96844 V2 S U M M A RY Nepal: Scaling Up Electricity Access through Mini and Micro Hydropower Applications A strategic stock-taking and developing a future roadmap Background Nepal is currently facing a crippling to on-grid (about 45 percent) and off- energy crisis. Despite the techno- grid (about 25 percent) electricity. Load economic potential to generate 43,000 shedding in the grid is up to 12 hours MW of hydroelectric power in Nepal, per day. The remaining 30 percent of the approximately 710 MW of the potential country’s population, mostly in rural and has been developed by the state-owned, remote areas, have access to neither on- vertically integrated electricity utility, grid nor off-grid electricity. Nepal Electricity Authority (NEA), and private independent power producers. Development of renewable energy The total domestic generation capacity is technologies (RETs), both on-grid and off- merely 760 MW for a population of 27.8 grid, has become crucial to increase energy million and an area of 147,181 km2. access for better overall development, poverty reduction, and shared prosperity. About 70 percent of the population in Isolated RETs such as micro hydropower can Nepal is estimated to have connections substantially improve the rural economy. History of Micro Hydropower in Nepal INFOGRAPH 1 Micro hydropower plants (MHPs) have been serving off-grid rural households in the hilly regions since they were introduced in Nepal in the 1960s. 30% have no electricity 5% energy system have off-grid solar The Alternative Energy Promotion Centre (AEPC) was established in 1996 as a central 20% micro hydropower plants (MHPs) are connected to off-grid body of the Government of Nepal (GoN) to 70% have electricity promote alternative energy, especially in the 45% by National grid are connected rural areas. By 2014, more than 1,000 MHPs with a total generation capacity of 25 MW (or 25,000 kW) had been developed. Of the By 2017 total generation capacity of MHPs is 25 percent off-grid electrified households, predicted to be 50,000 kW MHPs supply approximately 20 percent and By 2014, more than 1,000 MHPs with total generation capacity of solar home systems supply the remaining 5 25,000kW had been developed percent. Over the years, the average MHP 17kW 2002-2007 50 size has increased steadily - from 17 kW in 24kW 2008-2010 60 2002 to 30 kW in 2013. 30kW 2011-2013 95 AVERAGE PLANT CAPACITY ADDED AVERAGE NUMBER OF MHPs ADDED By providing a US$21.5 million grant under the DURING EACH SUBSIDY PERIOD PER YEAR DURING EACH SUBSIDY PERIOD Power Development Project from 2003 to 2013, the World Bank, in collaboration with the United Nations Development Programme (UNDP), LAYOUT OF MICRO/ MINI HYDROPOWER PLANT supported the AEPC in constructing 321 MHPs. LAYOUT OF MICRO/ MINI HYDROPOWER PLANT The installed capacity of 7.5 MW provides electricity access to 77,634 households. Powerhouse Powerhouse Tailrace Tailrace Riverflow The GoN, in collaboration with development Spillway Riverflow Penstock Channel partners that support Nepal’s rural and Spillway Forebay Tank with Silt Basin and Spillway renewable energy sector, designed the Silt Basin Penstock Channel National Rural and Renewable Energy Weir Intake Forebay Tank Programme (NRREP). The NRREP, being with Silt Basin and Spillway implemented by the AEPC for five years Silt Basin (2012 - 2017) as a single program modality, Weir Intake aims to install an additional 25 MW of micro/ mini hydropower to provide electricity to an additional 150,000 rural households by 2017. Problems with Rural Electrification in Nepal Although the AEPC promotes standalone As the NEA extends its grid to rural areas, MHPs and the NEA manages the distribution many MHPs will become redundant if they lines for rural electrification, coordination are not connected to the grid. At present, between the AEPC and NEA is limited since 34 MHPs with net capacity of 1.0 MW (or they are under different ministries: the AEPC 1,000 kW) have been affected and 56 MHPs is under the Ministry of Science, Technology with net capacity of 1.7 MW (or 1,700 kW) and Environment and the NEA is under the have high potential to be affected by the Ministry of Energy. The AEPC supports MHPs, grid extension. There are minor extensive assuming an economic life of minimum 15 productive end users (such as grinders, years, in areas where the NEA grid is unlikely hullers, oil expellers, and saw mills), who are to be extended within five years. The NEA, reluctant to switch from MHPs to the NEA however, makes grid extension plans on a grid because of unreliable and poor quality yearly basis. Therefore, it is hard to predict (or prominent problems of load shedding). how grid extension will affect MHPs in the However, the majority of people prefer the long term. NEA-supplied electricity. Therefore, if the SYAURE BHUMI MICRO HYDROPOWER PLANT - A CASE STUDY The Syaure Bhumi MHP in Nuwakot District The NEA used to be reluctant to have grid is one of 34 MHPs affected by the grid connections to MHPs having capacity extension. The Syaure Bhumi MHP was less than 100 kW. In July 2014, however, successfully constructed with generation the NEA instituted the policy to purchase capacity of 23 kW in June 2013, but it power from MHPs with less than 100 kW has never been in operation. During its capacity. Then, the community submitted construction phase, the NEA grid reached to the AEPC a request for support to the the project area and the potential consumers Syaure Bhumi MHP grid connection (such of the Syaure Bhumi MHP project (240 as installation of a synchronizer and a households) opted to receive services from transformer) to sell the electricity to NEA, the national grid. At that time, the project as a pilot case. was on the verge of completion and after its completion the project has been idle: about The findings and recommendations of 182,160 kWh of available electricity remains ‘Addressing Public and Private Sector unused every year. Opportunities for Scaling up Decentralized Renewable Energy Access’ by the World For the development of the Syaure Bhumi Bank will provide timely support to the MHP, the community has taken a loan from GoN, AEPC, NEA, and local communities for a private bank. Currently, the community is planning new MHP projects and designing unable to pay even the loan interest since grid connection of MHPs, including the the MHP has not been generating any Syaure Bhumi MHP. income and revenue. right policies for connecting MHPs to the Public and Private Sector Opportunities grid are not in place, these plants will be for Scaling up Decentralized Renewable forced to shut down and then abandoned. Energy Access’. The study analyzes issues pertaining to the micro hydropower To understand the barriers and opportunities sector, provides policy and operational for scaling up micro hydropower projects recommendations to the Government, and and to provide recommendations on how proposes guidelines for the World Bank’s such scaling-up can be achieved, the World future strategy regarding scaling-up of the Bank conducted a study on ‘Addressing micro hydropower sector. Key Findings and Recommendations 1) Prioritize MHP as the most cost-efficient off- 3) Scale up MHPs by aggregate demand and grid rural electrification method. optimize site potential. For delivering the same level of services as Smaller plants are usually less viable a typical MHP in rural Nepal, other methods and cost more to set up than larger (such as diesel and solar) are more than twice plants. The current demand-driven MHP as expensive. Therefore, MHPs should be the planning, based on a community request, first choice to deliver off-grid electrification leads to development of several small where they are technically feasible. MHPs in the same area serving adjacent communities and underutilization of 2) Continue subsidy support for MHPs to ensure the hydropower potential of the site. delivery of economic benefits to rural areas. The focus of planning for MHPs should Although rural electrification through MHPs be changed from merely meeting the returns economic benefits approximately three current power requirements of the times larger than the investment and operating community to optimizing site potential costs, MHPs are not financially viable in the by aggregating demand (or communities INFOGRAPH 2 conventional sense. Therefore, the subsidy should to be electrified) and promoting end use be continued to support the MHPs’development. (or local business use). 20 kW 42 kWpeak Diesel Solar Home Generator System Set equivalent to 20 kW COMPARISON OF NPR 60.1/kWh LEVELIZED NPR 55/kWh UNIT COST OF 20 kW ELECTRICITY NPR 24.3/kWh MHP Grid FOR VARIOUS GENERATION SOURCES NPR 450,000/ kW 20 kW NPR 425,000/ kW 50 kW NPR 400,000/ kW 100 kW CAPITAL COST OF STANDALONE MHPS NOTE: US $1 = NPR 100 (US CENT 1 = NPR 1) * Levelized Unit Cost of Electricity (LUCE) is the ratio of discounted operating cost plus capital expenditure to number of kWh generated over the life time of a generation facility INFOGRAPH 4 4) Build grid-compatible MHPs. INFOGRAPH 4 Once the national grid arrives in an NPR 25.60/ kWh Levelized Unit Cost of Electricity* NPR 24.87/ kWh MHP’s service area, grid connection is of subsidized MHPs compared to NPR 25.60/ kWh Levelized Unit Cost of Electricity* NPR 24.87/ kWh NEA's cost of delivery unequivocally the next step forward. of subsidized MHPs compared to Therefore, new standalone MHPs, NEA's cost of delivery NEA especially those larger than 50 kW, should NPR 17.26/ kWh NPR 14.64/ kWh be designed to be grid compatible. For NEA 20kW NPR NPR 15.58/ 17.26/ kWh kWh example, all new MHPs need to have an 50kW 20kW NPR 14.64/ kWh NPR 15.58/ NPR kWh 10.63/ kWh off-grid distribution network meeting NPR 11.00/ kWh 50kW the NEA standards and household 100kW NPR 10.63/ NPR kWh 9.00/ kWh NPR 11.00/ kWh metering systems enabling their existing 1km 2km 5km 10km 20km Distance from the grid customers to make a smooth transition 100kW NPR 9.00/ kWh from a power-based, non-metered tariff 1km 2km 5km 10km 20km NPR 60from Distance the grid million that is currently adopted to the NEA’s 100kW energy-based, metered tariff system. 40million NPR60 NPR million 50kW 100kW NPR 20 million Since the cost of interconnecting MHPs 20kW NPR 20 million NPR 40 million is high and unrelated to their capacities, 50kW 1km 2km 5km 10km 20km it would be more efficient to deliver MHP NEA Grid Extension NPR 20 million NPR 20 million NPR -20 million Net Present Value for 50% power to a larger set of consumers from 20kW electricty evacuated to the2km 1km 5km 10km 20km a single scaled-up MHP rather than grid after MHP connection gridNEA Grid Extension NPR -40 million install several small MHPs (the formation * Levelized Unit Cost of Electricity (LUCE) is the ratio of discounted operating cost plus capital expenditure to discounted number of kWh generated over the life time of an MHP Net Present Value for 50% NPR -20 million of the mini-grid by connecting multiple electricty evacuated to the grid after grid connection MHPs is not financially viable). NPR -40 million * Levelized Unit Cost of Electricity (LUCE) is the ratio of discounted operating cost plus capital expenditure to discounted number of kWh generated over the life time of an MHP INFOGRAPH 5 5) Give preference to connect MHPs to the national grid. The NEA should give preference to purchasing COMMUNITY power from MHPs by connecting them to the national grid since delivering electricity through an MHP is more economical than delivering electricity through the NEA’s grid. COMMUNITY COMMUNITY The cost of delivery through the NEA’s grid in MHP distributes to community the rural hills is NPR 17 - 25 per kWh (US$1 is MHP approximately equal to NPR 100) depending MHP buys at bulk on the distance of grid extension, and it costs NEA rate fixed for NEA distributes Community Based distributes to community Rural Electrification to community NPR 9 - 15 per kWh by a grid-connected 50 MHP sells at NEA PPA rate - 100kW MHP. Recently, the NEA’s Board of NEA MHP sells Directors passed the feed-in tariff for MHPs at PPA rate MHP at NPR 4.8 per kWh for the wet season and MHP Shutdown NEA NPR 8.4 per kWh for the dry season, which are the same power purchase agreement OPTION 1 OPTION 2 OPTION 3 (PPA) rates offered to independent power INFOGRAPH 3 GoN producers of large hydropower plants. Therefore, for every unit of electricity purchased by the NEA INCOORDINATION Ministry of Science, from an MHP and sold in the rural hills, the NEA Ministry of Energy Technology and Environment incurs a lower cost and it makes financial sense for the NEA to buy power from MHPs by connecting Nepal Electricity Alternative Energy Promotion Centre Authority to the national grid. Intentional islanding with appropriate safety and control mechanisms, Electrification through the National Grid Off-grid rural electrification through MHP however, should be used to provide reliable service to consumers of the grid-connected MHP Generation Generation Rural Distribution when there is load shedding on the national grid. Transmission & Distribution GRID CONNECTION HINDRANCES Grid Extension into Rural Areas 2.7 MW of MHP Capacity affected 1.0 MW Capacity 1.7 MW Capacity 6) Establish innovative financing instruments already affected could be affected additionally to finance grid connection of MHPs. The AEPC should facilitate access to low- cost loans (as well as risk guarantee) rather The Government provides subsidy support than provide capital subsidy to the rural both to the community-based rural communities (or the MHP owners) for grid electrification program for extending the connections of MHPs. Even if only 50% of national grid to rural areas through the the generated electricity can be evacuated NEA and to MHPs’ development through (or sold to the NEA) from MHP due to load- the AEPC. Therefore, it is critical for these shedding of the NEA grid, grid connection two programs to be harmonized so that still offers positive net present value. the subsidies are used optimally and the MHP-grid interface issues are resolved in a 7) Harmonize rural electrification programs planned manner. Most importantly, the NEA by effective coordination between the and AEPC should collaborate to prepare a NEA and AEPC. national rural electrification master plan. THE WAY FORWARD Overall, the study concludes that the AEPC grid connection of a few pilot MHPs. should vigorously pursue scaling up MHPs Based on the experience gained, as standalone installations. Simultaneously, it should also work on creating an it should work closely with the NEA to enabling policy and procedure for grid gain experience by operationalizing the connection of MHPs. The World Bank Group Nepal Office P.O. Box 798 Yak and Yeti Hotel Complex Durbar Marg, Kathmandu, Nepal Tel.: 4236000 Fax: 4225112 Email: infonepal@worldbank.org www.worldbank.org/np www.facebook.com/WorldBankNepal