Imagine your air conditioners, washing machines or induction cookers came with chips or devices that could store electricity. Let’s say these chips or devices have the capability to draw electricity from the power grid during off-peak energy consumption hours from 10 am to 5 pm when most of the people are working and home appliances are turned off. Let’s also say the storage chips and devices came with sensors that prevented appliances, like air conditioners, washing machines or induction cookers, from tapping into electricity in the power grid from 5:00 pm to 9:00 pm when household power consumption hits the peak. This would mean air conditioners, washing machines or induction cookers would not be able to operate during peak power consumption hours without dipping into power stored during off-peak power consumption hours.

If such an invention is made to balance electricity load during peak and off-peak hours, the cost of building and maintaining power grids would drop, cutting down household energy bills, Richard L Kauffman, the first energy czar of the New York State in the United States, told the Post. One of the reasons for high electricity rates in the US as well as in Nepal, according to the chairman of the Energy and Finance for the New York State, is high cost of building and maintaining power lines.

“The 20th century power grid came from New York, but that’s not the grid we need for the 21st century,” says the designer of New York’s revolutionary ‘Reforming the Energy Vision’ initiative that aims to rope in the private sector in renewable energy and energy efficiency sectors. “This is because grids everywhere have been built to support electricity transmission during peak energy consumption hours.”

In Nepal, power consumption starts going up after 5 pm, hits the intra-day peak of around 1,300 MW and starts coming down after 9 pm. These are peak power consumption hours when most of the households put on lights, rice cookers, water heaters, television sets, induction cookers, air conditioners and other home appliances. During other times of the day, power consumption hovers around 700 MW. 

However, the grid system in the country, which includes power substations, transformers and transmission cables, has been built to support power consumption that takes place during four-hour period—from 5 pm to 9 pm—of the day. In other words, the grid is not used at its full capacity for 19 hours every day. Yet customers are paying for idle capacity, because power utility companies transfer cost of building the grid, which is capital-intensive.

“What if we have a system that can shift load to balance the peak?” asks Kauffman, who has previously worked at Goldman Sachs and Morgan Stanley. This implies if power consumption during peak and off-peak hours remains almost the same, power grids of relatively lower capacities can be built, which will save a lot of cost.

“The new system that I’m talking about can be more capital efficient. And if capital can be used more efficiently, power cost can be more affordable,” says the former senior advisor to ex-US energy secretary Steven Chu. “So, we need to come up with policies that can encourage efficient use of capital.”

Nepal needs to think along this line because use of power from the grid is expected to surge in the coming years as more and more hydroelectric plants, currently under construction, come online. At present, Nepal generates less than 1,000 MW of electricity and is forced to import power from India to meet the demand during peak consumption hours. But in the next five years, the country is expected to add over 2,000 MW of electricity to the national grid. This is expected to increase use of power-guzzling appliances, including air conditioners, washing machines, and induction cookers. Also, plans to build electric railway network are afoot and use of electric cars is expected to go up as power generation increases. But if Nepal continues to rely on traditional power grid for electricity distribution, the country will continue to pour excess capital in energy infrastructure, making electricity expensive for households.

It is not exactly known how much Nepal invests in grid infrastructure every year, but Nepal Electricity Authority’s transmission and distribution expenses stood at Rs9.4 billion in the last fiscal year. The state-owned power utility is spending another $560 million in 2019 to reinforce and modernise its power transmission and distribution networks. Recurrent costs like these exert pressure on electricity costs. 

Technologies do exist to shift load to balance the peak, according to Kauffman, who is currently in Nepal on the invitation of the US Embassy in Kathmandu to speak on issues related to energy policy. “But the challenge is lack of financial incentives for deployment of these solutions.” In other words, the global energy sector still has not found an entirely new business model that can make efficient use of resources.

“This has happened because the power sector is governed and regulated in a traditional way,” says Kauffman.

It is quite surprising that average capacity utilisation of power grids in the New York State is little more than 50 percent. The airline industry in the West, which used to utilise around 49 percent of capacity 35 to 40 years ago, on the other hand, boasts of 87 percent capacity utilisation today. Other sectors, in which private companies are involved, have also witnessed drastic improvement in capacity utilisation. This change took place because these sectors were under tremendous pressure to remain globally competitive and continuously reduce costs, to avert chances of going bust.

Energy sector, especially the grid sector, however, did not face these disruptions. So, innovations are not taking place rapidly or innovations are being stifled because of lack of favourable policies. 

One of the reasons for this is monopoly maintained by power utilities in many countries. Nepal currently has one state-owned company that largely distributes power across the country. In the New York State, there are seven power distributors, but these companies do not compete with each other, as they operate in their own geographical territories. 

“So the competition is not so much between distribution utilities in New York,” says Kauffman. “That’s why you have to create right kind of incentives for distribution companies to operate a platform that can accommodate demand side of resources....That’s where the smart grid—to balance supply and demand—comes in.”

This realisation has prompted Kauffman to “try to drive private sector capital to build the new grid” in New York. “We are trying to find ways to open the power utility sector to some of the forces that can utilise capacity in an efficient manner,” says Kauffman, encouraging Nepal to frame policies that can attract private capital in energy distribution sector. 

“Regulatory regimes operate quite slowly. But in today’s world regulators should be aware of changing technologies and innovative regulations that are being introduced. So, the challenge is to design regulatory models that can meet the speed of businesses,” adds Kauffman, who is making the New York energy market more attractive to the private sector.