A secure energy future

Nepal’s present energy mix and uses are the result of a segmented policy landscape that has conceived electricity as an end in itself

- AJAYA DIXIT, Kathmandu

With the completion of the three tiers of local, provincial and national elections, building a prosperous (sambridha) Nepal is a moral and political obligation for the new governments. Access to reliable, affordable and clean sources of energy is fundamental to Nepal’s sambridhi by correcting prevailing energy poverty and achieving social and economic wellbeing. Today, 25 percent of Nepal’s population still lives without access to electricity. Nepal’s annual per capita electricity consumption at 132 kWh is the lowest in South Asia. Our efforts at hydropower development in the past 25 years have helped overcome some aspects of generation bottleneck but not contributed to overcome major demand side barriers nor elevated people’s economic and social wellbeing.

Two major events in 2015 underscore new risks that constrained our efforts in meeting the twin goals: achieving energy security and wellbeing. First, the Gorkha earthquake delayed the completion of several hydropower projects under construction that were already marred by procedural and contractual time overruns. Earthquakes, as well as changing nature of weather hazards due to climate change require new methods of design and operation for hydropower and other types of infrastructures. Second, the cessation of regular delivery of petroleum products from India during the unofficial blockade made clear the risks of our increasing dependence on imported petrol and diesel, and on Liquefied Petroleum Gas (LPG) for household cooking.

Unsustainable dependence on petroleum products 
Petroleum product is the second most commonly used energy source in Nepal after biomass use. In 2016, 78.4percent of all the energy used in the country came from biomass, 10.8percent from petroleum products and 4.6percent from coal. Imports of petroleum products have increased almost threefold between 2000 and 2016, standing at 2.56 million kiloliters in 2016 at an estimated cost of Rs 155 billion. Imports of LPG and petrol have seen the highest increase, followed by diesel and aviation turbine fuel. Apart from the high financial costs, this heavy reliance on petroleum products contributes to increasing carbon emissions, worsening air pollution, and increasing negative health impacts. While the dependence on imported petroleum has grown, the contribution of electricity to the Nepal’s energy mix has remained far from satisfactory. Electricity and renewable sources such as solar and micro-hydro accounted for only 3.7percent and 2.5percent, respectively, of the total energy use in 2016.

That year, Nepal’s Integrated Power Supply System (INPS) received 5,077.14 GWh of electricity, an almost threefold increase over the amount in 2000. The industrial sector, which used the highest share of total electrical energy consumed in 2000 (40.05percent), slipped to second place (32.42percent) in 2016, and the domestic sector became the largest user at 48percent. Irrigation and drinking water supply accounted for only 2.7percent. As mentioned above, the share of electricity in the total energy mix is still very small and there are major barriers around increasing its use productively across different sectors. 

Inadequate and unreliable electricity supply
From 2000 to 2016, consumers faced prolonged power cuts. These have been minimized in some areas since mid-October 2016 by improving demand management and supply from domestic hydropower plants, and by increasing electricity imports. Currently, almost 35percent of the electricity received by the INPS is imported from India, while in-country hydropower plants and other sources supply the remaining 65percent. The decrease in blackouts has improved the public’s perception towards the Nepal Electricity Authority (NEA) as well as brought incremental improvements in the performance of the industrial sector. 

About a quarter of the electricity received by the INPS is lost due to technical and non-technical reasons. Increasing investments in upgrading INPS as well as accurate energy auditing are needed to identify the sources of these leakages and achieve higher efficiency. A further unbundling of the functions of the NEA seems to be necessary to improve efficiency for quality service delivery. The establishment of organizations such as Investment Board Nepal, Hydropower Investment and Development Company Ltd, Rastriya Prasaran Grid Company Ltd and NEA Engineering Company Ltd give some semblance of unbundling in the electricity sector but much stronger regulatory anchoring is needed to avoid fragmentation, ineffective implementation and compliance so that these nascent organizational measures do contribute to the goal of achieving sambridhhi. 

Increasing electricity consumption
Nepal must diversify and increase its total amount of productive electricity consumption to achieve higher socio-economic development. Annual per capita electricity consumption must approach 2,000 kWh (estimated to reach 140 kWh in 2017/2018) if the country’s Human Development Index score is to approach 0.81 from the current 0.5. Towards that end, it will be necessary to establish benchmarks of all uses for providing reliable and uninterrupted electricity services. The benchmarks can then serve as the starting points for setting per capita consumption targets for the next 5-10 years. Better forecasting, projection and monitoring methods would be needed to achieve an optimum energy mix that balances the gap in supply and demand in the short run. It would also set low carbon development pathways. The challenges of the following sectors must be systematically addressed.

Domestic users: Appropriate policy can incentivize users to switch from LPG to electricity-operated appliances for cooking and heating. While urban households may need additional incentives through Time of Day (ToD) tariffs for switching to electricity even while it has become cheaper than LPG, rural households can be targeted to make the switch, particularly if they fall under the service areas of grid based and off-gird Community Rural Electrification Entities (CREEs). Supply reliability and impartial regulation by Nepal Electricity Regulatory Commission (NERC) are, nonetheless, critical factors. 

Industry/enterprises: Increasing the quantity of electricity used in manufacturing requires addressing structural constraints afflicting the sector. The share of manufacturing (secondary) in GDP at 6percent is very low and has plateaued. Reliable and competitive energy supply is a prerequisite to attract foreign direct investment in manufacturing and will require sustained investments in building technological and managerial capacity, and improving other infrastructures in the economy. Innovative and broad-based country-owned strategies that tap into financial and human resources are needed. 

Service sector: Over the last twenty years, the share of the service sector in Nepal has continued to grow, while agriculture has declined and industry has remained stagnant. It contributed about 38.9percent to the GDP in 2000 and 53.3percent in 2016. The expansion in the import-backed service sector is unlikely to continue without serious policy interventions in improving productive capital expenditure backed by simultaneous reforms for substituting imported items through in-country productions using electricity.

Irrigation and drinking water: Potential for increased use of electricity has to be sought in surface and groundwater pumping for irrigation. The use of solar pumps and dedicated supply for feeders are other necessary innovations. For success, it is necessary to reinvigorate Nepal’s agriculture system, and enhancing the contribution of conservation ponds, micro irrigation and drip irrigation can help make agriculture systems more resilient.

Transportation: Currently, 85percent of the imported petrol and diesel is used in the transport sector. The country’s clean-energy transport segment is quite small and includes about 714 electric safa tempos in Kathmandu, 300 electric cars, 2,000 electric scooters, more than 15,000 electric tricycles in the Tarai, and two cable car systems. Cleary, the scope for making a significant shift to hydro electricity based public transport exists. Pre-feasibility analysis, implementation roadmaps and pilot studies for clean-fuel operated public transportation would provide a clearer picture of investment costs, reduction in emissions and health benefits from reduced pollution as a foundation of resource-efficient, inclusive, people-friendly and healthier cities.

Politics, contestations, and changes
Nepal’s present energy mix and uses are the result of a segmented policy landscape that has conceived electricity as an end in itself rather than as a means of production. The evolution of this approach has been an outcome of three factors: geohydrology, geopolitics and the water development paradigm. The rivers of Nepal contributing to the Ganga River came under the radars of colonial rulers since the 1870s. The idea of harnessing the Sharada and Gandak rivers using barrage and canal for irrigation began in 1872 and 1871, respectively. The development of these technologies by the colonial engineers was guided by the objectives of the colonial state for increasing revenue generation through taxation; avoiding drought and famine; and extending administrative control over irrigated areas. Engineers of British India began focusing on the Koshi River in 1897 with the objective of controlling its floods and dynamic behavior. Towards the end of the British Rule in India, hydropower from rivers in Nepal was seen as the potential engine for the country’s industrial development.

Subsequently, this colonial model intertwined with the early 19th century’s approaches to water development established in the western United States (US). The western US model posited that all river flow should be used for human use and financial gain, and away from downstream ecosystems, dependent users and fresh water biodiversity. Today, in the land of its origin, this paradigm has undergone major shifts, though in the global south, including in Nepal, this older hydraulic mission continues to dominate the development discourse. At the same time, polices formulated under this paradigm are poorly harmonized, implemented, and complied with. The results are the inadequate level of services, low contribution to economic wellbeing, and the increasing degradation of water resources, aquatic ecosystem and local livelihoods. 

As the paradigm was evolving, in 1920, the British Government in India and Nepal’s Rana Government signed the agreement on the Sharada (Mahakali) River. Then in 1954 and 1959, the Government of Nepal and the Government India signed the agreements on the Koshi and Gandak rivers. Both became controversial in Nepal, and certain provisions of the Gandak and Koshi agreements were revised in 1964 and 1966. Throughout the 1950s, Nepal’s political parties jostled for power, and the government changed frequently. The short stint of multiparty democracy that had begun in 1959 came to an end in 1960 when the elected government was dismissed and Nepal began a new political experiment with the party-less Panchayat polity. 

Over the next three decades, Nepal received assistance from many countries, bilateral aid agencies, and accepted loans from multilateral banks in the hopes of fulfilling the country’s development endeavors and in building hydropower plants. This assistance did help in raising Nepal’s installed capacity but the coverage of services and contribution to overall wellbeing was low. The low rate of electrification was a clear manifestation of the economic crisis the country was facing. Popular dissatisfaction against the Panchayat polity that had been brewing for a decade began to further intensify. In 1989, a wave of liberal democratic movements across Europe helped catalyze Nepal’s People’s Movement against the Panchayat political system, eventually leading to its abolition and the reestablishment of a multiparty democracy in 1990. This change helped establish elements of democratic participation, free press, broadened legal protection of rights and competitive politics in the country. The advent of a new political order ushered major changes in the hydropower sector as well. Soon afterwards, this new political order began facing structural and constitutional challenges in the form of the Maoist led people’s war in 1996. 

The decade of 1990 was marked by highly contested yet vibrant debates around four water development projects. The Memorandum of Understanding between India and Nepal on the Tanakpur Barrage Project on the Mahakali River subsequently subsumed into the India-Nepal integrated Mahakali Treaty in 1996 was hotly debated in Nepal. This treaty sets the stage for the construction of the proposed Pancheswar High Dam, though differences in its water sharing provision between the two countries remain. The other controversial projects were Arun III, West Seti, and the Karnali Chisapani Dam, proposed to be licensed to, now defunct, US energy giant Enron. Except for the proposed run-of-the-river Arun III, the other projects involve large dams with high social and environmental footprints, and they remain in their proposal stages. In addition, these proposed high dams produce regulated water flows benefiting downstream regions in Bihar and Uttar Pradesh. In negotiation so far, India has declined to pay for these benefits that comes from inundating upland areas and settlements and remains an unresolved issue even today. Negotiating payment for downstream benefits, effective social and environmental compliance as well as equitable benefit sharing with local and affected people are additional challenges for Nepal in using hydropower for its economic and social development.

The debates helped usher in a number of progressive policies and organizational initiatives that can help nudge forward the agenda of hydropower for Nepal’s development. Unfortunately, the country’s leadership has failed to anchor these locally rooted policy processes to pursue a path of stewardship of water aligned with economic development through productive use of generated electricity, ecosystem enhancement and social equity. 

Hydropower development has been guided more by the construction of projects and not by an agenda of using hydropower for gains in productivity, employment creation and raise overall wellbeing. The imperatives to develop new business models and of shifting to cleaner energy sources are clear. Biomass use has many environmental and public health impacts and must be quickly replaced for addressing prevailing energy poverty. The continued reliance and dependence on imported petroleum has increased our exposure to financial, environmental and political risks, significantly jeopardizing energy-security. Continued reliance on these forms of energy means that Nepal may be unable to fulfill its contributions to reduce carbon emissions committed to the UNFCCC through its Nationally Determined Contribution. Such a path would also undermine the benefits that Nepal can receive from the ongoing global renewable energy drive through technology promotion, skill and entrepreneurship development, and opportunities to create in-country jobs. 

In few years time, given the investment on hydropower development electricity available in the INPS will increase. How will this addition spur changes in the country’s energy mix, diversification and productive end uses? We must seriously seek answers to this question and achieve 100percent electrification in both urban and rural households, contribute to inclusive economic and social development while creating in-country jobs, and minimize the import of petroleum products by switching to electricity from hydropower and other cleaner sources. Meeting these objectives needs creative, coherent and consistently forward-looking policies that challenge conventional thinking. 

Dixit is Executive Director at ISET-Nepal. This article also draws on ISET-Nepal’s policy brief “Challenges to increasing the productive use of Hydroelectricity in Nepal” by Ajaya Dixit, Dr. Amrit Man Nakarmi and Ratna Deep Lohani as part of the R&D project “HydroAid: Effective Support for Energy and Development” funded by Research Council of Norway (RCN) and supported by Norwegian Institute for Water Research (NIVA), Oslo

Published: 2018-02-19 11:14:20