Barriers to scaling small distributed renewable energy systems – Nepal
Nepal’s energy situation has taken a U-turn in the last one and half years. We have come a long way from darkness of load shedding to a completely reliable supply through the national grid. Though we still import up to 30% of our electricity from India, we have managed to build proper infrastructure to do so in more efficient manner. This dry season, though expected, we did not face any load shedding, especially in the urban area. Does this mean that we are energy self-sufficient now? Our electricity demand is estimated to rise to 18,000 MW in the next 20 years. We have great potential in hydro, however, now is also the time to think about diversifying our energy mix to achieve reliable, efficient and lower cost energy supply. Energy for all by 2025, Nepal government's vision will not be possible without strategic implementation of distributed renewable energy generators (DREGs) both for energy access and reliable grid.
The developed world is moving away from centralized generation to distributed generation system. Nepal should start moving towards the same direction. US energy mix now consists of 10% renewables and is expected to constantly grow. China targets to go 100% renewable energy by 2050. India has set a goal of 100 GW by 2022 out of which 40 GW is expected to be injected from distributed renewable energy generators (DREG) or rooftop solar. Nepal’s urban area is an ideal location for DREG. One good aspect of rampant urbanization is the availability of roof space to generate enough renewable energy to manage higher demand of big cities during daytime. With the cost of grid electricity price ever rising, prospect of DREGs seems better than at any point in time. So, what are the barriers which are or can impede the scalability of DREGs?
CAPEX or Capital Cost
The upfront investment for installing small-scale renewable energy solution is high. Per KW cost of these systems is anywhere from 1.5 Lakhs to 2 Lakhs depending on the size. The price per KW does go down as the system size increases. During the long hour of load shedding days, customers had no choice but to install the solar battery back-up solution. They did not care much about the cost. But now, the grid supply is reliable. To invest large amount to save energy cost on a long run is a hard prospect to sell. Anyone who is investing, especially in Nepal wants a quick return; comparable to real estate investment or high interest-bearing account.
Delay in implementation of net metering
It has been almost a year since Nepal Electricity Authority first came out with a policy to drive net metering systems. Net metering is a process of managing your electricity bill by producing electricity in your own premise by DREGs and exporting excess energy which is not utilized by captive load back to the grid. The energy imported and exported are netted thus your electricity bill reduces. Ministry of Energy has brought forward several policies. However, there seems to be a major lack of coordination between the ministry and Nepal Electricity Authority (NEA) regarding net metering. Two contradicting policies have come out from them that has added to the confusion. The contradiction is not limited to minor details. Fundamentals of their policies do not match at all. This further delays the implementation of net metering. It seems that the ministry and NEA are working independently without consultation. Apart from the policy level issues, NEA is missing the most important device necessary for net metering, the net meter, which is still in the process of procurement. The customers who were excited a year ago have already lost interest by now.
Availability of affordable and reliable Financing
The only way we see DREGs net metering system scaling is with affordable easy financing. Though there have been many schemes for solar financing in the past, none have been effective. The subsidized interest rate often seems to keep rising as the bank’s base interest rate increases. For example, most recent interest subsidy for solar started at 2.5% per annum where the government covered the gap between the bank rate and solar interest rate (2.5%). But as the liquidity crisis deepened, banks raised their interest rates. With the rising interest rates, the 2.5% interest rate soon became 7%. There was no mechanism to cap the solar interest rate at 2.5%. Customers who expected their solar EMIs at a certain amount, saw it rising every month. Now, it will be twice as hard to convince solar users to access “soft” loans for their system. Banks also seem very reluctant to finance small-scale systems. Even if they do; a collateral is required. Pure energy financing is a distant concept in Nepal and we highly doubt it will be a part of mainstream banking system anytime soon.
The solar legacy
Customers have had a poor experience with solar in urban areas of Nepal. Whether because of the high cost or lack of service provided by solar companies. So much so that customers seem to turn their heads away when they hear solar. We have visited many households and institution who have installed solar, the feedback has been the same everywhere. Managing the batteries have been a nightmare. Inverters getting shot occasionally is another common problem that customers have faced. There are grievances related to price and performance of the system as well. The service provided (or lack of it) has been appalling. Changing customers perception that the new form of solar (grid-tied) is different from old battery backup system is a major challenge.
Lack of innovative incentive schemes
As mentioned above, the existing interest subsidy schemes have not been very effective. Capital subsidy schemes have also failed. The problem with capital subsidy is with delivery and fraud.
In many parts of the world, innovative incentive schemes have played a big role in scaling of DREGs. In the US, incentive is given as Investment Tax Credit (ITC). Consumers can offset up to 30% of their tax liability under the scheme. It has been very effective. Whereas in India an upfront 15% capital subsidy is offered, which has not been very effective. Policy makers need to treat solar electricity producers same as hydroelectricity producers. To scale DREGs, Renewable Energy Service Companies (RESCOs) must play the role of aggregators of DREGs. If RESCOs can access similar incentive to that of hydro developers, DREGs have a great future. Subsidies must be fair, effective and contribute to the adoption of the renewable energy by the masses. DREGs help the utilities the most, if the incentive is driven by the utilities, it will have a sustainable impact.
Lack of RESCOs
There are many solar companies in Nepal, but they are all operating on a trader model rather than a RESCO model. The opportunistic selling of solar is in the history books now. Companies that are limited to traditional model have already or soon inevitably close shop. We need more innovative companies, operating on pure RESCO model. Companies that can think outside the box, take risk and deliver. I see the lack of it as the foremost and the biggest barrier in scaling DREGs. We need a lot of RESCOs to scale DREGs and renewable energy in Nepal.