Govt needs to incentivise people for ‘generating’ electricity rather than giving subsidies for ‘acquiring’ the systems
Mar 30, 2016- Roof top solar system, a dominant rural commodity in Nepal, which caters to the lighting needs of over 600,000 off-grid rural households in the country, is now slowly gaining new admirers in the urban centres as well. With the recent government’s decisions and declarations to increase its solar spending to appease urban consumers amid the severe power shortages in the country, a new debate has emerged on how the government regulations, policies and expenditures could be best employed for the growth of solar rooftop systems.
In Nepal, two schools of thoughts primarily dominate the rooftop solar market today. First, the government should boost the total solar energy demand through promotional activities and subsidy packages. This ‘Keynesianism’ has stimulated the growth of renewable infrastructures providing lighting and cooking needs through various green technologies in the far-flung rural hills and plains of the country for over a decade. Alongside, another school of thought is rapidly emerging and gaining supporters. It argues that the government should provide rooftop solar owners an opportunity to sell surplus energy to the Nepal Electricity Authority’s (NEA) electrical grid.
As households and businesses in urban centres are already investing large sums in alternative energy facilities to cope with the routine power cuts, proponents of the second school of thought argue that both the awareness and the willingness to pay for the rooftop systems are sufficiently high. Besides, prices of solar or photovoltaic cells, which convert sunlight directly into electricity, are falling globally. With the technological advancements, best available and efficient systems are entering the market every next day. A recent study conducted by researchers at the Oxford University has shown that the cost of a watt of solar capacity has reduced from $256 in 1956 to about $0.82 in 2013—a drop in price by a factor of 2330.
Since 1980, costs of photovoltaic modules have decreased at an average rate of about 10 percent annually. In such a context, where the solar cost is decreasing every year, a corresponding decrease in the government’s spending in subsidising solar systems should be the logical next step.
The government tried stimulus subsidy spending on urban rooftop solar system last year, which failed badly particularly because it did not fully comprehend the need and behavioural aspects of urban consumers. Out of 25,000 systems targeted for the selected 14 municipalities across the country, there were only six cases of adoption. Its rigid delivery mechanism and stringent paper requirements for a small amount of subsidy support were mostly believed to have deterred the urban consumers. Nevertheless, the cases of adoption have leaped this year with already over 600 installations under the government’s new subsidised solar credit schemes along with some subsidy top-up for selected system sizes. However, major critics of the subsidy-led growth model argue that too much of government subsidy is only crowding out competent firms and blocking the market-led solar energy service innovations and growth. It means that the government should let the consumers decide their own preference and choices and let the buyers and sellers transact freely. So what then could be the government’s role in spurring the growth of the solar market in Nepal?
Connecting to the grid
Like in many western countries including Germany, governments play a powerful role in designing policy structures to influence the energy choices of the consumers as well as to stimulate the private sector to invest in the sector. As Nepal is struggling to meet its electricity needs through the existing hydropower generation, growth measures like Feed-in Tariffs (FiT), net metering and production tax credits can act as positive stimulus to pave ways to connect renewables to the electrical grid. However, the first step in this direction would be that the government sets the minimum share of electricity from designated renewable energy sources in the country’s utility grid and paves ways to connect them.
Given the blackouts for over a decade, every little contribution to the electrical grid makes a difference. To some extent, the current load shedding can be argued to be a result of NEA’s reluctance to devise appropriate feed in tariff measures for other renewables besides hydropower. The NEA has the sole monopoly in the electrical grid from licensing to procuring and transmitting to distributing electricity in the country. Its long-time denial to adopt renewables other than hydropower in the electrical grid has actually slowed the progress of private-led growth of solar energy technologies. The NEA argues that FiT for any form of generations cannot exceed its ‘avoided cost’—the maximum cost the utility would have to pay ‘per unit of electricity’ if self produced or borrowed from a third party. This, in the NEA’s case, is estimated at Rs9.6 which it pays to India as per the agreement set by the Indo-Nepal Power Exchange Committee. The question remains, would this considerably low ‘avoided cost’ be able to attract private-sector investment in technologies like solar and wind?
Nevertheless, from the point of view of utility, one might also question the economic sense in purchasing electricity generated from renewables by paying a price higher than the estimated ‘avoided cost’. Surely, one should consider science and economics rather than mere activism and enthusiasm to decide on any choice of technology. But if that ‘avoided cost’ is again viewed from the state’s macro perspective rather than from the perspective of utility alone, the total installed captive capacity of diesel generators owned by households and businesses in Kathmandu Valley is believed to have generated a power output of 200 to 300 MW. So far, energy decision-makers tend to mistakenly avoid this cost, considering the fact that these generators entirely rely on diesel imports from India. Should the state not be taking into account this cost of imports while figuring out the appropriate FiTs for rooftop systems and for other renewables? It is vital that the policy makers take bigger and bolder steps towards attracting private sector investments in renewables by guaranteeing a price slightly higher than the traditional ‘avoided cost’ for electricity generation until the adequate low-cost hydro generation could fully meet the demand at home. By choosing to incentivise consumers for ‘generating’ electricity rather than subsidising the consumers for merely ‘acquiring’ the systems, the government can have better control over its spending.
Kandel is a national advisor at Alternative Energy Promotion Centre; views expressed here are personal
Source : The Kathmandu Post