On September 30, 2020, the Nepal Electricity Authority (NEA) recorded a wastage of up to 5 million units of electricity, largely attributed to low domestic energy demand and problems within the electricity distribution system. The issue recurred in September 2023, with 30 hydropower plants wasting 500 MW of the electricity they produced. Currently, Nepal is said to be wasting more than 700 MW of electricity produced during peak season.
Beyond the Dark Age: From Shortage to Surplus
The high hydropower potential of the Himalayan country, which once faced a massive shortage of power supply, resulting in power outages of up to 18 hours a day, has now been struggling with a massive loss of produced electricity for the past few years. Despite aspirations to maximize electricity production, Nepal has been grappling with the challenge of properly utilizing its surplus energy. Aside from some efforts to strengthen transmission lines and a few exports to India, no significant measures have been implemented to address this ongoing problem.
From 2008 to 2016, Nepal, despite its potential to generate 42,000 MW of electricity, was in a 'dark age' due to severe power shortages. Nepalese faced power outages lasting up to 18 hours daily. The World Bank estimated the total economic impact of the energy crisis to be around seven percent of the gross domestic product (GDP), amounting to US $11 billion during that period. After overcoming massive power outages in 2018, the country was expected to achieve larger economic benefits through high economic growth via industrialization and the expansion of the commercial sector. However, the reality has been far from expectations.
Current Power Surplus Problem
Nepal's electricity production capacity has reached 3,157 MW, with an additional 2,300 MW generated in the past eight years. However, the country’s peak electricity demand is only 2,650 MW.
According to the NEA, energy consumption has tripled in the past few years following the end of power cuts and the resumption of regular electricity supply. Eight years ago, per capita energy consumption was 131 units, which has now increased to 400 units.
The total length of transmission lines has reached 6,507 circuit kilometers, more than double the length from eight years ago. However, the availability of high-capacity transmission lines is still limited, with only 1,213 circuit kilometers of 220 kV lines and 644 circuit kilometers of 400 kV lines. While 220 kV single circuits can carry 300-400 MW, a transmission line with a capacity of 400 kV or more can carry over 1,200 MW of electricity from a single circuit. Thus, 400 kV transmission lines are crucial for Nepal to fully benefit from electricity exports.
Similarly, the capacity of grid substations has reached 13,050 MVA, almost six times the capacity over the same period. Despite this development, the infrastructure is still inadequate to support the distribution of the year-on-year increase in electricity production.
According to a government report, at least 10 percent of the population in rural districts such as Bajhang, Dolpa, Bajura, Jumla, and Mugu still lacks access to electricity. Additionally, 70 percent of industries still rely on expensive diesel-powered generators to operate their production plants.
New Projects, New Hope
The Department of Electricity Development has issued licenses to projects with a cumulative capacity of 9,000 MW. Additionally, other projects with a total capacity of 11,000 MW have applied for operating licenses.
Among the large projects (with capacities over 100 MW), the Rasuwagadhi Hydropower Project has completed its test production and will begin commercial production in the next few months, producing 111 MW of electricity. Similarly, the 102 MW Mid Bhotekoshi Hydropower Project, delayed for various reasons, has announced it will start production in October this year.
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The 216 MW Upper Trishuli-1, a run-of-the-river type hydroelectric project in Rasuwa district, has also gained momentum. The federal government has already signed project development agreements (PDAs) for strategically important projects like the 750 MW West Seti Hydropower Project, the 450 MW Seti River-6 Project, and the 669 MW Lower Arun Project. These three projects have been handed over to Indian developers.
Similarly, the government plans to determine the investment modality for reservoir-based hydropower projects such as the 1,200 MW Budhi Gandaki Hydropower Project and the 635-MW Dudh Koshi Hydropower Project and begin their construction.
While over Rs 40 billion has already been disbursed in compensation for the resettlement for the Budhi Gandaki Hydropower Project, the government plans to construct the project using domestic investment. Additionally, the Asian Development Bank has expressed its commitment to invest in the Dudh Koshi Hydropower Project.
Regarding other hydropower projects such as Upper Arun (1,061 MW), Chainpur Seti (210 MW), Jagdulla (106 MW), Tamakoshi-5 (99.9 MW), Simbua River (70.3 MW), and Ghunsa River (77.5 MW), the government plans to pursue these projects under a co-financing model involving all three tiers of government.
Investor Concerns and Ripple Effects on FDI
Private sector electricity producers have been compelled to operate their projects below capacity during peak production seasons due to energy wastage. Ganesh Karki, president of the Independent Power Producers' Association of Nepal (IPPAN), said that losses incurred by hydropower plants due to wasted electricity have a chain effect on larger sections of the economy. "On one hand, the projects face financial loss, while on the other, they lose the trust of banks and financial institutions needed to secure loans for new investments and business expansions," said Karki, adding that the situation results from the indifference of government bodies, including the NEA.
India's substantial investment in Nepal’s hydropower sector began with the 900 MW Arun III hydropower project. India has also signed an agreement with the Investment Board of Nepal for the construction of the 750 MW West Seti and 450 MW Seti River-6 projects.
Opportunity to Capitalize Surplus Electricity
Although Nepal's prospects of exporting electricity to India are often questioned due to the unpredictable policies introduced by its southern neighbor, the excess production is still advantageous for the landlocked country. A reduction in production costs, caused by a smooth supply of power, could help industries of various scales and sizes to flourish. This would improve the competitiveness of local products in the global market, paving the way for the country to earn more foreign currency through international trade.
Government statistics show that the domestic demand for electricity is growing at a rate of 10 percent annually. This has attracted both local and foreign investors to inject additional capital into this sector. Furthermore, the government plans to increase per capita electricity consumption to 700 units within the next couple of years, up from around 400 units at present. Given the recent sector's high revenue-generating potential, almost all local governments have made harnessing hydro potential a top priority.
According to NEA records, Bagmati Province occupies the top spot in the energy consumption index, with the highest revenue generated from electricity consumption among all seven provinces. Bagmati is followed by Lumbini and Madhesh provinces. With the current rate of urbanization in many rural areas, domestic consumption could increase, thereby alleviating the problem of underutilization of the electricity being produced.
A Silver Lining: Regional Power Trade
According to NEA Managing Director Kulman Ghising, they have prepared a master plan to improve transmission and distribution infrastructure capable of meeting demand until 2050, which is being gradually implemented. This will help address the challenges posed by the growing electricity surplus while increasing demand by ensuring a reliable, quality, and safe supply to consumers at home.
The government has also prioritized the import of electric vehicles over those powered by fossil fuels. However, this policy may not significantly boost electricity consumption unless adequate charging infrastructure for electric vehicles is established. Furthermore, the government has taken measures to facilitate the use of electric appliances for household purposes. Yet, this policy may not yield effective results unless the government provides subsidies for electricity-based home appliances, replaces outdated electrical circuits at the household level, and reduces tariffs on household usage.
Although boosting domestic electricity consumption will help alleviate the issue to some extent, the regional power trade agreements with India and Bangladesh offer a promising solution for managing the surplus energy.
Currently, India purchases around 700 MW of electricity from Nepal. Just last month, the southern neighbor agreed to purchase an additional 251 MW of electricity produced by 12 hydropower projects, allowing Nepal to sell a total of 941 MW to the Indian market. India has further agreed to purchase 10,000 MW of electricity from Nepal over the next 10 years. This agreement is expected to benefit both countries, as Nepal focuses on producing electricity at its optimal capacity while India aims to achieve net-zero emissions by 2070. Plans to benefit from exporting electricity to Bangladesh are still uncertain, though some initiatives have begun for the cross-border trade of 40 MW of electricity.
New Development in Cross-border Power Trade
On October 3, Nepal, India and Bangladesh inked a tripartite agreement, which paved a way for Nepal to export hydroelectricity to Bangladesh. According to the agreement, the NEA will supply power to India's NVVN, which will then transmit the power to Bangladesh using Indian infrastructure. The electricity will be exported through the 400 kV transborder transmission line between Nepal and India.
In the recently developed initiative, 144,000 megawatt-hours of power will be exported over the five months. The NEA will sell the electricity at Rs 9.30 per unit. A joint venture company will be established between the NEA and the Bangladesh Power Development Board to develop the project.
The Way Forward: Making Every Megawatt Count
Managing the surplus energy is not something that can be achieved overnight. There are certain market interventions the government can implement to change electricity consumption patterns in the short run.
A special issue of *Renewable Energy* published by the global information analytics company Elsevier in 2022 suggested three measures to address the problem of surplus hydroelectricity in Nepal. The first is to increase domestic demand. The second involves exporting electricity to neighboring countries. The third approach would be converting surplus electricity into other energy forms, such as hydrogen, which can be produced through water electrolysis.
The abundance of hydropower potential in Nepal creates seasonal fluctuations in electricity generation from run-of-river hydroelectric plants, resulting in a surplus during the rainy season (around May-October) and a deficit during the dry season (around November-April). Additionally, uncertainties and delays in hydropower projects highlight the need to store and utilize the surplus energy effectively. Converting electricity to various storable, transportable, and distributable energy carriers is vital for maintaining a stable energy system.
Interview with Ganesh Karki, president of Independent Power Producers’ Association, Nepal
Nepal achieved noteworthy progress in electricity production in the past few years. Your comment on this achievement?
-It is of course good news that we are able to overcome years long power cuts and enter a new era of electricity surplus. This is all possible due to active involvement of the private sector power producers. Despite having more production, we are yet to do a lot in the segment to realize maximum benefits.
Despite getting a good amount of electricity production, It is far less compared to the government target of producing 28,500 MW of electricity over the next few years.
With surging production, the large amount of the produced electricity is going into wastage. How will this affect investment in the segment in future?
Nepal will need investment of around Rs 4.6 trillion to produce 28,500 MW of electricity. This will provide ample opportunities to bank, insurance and reinsurance to inject their investment in the segment. Likewise, equipment suppliers, designers and consultants will also get equal opportunities. If the produced electricity goes to waste, it is obvious that it will take down the confidence of investors.
Despite attaining significant growth in electricity production, consumption has not increased at par. How can we increase electricity consumption?
The main thing is the government needs to come up with conducive policies to utilize all the produced electricity. There are no proper transmission lines to supply high strength electricity to industries. This problem should be addressed as soon as possible. Production units must be provided with dedicated lines, while 24-hour uninterruptible electricity supply to them must be ensured.
How can we increase electricity export?
First of all, the electricity production is still not adequate for exporting our product. There are a lot of procedural problems that delay the development of the hydropower projects. The government takes 2-3 years just to issue an environmental impact assessment. Furthermore, the government has not opened the power purchase agreement for the new projects in the pipeline. Transmission lines which are the lifeline of the development of the sector, should be installed on priority basis. For example, in the absence of the Dordi Corridor, a large amount of produced electricity has been going into wastage. Overall, there is an urgency of suitable government policy to address all these problems.
