‘Economic prosperity possible through development of energy sector’

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Ganesh Karki

As Nepal looks towards expanding its hydropower capacity by three folds over the coming years, leapfrogging to economic prosperity is a sure shot provided that necessary policies and initiatives are taken by the government and bodies concerned to address the factors affecting the pace of development of the energy sector, as per experts. Sangay Sherpa from The Himalayan Times met President of Independent Power Producers’ Association, Nepal (IPPAN) Ganesh Karki, who is also the honorary consul for the Consulate of Mauritius in Nepal, to gain his insights into the energy sector. Excerpts:

Could you share an overview of the share of private producers on the current energy production in Nepal, and their contribution to the overall energy supply? Also, please share your view on the overall scenario of the energy sector in the context of Nepal.

IPPAN is an umbrella association of independent power producers. Since its inception, there are over 500 members, including our corporate and associate members. In Nepal, the first hydropower plant was established at Pharping (500 KW) in 1911. At present, the Nepal Electricity Authority (NEA) contributes 1,139 MW, while the production of private companies stands at around 2,071 MW.

While it was said that the country’s total financially feasible energy production stood at just around 33,000 MW, the latest data argues that the production capacity now stands at around 120,695 MW. So far, around 3,200 MW of energy is produced by the country including solar and hydropower plants. Also, the NEA is currently constructing seven projects with a capacity of 610 MW which is set to be completed within a few years.

Meanwhile, projects with a capacity of producing additional 3,200 MW are currently being undertaken by the private sector and are set to be completed within a few years. Looking at the ongoing progress in the sector, the country’s total energy production is expected to be around 9,000 MW in the next five years. So far, two trillion rupees has been invested in the sector.

What are the major challenges faced by IPPs in Nepal? Are there any specific technical or regulatory hurdles?

In the case the country is able to generate 9,000 MW of energy within five years, the private sector will hold a large share in the energy sector.

While the banking institutions and the government have continued to support the sector, the major challenge is in increasing energy consumption within the country. In a number of cases, some corridors that have already started producing energy are facing hurdles in supplying power to stakeholder industries due to lack of proper infrastructure.

A major factor for the lack of infrastructure is delays in receiving clearance from the forest division to clear trees from a project’s site. The government should step in to accelerate such processes.

Around 46 per cent of the total land area of Nepal is covered by forests compared to around 24 per cent in India and China, respectively. The construction of infrastructure is crucial to bear the fruits of increased power production in the future.

Other issues include problems in land acquisition and lack of security while working on-site. If the government assists in all these aspects, the surplus energy produced in the country would not go to waste.

It is estimated that even if we produce 9,000 MW in the monsoons, the production will drop to around 3,000 MW in the dry seasons. At present, around 1,700 MW of energy is consumed out of around 3,000 MW produced domestically.

The government should move forward with a plan to increase domestic consumption to 10,000 MW over the next decade and introduce complementary policies. If the country had enough transmission-related infrastructure, domestic consumption would have doubled by now. In addition, the government should resolve any ineffective policies that slow the development of energy sector.

Please share how seasonal disasters have impacted the hydropower sector. What measures have been taken to ensure projects are disaster-resistant?

Due to the effects of global warming, it has become harder to predict unseasonal rains and flooding in the dry seasons.

Nepal faced a dry season during May before witnessing flooding in June. This has affected around 30 projects around the country with direct damages worth Rs 8.33 billion.

In terms of the design of hydropower plants, high standards are maintained to ensure they can withstand floods.

Private producers have more to lose by compromising on the design and we are fully committed to building sustainable projects.

The projects that have shut down at present due to such disasters will take two years to resume operation, which will further create issues for private producers with increase in costs, and loss of revenue, among others. Despite being cautious and abiding by standards, unpredictable calamities have heavily impacted such projects. At such times, the government can support impacted projects by proving refinancing of loans, pausing royalty payment until operation resumes, extending license deadline, etcetera.

Are there any initiatives or plans in place from the private sector to increase the share of other renewable resources in Nepal’s energy mix? Also, are there any ongoing research and development efforts in Nepal to explore and utilize emerging technologies in the energy sector, such as hydrogen energy or energy storage systems?

At present, technology is evolving rapidly. From the introduction of solar until a few years ago, hydrogen has been the talk of the town at present.

There are also talks of building a total storage project and semi-storage projects among others with peaking of up to four hours. In order to build large storage systems, a lot of resources are needed which is even hard for the government to pull off. Due to such reasons, private sector has not tapped into that aspect but has started working on smaller projects.

I think we need to focus on and develop our existing resources.

Also, the state should focus on building reservoir projects as there are a lot of policy hurdles for the private sector to take on such projects alone. However, if those hurdles are removed, the private sector is likely to be motivated to invest in such projects.

While talks of developing hydrogen have already started in the country, it is likely that Nepal will also be able to develop hydrogen in a couple of years’ time.

The total installed capacity in the national grid is expected to increase further in the upcoming fiscal. Meanwhile, India has shown interest to purchase over 10,000 MW over next 10 years from Nepal. Bangladesh has also shown similar interest. What are the aspirations of power producers in contributing to Nepal’s economic prosperity and how can the government bodies assist?

Some positive discussions were held during the Power Summit 2023, followed by the announcement from India’s PM Narendra Modi to procure 10,000 MW from Nepal within 10 years. The agreement is likely to happen soon as well.

Similarly, an agreement was made to allow energy trade with Bangladesh as well. Earlier, Bangladesh had shown interest to purchase 8,000 MW from Nepal by 2040. The collective energy to be traded with the two countries will amount to over one trillion rupees, provided that we are able to sell at least 15,000 MW within the stipulated time. As production increases, consumption will too.

If the government can effectively expand the development of needed transmission lines, ensure smooth supply to the industries, increase the use of electric stoves, electric vehicles, etcetera, domestic consumption could surge to 10,000 MW within a decade. If 1,000 MW can contribute one per cent to the country’s GDP, the country can expect phenomenal economic prosperity if our energy production is over 25,000 MW. Likewise, regular supply of energy at cheaper prices can assist in decreasing production costs for domestic industries, create employment opportunities alongside improved electric facilities in the tourism sector as well. We are confident that the country can achieve economic prosperity through the development of the energy sector. However, there needs to be willingness from the government to expand and achieve these aspirations.

What are the key strategies and policies implemented by the government to attract foreign direct investment and promote private sector participation in renewable energy projects in Nepal? Also, how do you think they can be improved?

In order to achieve the ambitions set by the government, domestic investment alone is not enough if we look at the country’s equity and banking situation. However, if the government is serious about expanding energy production to 25,000 MW, there is a need to ease provisions related to attracting foreign investment and equity financing. The government needs to create a favourable environment for investors to choose Nepal over other countries. Necessary steps should be taken to attract foreign insurance agencies to Nepal.

While the government has remained positive in many aspects, they were also confusion about where the surplus energy produced in the country would be sold and how to increase domestic consumption at the same time. However, that has been resolved following the agreements with India and Bangladesh.

It is about time the government takes the suggested steps and move ahead. We have also requested the government to announce the coming decade as ‘Energy Decade’, and establish a one-door policy to address the delays in procedures related to forest clearance and land acquisitions while also promoting foreign and private investment.

Are there any projects that Mauritius and Nepal are working on at the moment or looking to in the future?

Our efforts are focused on promoting tourism between the two countries as many Mauritians have started visiting Nepal and vice versa. Although tourism was affected following the spread of COVID-19, the trend is gradually increasing again. There are also Mauritian firms investing in equity funds in Nepal.

As the investment environment is starting to become favourable, we are trying to bring investment from Mauritius into energy, tourism as well as other sectors and we hope that happens soon.

An agreement related to this has also been signed between the government of Mauritius and Nepal to provide employment opportunities for Nepalis in Mauritius. However, the process has been stalled following the pandemic and we are hopeful that the new government will also look into it.

Source: The Himalayan Times (By Sangay Sherpa)