Once a power-starved nation, how Nepal is now wasting its precious electricity

As the government has failed to export surplus electricity to potential buyers like India and Bangladesh, or offer it to domestic consumers at a competitive rate, Nepal is wasting hundreds of megawatts of clean energy every year.

NL Today

  • Read Time 6 min.

Kathmandu: Despite having a huge potential to generate electricity, Nepal faced a serious power shortage for a long time. From 2008 to 2016, Nepal, one of the richest countries in water resources despite having the potential to generate 44,000 MW of electricity, was in a ‘dark age’. Nepalese faced power outages of up to 18 hours daily.

Failing to realize even one percent of the potential, the load-shedding that ensued had crippled the economy, with the World Bank estimating the total economic impact of the energy crisis at a whopping seven percent or  $11 billion value of the gross domestic product (GDP) during that time.

However, the situation has changed in the last few years. Nepal has made impressive progress in hydropower development.

On May 14, 2018, the Nepal Electricity Authority, the national power utility, announced that Nepal was officially free from load-shedding, a milestone in the hydro sector as Nepal had always starved for electricity.

After three years, Nepal reached another milestone in 2021. Since the 456 MW Upper Tamakoshi Hydropower Project, the national pride project, came into full operation Nepal has become a power surplus country.

Currently, Nepal produces 2,000 MW of electricity per day. The peak hour demand remains at 1,500 MW. Even during the peak hour, Nepal has a 500 MW surplus power, which is increasing further as 4,000 MW of electricity will be connected to the national grid by both public and private hydro projects in the next three to four years. 

Likewise, Nepal is targeting to generate 10,000 MW of electricity by 2026.

However, the surplus power is neither consumed in Nepal, nor the government has been able to export the electricity to potential buyers–India and Bangladesh. Once a power-starved nation, Nepal is now wasting 500 MW of electricity worth Rs 5 billion in the ‘wet season’ when the production exceeds the country’s energy demand. But in the ‘dry season’, Nepal is importing electricity from India worth Rs 734.7 million. In simple words, Nepal is wasting power.

The irony is that some villages in Nepal are still not connected to electricity. At least 10 percent of the population in rural districts such as Bajhang, Dolpa, Bajura, Jumla and Mugu still has no access to electricity. Likewise, 70 percent of industries still rely on expensive diesel-powered generators to operate their production plants.

There are several reasons behind the government’s failure in managing energy. Despite knowing that Nepal would have surplus energy, the government didn’t take any concrete decisions to utilize and export power.

Failure to stimulate domestic consumption

First of all, the government failed to launch the domestic power consumption scheme on time. Despite introducing recent measures such as reducing taxes on electrical household appliances, electrical vehicles and equipment and slashing electricity tariff and waiving demand fees for both households and factories for a year, the electricity consumption hasn’t increased as anticipated. 

In 2020, the electricity consumption per person was 260 units. In a bid to utilize power domestically, the government set the target to increase power consumption per person to 350 units in 2021. However, the consumption only increased to 286 units.  

With no plans to increase consumption and improve transmission infrastructures, Nepal’s power wastage would increase every year. So, the government has no choice but to export surplus power.

Recently, the NEA has implemented a ‘block tariff’ system, under which the tariff amount increases with the increase in power consumption. This system has left people hesitant to fully shift towards electricity from fuel.

This system was targeted towards reducing electricity consumption during the crisis period.  But, it’s doing no good. For instance, for a small family that consumes less than 200 units of electricity a month, it is wise to shift from LPG gas to induction stove as LPG costs Rs 13.5 per unit, while electricity tariff is set at Rs 11.5 per unit. But, as the ‘block tariff rate’ is implemented, families who shift to electrical cooking appliances would have to pay additional charges as a result of increase in consumption.

The system has not increased the consumption, rather stalled the plan of people to use induction stoves. In order to increase electricity consumption, the government should implement a ‘uniform tariff’ system.

Currently, more than 57 percent of NEA’s revenue is generated from 10 percent industrial consumers and the rest from 90 percent households. Thus, the government should also realize that although the promotion of induction stoves and other electrical appliances helps in substituting the import of LP gas, stoves and generators, they don’t require much energy to consume the surplus electricity. It is important for the national power utility to prioritize industrial consumption by incentivizing on tariffs. 

Nepal’s surplus energy is not huge. Even a single energy-intensive industry, such as an aluminum smelter, would consume the power NEA can offer. But, having said that, the national power utility needs to come up with a proper plan to solve the power wastage problem. 

Inadequate and outdated transmission infrastructure

The transmission infrastructures, installed by the NEA, are decades-old and are already outdated. The government’s apathy to renovate the transmission infrastructure is one of the reasons behind power wastage. These decades-old transmission lines are unable to bear electricity load, resulting in power wastage–worth Rs 382 million annually.

In 2020 alone, Nepal lost 95.61-gigawatt hours of power produced by 18 private hydros due to the inefficiency of the government to improve, renovate and build new transmission lines.

Despite knowing Nepal would be a power surplus nation, the government did not make concrete plans to export power. 

Therefore, despite officially declaring the end of load-shedding, problems such as erratic and irregular supply and power outages are still persistent. This has compelled people to install backup power options and has also discouraged them from switching to induction stoves. 

The government is yet to build transmission lines, sub-stations, and install transformers in several parts of Nepal. This is another reason behind sluggish growth in power consumption and thereby, electricity wastage.

Although the NEA’s initiative to upgrade and expand transmission infrastructure throughout the country by launching the ‘Electricity Grid Modernization Project’ is a step towards the right direction, there are various unresolved issues hindering the modernization of the hydro sector. 

The Forest Ministry does not provide approval to cut down trees. It takes years for the government to acquire lands. Locals obstruct projects demanding higher compensation for their land. As the government didn’t take any concrete measures to resolve these issues, some rural villages are still not connected to electricity.

With no plans to increase consumption and improve transmission infrastructures, Nepal’s power wastage would increase every year. So, the government has no choice but to export surplus power.

The economics is simple. Nepal has to increase power consumption, rather than thinking of exporting. The state-owned power utility is currently selling electricity to India at an average price of Rs 5 per unit, while consumers have to pay Rs 10.62 per unit. The government, clearly, would benefit more from selling electricity domestically than exporting.

Politics of electricity

Nepal has made significant strides in power export. But, a few geopolitical issues must be solved if Nepal wants a smooth power export to India.

After four years of lobbying by Nepal, the southern neighbor has allowed Nepal to sell 39 MW of electricity produced by the Trishuli Hydropower Project and the Devighat Hydropower Project to India Energy Exchange Limited (IEX).

Although the decision has helped minimize power wastage, the extent of respite won’t be much as India has only allowed to export less than 50 MW of electricity. Nepal, earlier, had proposed to sell 621.1 MW of electricity to India. The amount of electricity Nepal is selling to India is less than 10 percent of power wastage.

Both Trishuli and Devighat projects were developed with the Indian government’s assistance. India has said that due to its strained relationship with China, it won’t buy electricity from projects having Chinese investment, and even from the projects built by Chinese contractors. This is a setback to the government’s ambitious plan to export power to India as Nepal has been constructing several hydro projects with Chinese assistance. 

Even if India refuses to buy power, Nepal has a huge potential to export power to Bangladesh. The Cross Border Trade of Electricity Regulations, 2019, has paved the way for Nepal for trilateral power trade. Thus, Nepal can export electricity to Bangladesh, which is looking to import around 9,000 MW of electricity from Nepal over the course of a decade.

In a short run, the Bangladeshi authorities have already started groundwork to purchase 700 MW of electricity starting this year through the Indian transmission lines. But, as a long-term measure, Nepal and Bangladesh have already decided to construct ‘Nepal-Bangladesh Dedicated Transmission Line’ with the participation of India. 

Restricting private sector’s entry

Despite knowing Nepal would be a power surplus nation, the government did not make concrete plans to export power. This clearly shows the incompetence of the government. 

The government distributed licenses to the private sector for hydro construction. However, the government doesn’t want to involve the private sector in the energy trade. The private sector, as its motive is to get profit, without dillydallying would export power through business to business (B2B) agreements.

Even though the government, recently, said it is ready to allow the private sector to trade electricity, there is still no supporting law. The Electricity Bill remains stuck at the National Assembly since mid-July 2020.

Nonetheless, even if the government allows the private sector to trade power, there are concerns about their competitiveness to export power.

The NEA has signed a power purchase agreement (PPA) with the private sector to purchase electricity at Rs 8.40 per unit during the dry season, and at Rs 4.80 during the wet season. However, the NEA is selling electricity to India at Rs 5 per unit on average. 

The private sector will have to pay ‘wheeling charges’ to both companies in India and Nepal for using transmission lines to export electricity. There is a concern that private producers would profitably sell electricity to India by paying ‘wheeling charges’. This is also a matter of concern for the NEA as it cannot sustain financially by selling electricity to India at such low rates.

This content is prepared by Nepal Invests. Nepal Invests is Nepal’s investment facilitation agency initiated by the private sector. It guides the investors within the country and abroad to establish, operate and expand their businesses in Nepal. It tweets as @Nepal_Invests