Nepal Energy

Scenario
We take a look at the current electricity
production, demand and supply in Nepal
with suggestive measures.

Energy Scenario of Nepal

The current scenario of Energy in Nepal is
pathetic as the demand-supply gap is
extremely wide due to multiple reasons which
hindered the development & execution of
power projects (both Hydro and Thermal). The
major hurdles came due to paralyzed policies,
governments poor vision of Energy
Economics and the decade long Maoist
insurgency (1996-2006).

Energy Scenario of Nepal

The current demand stands at 1178.30 MW
peak hour demand but the installed capacity
is only 1100 MW as of FY 2012-13. The Energy
deficit is the main cause of power cuts
(termed popularly LOADSHEDDING among
the mass). Power cuts in Wet season are t an
average of 3-4 hours daily and during Dry
season, it shoots to 12-16 hours daily.

Consumers are
industries are severely
affected.
Energy
Scenario
of Nepal
Even service oriented industries have to cut
their office hours to maintain uniformity with
the market. Manufacturing units are
compelled to go for Diesel/Fossil fuel plants to
operate industries pushing the operational
costs of finished products by a whopping 25%
to 40%. Majority of industries have been shut
down and instead started trading of basic &
FMCG products. It has made the entire
National economy import oriented.

Peak Hour Demand and Available

Year
Peak
Change in Available
Change in
Energy
Demand
Peak
Energy
Available
(MW)

Demand

(GWh)

Energy

2005

557.53

2642.75

2006

603.28

8.21%

2780.92

5.23%

2007

648.39

7.48%

3051.82

9.74%

2008

721.73

11.31%

3185.95

4.40%

2009

812.50

12.58%

3130.79

1.73%

2010

885.28

8.96%

3711.77

18.56%

*If 10% CAGR pre-assumption consumption of energy

is considered, the peak demand for the FY2012-13 is
1178.30 MW.

Where does the Energy come from?

NEA (Nepal Electricity Authority) is a Govt. of
Nepal undertaking responsible for the
distribution of electricity and controlling all
other derivatives of electricity to the
consumers (both commercial & industrial).
NEA and Nepal Govt. operate both Hydro &
Thermal power projects. NEA trades and
distributes the electricity in Nepal through its
grids.

Hydro and Thermal Energy available

for past 6 years
Year

NEA Hydro
(GWh)

Change in NEA Thermal

NEA Hydro (GWh)

Change in
NEA
Thermal

2005

1522.90

2006

1568.55

3.00%

16.10

17.78%

2007

1747.42

11.40%

13.31

17.33%

2008

1793.14

2.62%

9.17

31.10%

2009

1839.53

2.59%

9.06

1.20%

2010

2108.65

14.63%

13.01

43.60%

13.669

NEA Energy Chart

2500
2000
1500
NEA Hydro (GWh)
NEA Thermal (GWh)

1000
500
0

2005 2006 2007 2008 2009 2010

Where does the rest of the Energy come from?

There are many private sector players in the Hydro
power. These are called Independent Power
Producers (IPP). IPP are private sector operating
energy projects (both Hydro and Thermal). Private
projects go through the same stages clearances
as Govt. projects. Private projects ink PPA (Power
Purchase Agreement) with the NEA to sell their
energy. If a private project wants to sell their
energy to a third country then it can sign
agreement with the respective country. All the
private projects must sell their energy to the NEA
only as NEA is the only organization in Nepal to
trade and distribute electricity. But if a private
company wants to develop a project for their own
industrial purpose then thy can develop and have

Where does the rest of the Energy

come from?
Water is a national resource so it is necessary to
pay royalty to the Govt. A private project can
be hold up to 25 years by the company and
then hand over to the Nepal Govt. The current
PPA rate for Wet Energy is NRs. 6 ($0.06) per
KWh & for Dry Energy d NRs. 4.80 ($0.048)
per KWh. Due to supply gap, a big share of
electricity is imported from India esp. during
the dry season.

Energy purchased by NEA from IPP

and India:
Year

IPP (GWh)

Change in
IPP

Indian Import
(GWh)

Change in
Indian
Import

2005

864.795

2006

930.04

7.54%

266.23

10.29%

2007

962.26

3.46%

328.83

23.51%

2008

958.42

0.40%

425.22

29.31%

2009

925.74

3.53%

356.46

16.17%

2010

951.43

2.78%

638.68

79.17%

241.389

Energy Purchased by NEA from IPP

and India
1200
1000
800
IPP (GWh)
Indian Import (GWh)

600
400
200
0

2005 2006 2007 2008 2009 2010

The growth in IPP from 2005 to 2010 is only 2% CAGR. There are
several hundreds of private projects in pipeline but due to lack of
investment & proper planning, promoters have not been able to
deliver projects & hence there is huge deficit of power in Nepal. Where
as, imports from India have increased significantly to 21.50% CAGR &
huge forex is invested just to pay the electricity tariff.
*Considering tariff at IRs. 4 ($0.067) per KWh then just IRs. 2555.72
million ($42.58 million) have been emptied from the forex in 2010 to
pay the electricity bills to India. Nepals forex reserves is Indian

LOASHEDDING
The most popular term and the most common excuse in
recent years. NEA and IPPs have their own hydro
projects but still 3-4 hours daily power outage in Wet
season and up to 12-16 hours daily in the Dry season.
Almost all the projects are run-of-river projects. During
the wet season, the energy produced is almost
equivalent to the installed capacity but in the dry
season, the energy production is only about 25% to 30%
of the installed capacity which is why the power
situation in the winter becomes critical. Since, the
projects are run-of-river, the water flow and level
decreases significantly during the winter so does
electricity production.

Solution to Power Crisis

Nepal was declared a Energy crisis state in early
2008 by the then Govt. There are many
smaller run-of-river projects coming up.
Majority of them have received clearances and
even concluded PPA with the Govt. but due to
lack of funds, the projects have not been
carried out smoothly. The investment size of a
hydro power is behemoth and up to $2 million
per MW generation from detailed survey study
to project completion and electricity
genertaion.

Solution to Power Crisis

The Govt. has identified few storage projects ranging
from 400 MW to 900 MW. Few have been awarded
as well. West Seti 786 MW to Three Gorges (China)
and Upper Karnali 900 MW to GMR (India). These
projects have already signed PPA with the Indian
Govt. These projects were awarded to the
respective companies under BOOT model. There are
other few in pipeline with negotiations on relevant
issues. Upper Tamakoshi 415 MW is a project to look
after where the South Koreans have invested
majority and is to be in operation by mid 2016 after
several delays.

Hindrances in Smaller
Projects
Many projects are not viable due to accessibility and

connectivity.
Project cost gets hyped due to building of
infrastructures.
Locals create problems demanding free energy and
free share.
Once the deadline misses, the project cost gets hyped.
Investment is a major issue. The commercial banks
can hardly lend the 70% of a 2 MW project ($4 million).
Banks are not lenient to lend on long term projects.

Major Power Projects

There are several measures taken by the recent Govt.
to lure investment into big projects. GMRs 900 MW
Upper Karnali and Three Gorgess 786 MW West Seti
are some projects where Govt. has taken bold steps
in benefit of both the promoters and the country.
For storage projects over 500 MW, the countrys
Investment Board (www.investmentboard.gov.np)
looks after the project where the entire Environment
clearances are permitted by this board upon the
approval from their panel and huge incentives on
tax are approved on the benefit of the promoters.

What the Govt. can do?

With all the past mistakes, the Govt. should
learn to be lenient to adopt policies which will
allow the investors to develop projects hassle
free & reap maximum benefit in the shortest
time-frame possible. Nepal could become
energy surplus in the next 15 years with
proper execution of some 15 major projects.
The Govt. is calculating the Energy economics
& should come up with some few measures:

What the Govt. can do?

The Govt. should approve the feasible projects

to investors with a flexible timeframe.

The approved projects must come under
Govt.s pre-assumption energy demand at a
certain timeframe. Say, like 6000 MW by 2031.
India is a country which could consume as we
supply. Indias current production stands at
185,000 MW and thermal power has 68% share.
Hydro power is cleaner and cheaper in the long
run.

Resolution of Current Energy

Scenario:
First, we require huge investments (esp. foreign investment) in

the small run-of-river projects so that we cold generate extra

1000-1200 MW by 2018-19. There will be deficit in winter only
which can be solved by power wheeling with India and
exchange for dry-wet and vice-versa.
Secondly, the Govt. must repair & build new transmission lines
as soon as possible to prevent dissipation of energy from grid
& transmission lines.
Setting up and allowing foreign players to set up Captive
Power Plant (CPP) at strategic locations. This will solve
industrial demand by almost 90%. Biratnagar, Kalaiya, Birganj,
Bhairahwaha & Nepalganj are ideal places. A 50 MW CPP coalbased will decrease power cuts by nearly 50-60% in the
coming 5 years.

Alternative Energy
Alternative Energy implementation & projects are needed
to be promoted by the Govt. These projects require REM
(Renewable Energy Mechanism) procedure to sell their
energy. The Govt. must be lenient to introduce an
investment friendly REM as Nepal has a great potential
in Wind Energy. Mustang & Manang have cut rate speed
to run turbines ranging from 250 KW to 1500 KW. Around
30,000 MW could be harnessed in these districts alone.
Infrastructure & accessibility to these districts have to
be built first. Clearances like Avian Clearance & EIA
schemes for wind project need to be defined so that
investors would be confident before committing to such
projects.