 230MW whereas the reservoir type Kulekhani manages output of 46 MW. This reduction of power generation in dry season puts heavy pressure to manage demand where power demanded is at its apex.

3.7 Lack of timely maintenance
Most of installed plants run far below their installed potential. Frequent breakdown of sub-systems, low generation due to inefficient appliances and alternatively use of generators due to long maintenance duration are single or collective cause of the state. There is a tendency to point towards inadequate rainfall being the cause of load shedding. But most of the plants have never attempted to generate power at its claimed installed capacity. The national capacity of installed power is 619 MW but there is no evidence of production above 530 MW even in the flooding season. Thermal plant of 56 MW capacity ran maximum output of 19 MW, Trishuli of 24 ends with record output of 18, BhoteKoshi struggle at 14 out of 36 are few on the list. This inefficiency rests on negligence over timely maintenance of turbine and generators.

3.8 Lack of Chain-development initiative
As the demand of power has been soared up, development of plants in a chain order –one after the other within the construction phase of previous is obvious alternative to manage demand and avoid power cuts. Higher capacity plant needs a longer time, the annual demand of 70-80MW can be met only through chain development of projects set in pipeline to install. As the return start to achieve from a project, it deserves the capacity to develop another. The chain effects on strengthening capacity can be achieved if new project is formulated by the end of ongoing project completion without wait of 3-4 years period of project preparation.

4. EFFECTS

4.1 Withering linkages
Energy is an important input in production process in an economy power shortage has bound industries to cut down production heavily if not shut sown factories both service and goods reduction industries of small to larger scale have been struggling to exist. There has been threat of shrinking job opportunities and even job cuts. The backward linkages established as direct or spillover effects of power plants in the form of job opportunity and raising income is at threat as the plants are running down the expected capacity. The industries which rely on such power are unable to meet their optimum production and are severely subjected to condition of energy supply trend. Government has hardly manage to provide relief to industries within the industrial corridors to some extend but situation of larger number of factory lies outside remained as a victim of sever shock.

4.2 Reduces national revenue and income
The power cuts has drastically declined the production the revenue of government collected informs of taxes and fees /prices is being low. As there is direct as well as spell over effects of hydro projects in GDP and per capita income, the development in the sector helps to ease the livelihoods of people and increase the income. Economic loss of about 32 billion is stipulated in the last fiscal year where load shedding of 430 million units was observed as press statement of Ministry of water Resources stated in Poush 10, 2065. Alarming figure of economic loss is pointed towards further increased to 45 billion in this year if the power cuts reached to 600 million units at the cumulative loss rate of Rs. 74 per unit power cuts. If the trend couldn’t be reversed, the shortage of electricity drags national economy severely toward downswing stage.

4.3 Cut-down of jobs
There is no authentic report on the job cuts due to lack of research on impacts of acute power-cut shedding yet it an observed suffocation in retaining employed manpower within. Due to weakening financial strength many workers have already been laid off and is seems to continue unless regular power resumes.

4.4 Increment of social crimes
There has been frequent report of increased social crimes such as incidence of theft rubbery at the time of load shedding. This has put more pressure to maintain law and order in society.

4.5 Reduction in investment
Power is a pre-condition for investment. Server handicap in power supply bound any investor to think several times about their investment security before commencing any projects. Nobody takes risk in form of killer assumption and bold enough of launch new investment in such circumstances. This has significant role as a push factor for capital flight.

5. ISSUES

5.1 Institutional development
Effectiveness of single existed institution with empowered monopoly power definitely faces questions on its functions. NEA as the single authority in production, transmission and distribution of energy criticized for being unable to conduct its function with satisfaction as expected. Definite specialized institution with dependent but segregated authority and responsibility is continuously demanded in order to rejuvenate the sector. The ongoing problem definitely doesn’t deny the fact of failure and supports the voice to arrangement of independent entity in-charge of energy development. The lack of institution particularly dedicated to power sector under the ministry of water resources is infact, undermines the sector.

5.2 Alternative sources
Energy in Nepal has been envisaged as hydropower due to its potentiality and coverage. Till date, alternative sources of energy are taken as for rural setting where national grid takes years to connect. Harvest of solar power help even the urban dwellers to meet their household demand.

5.3 Public-private partnership
It is the only way to generate resources to fill the resource gap prevailed in development sector in Nepal. It curtails aid syndrome and sever conditionality intermingle with it. Power sector has not aloof from the scene if not worst suffered. The yearly loss to NEA eventually Nepal of 1.75 billion from Khimti is a tough blow on financial status, is one among others, to hike tariff rate of US $ 8.96 cent being seven folds as compared to Bhutan, double of Bangladesh, 73 per cent greater as that of Pakistan. It strengthens the need of internal resources arrangement to carry out project as much as possible. Chilime is an example project developed through internal finance and human asset which create enthusiasm and confidence on Nepali nationals over the capacity to produce electricity. Upper Tamakoshi has been pulled in debate although the financial arrangement was claimed to have already managed through internal finance. Some points towards suspicion that the sudden inclined budget estimation curve is in fact tool to bypass the internal resources and deviate away the national spirit of confidence and attraction on power development build after the success of Chilime. It lay out question that is it not a rational to encourage internal resources rather than outsiders in such lucrative and sensitive area of development. Private investment of 500-600million can easily be attracted in the power sector. The national banks and financial institutions claim the annual capacity of 15 billion and eventually contribute generation of 150 MW as excerpt by Monoj Goyal, the CEO of Clean Energy Development Bank. He further adds that even they can ensure financial instruments needed to carry out single project of 50 MW within the periphery of internal resource mobilization under the conducive environment prevailing.

5.4 Political commitment
Political commitment is the must for sustainable energy development consensus based policy on energy sector is needed among the brands to capitalize national potential. As political instability and interference on energy project continue, there is no way out to end power cut in near future. Selection of wrong project with the vested political interest leaves country with high cost to pay.

5.5 Micro-macro project debate
The scope of power plants is matter of national debate even among the policy makers. They clearly saw in two contrasting opinions. Some advocate on small hydro-plants for rural electrification and claims to be realistic, given the present resources constraints and feasibility. The need of larger project is the only options as other urges. It is rational in the present scenario of ever increasing load shedding. The annual average increment in demand of power is not supported by small projects if not developed in chain trend. The so called ‘hydro dollar’ can be harnessed through large capacity project as achieved by Bhutan. Yet, source of finance and associated resources is difficult of manage for such huge capital intensive projects.

5.6 Integrated energy development
By term energy, it is understood hydropower in Nepal. It has dominance coverage in urban household and industrial utility and even the most versatile and eco-friendly nature is the backing factors. The potential alternative sources are not developed at satisfactory level yet manage their existence at rural settings. Integrated energy policy (IEP) is an issue in the situation such as envisaged in power sector now-a-days. The simultaneous development of all possible alternative sources of energy is required to meet the present demand and estimated development of the sources needs to be clearly marked beforehand to guide power development in Nepal.

5.7 Infrastructure development
Access road and transmission line to connect national grid are essential pre-condition for any projects. It is blame that PPA of many projects is subjected to the availability of such infrastructures. License holders and private entrepreneurs are not in position to start their proposed projects due to lack of such infrastructure.

5.8 National electricity Crisis Resolution Work plan, 2065
Nepal Government has realized the intensity of the power cut problem and its effects. It has acknowledged the fact of failure of electricity system to carter its utility to household consumers and the industrial use. At the scenario, the government has forwarded 35 points relief pact on 24th December, 2008. The forwarded plan incorporates 25 points deal with the immediate, 3 with mid-term and 7 with long –term work plan. It is a welcome step, yet is highly criticized in the expert discussion arena and has gained status of hot topics of debate divided in favour and against the issue. Analysts clearly blame the plan failed to realize the need of time demarcation and project identification to manage the problem and develop power plants. Transmission line and plant accessories maintenance, alternative source establishment, import from India, efficient CFL use, reduction in leakage are main issue forwarded by the plan.

5.9 10,000 MW in 10 years- Fact or Fantasy?
It is a welcome policy of government to escalate power development in Nepal. Vast array of its potentiality of the natural resource is rightly judged. Following the previous trend, government has implanted vision of harvesting ‘hydro dollar’ to swing up the national income. ‘Bhutan-type’ strategy on hydro development certainly not only ends the fate of country to go through years of crippling hours of load shedding but also push up per capita income of Nepalese people to respectable livelihood status. If the dream comes true, its spill over effects vitalizes and political slogan of economic revolution can be geared up. There are a good number of hydro experts who are skeptic on the vision to achieve. Nepal, being one of the few Asian countries to start hydro plant a century ago, yet a mere 5MW per year is so far achieved. Even 10th development plan period ended up with just 39.5 MW out of set target of 315 with zero contribution of government directly. It is rational to such suspect, at least given the ongoing trend of power development. It failed to alienate itself from sever criticism as it is understood as a just another whim of political dream to sell in the present scenario where reality clearly depicts the darkest years in the history with 16 hours of power cuts a day.