Nepal Energy Situation

- WORK IN PROGRESS -

Situation Analysis and Framework Conditions

Energy Situation

According to the Water and Energy Commission Secretariat (WECS) Nepal's primary energy consumption was approximately 367 million GJ in 2005. The International Energy Agency (IEA) indicates a value of about 394 million GJ for 2006.

The use of primary energy sources is distributed as follows:

Biomass	86 %
Petroleum products	9 %
Hydro Power	2.5 %
Coal	2.5 %

New renewable energy sources (biogas, micro hydro, solar and wind energy) contributed about 0.5% to the national balance in 2005 altogether.

The primary energy consumption is growing at rate of around 6 % per year, electricity consumption, even at a rate of about 9 %. In the last years energy consumption has been rising much faster than GDP.

A regional comparison shows that Nepal has the highest specific energy consumption based on GDP. This already suggests that energy is used inefficiently. Because of the high proportion of renewable energy sources (biomass and hydro power) in primary energy consumption Nepal accounts for relatively low CO2 emissions compared to other countries in the region.

In the past years, according to the NEA, the number of consumers as well as power consumption increased by approximately 10 % per year. The evening peak demand has been risen by far higher values because of increasing household consumption.

The continuously rising demand and stagnation in power generation capacity growth has increasingly led to a noticeable shortage of power supply since 2007, which forced the NEA in early 2009 to cut power for up to 20 hours per day in some regions.

Due to a long lead time for the completion of new power generation capacity or new import capacities a rapid improvement in the supply crises cannot be expected. An emergency supply through diesel power plants is unrealistic because of the high power generation costs associated as the resultant rise of electricity tariffs couldn't be easily implemented politically and the deficit of the NEA would increase significantly.

The power supply crisis has hits all sectors of the population, public life and the economy.

It must be expected that more industrial enterprises and service providers make themselves independent from the unreliable public power supply by using diesel generators. This development is economically burdensome because of additional fuel imports, but allows at least the profitable companies to maintain their business.

Biomass

Biomass is by far the most important primary energy source in Nepal. Biomass comprises wood, agricultural residues and dung, with wood dominating with about 80 %.

95 % of the biomass is predominantly and traditionally used for cooking and heating purposes in households. Approx. 2% of the biomass (especially agricultural residues) are used for energy in the economy.

According to estimates by WECS the national biomass balance is in deficit: The wood consumption in 2005 is estimated to be 17 million tonnes, over-exploitation of resources is declared to be approximately 10 million tonnes. This means that only about 40 % of the firewood comes from sustainable supply.
However, there are clear regional differences. In the Terai region, only 19 % of consumption can regrow sustainably, while this value reaches between 60 % and 80 % in the mountain regions . These figures are not certain according to WECS and therefore only indicative.

Petroleum Products

Nepal consumes about 800,000 tons of fuel and other petroleum products per year. The amount equates to about 9 % of primary energy consumption in Nepal. The import of petroleum products is transacted exclusively between the “Nepal Oil Corporation” and the “Indian Oil Corporation”. 75 % of the imports are made up of diesel, kerosene and gasoline. Almost 50 % of petroleum products are used in the transportation sector and another 25 % are consumed in industry, agriculture and in the service sector.

Coal

Apart from some minor coal reserves, coal for industrial needs is imported from India. With 2.5 % of primary energy consumption, coal is primarily used for brick and cement production as well as in steel processing.

The Electricity Sector

The state owned NEA is responsible for the electricity supply through the national grid. In addition to the NEA's own power plant capacity which amounts to 458 MW, power plants from independent power producers with a capacity of 153 MW fed into the national grid in 2007. Nepal electricity generation is dominated by hydro power despite 25 to 40 % higher cost per unit installed due to topography and unfavourable hydrology and geology, only 55 MW are available to the NEA as thermal power plant capacity.

The technically and economically exploitable hydro power potential of Nepal is estimated to be about 42 GW. By the end of 2007 only 561 MW (about 1.5 %) was developed. All in all approximately 2700 GWh of electricity were produced in 2007, about 330 GWh were imported from India. Due to technical and non-technical losses of 28 % the amount of electricity sold by the NEA in 2007 equaled 2,200 GWh. The revenue from electricity tariffs remain below cost. The level of cost coverage is approximately 90 %.

Lack of seasonal storage capacity and inadequate transmission and distribution system compared to demand has resulted in frequent load-shedding. Electricity supply is limited to 40 % of the population (CBS, 2001) most of which is in urban areas. The low level of electrification hampers both economic development and access to information and education in rural areas.

With about 40 % each, households and industry are the largest consumers of electricity in Nepal.

Energy Demand and Supply in the Household Sector

The NEA provides approximately 1.5 million households with electricity. The subscriber growth rate was about 10% per year in recent years. Private households account for 40 % of national electricity consumption. Detailed statistics on the end use of electricity are not available, but the average daily household consumption of 2 kWh suggests that the electricity is mainly used for lighting purposes.

The electricity tariffs for households with 4 to 10 NRs / kWh (approx. 0.04 - 0.10 EUR / kWh) are low to moderate in international comparison. However, because of the high fixed monthly minimum rate households are not motivated to save electricity.

The electricity supply crises leads to cut offs that affect particularly large numbers of consumers, especially during evening peak load hours. The households are disadvantaged in two ways. They have to pay a high monthly minimum rate for a supply that is not given and have additional expenses on lighting alternatives such as kerosene lamps, candles or battery lighting.

In addition to lighting other electrical appliances such as refrigerators, water pumps, rice cookers and water heaters lead to power supply overload.

Due to the lack of minimum standards for energy efficient appliances and a lack of labelling of the devices regarding their electricity consumption, private households can make no conscious purchase decisions with regard to operation costs of the appliances. Inefficient domestic appliances are usually cheaper than those with a higher energy-efficiency. Therefore, costumers that have no access to information about the operating costs buy the cheaper but inefficient appliances.

As a consequence households have to bear high operation costs and the energy service companies have to make higher power generation capacities available.

Rural Electrification

Rural electrification in Nepal is naturally very expensive and at the same time the purchasing power of the consumers very low. This unfortunate combination of obstacles is documented in the hard fact that 60 % of the Nepalese households have no access to electricity. State funds are insufficient to cope with the problem at hand, therefore in 2003/04 GoN adopted a policy to involve communities in accelerating the electrification process by:

         a) community contribution of 20 % of the cost

         b) buying bulk power from NEA and manage/operate Community Rural Electrification Entities (CREE)

Over 200 communities have positively responded to this initiative and deposited 5 % (as a pre-condition to be part of the program) of the anticipated costs to the Community Rural Electrification Department of NEA. More than 50 communities have already got access to electricity under this arrangement (20 % local contribution, 80 % grants from GoN). Among the remaining communities having paid 5 % already a large number will not be in a position to comply with their obligation to come up with the remaining 15 %.  In addition, many communities are lacking the necessary management and technical skills to properly operate and manage the system.

The Asian Development Bank, Danida and the World Bank are supporting rural electrification in about 35 districts. Government of Nepal (GoN) and Nepal Electricity Authority (NEA) are also funding rural electrification expansion in a limited scale.

Institutional Set Up and Actors in the Energy Sector

Public Institutions

Several ministries have mandates affecting energy policy issues and the use of energy. These are the Ministry of Water Resources (MoWR), the Ministry of Environment, Science & Technology (MoEST) and the Ministry of Industry. The Ministry of Forest and Soil Conservation (MoFSC) plays a role in the biomass sector and the Ministry of Housing (MoH) in the building sector. The Ministry of Commerce and Supplies is responsible for questions regarding the use of fossil fuels.

Water and Energy Commission Secretariat (WECS)

The Water and Energy Commission (WEC) was founded in 1975 with the aim of advancing the development of energy and water resources in Nepal in an integral way. Six years later, a permanent secretariat (WECS) was established, which is responsible for the formulation of the water and energy strategy and policy of the country and the implementation of planning processes in the water and energy sectors. WECS is organizationally affiliated with the Ministry of Water Resources (MoWR). The Commission consists of state secretaries of almost all ministries and representatives of the Planning Commission, the Federation of Nepalese Chamber of Commerce (FNCCI), the Nepal Engineering Association, a technical university and two experts from NGOs. Chairman is the Minister of the MoWR.

The WECS has the following mandates:

• Formulation of policies and strategies in the sectors of water and energy
• Preparation of legislative proposals in these sectors
• Coordination of policy dialogue in these sectors
• Identification of energy projects
• Analysis of the portfolio of bilateral and multilateral development projects in the sectors of energy and water
• Energy planning and preparation of energy demand studies

The WECS had focused on the water sector in recent years. After the conclusion of the work on the “Water Resources Strategy of Nepal” The WECS, with the assistance of local consultants, now develops a national energy strategy until 2030, which should be adopted before the end of 2009. In the second half of the year 2009, the WECS will also begin to draw up an energy policy. Furthermore, the WECS has begun with the creation of guidelines for auditors in the field of “energy efficiency” and it prepares feasibility studies for power transmission lines and hydro power plants. Every two years, the WECS publishes the comprehensive “Energy Synopsis Report”, in which energy related facts and figures are shown. Because of the high priority of demand side management (DMS) the WECS plans to include this issue in its work soon. The establishment of a "DSM-Center" within the WECS is planned.

Alternative Energy Promotion Center (AEPC)

The Alternative Energy Promotion Center (AEPC) is responsible for the promotion of the development and deployment of renewable energies and alternative energy technologies in Nepal. Founded in 1996, the institution has an autonomous status and is formally attached to the Ministry of Environment, Science and Technology (MoEST). The highest body is a council made up of seven government representatives and two representatives of the private sector, chaired by the Minister of the MoEST. A managing director leads the operational business. AEPC has mainly focused its activities on rural areas. For that purpose it operates so-called “District Energy and Environment Units” in currently 32 districts of Nepal. The mandate of being responsible for of energy efficiency issues was transferred to the AEPC through a cabinet decision in early 2009.

AEPC recieves basic funding from the Nepalese government. Moreover, it is financed to a large extend by international cooperation projects. Perhaps the most important project is the implementation of the Energy Sector Assistance Program (ESAP), mainly financed by Denmark and Norway. This program aims at improving the rural energy supply (solar home systems, small hydro power plants, biogas plants, efficient stoves). In the context of ESAP AEPC manages the Rural Energy Fund, which makes the partial financing of investments in rural electrification measures possible. The German KfW is going to participate in the promotion of SHS with a financial contribution to to ESAP.
Another source of income is the “Renewable Energy Test Station”, in which energy-related imported goods are tested in terms of compliance with standards or self-declared performance characteristics.

Nepal Electricity Authority (NEA)

The state-owned utility NEA was founded in 1985. Its task is the generation, transmission and distribution of electricity and the development and operation of the electricity grid. Furthermore, the NEA is co-responsible in the preparation of energy planning and in education and training of professionals in the field of power generation, transmission and distribution.

The NEA cannot decide on electricity tariffs, but depends on the decisions of the “Electricity Tariff Fixation Commission” (EFTC). The revenues from electricity tariffs are not cost covering. The last tariff adjustment was approved in 2001. According to its own data, the total indebtedness of the NEA amounted to 7.1 billion NRs (about 700 million EUR) at the end of the financial year 2007/2008.

The NEA is organizationally affiliated with the MoWR. It is headed by a Board of Directors, whose Chairman is the Minister of MoWR. Further members include the Secretary of Finance, the Managing Director of the NEA, two representatives from the industrial / banking / trade and consumer protection secotr as well as two energy experts.

Due to the daily power cuts, the NEA is publically criticized. It tries to bridge the gap between electricity demand and supply by importing electricity. A contract for the provision of 150 MW was stipulated with India. However, due to technical problems during transmission this capacity currently cannot be retrieved.

Together with the World Bank the NEA is currently conducting a study to find out to what extend a DSM program could reduced peak loads and overall energy consumption. The study shall be available by October 2009. For months the NEA has been planning to implement a CFL pilot program. The details of the implementation of the program are not clear yet, however, a tender regarding the purchase of the CFL is undergoing.

To date, DSM has not been used by the NEA as a controlling tool for the consumption side. Due to increasing pressure caused by the supply crises the NEA develops a growing interest in setting up a “DSM-Division”.

Policy Framework, Laws and Regulations

Poverty Reduction Strategy

Up to now the development policy of the Nepalese government has been codified in five-year plans. The last Plan 2002/03 - 2006/07, which was also a Poverty Reduction Strategy Paper (PRSP), mentioned the following main objectives:

• poverty alleviation as the overarching goal
• economic growth
• improvement of social indicators
• market-based regulatory policy and
• good governance as a basic orientation.

The realization of those, in their orientation advisable, development plans, however, suffered from implementation weaknesses, financial constraints and too ambitious goals in detail.

A major constraint for the implementation of the development strategy was and still is the fact that the political situation as well as the security situation are still fragile.

Click on the link to download the Nepalese PRSP for 2002 to 2007.

Energy Policy

Bis dato gibt es keine ‚Nationale Energiestrategie‘ für Nepal. Die energiepolitischen Zielsetzungen werden durch jeweils gültige 5-Jahrespläne festgelegt und fortgeschrieben.

Sowohl der 10. Fünf-Jahresplan (2002/03 – 2006/07) als auch der aktuellen 3-Jahres-Interimsplan (2007/2008 – 2009/2010) befassen sich ausschließlich mit dem Elektrizitätssektor. Die Zielsetzungen des letzten und des aktuellen Plans sind:

• Bau neuer Wasserkraftwerke
• Erweiterung des nationalen Netzes und des Verteilungsnetzes und dadurch
• Erschließung nicht versorgter Gebiete mit Elektrizität

Die Realisierung dieser Ziele ist aber weit hinter den Planungen zurück geblieben.

Entwicklungsbudgets werden ausschließlich dem Ausbau des Elektrizitätssektors zuge-ordnet. Ziele zur nachhaltigen Nutzung der Energie aus Biomasse (als wichtigstem Primär-energieträger) oder der effizienten Nutzung kommerzieller Energieträger werden nicht thematisiert. Ebenso wenig werden Möglichkeiten in Erwägung gezogen, die Verbraucher-seite als Adressat einer Energiepolitik zu begreifen.

Die Tarife und Preise für Strom und Erdölprodukte werden politisch bestimmt. Sie sind nicht kostendeckend oder orientieren sich an der unteren Grenze der Beschaffungskosten.

So wurden der ‚Nepal Electricity Authority‘ (NEA) seit 2001 Tariferhöhungen verwehrt; der Stromverkauf ist defizitär und muss durch den Staatshaushalt ausgeglichen werden. Das Tarif- und Preisregime als wichtigstes sektorpolitisches Steuerungsinstrument zur effizienten Energienutzung setzt in Nepal keine Anreize für eine sparsame und effiziente Nutzung von Energieressourcen.

Seit 2008 arbeitet das ‚Water and Energy Commission Secretariat‘ (WECS) an einer ‚Nationalen Energiestrategie‘, zu der derzeit ein breiter Konsultationsprozess durchgeführt wird. Nach Aussagen von WECS soll im Juli 2009 der Entwurf fertig gestellt sein. Das durch die Regierung dafür bereitgestellte Budget beträgt ca. 150.000 EUR. Weiterhin soll nach Aussagen von WECS im Anschluss an die Verabschiedung der ‚Nationalen Energiestrategie‘ die Formulierung einer ‚Nationalen Energiepolitik‘ erfolgen.

Der 10. Fünf-Jahresplan (2002/03 – 2006/07) zielte stark auf Armutsminderung ab. Die für den Energiesektor abgeleiteten Entwicklungsziele beschränkten sich auf den Elektrizitäts-sektor und sahen sowohl die Ausweitung der Stromnetze in den ländlichen Raum vor als auch den Ausbau der Wasserkraftkapazität. Eine Gegenüberstellung quantitativer Schlüsselziele mit den realisierten Ergebnissen ist ernüchternd:

Maßnahme	Zielgröße	realisiert	Quote
Ausbau der Wasserkraftwerke	315 MW	40 MW	13 %
Erweiterung der Hochspannungsleitungen	420 km	47 km	11 %
Erweiterung der Verteilungsleitungen	8672 km	2100 km	24 %

Die in Kap 3.1 erwähnte Diskrepanz zwischen Entwicklungsplanung und -realisierung des 10. Fünf-Jahresplans trifft also auch für die gesteckten Ausbauziele des Elektrizitätssektors zu. Die angestrebten Reformziele im Elektrizitätssektor wurden ebenfalls praktisch nicht realisiert.

Auch im aktuellen Drei-Jahres-Interimsplan (2007/2008 – 2009/2010) werden die Ausbauziele voraussichtlich nicht erreicht werden können.

Neben dem Ausbau der Stromerzeugungskapazität sahen und sehen die Entwicklungs-planungen sowohl eine breitere Versorgung der ländlichen Gebiete mit Elektrizität vor, als auch eine Steigerung des pro-Kopf-Verbrauchs an Strom. Allein im aktuellen Drei-Jahres-Interimsplan wird eine Steigerung des jährlichen Stromverbrauchs pro-Kopf von 76 kWh auf 100 kWh als Zielmarke angegeben.

The power sector objectives of the country include “increasing rural electrification to promote economic growth and improve living standards and to develop hydro power as an important export item”.