Baseload, Bioenergy, Hydropower, Solar

Mini-hydro Making A Big Impact on Nepalese Power

Issue 4 and Volume 18.

Renowned for its vast hydropower resources, the Himalayan nation of Nepal has nonetheless long struggled to meet its growing power demand. Now though, the devastating earthquake that struck the country in April 2015 is placing even more emphasis on the development of hydropower at a range of scales.

The earthquake that struck Nepal in April 2015 left Kathmandu city in ruins. Credit: My Good Images / Shutterstock.com.

The quake not only killed an estimated 8,000 people and destroyed parts of the country, it also had a profound effect on the national infrastructure. As one of the world’s poorest developing nations, even before the magnitude 7.9 earthquake hit, Nepal was subject to significant load shedding, with rolling blackouts right across the country for some 12 or more hours a day. With a number of existing hydropower projects damaged in the seismic event, capacity margins have fallen still further.

Putting this in context, the latest available figures from the Nepal Electricity Authority (NEA) – from its 2014 annual report – reveal a peak power demand estimated at 1201 MW, which reflected a growth of almost 10 percent over the previous year. However, the peak generating capacity was just 791 MW, leaving a 410 MW estimated shortfall – something over 20 percent. [See sidebar for more information on electricity in Nepal today.]

Raghuveer Sharma, Chief Investment Officer of IFC, explained that a sizeable portion of the current installed capacity of Nepal consists of small hydropower projects. The recent earthquake damaged approximately 177 MW in total, all which are projects below 45 MW. Nepal has nonetheless placed further focus on small and micro-hydropower development. “As many as 2000 MW capacity worth new power purchase agreements (PPAs) have been signed, which goes to show the potential and promise of small hydropower projects,” he said.

One of the many rivers in Nepal. Credit: Shutterstock.

For example, last May the World Bank Group signed off on $84.6 million in financing for the Kabeli-A Hydroelectric Project – a peaking run-of-river hydroelectric plant with an installed capacity of 37.6 MW. It will be built in Panchthar district in the east of Nepal together with the Kabeli Corridor Transmission Line, a separate project under construction that also has World Bank financing.

Key to the development of Nepal’s hydropower potential is the issue of finance. But this is not insurmountable, said Sharma. “Attracting finance for hydropower projects is not dependent on size of the project whether small, medium or large. Rather, it is the bankability of the project that determines financing. The bankability criteria include techno-economic, environmental, social, legal and commercial aspects. Each of these has risks inherent in them, and it is how the risks are assessed and mitigated that determines bankability.”

Sharma said that access to transmission is also key: “If small hydropower projects are near a transmission line, they become more viable,” he said, adding that needing to build out transmission could mean that capital costs “render the projects unviable.”

Small and Smaller Still

Micro- and pico-hydro plants of a few tens of kW upwards are also attracting interest where transmission system connection is unlikely even in the longer term. With an inclusive community-driven model, micro-hydro initiatives in Nepal are meeting the energy needs of rural communities and powering economic development.

To date, the Alternative Energy Promotion Centre (AEPC) has facilitated the construction of more than 1,000 micro-hydro plants in 52 districts under the auspices of the National Rural and Renewable Energy Programme (NRREP) launched in 2012. A consortium of five governments, two multilateral banks and three intergovernmental organizations support the US $184 million budget to execute this five-year program that aims install close to 7,000 kW of micro-hydro capacity.

Among the micro and pico-hydro financing projects administered by AEPC are the Micro Hydro Debt Fund (MHDF), which is supported by GIZ, the German development bank. Initially budgeted at EU €500,000 and later increased by €42,000, the fund envisages more than 400 kW of additional capacity to bring electricity to about 19,000 individuals.

Further, in 2012 AEPC – with the support from United Nations Capital Development Fund (UNCDF) and UNDP – launched its Clean Start program. The program plans to invest US $1.3 million over a period of four years (2012-2015) to develop business models for scaling up microfinance. By the end of the program, more than 150,000 low-income households will have access to energy.

Similarly, a program called Scaling up Renewable Energy Program in Low Income Countries (SREP) aims to provide electricity access to 250,000 households through 30 MW of mini/micro hydropower. Further, the Micro Hydro Village Electrification Program (MHVEP) is another joint initiative of AEPC and the World Bank and funded by the Power Development Fund (PDF).

During 2012-2013, the latest year for which figures are available, some 133 pico- and micro-hydro projects with a total capacity of 3.2 MW were supported. Furthermore, an additional 125 projects are under construction with a combined capacity of 4.3 MW.

There are around 42 small hydropower projects currently operating in Nepal with a combined capacity of some 16.3 MW. These projects are joined by around 1300 micro-hydro plants with a combined output of more than 24 MW and some 1600 pico hydropower plants generating 3.7 MW, collectively.

However, the NEA noted that hydro alone “is not sufficient to minimize load shedding,” and added “other probable sources of renewable energy, including solar power will [need to] be connected to the national grid.” In December the World Bank approved a US $130 million credit for the Nepal Grid Solar and Energy Efficiency Project. The project aims to increase electricity supply to the national grid through grid-connected solar, which should reduce distribution losses. It includes the design, supply, construction, commissioning, operation and maintenance of grid-connected solar, with a total capacity of 25 MWp.

As Johannes Zutt, the World Bank country director for Nepal, had previously observed: “Nepal will need rapid and sustained growth to continue reducing extreme poverty and increase the incomes of the bottom 40 percent [of the population]. This will require the country to boost investment and narrow a massive infrastructure gap, which is the single most important constraint to growth.”

Rice fields around the Nepalese village of Shivalaya. Only some 5 percent of Nepal’s rural population has access to grid electricity. Credit: Shutterstock.

It seems clear that while Nepal’s massive hydro resources do offer an attractive route to lift much of the population beyond energy poverty and reliance on bioenergy for domestic heating and lighting, the needs of this developing country are such that other renewable energy technologies will also experience a significant uptick in growth in the coming years. The key, as ever, is in achieving a market for attractive and sustainable finance.

Sidebar: Electricity in Nepal Today

Nepal has an annual energy demand estimated at 5910 GWh, of which only 4632 GWh could be supplied. Nevertheless, Nepal continued to export power to India last year. NEA figures give 2013-2014 sales to India as 3.32 GWh, down from the 3.6 GWh exported in the previous year.

While this may seem paradoxical, power sales represent a valuable – if not vital – source of revenue for the national treasury coffers. In fact, just two weeks prior to the earthquake – Nepal’s investment board cleared China Three Gorges Corp to build a new $1.6 billion 750-MW hydropower project on the West Seti River.

Of the available generating capacity actually supplied, 436.4 MW came from NEA-owned hydropower plants, 22 MW from state-owned thermal capacity and 216.4 MW was generated by hydropower from independent power producers. The rest was imported from neighboring India, which supplied something on the order of 20 percent of Nepal’s total power demand over the year.

According to the Alternative Energy Promotion Centre of Nepal, about 85 percent of the total energy consumption in Nepal is met through traditional biomass. The rest is met through imported commercial sources such as petroleum and diesel. Out of the total biomass, firewood contributes about 89 percent, animal waste 7 percent and the remaining 4 percent from agricultural residues.