Small Hydropower Promotion Project, Off-grid Rural Electrification with Micro / Mini Hydropower

From energypedia


This is part of a condensed report on the Small Hydropower Promotion Projct (SHPP).

For an overview on the whole report please refer to following page: SHPP Report.

With an electrification rate of 48%, and a topographically difficult situation to provide all Nepalese citizens with electricity through the national grid, harnessing renewable energy sources holds a great potential for electrification by simultaneously supporting environmental conservation and sustainable development. The government of Nepal has therefore initiated a public subsidy mechanism, the Rural Energy Fund (REF), to deliver renewable energy services in rural areas. The mandate to apply and implement these subsidy schemes was given to the Alternative Energy Promotion Center (AEPC). For the subsidy scheme, which is applied in form of ‘public private partnerships’ the government of Nepal is supported by international donors, mainly Norway, Denmark, Netherlands, the EU and UNDP. Besides micro and mini hydropower, various technologies such as solar home systems, biogas, solar dryer/cooker, solar PV, improved water mills are also supported via these subsidy schemes.
Politically the promotion of micro and mini hydropower has been strongly supported by the government of Nepal over the last two decades. Thus the hydropower development policy, which was first introduced in 1991 and amended in 2001, sets that hydropower schemes with capacity up to 1 MW do not need a license, are freed from income tax and no royalty levy is applied. As of the year 2008 more than 1200 pico hydropower schemes (below 5 kW) were built in Nepal. In the range of 5 kW to 1 MW approximately 720 schemes were commissioned to produce off-grid electricity for rural communities.
Status of technology provision in Nepal
For the approximately 2000 hydropower schemes below 1 MW most of the components for the power plants including gates, trash racks and turbines are manufactured locally. The generators are imported from India. The control panel circuits and electronics are designed locally and assembled in workshops. Some of the workshops in the country have been manufacturing and installing micro-hydro components for over 30 years.

Alternative Energy Promotion Center (AEPC) Subsidy Scheme for Mini / Micro Hydropower

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 a semi-autonomous status and is formally attached to the Ministry of Environment, Science and Technology (MoEST). 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. (link partly Energypedia)
AEPC receives 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), set up in 1999 and mainly financed by Denmark and Norway. This programme aims to improve the supply of rural energy (solar home systems, small hydro power plants, biogas plants, efficient stoves). In the context of ESAP, AEPC manages the Rural Energy Fund, established to deposit and disburse subsidies in forms of economic assistance made available from various sources for the development of renewable (rural) energy (partly energypedia).
Two main documents describe the general outline for the subsidy mechanism in Nepal: In July 2009, AEPC published a Ministry of Environment Government of Nepal approved ‘subsidy policy for renewable (rural) energy’ . In February 2010, the latest ‘renewable (rural) energy subsidy delivery scheme’ was published. Both documents outline the eligibility criteria and delivery mechanism for subsidy application for non-electrification and rural electrification measures.

Subsidy for Mini / Micro Hydropower (MMHP) and Application Mechanism

Subsidies for MMHP between 5kW and 500 kW (approx.):

  • 200 USD per household, max. 1730 USD per kW installed capacity
  • Transportation subsidy: 7 USD per kilometer and kW, for the distance the porters have to travel from the nearest road head, but not more than 415 USD per kW
  • Productive end-use subsidy: depending on business plan up to 130 USD per kW, but not more than 3000 USD per project
  • For rehabilitation projects a subsidy of 50% of the installation costs is provided, but not more than 830 USD per kW.

For MMHP, subsidies are only provided for projects up to 500 kW. As rule of thumb, approximately 50% of the total costs are covered by the governmental subsidy. Any private or public company, cooperative and other entity recognized by the law of Nepal may apply for the governmental subsidy, become a mini-grid developer and assume ownership of the project.
After application, a Technical Review Committee evaluates the technical and financial feasibility of the projects. The final subsidy for MMHP is based on the number of households to be served by the MMHP, ensuring directly and indirectly that all households in the community will be served with the generated electricity. Besides this subsidy additional funding for transportation and productive end-use application is provided. Only pre-qualified consultants, manufacturers and installers can plan and build the MMHP. The project developer applying for the subsidy schemes needs to ensure and verify that all planned for households are electrified and the proposed tariff plan meets the operational costs of the scheme.

Successes of MMHP Subsidy Scheme

The government of Nepal has given priority to rural electrification. With the introduced subsidy scheme, micro and mini hydropower projects become financially attractive and viable. Additionally, the inbuilt extensive community participation increases the ownership and therefore sustainability of the schemes – major decisions are made by the community members.
Since its introduction in 2001, the subsidy scheme has helped to electrify approximately 35,100 households by MHPs with an overall capacity of 3.9 MW (2009). Currently 477 ongoing projects in various stages of completion are expected to electrify a further 119,000 households, supplying additional 13.4 MW. These 63 projects with an estimated power supply for 19,000 households are currently under construction. Since the start of the second phase of ESAP in 2004, 199 million NPR were provided as subsidies for MHPs. In total, the subsidy budget is approximately 1.6 billion NPR, planned to be utilized for the electrification of around 150,000 households.
Over 30 consulting companies (for MHP design work), 15 manufacturing workshops and over 20 installation companies throughout the country are pre-qualified by AEPC to plan and build MMHP within the subsidy scheme.
For further information see AEPC Annual Report 2009.

Challenges of MMHP Subsidy Scheme

Even though the subsidy scheme supported to a large extent the further electrification of rural Nepalese people, some challenges are still faced by the programme and the sector in general. The high initial costs for MMHP installments despite high government subsidies, still make MMHPs unaffordable for many local people and villages.
Even if built, it is often a challenge for the villagers in the remote areas to operate and maintain the system in a sustainable way. Capacity building, which is incorporated into the subsidy scheme, is still limited and would need to be increased within the system.
MMHP schemes are in many cases utilised for lighting purposes only, which leads to a very low load factor – often the hydropower scheme is only used between 4 to 6 hours per day, thus generating only a little income to the ‘village utility’ making it difficult to build enough reserves for maintenance and repairs. Promoting and supporting productive end-use within the villages would help to overcome this challenge by increasing the load factor, thus increasing the generated income and also increasing income by producing marketable goods. Further adequate promotion and information dissemination could increase efficiency of the MMHP in Nepal.
-> For more information about subsidy schemes click here.

SHPP’s Support

Since SHPP was mainly focusing on small hydropower schemes in the range between 1 to 10 MW feeding into the national electricity grid, the involvement in the micro/mini hydro off-grid power sector was limited to supporting AEPC in the review of feasibility studies and advising AEPC on general sector issues. In 2006, SHPP reviewed approximately 300 feasibility studies which were prepared by pre-qualified consulting companies. By reviewing these feasibility studies, SHPP supported AEPC in building up capacity to appraise the technical correctness and completeness of the studies.
During its early years the subsidy was only applicable for schemes up to 100 kW. Due to advice from SHPP and others, this limit was later extended to schemes up to 500 kW. Additionally, AEPC’s mandate now covers the assessment of hydropower schemes up to 1 MW installed capacity. For AEPC to handle schemes in the higher capacity range SHPP supported the institution by conducting a 5 day training for AEPC and other sector stakeholders on ‘Feasibility Study Evaluation for hydropower schemes from 100 kW to 1000 kW’. A practical on-site-training plan is imminent.

Regarding general advice SHPP has pointed out the following areas of possible intervention:

  • Constantly improve quality of MHP through optimized feedback loops
  • Improve load factor by systematically introducing productive and diversifying end-use applications

Looking beyond the off-grid application of MMHP, SHPP also pointed out that it will become important for future development of the micro and mini hydropower sector to incorporate future grid-interconnection of the isolated schemes for cases where it is possible that the national grid arrives in the future. Where electricity grid is unlikely to reach in the future the other possibility SHPP advised was to interconnect close by MHPs into one local grid. This would lead to an improved distribution system. For this, the technical requirements would need to be introduced and the management skills of the communities enhanced. -> For further information about the topic off-grid to on-grid click here.

Further Information