Reality check

The border blockade that strangled Nepal’s fuel supply has pointed out the need for energy security. A lot of articles have been published on the newspaper advocating the importance of hydropower construction for the self sufficiency. By reading the suggestions and recommendations made by our experts, it creates a sort of illusion to me. The path to transform this energy deficit country into a surplus country seems very easy. 



Well, this is Nepal; a country rich in hydropower (83,000 MW) that started its first project more than 100 years ago but with an installed capacity of 787 MW only to date (less than one percent of the total potential). This says it all.

Before becoming an emotional fool, let's not forget why hydropower development is painfully slow. We have millions of problems.

a) Problems in forecasting demand.

Accurately forecasting electricity demand is critical in ensuring adequate generation of electricity. This is grossly lacking in Nepal. The forecast based on the suppressed economic growth is fundamentally wrong. Unfortunately, this is the path our policy makers are following. As a result, a suicidal clause for new projects has been imposed.

Under this new clause, developers will have to generate energy according to dispatch instruction of Load Dispatch Centre (our policy-makers believe that there will be surplus energy in near future). No financial claim can be made for such reduced energy generation. With this clause, projects will not be constructed. It is simple as that.
 
I am not convinced with the policy-makers in this matter. Like GDP per capita, electricity consumption per capita is an important indicator. With a mere 119 kWh in 2013, Nepal has one of the lowest electricity consumption in the world. Forget about the developed countries, we have one of the lowest among the SAARC nations. The huge gap between India (744 kWh) and Nepal (119 kWh) tells the story.
 
b) Problems in raising required funds.

Let's discard the prediction made by our policy makers. If we are to believe our experts, the current demand is about 5,000 MW. This is more accurate in my opinion. To make Nepal at par with India (in terms of electricity consumption per Capita), we actually need about 5,000 MW.
 
But do we have enough financial capability to raise the required funds internally?
 
Putting aside 787 MW (in operation) and 1521.28 MW (under construction projects), we still need about 2,700 MW right away. In monetary value, there is a need of US$ 5 billion investment approx. (including transmission line) to construct 2,700 MW. This is quite huge.

 
Actually, this is beyond the capacity of a country that has a total GDP of US$ 19.64 billion only.
 
One may argue that the investment is not required at once. But the same experts who forecasted 5,000 MW claim that we need about 10,000 MW in five years time if we are to attain a normal economic growth. Also, 787 MW and 1521.28 MW are the installed capacity. Actual production will be very low during dry season since almost all projects are run-of-river.
 
c) Problems in constructing supporting infrastructure.
 
Nepal consumes about 90 percent of GDP, leaving only 10 per cent for saving and investment. In such case, the best option for Government of Nepal (GoN) is to invest in basic infrastructure structures like transmission lines & roads in order to attract private investors.
 
However, transmission line is not problem-free. There are many examples where NEA has failed to construct the transmission line even after a decade mainly due to land acquisition problem.
 
The Land Acquisition act states 10% of the land valuation cost as compensation against 100% compensation claimed by the locals.

Some developers are in favour of military intervention to sort out this problem. Well, this is not North Korea. Land means everything to poor people. Without proper compensations, locals will obstruct the construction for sure.

On the other hand, to fulfill their demands means an additional burden to this poor country. The solution to this problem is not that simple.
 
d) Private investors
 
There are mainly two bottlenecks. i) private sector is demanding for the higher PPA rates. ii) Foreign investors are demanding for dollar denominated PPA at least for loan tenure.

Both the demands are genuine demand for two reasons i) hydropower construction has become a costly affair these days. ii) Foreign investors will always hesitate to pour money in hydro sector without the assurance of foreign exchange (forex) risk protection.

However, NEA is not in a position to fulfill these demands on its own. It has incurred billions of losses already. The only way for NEA to address this problem is to pass on risks to the final consumer by adjusting tariff regularly.

Here comes the million dollar question: Are we (general public) ready to pay an expensive electricity tariff to promote hydropower development?

The above problems are the major bottlenecks that hinder the slow growth. And the solution to these problems is not that easy.