Future proofing Nepal’s energy sector

Nepal’s energy sector has witnessed a major shift in recent years, as we have gradually emerged from an era of electricity crisis to one of electricity surplus. Until May 2018, when the Nepal Electricity Authority (NEA) officially announced the end of load shedding in Nepal, we were reeling from up to 18 hours of acute power outages. Fast forward to October 2022, and the NEA faced a new challenge: it had to spill almost 800 MW of electricity during the Dashain festival[1]. A country with a population of almost 30 million is already panicking about potential electricity spills, though we have not even reached 3,000 MW of installed capacity. With more than 6,400 MW of signed PPA projects and expected commercial operation dates due by 2026, it will be a nightmare if we don’t find the demand to consume all the generated electricity. To make matters worse, around 95 percent of these projects are hydropower-based, and the future looks even more perilous due to the impact of climate change on the Himalayas. Hence, we not only need to find adequate demand for our electricity, but we must also make our energy sector more resilient to withstand possible climate shocks.

Increasing electricity consumption

Almost 95 percent of the population now has access to electricity; nonetheless, our per capita electricity consumption is merely 350 KWh, and electricity contributes to less than 10% of the total energy consumption. We still rely heavily on traditional sources of energy like firewood, agriculture residue and animal waste, which contribute more than 65% of total energy consumption[2]. Hence, low-hanging fruits are to replace fossil fuel use with electricity, especially in the cooking and transportation sectors.

E-cooking

As per the latest census, only 0.5 percent of households use electricity for cooking. While the majority of population uses firewood for cooking, we also spend a hefty sum to import Liquefied Petroleum Gas (LPG). We spent around Rs 65.55 billion in the last fiscal year alone on LPG imports. Though our Sustainable Development Goals (SDG) target set in 2015 was to limit the use of LPG to below 40 percent of households by 2030, we have already surpassed the limit halfway before the deadline, as the census shows that 44.3% of households are already using LPG for cooking. We are so addicted to LPG that our import skyrocketed by 81.31 percent, as we imported 535,865 tonnes of LPG last year compared to 477,422 tonnes the previous fiscal year.[3] There is a great opportunity to substitute LPG consumption, at least in urban areas, with electric cooking. An assessment conducted by Modern Energy Cooking Services (MECS), also ranked Nepal 2nd among the 130 countries for e-cooking scale up viability[4]. In the second nationally determined contribution (NDC) submitted to UNFCCC in 2020, our government set a target to have e-cooking in 25 percent of households[5].

As per the census, the total number of conventional (non-institutional) households in 2021 is 6,660,841[6]. The Alternative Energy Promotion Center (AEPC) has already secured a Green Climate Fund project to supply 500,000 units of e-cooking stoves in 22 districts in the next five years[7]. Although a commendable plan, it only covers 7.5% of the total households. Hence, if we are committed to meeting our goal of penetrating 25 percent of households, we must do more. However, infrastructure could become a bottleneck to meet this target. Of the 5.32 million consumers of NEA, almost 48 percent have only 5 Amp meter[8]. Without upgrading them to higher Amp meter, it would be very difficult for e-cooking to become our dominant cooking solution.

E-transportation

In the transportation sector, there is growing popularity for Electric Vehicles (EV), which can be seen by the increased in imports of EVs, which was 60.95 percent in the first seven months of the current fiscal year compared to the same period a year ago[9]. The NEA also considers EV a better opportunity as it does not put additional pressure on its overloaded peak load if the charging is done during non-peak hours. The NEA has already begun to invest in charging stations, and construction is underway to build 52 units of 142 KW EV fast charging stations in 33 locations spread throughout the country. Likewise, many EV dealers have set up their own charging stations for their customers. However, so far the EV momentum has only caught on with private vehicles, and it has yet to woo the public transportation sector. The unfair prioritization of the Government policy skewed toward private vehicle, has been blamed for this disparity[10]. Nonetheless, we do have a national target to have 60 percent of all four-wheeler public passenger vehicle sales to be EV by 2030[11]. Like LPG, we also import a shear amount of diesel and petrol. In the last fiscal year, we imported Rs 168.23 billion worth of diesel and Rs 71.39 billion worth of petrol. Replacing them with electricity will not only reduce our imports but will also reduce our carbon emissions and help us achieve our target of net zero emissions by 2045[12].

Export

There is an undeniable potential for exporting electricity to our power-hungry neighbors, especially India and Bangladesh. Nepal is the first country in South Asia to participate in Indian Energy Exchange (IEE). Last fiscal year, the NEA exported 493 GWh of electricity, compared to just 38 GWh the year before. Though the progress is very commendable, we still imported more from India than we exported, as we ended up importing 1543 GWh. However, it was 45 percent less than that of fiscal year 2020/21. As of now, Nepal has obtained concurrence from the Government of India to export around 364 MW of power from six hydropower projects, which the NEA has been exporting through the Dhalkebar-Muzaffarpur 400 KV transmission line. More transmission lines are being planned to export around 13,200 MW of power to India and China. However, much will rely on geopolitics to make the cross-border transmission happen. Even before that, there is another challenge to manage local politics to get the right of way to lay transmission lines within the country.?We are running against time, though, as the NEA has projected the electricity surplus of 3,036 GWh for this fiscal year alone, with projection of 19,175 GWh by 2026/27.

Green Hydrogen

Nepal could also use surplus electricity to produce green hydrogen that can be further processed to produce chemical fertilizers like ammonia and urea. Nepal imports a significant amount of chemical fertilizer - around 800,000 metric tons annually, costing the government around NPR 22.4 billion[13]. To make the cost of Urea more affordable to farmers, the government provides a subsidy of NPR 15 per kg, which represents an 86.6% discount[14]. While this measure increased affordability for farmers, it has also led to a high trade deficit and put pressure on the government's foreign exchange reserves. Green hydrogen production could address these issues by facilitating energy-intensive and hard-to-decarbonize sectors such as industry and transportation, and subsequently producing ammonia-based fertilizers. A study conducted by the Investment Board Nepal (IBN) showed that we need around 10,800 MWh of dedicated and uninterrupted electricity daily (i.e., around a 450 MW size project) to produce 700,000 metric tonnes of chemical fertilizer annually[15]. However, the report also deems water electrolysis technology (Green Hydrogen based option) comparatively expensive than the natural gas option at current electricity tariff of Rs 8.16 per KWh. The report recommends lowering the electricity tariff to Rs 3 per KWh to make the Green Hydrogen to Urea project commercially viable.

Climate Change

According to the latest IPCC report published in 2022, there is high confidence that temperature warming is expected to increase up to 2°C by 2050 in the Himalayas[16], which could result in irreversible glacier melt that could affect the hydrological system of the region and lead into extreme flooding and Glacier lake outburst flood (GLOF) that could severely damage our hydropower projects. Nepal had already lost 24% of its glacier between 1980 and 2010[17], and one study warns that, in case of business-as-usual carbon emissions, global temperature could increase by 5°C, ?which could wipe out two-thirds of the Hindu Kush Himalaya glaciers by 2100[18]. Hence, it is crucial for all hydropower project developers to conduct climate risk assessments and take necessary measures to protect their hydro projects from the potential impact of climate change.

Energy mix

Moreover, it would be wise not to put all our eggs in one basket but, rather, to diversify the energy generation source by optimizing the energy mix as much as possible as a risk management measure. The current policy only allows up to 10 per cent of electricity to be connected to the national grid from other renewables, viz wind, solar and bioenergy. Arguable, with such a huge potential for hydro power and being one of the cheapest sources of electricity, it does seem economical to allocate 90 per cent of the grid for hydroelectricity. However, with the risks of climate change becoming prominent and imminent, we must add more non-hydro renewables to the grid. We have to upgrade our grid to make it robust enough to accommodate as much intermittent renewable energy sources like solar and wind as possible. In 2021, Denmark had 48.6 percent wind and 4.2 percent solar in its electricity generation, proving the technical viability of intermittent sources[19]. Therefore, we should aim to maximizing the energy mix in our grid to minimize the risk of climate change.

We should prioritize replacing coal with biomass fuel, which is a cleaner alternative that can reduce greenhouse gas emissions and improve air quality in Nepal. Forests cover roughly 44 percent of Nepal’s land mass, providing around 1,159.65 million tonnes of above-ground air-dried biomass[20] that could be used to produce biomass briquettes and pellets. Using the forest litters could also minimize the risk of forest fires during dry seasons.

Additionally, there is potential for Waste-to-Energy, especially from municipal solid waste and animal manure and chicken litters. According to a report by CBS, 276 municipalities in Nepal generate 746,282 metric tonnes of solid waste annually, of which around 39 percent is organic[21]. Furthermore, we have more than 13 million cows and buffaloes, and over 11 million laying hens[22]. Using only 20 percent of organic wastes from these sources could easily replace 60 percent of the LPG imports.

Off-grid electrification

Off-grid electrification is also critical. Despite any surplus electricity we may have, some households will still be off the grid due to rough terrain and remoteness. The Gesto report predicts that at least one percent of households in Nepal will always be permanently off-grid[23]. According to the Constitution of Nepal 2015, Local Governments are responsible for for renewable energy projects. The AEPC should collaborate with Local Governments and build their capacity to implement off-grid electrification projects. We need to engage both private sector and civil society organizations to build, own and operate solar mini-grids and micro-hydro projects using the Renewable Energy Service Company (RESCO) model to attract additional investments for scaling up renewable energy projects.

Conclusion

Nepal's energy sector has made significant progress, but it still faces challenges in increasing electricity demand, reducing reliance on traditional energy sources, and making the sector more resilient to climate change. Strategies like promoting e-cooking and EVs, as well as exporting electricity to neighboring countries, can help future-proof the sector. We must invest in cross-border transmission lines and upgrade our distribution systems, and come up with various incentive schemes such as favorable electricity tariff rates and capital subsidies to shift our energy consumption to electricity. We should aim to increase our per capita electricity consumption to 1,500 kWh by 2030. However, we must be cautious considering the potential impact of climate change in the Himalayas. Climate proofing our infrastructures and optimizing energy mix in our electricity generation should be our risk management measures.

(Published in Urja Khabar, Issue 4, 16 June 2023)

[1] https://kathmandupost.com/national/2022/10/10/nepal-loses-rs200-million-in-dashain-power-spillage

[2] WECS. (2022). Nepal Energy Sector Synopsis Report-2022.

[3] https://kathmandupost.com/money/2023/04/30/nepal-undermining-hydropower-as-it-seeks-to-ease-fuel-imports-experts-say

[4] https://mecs.org.uk/resources/factsheets/factsheets-bangladesh-india-nepal-srilanka/

[5] https://climate.mohp.gov.np/30-manuals/167-second-nationally-determined-contribution-ndc-gon-2020

[6] https://censusnepal.cbs.gov.np/results/downloads/national

[7] https://www.greenclimate.fund/project/fp172

[8] Nepal Electricity Authority, annual report 2021/22 https://www.nea.org.np/annual_report

[9] https://kathmandupost.com/money/2023/02/23/nepalis-turning-to-electric-vehicles-evs-in-tactical-shift-imports-jump-61-percent

[10] https://www.ukaalo.com/opinion/230205-electric-vehicle-or-stove-priorities-nepal/3862

[11] https://climate.mohp.gov.np/30-manuals/167-second-nationally-determined-contribution-ndc-gon-2020

[12] Nepal's Long-term Strategy for Net-zero Emissions https://unfccc.int/documents/307963

[13] https://www.mof.gov.np/uploads/document/file/1674635120_Economic_Survey_2022.pdf

[14] https://ibn.gov.np/wp-content/uploads/2022/03/Summary-Report_chemical-fertilizer_2021-1.pdf

[15] IBN report https://ibn.gov.np/wp-content/uploads/2022/03/Summary-Report_chemical-fertilizer_2021-1.pdf

[16] IPCC Sixth Assessment Report https://www.ipcc.ch/report/ar6/wg2/

[17] Bajracharya, S.R., et al., 2014: Glacier status in Nepal and decadal change from 1980 to 2010 based on Landsat data. International Centre for Integrated Mountain Development, ISBN 978-9291153114.

[18] https://www.icimod.org/landmark-study-two-degree-temperature-rise-could-melt-half-of-glaciers-in-hindu-kush-himalaya-region-destabilizing-asias-rivers/

[19] Denmark electricity mix 2021 https://www.statista.com/statistics/1235360/denmark-distribution-of-electricity-production-by-source/

[20] THE INDUSTRIALISATION OF FOREST-BASED BIOENERGY PRODUCTION IN NEPAL AND ITS IMPACTS ON WOMEN AND OTHER FOREST-DEPENDENT PEOPLES https://globalforestcoalition.org/wp-content/uploads/2022/10/Informe_nepal_4.pdf

[21] https://cbs.gov.np/solid-waste-account-for-urban-municipalities-of-nepal2022/

[22] STATISTICAL INFORMATION ON NEPALESE AGRICULTURE 2077/78 (2020/21) https://moald.gov.np/wp-content/uploads/2022/07/STATISTICAL-INFORMATION-ON-NEPALESE-AGRICULTURE-2077-78.pdf

[23] Gesto Energy. (2020). Distribution System/Rural Electrification Master Plan Nepal.