How to solve Nepal’s Intraday peak load management and seasonal variance challenges

Executive Summary

In last five years Nepal has leapfrogged from being electricity deprived and facing 14 hours of load shedding (THT, 2016) to being electricity surplus but not finding a proper market to export (TKP, 2021). The progress nevertheless comes with its own set of challenges. 1. Managing Intraday Peak Load – Nepal’s peak load is from 6:00am-9:00am and 6:00pm-9:00pm, to manage peak load Nepal Electricity Authority (NEA) the monopoly utility in Nepal has a few options – a. Increase import from India b. Develop more generators (mainly Run of River Hydro Plants) c. Battery Energy Storage System (BESS). NEA has been focused on first two options; both are economically more inefficient. The second challenge is 2. Seasonal Variance – Most of the hydro power plants in Nepal are RoR therefore the capacity of these plants is more than 50% lower during dry season but during the wet season the plants generate in full capacity leading to electricity surplus. Kulekhani Hydro Power is the only power plant with storage capacity of 92 MW (NEA, 2020) which aids daily peaking and manages dry season load. Nepal desperately needs progressive policies around BESS combined with renewable energy or domestic hydro power to manage the daily peaking and seasonal variance challenges.

Context of the Problem

Once electricity deprived, Nepal’s policy focused immensely on building as many hydro plants as possible. The political feasibility led Nepal to develop only run of river hydro plants as they were quicker to build than storage-based hydros and the geopolitics between India and Nepal made it very hard for Nepal to develop large scale storage-based hydro, except Kulekhani as mentioned above. As policies around renewables were being adopted progressively around the world Nepal missed a chance for a head start. Nepal only formulated a policy around solar in 2018 (ministry, 2018). A well thought policy and strategy around solar would have also helped in solving the seasonal variance issue as solar production would be quite high during dry season when hydro production goes down. Due to lack of foresight of the policy makers, a BESS in combination with solar or hydro is still a distant solution. Though Nepal boasts an electrification rate of 95%, it still imports 50% of its electricity from India (Urjakhabar, 2021). Out of the 95% electrification most rural areas depend on very erratic supply with a lot of voltage fluctuation. The quality of electricity in the cities and to the last mile is very different and unfair.

Problem Analysis

Assessing symptoms

The symptoms have been severe for many years now. However, there is no action from NEA (bureaucracy) or the ministry (government) to solve the two major challenges of intraday peaking and seasonal variance in the electricity sector in Nepal. Some of the most concerning symptoms are:

Electricity import from India

Nepal is one of the richest countries in the world when it comes to water resources. Nepal built its first hydro plant more than 100 years ago before developed nations of today had access to modern electricity. But Nepal needs to import more than 50% (urjakhabar, 2021) of total electricity to meet demand from India. The importing of electricity has a huge economic impact as a lot of foreign exchange is used to pay for the electricity. As cross border electricity transaction becomes easier through infrastructure development, Nepal seems more inclined towards solving the electricity challenge through import. This has been very discouraging for the domestic power producer. At a time when Nepal has surplus electricity, it has not been able to find a secure market to sell its electricity and on the other hand it must import electricity to solve intraday peaking and seasonal variance challenges.

Lack of quality supply to the last mile

Nepal boasts a 95% electrification rate. But the quality of electricity supplied to rural areas is very erratic. Due to long distance of transmission lines and lack of sub stations, the voltage drops to very low level by the time electricity is transported to rural areas. Nepal also lacks the last mile distribution infrastructure because a huge percentage of budget is utilized towards building transmission lines. This also results in huge transmission losses which directly reflects on NEA books and prevents NEA from making progressive investments.

Hydro and import dominated electricity mix

Nepal’s electricity mix is dominated by hydro power and imported electricity. Nepal is not prepared for extreme situation where multiple hydro power plants could be damaged by a natural calamity (hydroreview,2017). Nepal is also not prepared for what happens if importing electricity fromIndia becomes impossible or very expensive. Our energy security (market failure) is also at stake. The recent coal crisis in India was one of the many instances that could arise in the future. India has implemented embargo on Nepal on multiple occasions. If a similar situation arises in the future, India could stop supply of electricity with a push of a button and Nepal would again have to face huge load shedding.

Problem Framing

Though the current electricity situation has improved immensely compared to five years ago, Nepal still needs to address a few major challenges through innovative policy formulation and implementation. There are multiple market failures at play which helps us in framing the problem

Natural Monopoly – NEA, a government entity is the sole utility company in Nepal. NEA owns 50% of the internal power production and controls 100% of transmission and distribution of electricity. Private sector is not allowed to participate in electricity trading or hold private asset in transmission and distribution infrastructure. This has led to a dismal progress in electricity sector in Nepal. When private sector is refrained from participating in electricity trading it creates an imperfect competition.

Negative Externality – Nepal imports 50% of its electricity from India, which is generated from coal plants, the most polluting source. The Indian carbon emission has led to huge climate change crisis in the Himalayas. Nepal is dependent on the Himalayas for water, electricity, and tourism. The price of importing dirty electricity from India is way more than what we pay per kWh.

Regulatory Capture – Hydro power developers have been in the forefront of electricity generation in Nepal. They have at many times used their power to turn policies in their favor and restrain progressive policies for renewable energy and BESS.

Bureaucratic inefficiency – The result of NEA being a natural monopoly is reflected by the lack of vision and implementation capacity of NEA. The lack of vision in earlier years of management has resulted in the situation the country is in right now.

Modeling of the Problem

Nepal is termed load shedding free nowadays and 95% electrified country one of the highest in comparison to its peers. The two terms that are used are misleading.

Load shedding free – Though we do not face long hours of power cut in recent times, the energy security risk is higher than it has ever been. We are importing 50% of the electricity to meet our demand which leaves us with no other option if India does not export electricity to Nepal. The terminology should be import free electricity rather than load shedding free. It seems a bit harsh, but the reality is that if we are dependent on imported electricity we are at great risk.

95% electrified – Though electrical lines have reached 95% of the country the quality of electricity at the last mile is dismal. The measurement of successful electrification should be done through quality of electricity that is being supplied than simply using a number signify electrification.

These problems could be solved through policy and technology intervention. A progressive and well round policy around BESS can solve these issues for Nepal.

Solution Analysis

Policy goals and Impact categories

Sustainability

The target to reduce import of electricity to manage intraday peaking and seasonal variance could reduce Nepal’s carbon emissions as it currently imports dirty electricity from India. BESS backed by renewable energy will have much less environmental impact compared to large hydro plants and imported coal plant generated electricity from India.

Equity

Distributed BESS can improve electricity supply to the last mile and will contribute to increase their standard of living. It will empower domestic power producers to operate BESS and will help domestic business raise investments and create employment. It will also prevent outflow of foreign currency which will have a significant impact on the next generation of the country.

Economic Efficiency

Instead of outflow of foreign currency, a strong policy around BESS could empower domestic developers. If a tariff policy which is favorable for power producers but at the same time helps reduce cost of electricity all over Nepal could potentially lead to better economic indicators.

Introduction to policy options

Status Quo

Currently there are no policies around BESS in Nepal

NEA could formulate and implement policies at two strategic levels explained below.

Over the meter policy

Over the meter basically means at utility level and not consumer level. There could be multiple policies which focuses around over the meter battery BESS.

Feed in Tariff for large scale centralized storage system (FiTLS) – A large scale BESS for Nepal would mean a system with capacity of 5 MW or more which is based in a centralized but strategic location. Private sector should be allowed and encouraged to build and operate these systems in an Energy as a Service (ESCO) model or Build Operate Transfer (BOOT) model. The initial tariff should be structured to suit private sector investment. The return from this investment should be as good as return from any other power sector investment. The peak tariff should be higher than current peaking tariff for storage hydro as BESS are still a high CAPEX investment.

Feed in Tariff and peak load shaving incentive for distributed small and medium scale BESS (FiTD)

The tariff structure around distributed BESS must be designed a bit differently than central BESS. These distributed systems will be placed in strategic locations which sometimes might be very remote. These systems will help in providing reliable modern electricity to rural area at the same time helping NEA reduce exhaustion in its system by reducing transmission losses and voltage drops which has reverse trickle effect on the entire power system. These systems should also be given extra incentive for shaving peak load. By diverting the peak load to 100s of these small, distributed storage system entire power system of Nepal will benefit. It will help in reduction of import at the same time and will have positive impact on quality of the grid. These systems will also help in managing intermittency of renewable generators which has erratic generation curve.

Under the meter policy

Under the meter policies revolve around consumers and changing consumption patterns to help utilities manage peak load and incentivize consumers.

Time of day metering for households (ToDH)

Households makes up 26% of the total consumption of electricity. Households pay a flat rate at all times of the day. For households to adopt BESS, time of day metering and differential tariff is a must. The policy should allow consumers to benefit from using BESS during peak time thus helping NEA manage peak load. Without time-of-day metering and differential tariff policy adoption of BESS at household level is not possible.

Peak load shaving discount for industries (PLSI)

After households, industries consume the most power in Nepal. Industries do have time of day metering and differential tariff between peak and off-peak hours. But the difference is not enough for industries to implement BESS. A policy which will incentivize industries in form of discount on their electricity bill for reducing peak load usage would be a game changer and increase financial feasibility of BESS at industrial level tremendously

?Incentive for ESCOs (IfE)

ESCOs can play a significant role in helping NEA manage peak load and seasonal variance challenges. For example – if a ESCO installs BESS in an industrial area totaling 5 MW, NEA could benefit if ESCO aggregates the system and helps in shaving the entire 5 MW load during peak hour through digital control. For this, ESCOs must be incentivized in form of capital subsidy and peak load aggregation discount. The scheme could be but the financial feasibility for ESCOs is a must for this model to scale.

Recommendation

All five recommended policies would have a tremendous impact on overcoming intraday peak management and seasonal variance challenges for NEA. BESS policies if formulated innovatively and implemented correctly could change Nepal’s power sector landscape.?But as one weighs in not all five policies are ready to be formulated and implemented right away in Nepal’s context. The two policies that is highly recommended which could be implemented in short time and will have huge capacity to scale are:

Feed in Tariff for large scale centralized storage system (FiTLS)

Large scale BESS could be implemented by either NEA using government funding or by an existing Individual Power Producer which has the capacity to invest, technical expertise and operational expertise to build and manage a central BESS. Central BESS does not need a lot of consumer interface and could be implemented in a short time. There will not be many stake holders, it could also be developed in a Public Private Partnership model. The policy must clearly define the FiT for these large-scale BESS which needs to be financially feasible. If NEA builds in support of the government, government could contribute by providing land and other evacuation facilities as well.

Peak load shaving discount for industries (PLSI)

This is another low hanging fruit. Almost every industry is already equipped with BESS to manage grid intermittency. If right set of policies are implemented Industries would quickly invest the incremental amount to upgrade the current BESS and take advantage of PLSI benefits. If only 100 industries sign up it could mean shaving approximately 50 MW of peak load.

Bibliography

The Himalayan Times (2016), Load shedding time increases up to 14 hrs a day, The Himalayan Times Online, 29th May 2021, https://thehimalayantimes.com/kathmandu/now-5050-load-shedding-time-increase-to-12-hrs-a-day

The Kathmandu Post (2021), Nepal’s surplus energy is going to waste as there are no buyers, 7th October 2021, https://kathmandupost.com/national/2021/10/07/nepal-s-surplus-energy-is-going-to-waste-as-there-are-no-buyers-yet

NEA annual report, 2020 https://www.nea.org.np/admin/assets/uploads/annual_publications/Generation_NEA_Final_book_2077.pdf

www.hydroreview.com, (2017), Surviving Three Natural Disasters: Lessons Learned at Upper Bhote Koshi in Nepal, November 11th, 2017, https://www.hydroreview.com/world-regions/surviving-three-natural-disasters-lessons-learned-at-upper-bhote-koshi-in-nepal/#gref

Urjakhabar 2021, Home page, Power Supply update, https://urjakhabar.com/en

Ministry of Energy, Water Resources and Irrigation of Nepal 2018, Grid connected alternative energy development working procedure, https://moewri.gov.np/storage/listies/April2021/scan2021-04-28-172254.pdf