96844 V1 Nepal: Scaling Up Electricity Access through Mini and Micro Hydropower a Applications Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications A strategic stock-taking and developing a future roadmap Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications b Nepal: Scaling Up Electricity Access through Mini and Micro Hydropower Applications A strategic stock-taking and developing a future roadmap ii Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Standard Disclaimer: The report is a product of the staff of the International Bank for Reconstruction and Development/The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominators, and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Copyright Statement: The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development/ The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. 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 Designed and Printed by: Print Communication, Kathmandu Contents Abbreviations and Acronyms-----------------------------------------------------------------------------------------------------------------------vi Acknowledgements-----------------------------------------------------------------------------------------------------------------------------------ix Executive Summary----------------------------------------------------------------------------------------------------------------------------------- x A. Background--------------------------------------------------------------------------------------------------------------------------------------- x B. Objectives and Scope of the Technical Assistance-------------------------------------------------------------------------------------xi iii Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications C. Study Methodology----------------------------------------------------------------------------------------------------------------------------xi D. Findings and Recommendations---------------------------------------------------------------------------------------------------------- xii E. Conclusions and way forward------------------------------------------------------------------------------------------------------------- xvi 1. Micro Hydropower Scenario in Nepal------------------------------------------------------------------------------- 1 1.1. Summary of Regulatory and Policy Environment--------------------------------------------------------------------------------------- 3 1.2. Efforts and Initiatives in Nepal--------------------------------------------------------------------------------------------------------------- 4 1.3. Objectives of the World Bank Technical Assistance------------------------------------------------------------------------------------- 5 1.4. Study Approach and Methodology-------------------------------------------------------------------------------------------------------- 5 1.5. Structure of the Report------------------------------------------------------------------------------------------------------------------------ 6 2. Assessing the Policy and Regulatory Framework for Micro Hydropower in Nepal------- 7 2.1. Micro Hydropower Policy and Regulations----------------------------------------------------------------------------------------------- 7 2.2. Subsidy in Micro Hydropower--------------------------------------------------------------------------------------------------------------- 7 2.3. Institutional Architecture and Project Cycle-------------------------------------------------------------------------------------------- 10 2.4. Role of the NEA in the Micro Hydropower Sector------------------------------------------------------------------------------------ 12 2.5. Analysis of Policy and Institutional Issues----------------------------------------------------------------------------------------------- 14 3. Scaling Up Potential of Micro Hydropower in Nepal----------------------------------------------------- 16 3.1. Objectives of the Chapter------------------------------------------------------------------------------------------------------------------- 16 3.2. Framework for Assessing Performance-------------------------------------------------------------------------------------------------- 16 3.3 Standalone MHPs----------------------------------------------------------------------------------------------------------------------------- 17 3.4. MHP Mini-Grid--------------------------------------------------------------------------------------------------------------------------------- 41 3.5. MHP Grid Connection------------------------------------------------------------------------------------------------------------------------ 49 4. Findings, Recommendations and the Way Forward-------------------------------------------------------- 67 4.1. Standalone MHP------------------------------------------------------------------------------------------------------------------------------ 67 4.2. MHP Mini-Grid--------------------------------------------------------------------------------------------------------------------------------- 70 4.3. MHP Grid Connection------------------------------------------------------------------------------------------------------------------------ 71 4.4 Way Forward----------------------------------------------------------------------------------------------------------------------------------- 75 Annexes Annex 1: Institutions involved in the micro hydropower sector of Nepal------------------------------------------------------------- 75 Annex 2: Details on plants visited and plant performance-------------------------------------------------------------------------------- 78 Annex 3: Details on policies and grid codes relevant to MHP---------------------------------------------------------------------------- 96 iv Annex 4: Details on financial analysis----------------------------------------------------------------------------------------------------------- 99 Annex 5: Details on economic analysis--------------------------------------------------------------------------------------------------------110 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annex 6: Calculation of levelized unit cost for 20 kW diesel based generation and distribution-------------------------------116 Annex 7: Calculation of levelized unit cost for 42 kWp (20 kW) SPV based generation and distribution---------------------117 Annex 8: A promising mini-grid site in Phungling Bazaar, Taplejung------------------------------------------------------------------118 Annex 9: Technical discussion on grid connection of MHPs-----------------------------------------------------------------------------121 Annex 10: International practices in grid connection of RETs---------------------------------------------------------------------------126 List of Figures Figure 1: Map of Nepal showing MHP-national grid interface------------------------------------------------------------------------------ 2 Figure 2: Impact of subsidy on installed capacity (when compared at same base year)------------------------------------------ 10 Figure 3: Impact of subsidy on installed capacity with two years shift----------------------------------------------------------------- 10 Figure 4: Average number of MHPs added each year during each subsidy period------------------------------------------------- 10 Figure 5: Average MHP capacity added (kW/year) during each subsidy period----------------------------------------------------- 11 Figure 6: Average plant capacity (kW) added during each subsidy period----------------------------------------------------------- 11 Figure 7: Institutional architecture of the micro hydropower sector-------------------------------------------------------------------- 11 Figure 8: Micro hydropower project cycle flow chart--------------------------------------------------------------------------------------- 13 Figure 9: Prediction of MHP capacity (kW) that will be added till 2020---------------------------------------------------------------- 15 Figure 10: Technical problems seen during MHP site survey----------------------------------------------------------------------------- 18 Figure 11: Size-wise number of plants installed during Jan 1, 2012–Dec 31, 2013-------------------------------------------------- 21 Figure 12: Source of total capex in 58 MHPs supported by AEPC----------------------------------------------------------------------- 22 Figure 13: Component wise capital cost of MHP-------------------------------------------------------------------------------------------- 22 Figure 14: Proportion of KWh consumed in domestic and commercial sectors----------------------------------------------------- 25 Figure 15: Break-even PLF and LUCE for standalone MHPs-------------------------------------------------------------------------------- 25 Figure 16: Summary of annual economic costs and benefits of standalone MHPs------------------------------------------------- 30 Figure 17: Comparison of LUCE for various generation sources------------------------------------------------------------------------- 33 Figure 18: Steps, processes and outputs of the MHP project cycle--------------------------------------------------------------------- 36 Figure 19: Summary of the economic benefits and costs for six mini-grids---------------------------------------------------------- 47 Figure 20: Incremental financial analysis of connecting 100 kW MHP to the grid--------------------------------------------------- 52 Figure 21: Incremental financial analysis of connecting 50 kW MHP to the grid---------------------------------------------------- 53 Figure 22: Incremental financial analysis of connecting 20 kW MHP to the grid---------------------------------------------------- 53 Figure 23: FIRR for grid-connected 100 kW MHP-------------------------------------------------------------------------------------------- 54 Figure 24: NPV for grid connected 100 kW MHP--------------------------------------------------------------------------------------------- 54 Figure 25: NPV for grid connected 50 kW MHP----------------------------------------------------------------------------------------------- 54 Figure 26: NPV for grid connected 20 kW MHP----------------------------------------------------------------------------------------------- 54 Figure 27: Break-even point for grid connected 100 kW MHP---------------------------------------------------------------------------- 55 Figure 28: PLF at break-even point with subsidy for grid connected MHP at various plant capacities------------------------- 55 Figure 29: NEA cost of delivery to remote communities----------------------------------------------------------------------------------- 57 Figure 30: Cost of delivery of grid connected 100 kW MHP vs NEA grid extension------------------------------------------------- 57 Figure 31: LUCE of subsidized MHPs vs NEA tariff and NEA cost of delivery---------------------------------------------------------- 57 Figure 32: Economic costs and benefits of grid connection------------------------------------------------------------------------------ 58 Figure 33: Economic cost and benefits of grid connection of mini-grid--------------------------------------------------------------- 59 Figure 34: NPV for different scenarios of grid connection--------------------------------------------------------------------------------- 60 Figure 35: EIRR for different scenarios of grid connection--------------------------------------------------------------------------------- 60 Figure 36: LUBE for different scenarios of grid connection-------------------------------------------------------------------------------- 61 Figure 37: NPV for 50 percent evacuation to the grid after grid connection--------------------------------------------------------- 61 Figure 38: NEA’s avoided cost--------------------------------------------------------------------------------------------------------------------- 62 Figure 39: NPV for NEA’s avoided cost scenario---------------------------------------------------------------------------------------------- 62 Figure 40: EIRR based on NEA’s avoided cost scenario------------------------------------------------------------------------------------- 62 Figure 41: Net present value for new grid-connected MHP------------------------------------------------------------------------------- 64 Figure 42: EIRR for new grid-connected MHP------------------------------------------------------------------------------------------------ 64 Figure 43: Configuration of Option 1----------------------------------------------------------------------------------------------------------- 65 Figure 44: Configuration of Option 2----------------------------------------------------------------------------------------------------------- 65 Figure 45: Configuration of Option 3----------------------------------------------------------------------------------------------------------- 65 v Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications List of Tables Table 1: Overview of current micro hydropower scenario in Nepal-------------------------------------------------------------------- x Table 2: Summary of findings of financial and economic analyses-------------------------------------------------------------------- xii Table 3: Summary of recommendations for enhancing effectiveness of scaling up of micro hydropower applications--- xv Table 4: Definitions of micro/mini hydropower plants according to AEPC----------------------------------------------------------- 1 Table 5: Current subsidy for micro hydropower implementation---------------------------------------------------------------------- 7 Table 6: Current subsidy for mini hydropower implementation------------------------------------------------------------------------ 8 Table 7: Current subsidy for feasibility study of hydropower projects----------------------------------------------------------------- 8 Table 8: Changes in subsidy amount with change in policy----------------------------------------------------------------------------- 9 Table 9: Framework questions for analyzing feasibility of standalone MHPs, mini-grids and MHP–grid connection---- 17 Table 10: Financial analysis assumptions for standalone MHPs------------------------------------------------------------------------- 19 Table 11: MHP sites visited and their plant size--------------------------------------------------------------------------------------------- 20 Table 12: Capex and financing mix of MHP sites visited---------------------------------------------------------------------------------- 21 Table 13: Productive end-uses of MHP sites visited---------------------------------------------------------------------------------------- 23 Table 14: Domestic and commercial electricity consumption (kWh) for MHP sites visited-------------------------------------- 23 Table 15: Estimation of PLF of MHP sites visited-------------------------------------------------------------------------------------------- 24 Table 16: Details of tariff in MHP sites visited------------------------------------------------------------------------------------------------ 26 Table 17: Summary of financial analysis of standalone MHPs--------------------------------------------------------------------------- 26 Table 18: Results of break-even analysis for 100 kW MHP-------------------------------------------------------------------------------- 26 Table 19: Estimation of economic costs of standalone MHPs--------------------------------------------------------------------------- 28 Table 20: Costs of lighting from kerosene and 20 kW MHP------------------------------------------------------------------------------ 28 Table 21: Net savings for one 7.5 kW agro-processing unit when shifting from diesel to MHP electricity------------------- 29 Table 22: CER revenue potential for MHPs of different capacities---------------------------------------------------------------------- 30 Table 23: Summary of results of the economic analysis---------------------------------------------------------------------------------- 31 Table 24: Parameters for diesel generation equivalent to 20 kW MHP---------------------------------------------------------------- 31 Table 25: Parameters for SPV equivalent to 20kW MHP----------------------------------------------------------------------------------- 32 Table 26: Organizational forms of MHP management------------------------------------------------------------------------------------ 34 Table 27: Six principles followed by the AEPC for management among the community--------------------------------------- 35 Table 28: Status of pipeline of MHP projects during the NRREP period--------------------------------------------------------------- 38 Table 29: Details of feasibility studies of mini-grids---------------------------------------------------------------------------------------- 43 Table 30: Estimated surplus in the mini-grid’s feasibility study carried out in ACAP MHP clusters----------------------------- 44 Table 31: Financial performance of mini-grids---------------------------------------------------------------------------------------------- 45 Table 32: Estimation of economic costs of mini-grids------------------------------------------------------------------------------------- 46 Table 33: Net savings on energy per year for each mini-grid---------------------------------------------------------------------------- 47 Table 34: Projected annual benefits of mini-grid from sale of CERs at US$7/tCO2------------------------------------------------- 48 Table 35: Summary of economic benefits of mini-grids---------------------------------------------------------------------------------- 48 Table 36: Details of parameters used for financial analysis of grid connection----------------------------------------------------- 51 Table 37: Input parameters for estimation of grid extension costs-------------------------------------------------------------------- 56 Table 38: Financial analysis for a five-year-old 100 kW MHP connected to the grid----------------------------------------------- 58 Table 39: Economic costs of grid extension at various distances----------------------------------------------------------------------- 59 Table 40: Economic costs and benefits of a new grid connected 100 kW MHP---------------------------------------------------- 63 List of Boxes Box 1: Line ministries of AEPC and NEA-------------------------------------------------------------------------------------------------------- 29 Box 2: Relevance of conventional financial analysis for community owned assets------------------------------------------------- 45 Box 3: A promising mini-grid in Phungling, Taplejung------------------------------------------------------------------------------------- 76 Box 4: Modifications required for grid connection of MHP-------------------------------------------------------------------------------- 78 Box 5: Lessons from RET grid connection practices around the world----------------------------------------------------------------104 Abbreviations and Acronyms ACAP Annapurna Conservation Area Project ADB Asian Development Bank ADBL Agriculture Development Bank Limited AEPC Alternative Energy Promotion Centre vi AVR BEP automatic voltage regulator break-even point capex Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications capital expenditure CBRE community based rural electrification CDM clean development mechanism CDM-PDD clean development mechanism-project design document CEB Ceylon Electricity Board CER certified emission reduction CFL compact fluorescent lamp COs community organizations CoD cost of distribution CoG cost of generation CREF Central Renewable Energy Fund DANIDA Danish International Development Agency DC direct current DDCs district development committees DEECCS District Environment, Energy and Climate Change Section DEES District Energy and Environment Section DFID Department for International Development DFS detailed feasibility study DoED Department of Electricity Development DWRC District Water Resources Committee EDC Electricity Development Center EIRR economic internal rate of return ELC electronic load controller ESAP Energy Sector Assistance Program EU European Union EUR Euro FIRR financial internal rate of return FIT feed-in-tariff FM frequency modulation GEF Global Environment Facility GIS Geographic Information System GIZ German Society for International Cooperation GoN Government of Nepal HH households HT high tension ICT information and communications technology IDA International Development Association IEEE Institute of Electrical and Electronics Engineers IFC International Finance Corporation INGO International non-governmental organization vii INPS Integrated Nepal Power System Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications IPP independent power producers IRR internal rate of return ITDG Intermediate Technology Development Group KfW Reconstruction Credit Institute (German Development Bank) kLh kilo-lumen-hours kVA kilo-Volt-Ampere kW kilo-Watt kWh kilo-Watt-hour l/s liters per second LDC load dispatch center LEUA Lamjung Electricity Users' Association LPO local partner organizations LUBE levelized unit benefit of electricity LUCE levelized unit cost of electricity m meter MHFG micro hydro functional group MHP mini and micro hydropower plants MHVEP Micro-Hydro Village Electrification Programme MoEn Ministry of Energy MoSTE Ministry of Science, Technology and Environment MoWR Ministry of Water Resources MRET Mandatory Renewable Energy Target MW mega-Watt NEA Nepal Electricity Authority NGO non-governmental organization NMHDA Nepal Micro Hydropower Development Association NMoFA Norwegian Ministry of Foreign Affairs NPR Nepalese Rupees NPV net present value NRREP National Rural and Renewable Energy Programme NSP national service provider NTNC National Trust for Nature Conservation NVMHP Nepal Village Micro Hydro Program O&M operation and maintenance PAT pump as turbine PDD project design document PEU Productive Energy Uses PLF plant load factor POT power output test POV power output verification PPA power purchase agreement PPP public–private partnership QA quality assurance RCEMH Regional Centre for Excellence in Micro Hydro RE renewable energy REC renewable energy certificates REDP Rural Energy Development Programme RERL Renewable Energy for Rural Livelihood RET renewable energy technology viii RoE return on equity RoI return on investment Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications RSC regional service centers SAARC South Asian Association for Regional Cooperation SARI Energy South Asia Regional Initiative for Energy SCADA Supervisory Control and Data Acquisition SHP small hydropower plant SLREC South Lalitpur Rural Electric Co-operative Ltd. SNA state nodal agency SNV Netherlands Development Organization SPV solar photovoltaic TA technical assistance TCO2 ton carbon dioxide TCO2eq ton carbon dioxide equivalent ToR terms of reference TRC Technical Review Committee UNDP United Nations Development Project UNFCCC United Nations Framework Convention on Climate Change UNIDO United Nations Industrial Development Organization US$ United States Dollar USAID United States Agency for International Development VAT value added tax VDCs village development committees VESP Village Energy Security Programme W Watts WB The World Bank WEC Water and Energy Commission WECS Water and Energy Commission Secretariat Conversions Units of measurement kV = 1000 Volts kW = 1000 Watts MW = 1000 kW GW = 1000 MW Effective exchange rate (September 07, 2014) US$1 = NPR 96 NPR 1 = US$0.0104 Acknowledgements This report is the product of a World Bank executed sultancy Services for their valuable insights during technical assistance to the Government of Nepal un- the course of this study. Additionally, we thank Mr. der the overall leadership of the Alternative Energy Stewart Craine for sharing his MHP site location data Promotion Centre (AEPC), under the Ministry of Sci- with us. Significant contributions from the various ence, Technology and Environment (MoSTE). Spe- stakeholders during the two workshops are grate- cial gratitude is extended to the following officials fully acknowledged. from the MoSTE, AEPC and partner organizations of the AEPC: Dr. Govind Raj Pokharel, former Executive The World Bank team was led by Priti Kumar and Director of the AEPC (currently Vice Chairperson of Tomoyuki Yamashita and included Ajoy Karki, SC Ra- National Planning Commission of Nepal); Mr. Ram jshekar, Ashish Shrestha and Abhishek Yadav. Coun- Prasad Dhital, Executive Director of the AEPC; Mr. try Manager for Nepal, Takuya Kamata, and Energy & Kjartan Gullbra, International Senior Technical Ad- Extractives Practice Manager, Julia Bucknall, provided viser for the National Rural and Renewable Energy constructive feedback and guidance, as did Jie Tang, ix Programme (NRREP); Mr. Satish Gautam, National Rabin Shrestha, Pravin Karki and Gunjan Gautam. Peer Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Programme Manager of the Renewable Energy for reviewers were Kimberly Lyon, Chandrasekhar Govin- Rural Livelihood (RERL); Mr. Madhusudhan Adhikari, darajalu, Wim J. Klunne and Dana Rysankova. Sunita National Advisor of the Community Electrification Gurung, Sulochana Nepali, and Alina Thapa provided sub-component; Mr. Jiwan Kumar Mallik, Regional administrative support to the study team. Their con- Energy Officer of the RERL and Mr. Shiva Kumar Prad- tributions are duly acknowledged. han, Livelihood Promotion Specialist of the RERL. Dr. Jugal Bhurtel and Mr. Prakash Gaudel’s efforts in re- Editorial support by Vani Kurup is also duly acknowl- viewing the report and providing valuable baseline edged. data are highly appreciated. The Government of Nepal and the World Bank team We would also like to acknowledge Mr. Hitendra acknowledge and appreciate the financial support Dev Shakya, Director of the Power Trade Depart- provided for this activity by the Asia Sustainable and ment, Nepal Electricity Authority; Mr. Surendra Alternative Energy Program (ASTAE). Bhakta Mathema, President of the Nepal Micro Hydropower Development Association; Mr. Dilli The opinions expressed in this report and any errors Prasad Ghimire, Chairman of the National Associa- therein are the sole responsibility of the authors and tion of Community Electricity Users Nepal and Mr. should not be attributed to the individuals or the Krishna Prasad Devkota, Director of Universal Con- institutions acknowledged above. Executive Summary A. Background cifically, micro hydropower plants (MHPs) have been serving off-grid rural households in the hilly regions 1. In spite of the techno-economic potential to gen- since they were introduced in Nepal in the 1960s. x erate 43,000 MW of hydroelectric power, Nepal is cur- rently facing a crippling energy crisis. In the fiscal year 4. The Alternative Energy Promotion Center (AEPC) Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications of 2013/14, Nepal’s domestic generation met only 60 was established in 1996 as a central body of the percent1 of the energy demand of grid-connected GoN to promote alternative energy, especially in ru- consumers. Import from India comprised 18 percent ral areas. Due to efforts by the Government of Nepal of the total energy supplied. Nearly, 22 percent of (GoN) and development partners since the 5th de- the demand could not be supplied, leading to load velopment plan (1975–1980), rural electricity access shedding in the grid for up to 12 hours per day. More- through MHPs and the number of stakeholders in over, around 33 percent2 of the country’s population, this sector have been steadily increasing. With sup- mostly in rural and remote areas, does not have any port from the AEPC, more than 25 MW of micro/mini access to grid or off-grid electricity. hydropower schemes have been providing off-grid electricity to more than 400,000 rural households.6 2. Shortage of energy negatively impacts economic Table 1 presents an overview of the current micro development by suppressing agricultural productiv- hydropower scenario in Nepal. ity, environmental sustainability, health care, education and job creation. This specifically affects poor and rural 5. Significant achievements in the micro hydropow- households as they spend a large part of their income er sector have also brought about various challeng- and time fulfilling their basic energy needs.3 House- es that require new approaches. One such major holds that spend 10 percent to 30 percent4 of their challenge is to address the MHP–national grid in- income on energy expenses are considered “energy terface. As the state-owned electricity utility, Nepal poor”. According to this classification, 80 percent5 of Electricity Authority (NEA), extends its grid to rural Nepalese households are energy poor. areas, many MHPs become redundant if they can- not be grid-connected. According to a preliminary 3. Development of renewable energy technologies estimate by the AEPC, 90 MHPs7 with net capacity (RETs), both on-grid and off-grid, has become cru- of 2.7 MW have been affected by the grid exten- cial to increase energy access (including electricity) sion and this number is steadily increasing. The GoN for better overall development, poverty reduction continues to support isolated MHPs in areas where and shared prosperity. Isolated RETs such as micro the grid is unlikely to be extended within a five-year hydropower, solar photovoltaic (SPV) and biogas time-period. However, since the NEA does grid ex- can substantially improve the rural economy. Spe- tension planning on a yearly basis while the MHPs 1 “A Year in Review – Fiscal Year 2013/14”, NEA. 2 National Planning Commission (2014). 3 UNDP (2005). 4 “Measuring Energy Access: Supporting a Global Target”, The Earth Institute, Columbia University, USA (2010). 5 AEPC (2012). 6 “Assessment of Nepal Small Scale Rural Energy Market: Supply Side Assessment”, IFC (2014). 7 Based on data received by the AEPC from its outreach offices (2013) Table 1 | Overview of the current micro hydropower scenario in Nepal Total Grid encroached Grid connected Mini-grid Number 1,400 90 None* 1 Capacity (kW) 25,000 2,700 NA 107 Number of HHs 400,000 27,000 NA 1,300 xi Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications * 24 kW Gottikhel MHP was grid connected as a pilot project. This MHP is now disconnected from the grid due to no feed-in tariff agreement between the NEA and the local com- munity (refer to Annex 2 for the details); HHs = households. are built to have an economic life of minimum 15 plants based on lessons learnt from ongoing years, it is hard to predict how grid extension will projects and from local and international best affect MHPs in the long term. This issue is further practices. compounded because the GoN does not formulate l Investigate the technical, financial, regulatory, a separate rural electrification master plan. economic and socio-environmental consider- ations, as well as barriers and opportunities for 6. If the right policies for connecting MHPs to the scaling up micro hydropower energy access by grid are not in place, these plants will be forced to establishing mini-grids and for integrating such shut down and then abandoned. From a national mini-grids to the national grid as per GoN’s vision perspective, shutting down such plants before their and prospective plans. economic life is over is a waste of resources, espe- l Identify gaps and suggest improvements in the cially as implementation of such MHPs has been AEPC and NEA’s institutional and technical ca- subsidized and because significant investments pacity for scaling up micro hydropower access, have been made by the communities. On the other including ensuring available high-quality stan- hand, if these MHPs are allowed to be grid-connect- dards, good regulatory environment and quality ed, the resources that have already been invested in assurance mechanisms. building and operating these plants will continue to l Provide strategic and innovative recommenda- be utilized. Thus, scaling up and bolstering partner- tions for scaling up micro hydropower access in ships on grid-based approaches requires new per- a sustainable manner. spectives by the GoN. C. Study Methodology B. Objectives and Scope of the Technical Assistance 9. This study used a rigorous approach and meth- odology, which included quantitative, qualitative, 7. This study has been commissioned to understand consultative and field-verification processes with barriers and opportunities for scaling up micro emphasis on economic aspects. Preparation of a hydropower projects and to provide recommen- roadmap for up-scaling MHPs was based on analy- dations on how such scaling up can be achieved. ses from regulatory/policy, institutional, technical, In this context, this study conducts analyses on is- financial and community perspectives. sues pertaining to the micro hydropower sector, provides policy and operational recommendations 10. AEPC’s approach in promoting isolated and to the GoN and proposes guidelines for the World grid-connected MHPs and implications of recent Bank’s future strategy regarding scaling up of the technical innovations in distributed generation micro hydropower sector. management were analyzed. International best practices in the context of grid connection of MHPs 8. The broad objectives of this technical assistance are: were reviewed. The current financial status, opera- l Investigate the performance and sustainabil- tional processes, flow of resources, and the project ity aspects of off-grid mini/micro hydropower cycles of micro hydropower companies (surveyors, Executive Summary manufacturers and installers) were reviewed to The micro hydro functional group (MHFG) as an in- identify current barriers and recommend measures stitution is performing satisfactorily and represents for financial efficiency. The prevalent managerial ap- the community well. AEPC’s community mobiliza- proaches, business models and management solu- tion and empowerment model is quite successful. xii tions were studied. Micro hydropower related ser- Over the years, the average MHP size has increased vices provided by regional service centers (RSCs) steadily from 17 kW in 2002 to 30 kW in 2013. On Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications and local partner organizations (LPOs) under the the other hand, potential MHP sites are becoming National Rural and Renewable Energy Programme more remote due to which capital cost per kW is (NRREP) were reviewed. increasing. As can be seen in Table 2, rural electri- fication through MHPs returns three times more 11. Two workshops, one at the inception phase economic benefits (i.e. levelized unit benefit of elec- and another after completion of the draft report, tricity (LUBE)/ levelized unit cost of electricity (LUCE) were conducted to incorporate the views of vari- = 66/22 = 3) than the investment and operating ous stakeholders and organizations involved in the costs. Electricity from SPV or diesel-based local grids micro hydropower sector such as AEPC, NEA, Ne- is more than twice as expensive as providing the pal Micro Hydropower Development Association same capacity and level of service through MHPs (NMHDA), non-governmental organizations (NGOs), (by comparing LUCE (e) for diesel, solar, and micro international NGOs (INGOs), surveyors, manufactur- hydropower). Therefore, standalone MHPs must be ers and installers. scaled up as they provide significant economic ben- efits and are the least-cost RET option. Additionally, D. Findings and Recommendations government subsidy for MHPs must be continued to deliver high economic benefits as MHPs were 12. The findings and recommendations are summa- found to be operationally viable social enterprises. rized in this section. Table 2 lists the findings of the eco- nomic and financial analyses conducted in Chapter 3. 14. Typically, the community mobilizes 50 percent of the total project cost to set up an MHP and the bal- D.1 Standalone MHP ance is provided through the AEPC as subsidy. Mo- 13. The institutional architecture to implement bilization of funds from the community to achieve standalone MHPs is very robust and well tested. financial closure is a major bottleneck in micro hy- Table 2 | Summary of findings of financial and economic analyses Installed Capacity: 20 kW 50 kW 100 kW Without With Without With Without With Type of energy Subsidy Subsidy Subsidy Subsidy Subsidy Subsidy Parameter source In Nepalese Rupees* per kilowatt hour (NPR/kWh) LUCE (f ) 73 39 64 36 59 33 Consumer Tariff (f ) - 6–8 - 6–8 - 6–8 Standalone MHP LUCE (e) 22 - 23 - 24 - LUBE (e) 66 - 67 - 68 - Diesel LUCE (e) 60 - - - - - Solar LUCE (e) 55 - - - - - MHP grid connec- LUCE (f ) 18–31 - 12–18 - 11–13 - tion NEA’s cost of LUCE (f ) 17–25 - 17–25 - 17–25 - delivery *NPR 1 = US$0.0104 Notes: LUCE or levelized unit cost of electricity is the ratio of discounted operating cost plus capital expenditure to discounted number of kWh generated over the life time of an MHP; LUBE or levelized unit benefit of electricity is the ratio of discounted economic benefits to discounted number of kWh generated over the life time of an MHP; (f ) = Financial; (e) = Economic. dropower implementation. Standalone MHPs are on quality of manufactured components and exe- not profitable with or without subsidy when ana- cution of civil works. Therefore, the pre-qualification lyzed from a conventional financial viewpoint be- process of service providers should be revised us- cause of very low plant load factor (PLF) and tariffs ing a more systematic quality assurance and post- that are designed to solely recover funds for salaries installation survey to monitor and rank performance xiii and routine repair and maintenance. The LUCE for over an extended period of time. Furthermore, cost Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications standalone MHPs is much higher than the consum- benchmarks should be updated taking into account er tariff being charged. As can be seen from Table 2, current market prices and efforts should be made the consumer tariff that is being charged by an MHP to standardize MHP components for cost reduction. is NPR 6.00–8.00 per kWh, whereas LUCE (f ) is in The remoteness of MHPs from manufacturers and the range of NPR 33.00–39.00 per kWh. Even when installers who also provide after-sales services of- larger MHPs make modest profits operationally, they ten leads to prolonged downtimes and high costs have no savings to afford major repairs. Therefore, of repairs. Moreover, there are only nine RSCs, each the AEPC should educate bank and financial insti- covering several districts to promote not only MHPs, tutions (BFIs) on the operational sustainability of but also the entire range of RETs that the AEPC sup- MHFGs and help reduce interest costs for MHFGs ports. Therefore, the AEPC must devolve decision by providing low interest loans in collaboration with making by establishing regional offices and increas- BFIs. By increasing the loan amounts, MHFGs will be ing the number of RSCs and their technical capacity compelled to increase consumer tariff to repay the in order to provide supervision of the project. loans and the accrued interest, thus strengthening their capacity in tariff setting. D.2 Mini-grid 17. A mini-grid can serve large loads only during the 15. Most micro hydropower households are not me- off-peak hours because high surplus power during tered and the extensive use of power-based tariff is peak hours is very unlikely as a result of overload- discouraging energy conservation. The distribution ing of MHPs during this period. Therefore, financial networks of most MHPs are not up to NEA standards, viability of mini-grids through an increase in the which hinders grid compatibility. Given that the grid PLF is heavily dependent on greater utilization of will soon reach most MHP sites in the mid-hills of Ne- off-peak power. Analysis shows that even the op- pal, the AEPC should ensure that all MHPs are built timistic scenario of the PLF doubling after the for- ‘grid compatible’ and NEA standard metering should mation of the mini-grid would not make it viable. be made mandatory in all MHPs to promote energy Moreover, mini-grids are not financially attractive efficiency. AEPC’s micro hydropower program is de- since the cost of interconnecting MHPs is very high mand driven with the village development commit- regardless of their capacities. The viability of mini- tee (VDC) and Ward making up planning unit. This is grids is site-specific and depends on factors such as resulting in the development of several small MHPs in distance between individual MHPs, market for off- the same area serving adjacent communities, which peak power, existing infrastructure such as roads, is leading to under-utilization of the hydropower and the purchasing capacity of the communities. potential of the site. Therefore, preference must be Moreover, when a community initiates a single MHP given to building a larger micro or mini hydropower that is later interconnected to other MHPs to form a plant serving more communities rather than building mini-grid, problems in terms of identity and owner- smaller plants serving individual communities. ship may arise as the mini-grid will span over several Wards or VDCs. Therefore, it would be more effec- 16. Experienced MHP workers and manufacturers tive to deliver power to a larger set of consumers are leaving the industry and moving towards the from a single larger micro or mini hydropower plant more profitable larger hydropower sector. New rather than putting up several smaller MHPs and try- manufacturers and installers who are entering the ing to interconnect them later to form a mini-grid. industry are undercutting costs by compromising Furthermore, mini-grids have become less relevant Executive Summary after the NEA removed the 100 kW threshold for grid economy. A local community invests in an MHP only connection. if the GoN is unable to extend the national grid to provide electricity to that area. Therefore, it should D.3 Grid connection be GoN’s obligation to safeguard the local commu- xiv 18. The financial performance of a grid-connected nity’s investments and assets by pursuing a policy MHP is attractive as demonstrated by incremental of power purchase rather than of abandonment of Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications analysis based on grid connection costs disregard- MHPs. As long as it is financially viable for the com- ing earlier MHP implementation costs as sunk costs. munity, MHPs should be connected to the grid and Economic benefits of selling surplus power to the their surplus power purchased as a general policy. grid are also overwhelmingly high. However, such financial and economic benefits are contingent 20. While the AEPC promotes standalone MHPs, the on grid availability. Therefore, the NEA must en- NEA manages the national grid. As these institutions sure availability of grid for power evacuation or are under different ministries (AEPC is under the Min- give deemed generation8 status to grid-connected istry of Science, Technology and Environment; NEA is MHPs. Furthermore, MHFGs need to be legally reg- under the Ministry of Energy (MoEn)), coordination istered entities to enter into power purchase agree- between them is infrequent. Furthermore, as the ment (PPA) with the NEA for grid connection. There- NEA’s main objective is to function as a commercial fore, the AEPC and RSC need to pilot and formulate entity, grid connection of standalone MHPs is not its the processes required for nurturing and transition- priority. Therefore, coordination between the NEA ing the MHFG into a formal business organization and AEPC requires an active role from the MoEn to prior to scaling up. On the other hand, while MHFGs facilitate information-sharing and collaboration for transition into business like ventures, it is important planning and implementation. Most importantly, the that they retain the principle of community owned NEA and AEPC should collaborate to prepare a na- and managed assets. The AEPC should also build tional rural electrification master plan to harmonize the capacity of the RSCs and through them of the scattered rural electrification programs and to invest community to understand the methodology of in- resources in a more planned and organized method. cremental and total financial analysis presented in this study as a preparatory step to grid connection. 21. Given that an MHP would be in operation for a certain period before the arrival of a grid, the BFIs can 19. Financial analysis shows that delivering electric- better assess the institutional stability and risks in or- ity through an MHP is cheaper than delivering elec- der to arrive at an informed decision on lending. The tricity through NEA’s grid. As seen in Table 2, for every NEA as a buyer of power is a government-backed in- unit of electrical energy purchased by the NEA from stitution and therefore the revenue risk is further re- a grid-connected MHP larger than 20 kW and sold in duced from the BFIs’ perspective. Therefore, the AEPC the rural hills, the NEA incurs a lower cost compared should promote greater awareness among BFIs re- to its cost of delivery from elsewhere. Therefore, the garding financing opportunities for grid connection NEA should give preference to drawing power from of MHPs. Given that grid connection of larger MHPs MHPs and connecting them to the national grid. is financially viable, subsidy for grid connection is not Recently, NEA’s Board of Directors passed the feed- required. However, high interest rates deter MHPs in-tariff (FIT) for MHPs at NPR 4.80/kWh (wet season) from approaching banks for financing. Therefore, the and NPR 8.40/kWh (dry season), which are the same AEPC should support MHFGs by providing credit fa- rates offered to independent power producers cilities, where its funds are on-lent by BFIs along with (IPP) of larger hydropower plants. The AEPC should a minimal interest spread (as well as risk guarantees) continue to determine FITs for MHPs as a separate for grid connection of MHPs. case since the current FIT is considerably lower than NEA’s cost of delivery and unlike MHPs, small hy- 22. If an MHP acts as an IPP after being connected to dropower plants (SHPs) enjoy substantial scales of the grid and does not serve the local community at 8 Deemed generation refers to the energy, which a generating station is capable of generating but cannot generate due to grid outages beyond the control of generating station resulting in spillage of water. Table 3  |  Summary of recommendations for enhancing effectiveness of scaling up of micro hydropower applications Major recommendations l Returns from MHPs accord economic benefits approximately three times larger than the investment and operating costs. Scale-up standalone MHPs to reach l As SPV- and diesel-based solutions cost twice or thrice more than the cost for delivering the same more off-grid communities level of service from a typical MHP in rural Nepal, MHPs should be the first choice to deliver off-grid electrification from a policy perspective. l Financial viability of mini-grids with increase in PLF is heavily dependent on greater utilization of Promote larger capacity MHPs rather than a new mini-grid off-peak power. l Mini-grids are not financially attractive since the cost of interconnecting MHPs is very high xv regardless of their capacities. Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications l For every unit of electrical energy purchased by the NEA from an MHP and sold in the rural hills, the Connect MHPs to the grid and purchase NEA incurs a lower cost compared to transmission from elsewhere. surplus power l GoN should safeguard the local community’s investments and assets by pursuing a policy of purchase of power rather than of abandonment of the MHP. Improving technical performance l AEPC should ensure that all new MHPs of 50 kW or above have a grid compatible distribution Build grid compatible MHPs system (to NEA standards) and that end-users are metered. Make metering mandatory to improve l Energy-based tariff should be enforced through metering to make more efficient use of electricity energy efficiency and lower peak demand to allow the same MHP to serve more households. l AEPC should carry out a three-stage inspection process during material, in-process and pre- shipment stages to ensure that the quality of the components delivered at site is as per design and Strengthen quality assurance during material specifications. manufacturing and installation l Supervision and quality assurance of civil structures, which is usually executed by the community, should be strengthened. Create a network of local repair service l Given the large installed base of MHPs especially in central and eastern Nepal, AEPC should identify, providers encourage and nurture local workshops to provide last mile after-sales services. l With appropriate safety and control mechanisms, unintentional islanding can be avoided. Install appropriate safety measures to l Intentional islanding should be used to provide reliable service to consumers of the grid-connected protect against unintentional islanding MHP when there is load shedding on the national grid. Improving financial and economic performance Increase access to finance and educate l Banks and financial institutions (BFIs) should be educated on the operational sustainability of MHPs lenders on operational sustainability of and the good track record of MHFGs. standalone MHPs l AEPC can help reduce interest costs for these communities by initiating a credit fund for MHP. l A thorough engineering based review of the manufacturing process and costing of MHP should be Reduce costs by benchmarking and performed to establish cost benchmarks. standardization l Benchmarking should be followed by standardization of MHP components as opposed to the total customization that prevails today for manufactured items. Grid connection of MHPs to be based on l Incremental financial analysis should be performed taking into account plant capacity, distances distance to grid and plant size and availability of grid before deciding on connecting an MHP to the grid. l AEPC should assist in making loan-financing instruments available through BFIs by creating greater Encourage BFIs to finance grid awareness about financing of MHP grid connection. connection of MHPs l AEPC should not subsidize grid connection costs. Instead, it should make funds available in collaboration with BFIs as low interest loans for MHPs connecting to the grid. Improving institutional performance Reorient micro hydropower planning l The focus of planning for MHPs should be changed from merely meeting the prevailing power requirements of to aggregate demand and optimize site the community to optimizing site potential. When the pre-feasibility study of an MHP is carried out, opportunities potential to serve more load centers in the vicinity by building a larger power plant should be explored. Support the micro hydropower industry l AEPC should collaborate with the NMHDA to build the capacity of the industry to manufacture and to expand business into mini hydropower install mini hydropower plants. plants l Efforts should be made post-installation to help MHFGs transition into a legally registered entity (company, cooperative or NGO). MHFG’s capacity in preparing business plans, entering into Increase institutional footprint of AEPC agreements with the NEA, and maintaining book of accounts should be strengthened. and support MHFGs to become legal l AEPC should set up regional offices especially in areas of expected growth in community entities electrification and start a process of devolving decision-making. l Technical capacity of RSCs to provide oversight to the project execution should be enhanced through exchange of knowledge and experiences, collective planning of strategies and use of better equipment. Strengthen pre-qualification process of l A comprehensive post-installation survey of MHPs should be put in place to verify that the service service providers providers are meeting the required quality at site. l The MoEn should play an active role to ensure coordination between the NEA and AEPC to facilitate Ensure effective coordination between information sharing and collaboration for planning and implementation. the NEA and AEPC to harmonize rural l Since the GoN provides subsidy support both to community based rural electrification (CBRE) and electrification programs with grid micro hydropower programs, these need to be harmonized such that the subsidies are utilized extension optimally and MHP-grid interface issues are resolved in a planned way. l The NEA and AEPC should collaborate to prepare a national rural electrification master plan. Executive Summary all, the rationale for AEPC subsidy (prior to grid con- 25. The AEPC should continue to scale up stand- nection) would not be justified. On an operational alone MHPs by reaching out to off-grid communi- level, such MHPs could be taken over through a lease ties in the rural hills of Nepal that will not be served or even purchased outright by private investors who by the national grid for many years to come. It xvi would make substantial profits. Therefore, an MHP as should also work in close coordination with the NEA an IPP with continued responsibility to the local com- and the relevant ministries to ensure that the recent Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications munity should be the institutional model supported decision of the Board of Directors of the NEA to al- by the AEPC. Technically, this model would ensure a low MHPs to be grid connected is preserved in the high PLF of the MHPs as well as continuous supply of policy. It should also work on modifying the current electricity to its previous distribution area even dur- PPA to include either a “deemed generation” status ing NEA’s load-shedding hours. However, this requires to MHPs or a guaranteed minimum payment on adequate safety measures to address high safety risks. grid outages hindering evacuation of power from One of the major safety issues is the problem of unin- the MHP to the grid. tentional islanding, which can be potentially hazard- ous if the grid-connected MHP fails to properly shut 26. The AEPC should modify its current micro hydro- down during a grid disturbance. However, with ap- power schemes to include the cost of metering and of propriate safety and control mechanisms, intentional building an NEA-standard distribution network in mi- islanding should be used to provide reliable service cro hydropower service areas to make them grid ready. to consumers of the grid-connected MHP when Furthermore, it should work in close coordination with there is load shedding in the national grid. Operators donors and BFIs to facilitate a line of credit for grid con- of the MHPs do not receive enough technical train- nection of existing MHPs at low interest rates. NMHDA ing, and therefore, are often uninformed about such should work in close cooperation with the AEPC in operational and safety issues that arise in context of scaling up of MHPs, streamlining the manufacturing a national grid connection. Therefore, the commu- process, cost reduction and quality assurance. nity’s technical and managerial capabilities must be improved through appropriate trainings to prepare 27. Donors could support the AEPC in building capac- them for grid connection. ity to steer a comprehensive policy in the area of grid connectivity of MHPs. Financing grid connection of 23. A summary of major recommendations for en- MHPs will allow donors to channelize funds through hancing the effectiveness of scaling up micro hy- the banking sector rather than offering capital subsi- dropower applications is presented in Table 3. dies. Grid connection of MHPs will help the NEA gain well organized tariff paying rural customers. In many E. Conclusions and way forward cases, where the MHP’s distribution network is up to NEA standards, the NEA would not need to invest in 24. Overall the study concludes that the AEPC should creating an entirely new distribution network. vigorously pursue scaling up MHPs as standalone installations. Simultaneously, it should work closely 28. To enable the first grid-connected MHP under a with the NEA to gain experience by operationalizing PPA, the NEA should work with the AEPC to identify the grid connection of a few pilot MHPs. Based on a suitable site. Using the experience gained during the experience gained, it should also work on creat- operationalizing the grid connection of that site, suit- ing an enabling policy and procedure for grid-con- able guidelines for grid connection of MHPs could nection of MHPs. As for mini-grids, the AEPC should be drawn up by both the AEPC and NEA. Also, these support them on a case-by-case basis after carefully institutions should collaborate to prepare a national assessing the actual demand for off-peak power as rural electrification master plan to harmonize rural well as financial and economic benefits. electrification programs with grid extension. 01 Micro Hydropower Scenario in Nepal 29. Before the 1960s, diesel-operated mills were rural areas served by MHPs, the absence of a grid used in the hills of Nepal for agro-processing. In connection policy for MHPs will render such plants the 1960s, small water mills known as “turbine mills” redundant. According to a preliminary estimate were introduced in Nepal using locally developed by the AEPC, the grid is currently approaching 90 turbines as an alternative to diesel-operated mills. MHPs9 with a total capacity of 2.7 MW and this By the late 1980s, small generators were added to number is steadily increasing. These plants will have the turbine mills for lighting the mills at night and to be shut down and abandoned as their customers supplying surplus power to light a few houses in switch to the national grid, which supplies power the vicinity. These turbine mills that were modified of better quality and does not impose power caps. to supply electric power were known as micro hy- Due to this trend, invested resources and the hard dropower plants (MHPs). work of the local community are going to be wast- 30. Since the early 2000s more than 25 MW of mi- ed. Figure 1 shows the map of Nepal with the exist- ing transmission and distribution lines down to 11 1 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications cro/mini hydropower schemes have been con- kV in MHP areas (i.e. hills and mountains) along with structed with support from the Alternative Energy the installed MHPs as of 2013. The Terai region and Promotion Center (AEPC) and its various develop- Dolpa district that do not have substantial MHPs are ment partners. The Government of Nepal (GoN) in shaded in the figure to indicate that these regions collaboration with development partners that sup- have been excluded from the geographical analysis. port Nepal’s rural and renewable energy sector, de- The demand for MHP in Dolpa is low since the op- signed the National Rural and Renewable Energy erating costs are high due its remoteness and the Programme (NRREP). The NRREP, being implement- need to often airlift the equipment. Furthermore, it ed by the AEPC for five years (from 2012 to 2017) as snows for about six months and the local residents a single program modality, aims to install an addi- do not have adequate time for community partici- tional 25 MW of mini/micro hydropower to provide pation due to more lucrative activities, such as har- electricity to an additional 150,000 rural households vesting “Yarsagumba” (a highly sought after medici- by 2017. nal herb). 31. With the Nepal Electricity Authority (NEA; the 32. In Baglung the grid has reached the northeast centrally managed utility responsible for supply of part of the district where the interface with the ex- grid electricity in the country) extending its grid to isting MHPs has occurred (Figure 1). The other 17 Table 4: | Definitions of micro/mini hydropower plants according to AEPC Plant type Definition Micro hydropower 10 kW to 100 kW Mini hydropower 100 kW to 1000 kW 9 Based on data received by the AEPC from its outreach offices (2013) Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 2 Figure 1: Map of Nepal showing MHP-national grid interface 01 Scenario in Nepal Micro Hydropower districts where such interfaces have occurred are: 36. The “Water Resource Act, 1992” allows water mills Baitadi, Doti, Dailekh, Pyuthan, Myagdi, Kaski, Lam- and water grinders to use water resources without a jung, Gorkha, Dhading, Sindhupalchowk, Kavrepal- license. “The Electricity Act, 1992” provisions that no li- anchowk, Dolakha, Okhaldhunga, Khotang, Sankhu- cense will be required for hydropower projects of less wasabha, Terathum, and Panchthar. than 1000 kW capacity as long as they are registered 3 with the District Water Resources Committee and the Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 33. The MHP–national grid interface has created an registration information is sent to the Department of urgent need for policy level discussion and coordi- Electricity Development (DoED). Additionally, to ex- nation to avoid duplication of resources, maximize pedite the development of MHPs, these projects are the benefits of investment, and provide sustainable exempted from paying any income tax. electricity access to the rural population. Technical, financial, managerial/ownership, and community 37. According to the Alternative Energy Develop- aspects need to be analyzed to propose how isolat- ment Committee Formation Order of the GoN, the ed MHPs can be sustainably connected to the grid. AEPC was established in 1996 as a line agency under The adequacy of AEPC and NEA’s technical, environ- the MoSTE. The AEPC’s mandate is to promote alter- mental and policy frameworks, as well as regulatory native energy, set and monitor technological stan- guidelines have to be reviewed for sustainable pro- dards, and coordinate with international donors and motion of the micro hydropower sector. local government bodies to implement alternative energy programs/projects in rural areas. The Forma- 1.1. Summary of Regulatory and tion Order also states that the AEPC should take on Policy Environment the role of a national focal agency in the alternative energy sector, encourage private sector participa- 34. Close to 42 percent10 of the Nepalese population tion, and ensure an environment that is conducive does not have access to grid electricity. Compared to facilitating loans through financial institutions to 93 percent of the urban households that are con- and channelizing government subsidy. nected to the national grid, only 49 percent of rural households (80 percent of Nepal’s population lives 38. “The Hydropower Development Policy, 2001” fore- in rural areas) have access to the electricity grid.11 To sees generating low cost electricity and extending re- provide electricity to most of the Nepalese house- liable and quality electricity services throughout the holds in rural areas, the GoN has put in place various country. In addition, it plans to tie-up electrification policies and regulations aimed towards rural electrifi- with economic activities by operating small and mini cation. To implement these policies, the AEPC under hydropower projects at the local level to develop the the Ministry of Science, Technology and Environment rural economy. It focuses on rural electrification to (MoSTE) has the major responsibility to provide elec- support agricultural and industrial development of tricity access in rural areas using renewable energy rural areas. It envisions that rural mountainous areas technologies (RETs) including micro hydropower. not catered by the national grid would be supplied by these small/mini hydropower projects. 35. The regulatory and policy environment in the micro hydropower sector are based on: 39. “The Rural Energy Policy, 2006” makes the par- l Water Resource Act, 1992 ticipation of local bodies such as village develop- l Electricity Act, 1992 ment committees (VDCs) and district development l AEPC Act formation order committees (DDCs) mandatory and creates a Rural l Hydropower Development Policy, 2001 Energy Fund for subsidy mobilization at the central, l Rural Energy Policy, 2006 district and village levels. As a result, community- l Subsidy Policy for Renewable Energy, 2013 based energy planning and social mobilization are l Renewable Energy Subsidy Delivery Mechanism, 2013 initiated. In addition, the policy promotes private l Annual Budget of the Government of Nepal sector participation in RETs. National Planning Commission (2014) 10 Nepal Labour Force Survey (2008) 11 01 Micro Hydropower Scenario in Nepal 40. “Subsidy Policy for Renewable Energy, 2013” plan (1997–2002) emphasized the need for devel- aims to increase access to RETs in remote parts of oping MHPs for economic development and envi- the country inhabited by the poorest and most ronmental protection with clear policy formulation socially disadvantaged people. It encourages the directives and targets. The 10th development plan 4 private sector to commercialize RETs and focus on (2002–07) set clear targets for alternative energy better quality and service delivery in rural areas. The and aimed to increase the rural population’s access Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications “Renewable Energy Subsidy Delivery Mechanism, to energy from 7 percent to 12 percent. The 11th 2013” was prepared by the MoSTE. Under this de- development plan (2007–10) aimed to increase livery mechanism, the AEPC evaluates the technical this access by another 5 percent. The 12th develop- and financial feasibility of MHPs by providing finan- ment plan (2010–13) promoted the development cial support to conduct a detailed feasibility study of of MHPs under the leadership of the local govern- potential MHP sites. ment and aimed to increase rural energy access by an additional 7 percent. The 13th three-year plan 41. The GoN has included financial support for rural (2013–16) aimed to enhance the capacity of local energy development through its “Annual Budget” bodies to plan, implement, promote, monitor and since its sixth five-year plan (1980–85). The National evaluate RETs and increase rural population’s access Planning Commission (NPC) is the advisory body re- to energy by an additional 7 percent. sponsible for formulation, resource allocation, imple- mentation, and monitoring and evaluation of devel- 44. Due to the subsidy policy for micro hydropower opment plans. The annual budget of 2013 allocated schemes, the number of stakeholders in the mi- NPR 540 million for continuation of subsidy to MHPs cro hydropower sector including feasibility study implemented by communities, cooperatives and consultants, micro hydropower equipment install- firms. This amount was allocated to install an addi- ers, and public as well as private professionals has tional 4,500 kW of generation capacity to cater to the steadily increased. With support from the AEPC electricity needs of 30,000 unelectrified households. and its various development partners, since early 2000 more than 25 MW of micro/mini hydropower 1.2. Efforts and Initiatives in Nepal schemes have been constructed. 42. In its 5th development plan (1975–80), the GoN 45. Various institutions have taken initiatives, which committed to develop the micro hydropower sec- have resulted in the growth of the micro hydropow- tor. As a part of the 6th development plan (1980– er sector (see Annex 1). The World Bank approved a 85), the Agricultural Development Bank Limited Power Development Project consisting of a US$75.6 (ADBL) launched the “Rural Electrification Project” million International Development Association and started promoting electricity generation from (IDA) credits in 2003 to assist the GoN in meeting its MHPs by providing 50 percent subsidy on the cost power sector objectives. A complementary Carbon of the electromechanical equipment. In the 7th de- Offset Project to provide additional financial sup- velopment plan (1985–90), the GoN recognized the port to AEPC’s Nepal Village Micro Hydro Program importance of alternative energy technologies and (NVMHP) was established. The Carbon Offset proj- promoted MHPs as a tool for developing the agri- ect complements the ongoing World Bank Power culture sector and small-scale industries. The 8th Development Project by providing additional sup- development plan (1992–97) gave special priority port for improving access to electricity services for to the energy sector with an emphasis on reducing rural areas. The Micro Hydro Village Electrification the gap between urban and rural areas. component received US$22 million in assistance (US$19.36 million IDA Grant and US$1.94 million TA). 43. The AEPC was established during this period as The NVMHP received US$1.96 million (funded by a a body of the GoN and the Rural Energy Develop- Trust Fund) from 2007 to 2015. ment Programme (REDP) was initiated with sup- port from the United Nations Development Project 46. In the 1990s, Practical Action then known as (UNDP) and the World Bank. The 9th development Intermediate Technology Development Group (ITDG) was actively involved in promoting micro l Investigate the technical, financial, regulatory, hydropower technology including financing site economic and socio-environmental consider- installations of pilot projects. Practical Action is cur- ations, barriers and opportunities for scaling up rently involved in advancing climate resilient energy micro hydropower energy access by establishing access planning and implementation; increasing mini-grids and integrating such mini-grids to the 5 private sector participation in the energy access national grid as per GoN’s vision and prospective Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications market; mobilizing demand for energy services in plans. marginalized communities; introducing minimum l Identify gaps and suggest improvements in the energy standards for energy access; and ensuring AEPC’s and NEA’s institutional and technical ca- productive end-use of energy for sustainable liveli- pacity for scaling up micro hydropower access, hood of poor households. It aims to demonstrate a including available standards, a regulatory envi- decentralized energy system with particular focus ronment, and quality assurance mechanisms. on achieving minimum energy standards and total l Provide strategic and innovative recommenda- energy access to attain universal access to energy tions for scaling up micro hydropower access in by 2030. a sustainable manner. 47. The Annapurna Conservation Area Project 1.4. Study Approach and Methodology (ACAP) under the National Trust for Nature Conser- vation (NTNC) has also played a significant role in 50. To prepare a roadmap on up-scaling MHPs, it is promoting micro hydropower technology in the necessary to analyze them from regulatory/policy, Annapurna conservation area. MHPs such as the 50 institutional, technical, financial, managerial and kW Ghandruk and 80 kW Bhujung are examples of community perspectives. Therefore, the study ap- plants implemented with support from the ACAP proach and methodology have been formulated that are functioning well. such that the impacts of these issues can be ana- lyzed. 48. As part of its rural electrification program, the GoN has established the community based rural 51. To identify policy barriers for up-scaling and grid electrification (CBRE) program, which is implement- connection of MHPs, officials from AEPC, NEA, World ed by the NEA. At the request of the community, the Bank, Nepal Micro Hydropower Development Asso- NEA extends the national grid to rural areas under ciation (NMHDA), as well as surveyors, manufactur- this program. Funds for grid extension are made ers and installers were consulted using structured available to the NEA through 90 percent subsidy questionnaires and informal discussions. Interna- support from the GoN provided that the communi- tional best practices in the context of grid connec- ty contributes the balance of 10 percent. However, tion of MHPs were also reviewed. AEPC’s approach there is no long-term grid extension master plan to promoting micro hydropower was analyzed. Pos- and grid extension is planned on an annual basis. sible interventions to overcome policy hindrances were also discussed. Additionally, the changes in 1.3. Objectives of the World Bank AEPC’s subsidy policy and its implications on the Technical Assistance micro hydropower sector were analyzed by tally- ing the number of MHPs constructed during each 49. The following are the objectives of this technical subsidy policy period, i.e. 2000–06, 2006–09 and assistance. 2009–13. l Investigate the performance and sustainability aspects of off-grid mini/micro hydropower sec- 52. To understand the technical issues, recent tech- tors based on lessons learnt from ongoing proj- nical innovations and their implications in distrib- ects and best practice models in the country and uted generation management were reviewed. Fur- internationally. thermore, technical solutions for grid connection 01 Micro Hydropower Scenario in Nepal of MHPs (and mini-grid) to the national grid were its included isolated MHPs, mini-grid systems and analyzed. Existing NEA grid codes and a new set of (previously) grid-connected MHPs. Isolated MHPs grid connection standards for MHPs prepared by outside the AEPC system were also visited. Similarly, the AEPC called “Micro Hydro Projects Interconnec- site visits were also made to CBRE entities. The de- 6 tion Equipment Standards and Specification, 2013” tails of the sites visited in the course of this study were reviewed. Technical problems prevalent in the are presented in Annex 2 and also summarized in Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications visited MHPs were investigated. Chapter 3. Additionally, various stakeholders in the MHP industry including surveyors, manufacturers, 53. To conduct a financial study of the micro hydro- installers, and RSCs were visited to understand key power sector, the current financial status of visited issues in the MHP sector. MHPs were studied. Marginal costs for mini-grid construction and grid connection were analyzed 56. Two workshops, one during the inception phase where relevant. Marginal revenues from selling elec- and another after completion of the draft report, tricity to the grid after grid connection were studied. were conducted to incorporate the views of various A financial analysis of the proposed business mod- stakeholders and organizations involved in the mi- els was carried out. Additionally, the value of anchor, cro hydropower sector, such as AEPC, NEA, NMHDA, business and community customers of MHPs were non-governmental organizations (NGOs), interna- investigated in the context of financial viability. The tional NGOs (INGOs), surveyors, manufacturers and basis for setting NEA’s buy-back rate (feed-in-tariff installers. (FIT) for MHPs) was reviewed. Issues raised by the NEA regarding technical and financial feasibility of 1.5. Structure of the Report the MHP grid connection were also studied. Finally, operational processes, resource flows and the proj- 57. The micro hydropower scenario in Nepal in- ect cycles of micro hydropower companies (survey- cluding the regulatory and policy environment, ors, manufacturers and installers) were reviewed to initiatives undertaken, objectives of this Technical identify current barriers and recommend measures Assistance (TA) and study approach and method- for financial efficiency. ology adopted have been described in this chap- ter. Assessments of the micro hydropower policy 54. To perform a managerial and community study and regulations including the subsidy policy and of the micro hydropower sector, the prevalent man- delivery mechanism, institutional architecture and agerial approaches, business models and manage- project cycle, role of NEA in micro hydropower and ment solutions were studied. Methods to facilitate analysis of policy and institutional issues are pre- collective action of the community were analyzed sented in Chapter 2. Chapter 3 discusses scaling using the Institutional Analysis and Development up of MHPs as standalone, mini-grid and grid con- framework. Micro hydropower related services pro- nected systems. For each of the systems, technical vided by regional service centers (RSCs) and local reliability, ability to meet power needs, financial reli- partner organizations (LPOs) under the NRREP were ability, economic benefits, management structures reviewed. Institutional mechanisms for strategic and support systems have been analyzed. Chapter 4 guidance and technical back-stopping for further presents the findings from this study, recommenda- up-scaling of MHPs were discussed. tions to address these issues and the way forward. Supporting details, data and data analyses under- 55. Field visits were conducted to corroborate the taken during the course of this study are presented study approaches mentioned above. The field vis- in the Annexes. 02 Assessing the Policy and Regulatory Framework for Micro Hydropower in Nepal 2.1. Micro Hydropower Policy and fore, the subsidy for RETs has been instrumental in Regulations providing clean energy solutions to rural areas at lower investment by the communities. Due to the 58. Policy and regulations relevant to the micro subsidy support many rural areas are able to access hydropower sector have been discussed earlier in modern clean energy, and promote local entrepre- Chapter 1. Analyses of these policies are presented neurship and economic development. in this chapter. Section 2.2 assesses the role of sub- sidy and its impact on micro hydropower sector 60. Subsidy for micro hydropower development is 7 growth. The institutional architecture and project provided by the GoN (through donor support) and Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications cycle are discussed in Section 2.3. Section 2.4 pres- implemented through the AEPC based on: ents the role of NEA in micro hydropower especially l Subsidy Policy for Renewable Energy, 2013. in the context of the MHP–grid interface. Finally, l Renewable Energy Subsidy Delivery Mechanism, Section 2.5 presents the analysis carried out on pol- 2013. icy and institutional issues. 61. The AEPC’s updated “Subsidy Policy for Renew- 2.2. Subsidy in Micro Hydropower able Energy, 2013” has the main objective of in- creasing access to RETs in very remote parts of the 59. High costs of renewable energy systems and the country inhabited by the poorest and most socially insufficient capital of rural populations are major disadvantaged people. The current subsidy policy barriers in implementing RETs in rural Nepal. There- encourages the private sector to commercialize Table 5: | Current subsidy for micro hydropower implementation Subsidy for Micro Hydropower Project (in NPR*) Subsidy Category Category “A” VDCs Category “B” VDCs Category “C” VDCs Subsidy per household 25,000 25,000 25,000 Subsidy per kW 130,000 100,000 70,000 *NPR 1 = US$0.0104 Note: The maximum subsidy amount per kW (including household subsidy) will not exceed NPR 255,000 for Category “A”, NPR 225,000 for Category “B”, and NPR 195,000 for Category “C” VDCs. For possibility of productive end-use in the future, subsidy for additional 1 kW per maximum of 5 households will be provided. 02 Assessing the Policy and Regulatory Framework for Micro Hydropower in Nepal RETs, and focus on better quality and service deliv- and most recently in 2013. Subsidy for an MHP has ery in rural areas. Table 5 and Table 6 show the cur- increased and the delivery mechanism has been rent subsidy available for micro and mini hydropow- updated with each policy change. The changes in er implementation respectively. Category “A”, “B” and subsidy amount are presented in Table 8. 8 “C” VDCs imply very remote, remote and accessible VDCs respectively as defined by the GoN. 65. Figure 2 presents the impact of the annual subsidy Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications amount on the annual increase in aggregate MHP ca- 62. The “Renewable Energy Subsidy Delivery Mecha- pacity installed. The annual subsidy amount and the in- nism, 2013” was prepared by the MoSTE according stalled capacity do not have a good correlation when to the Renewable Energy Subsidy Policy, 2013 and both parameters are compared for the same year. approved by the Financial and Infrastructure Com- mittee of the Parliament. The AEPC evaluates the 66. Assuming that the impact of the subsidy dis- technical and financial feasibility studies for projects bursed is reflected in the installed capacity after a with capacity of more than 10 kW MHPs. For lower time gap (i.e. subsidy disbursement and construc- capacity plants (pico hydropower), the District En- tion of MHPs will require time), the subsidy amount vironment, Energy and Climate Change Section was brought forward by one to five years. The best (DEECCS) evaluates and approves of feasibility stud- fit occurred when the shift was made by two years. ies. This initiative was taken by the AEPC to devolve The updated graph in Figure 3 (with a shift by two powers to district level organizations. years) shows a strong correlation between the an- nual subsidy amount and the installed capacity. 63. The AEPC provides financial support for carrying Therefore, it is expected that, on average, approxi- out a detailed feasibility study of the new MHPs. Up mately two years are required for the subsidy to to 80 percent of the total feasibility study cost is sub- have an impact on installed capacity. The figure sidized by the AEPC (see Table 7). implies that once the feasibility study of an MHP is approved (i.e., project is at a “ready to go” stage) and 64. The subsidy policy and the subsidy delivery subsidy disbursements are made, the power plant mechanism changed in the years 2000, 2006, 2009, becomes operational within two years. Table 6: | Current subsidy for mini hydropower implementation Subsidy for Mini Hydropower Project (in NPR*) Subsidy Category Category “A” VDCs Category “B” VDCs Category “C” VDCs Subsidy per household 20,000 18,000 16,000 Subsidy per kW 120,000 100,000 70,000 *NPR 1 = US$0.0104 Note: The maximum subsidy amount per kW (including household subsidy) will not exceed NPR 220,000 for Category “A”, NPR 190,000 for Category “B”, and NPR 170,000 for Category “C” VDCs; Projects with capacity from 100 kW to 500 kW must connect at least 500 households or 5 households per kW, and projects with capacity from 500 kW to 1000 kW must connect at least 1000 households or 5 households per kW to be eligible for subsidy. Table 7: | Current subsidy for feasibility study of hydropower projects Subsidy for Detailed Feasibility Study (in NPR* ) Location 10 kW–50 kW 50 kW–100 kW 100 kW–1000 kW Category “A” VDCs 225,000 295,000 1,200,000 Category “B” VDCs 200,000 275,000 1,100,000 Category “C” VDCs 175,000 250,000 1,000,000 *NPR 1 = US$0.0104 Table 8: | Changes in subsidy amount with change in policy Year of Subsidy Policy Particulars 2000 2006 2009 2013 Category A VDC: NPR 25,000/HH and NPR 130,000/kW not exceeding NPR 255,000/kW 9 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications NPR 10,000/HH NPR 15,000/HH Micro Category B VDC: NPR 15,000/HH and NPR 100,000/kW NPR* 70,000/kW not exceeding not exceeding hydropower not exceeding NPR 225,000/kW NPR 85,000/kW NPR 125,000/kW Category C VDC: NPR 15,000/HH and NPR 70,000/kW not exceeding NPR 195,000/kW Category A VDC: NPR 20,000/HH and NPR 120,000/kW not exceeding NPR 220,000/kW Community/ Category B VDC: NPR18,000/HH and NPR 100,000/kW Cooperative not exceeding NPR 170,000/kW Owned MHP Category C VDC: NPR 16,000/HH and NPR 70,000/kW not exceeding NPR 170,000/kW Grid- connected NPR 15,000/HH MHP Category A VDC: NPR 8,000/HH and transportation subsidy of NPR 20,000/kW not exceeding NPR 90,000/kW NPR 6,000/HH NPR 6,000/HH Electricity Category B VDC: NPR 7,000/HH and transportation NPR 27,000/kW not exceeding not exceeding Add-on subsidy of NPR 10,000/kW not exceeding NPR 80,000/kW NPR 60,000/kW NPR 60,000/kW Category C VDC: NPR 6,000/HH and transportation subsidy of NPR 5,000/kW not exceeding NPR 70,000/kW NPR 10,000/kW not exceeding NPR 200,000/plant for 50 percent of the NPR 10,000/ 50 percent of the minor damage to civil structure cost incremental HH cost Rehabilitation not exceeding not exceeding not exceeding NPR 50,000/kW not exceeding NPR 1,000,000/plant for NPR 35,000 NPR 85,000 NPR 62,500/kW major damage to power house or rehabilitation of old mini/micro hydropower supported by GoN *NPR 1 = US$0.0104; HH = household 66. Assuming that the impact of the subsidy dis- approved (i.e., project is at a “ready to go” stage) and bursed is reflected in the installed capacity after a subsidy disbursements are made, the power plant time gap (i.e. subsidy disbursement and construc- becomes operational within two years. tion of MHPs will require time), the subsidy amount was brought forward by one to five years. The best 67. Due to this two-year shift, the impact in the num- fit occurred when the shift was made by two years. ber and capacity of MHPs installed would become The updated graph in Figure 3 (with a shift by two visible only after two years from the disbursement years) shows a strong correlation between the an- of the subsidy. This is important when comparing nual subsidy amount and the installed capacity. impacts of subsidy in the transition years when the Therefore, it is expected that, on average, approxi- subsidy policy itself has been revised. For example, mately two years are required for the subsidy to the change in subsidy policy of 2000 should impact have an impact on installed capacity. The figure installed capacity and number in 2002–07, 2006 in implies that once the feasibility study of an MHP is 2008–10, and 2009 in 2011–14. Similarly, the impact 02 Assessing the Policy and Regulatory Framework for Micro Hydropower in Nepal Figure 2: Impact of subsidy on installed capacity (when compared at of the subsidy policy of 2013 will be seen from 2015 same base year) onwards. Figure 4 shows the annual rate of increase 8,000 in number of MHPs installed during the three sub- Projected Figure sidy periods. Figure 5 shows the annual rate of in- 10 7,000 6,000 crease in aggregate capacity of MHPs installed dur- ing the subsidy periods.12 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 5,000 Subsidy 4,000 (in NPR 00,000) 68. As can be seen from these figures, the annual 3,000 rate of the number and capacity of MHPs added 2,000 kW have increased steadily for each subsidy impact pe- 1,000 riod. Therefore, the changes in subsidy seem to be - progressive with each change bringing an increase in the rate at which the micro hydropower sector is 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 growing. 69. Similarly, with the change in each subsidy policy Figure 3: Impact of subsidy on installed capacity with two years shift in 2000, 2006 and 2009, the average plant size has also been increasing. During 2002–07, 2008–10 and 8,000 2011–13, the average plant sizes were 17 kW, 24 kW Projected Figure 7,000 and 30 kW, respectively as seen in Figure 6. 6,000 Subsidy 2.3. Institutional Architecture and 5,000 (in NPR 00,000) Project Cycle 4,000 kW 3,000 70. The institutional architecture of the micro hydro- 2,000 power sector with the micro hydro functional group 1,000 (MHFG) as the focal point is presented in Figure 7. - 2.3.1. Institutional Architecture 2009 2010 2011 2012 2013 2014 2015 2016 2017 71. As mentioned earlier, the AEPC is the national focal agency for promoting alternative energy in Nepal. It also works closely with the private sector and adopts a demand-based approach. The AEPC Figure 4: Average number of MHPs added each year during each subsidy period focuses on capacity building, technical and financial assistance, and coordination and quality assurance, 120 whereas the private sector is involved in consulting, 100 95 manufacturing, supply and installation, and after- Number per year (No./year) sales services. However, the private sector does not 80 make investments in the infrastructure (i.e. MHPs) 69 since they are not viewed as profitable and also 60 50 because since 2006 the AEPC has been following a 40 policy of channelizing subsidies for MHPs solely to community groups. 20 0 72. In the public sector, the MoSTE works at the 2002-07 2008-10 2011-13 policy level and the AEPC works as the national ex- ecuting organization. The 75 DEECCSs monitor and 12 AEPC (2013 supervise projects supported by the AEPC at the dis- Figure 5: Average MHP capacity added (kW/year) during each subsidy period trict level. There are nine RSCs (NGOs, private com- panies and cooperatives) that assist the communi- 3500 ties in implementing the projects on the ground. 2813 3000 11 Number per year (kW/year) 73. In the private sector, the AEPC has pre-qualified 2500 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications a number of companies that enables them to be in- 2000 1651 volved in consulting (survey and design), manufac- 1500 turing, supply and installation of MHPs. In order to 828 1000 receive subsidy support, communities need to en- gage AEPC pre-qualified companies to implement 500 micro hydropower projects. At the national level, 0 the AEPC works closely with donor agencies, related 2002-07 2008-10 2011-13 ministries, their departments, NGOs, private sector, civil society, national banking institutions, academic institutions and community/users groups for the development and promotion of RETs in the country. Figure 6: Average plant capacity (kW) added during each subsidy period 74. As of 2012/13 fiscal year, the AEPC had 35 per- 35 manent staff members of whom 10 were involved 30 30 Average Plant Size (kW) in coordinating and managing the executive portfo- 24 lio of programs. Additionally, 75 staff members were 25 directly engaged in the NRREP and Renewable En- 20 ergy for Rural Livelihood (RERL) to support the AEPC 17 15 in achieving stipulated targets. There were 350 pro- fessional staff members employed in nine RSCs and 10 two national service providers (NSPs). The NSPs are 5 involved in supporting improved water mills. 0 2002-07 2008-10 2011-13 75. The NEA’s role within the institutional architec- ture becomes relevant if MHPs need to connect to the national grid. The role of the NEA in this context is discussed further in Section 2.4. Figure 7: Institutional architecture of the micro hydropower sector 2.3.2. Project Cycle PUBLIC SECTOR AEPC PRIVATE SECTOR 76. The community is the focal point within the in- Procedures, guide- VDC & DDC lines and subsidy stitutional architecture and needs to play an active PQ* Surveyors Local government Feasibility Study role to implement MHPs. The micro hydropower bodies project cycle flowchart is shown in Figure 8 and PQ Manufacturers MHFG discussed hereafter. As a first step of the project DEECCS and Suppliers Monitoring and Elecromechanical Rural cycle, the community interested in building an evaluation electricity users equipment MHP fills and submits a requisition form to the RSC or DEECCS. A preliminary feasibility study is then RSC PQ Installers carried out by the RSC or DEECCS. In some cases, Implementation NEA Grid connection the pre-qualified consultants also carried out the preliminary feasibility study. The community then *PQ = pre-qualified requests three sealed quotations from pre-qualified 02 Assessing the Policy and Regulatory Framework for Micro Hydropower in Nepal consultants for detailed survey and design on the installation company. The proposal should demon- basis of which a detailed feasibility study (DFS) re- strate that at least 10 percent electricity would be port is prepared. used by the Productive Energy Uses (PEU; a compo- nent of the NRREP). 12 77. From the three sealed quotations, one company is selected on a competitive basis by the MHFG. The 81. The AEPC then reviews and evaluates the sub- Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications selected company prepares the DFS report. The RSC mitted documents and recommends it to the Cen- examines and assesses the DFS and forwards it to tral Renewable Energy Fund (CREF) for approval of the AEPC along with a letter of recommendation subsidy. The AEPC provides the necessary technical from the DDC. At this time 40 percent of subsidy support to ensure quality of under-construction for survey and DFS is provided and another 40 per- projects by mobilizing local bodies (e.g., DEECCS cent is disbursed after the recommendation of the and RSCs). Technical Review Committee (TRC). The remaining 20 percent subsidy is only provided if the project 82. Up to 60 percent of the subsidy amount is re- is approved for implementation. The selected pre- leased in advance to the installation company qualified consultant must visit the site at least twice against a bank guarantee. Following this, up to to ensure that construction is being done according another 20 percent of the subsidy is released after to the DFS and submit a quality monitoring report a successful test operation for 72 hours (continu- as well as drawings of the project. ously), and the submission of a report to this effect is handed over to the local community (post veri- 78. To apply for subsidy, the community registers a fication that 75 percent planned households have users’ group such as a MHFG, cooperative or a pri- electricity). Additional subsidy can also be provided vate company. Next, a project business plan and a at this stage to electrify more households. After the detailed project design (incorporating community generation of electricity, verification of connected and environmental aspects) are submitted to the households, the submission of generation test and AEPC. Micro hydropower projects need to obtain a related handover report, the CREF releases an addi- certificate of registration for preferential water use tional 10 percent subsidy amount. Finally, after one directly from the District Water Resources Commit- year of successful operation and if all (100 percent) tee (DWRC), whereas mini hydropower projects of the planned households are electrified, the CREF need to obtain a certificate of survey information releases the remaining 10 percent on recommenda- from the DoED. tion by the AEPC and the community. 79. A bank statement for the equity amount depos- 2.3.3. Monitoring and Evaluation ited should be submitted along with the project 83. For MHPs, the AEPC conducts electricity gen- proposal. If a loan agreement with a bank is con- eration and household verification with support cluded, a supporting letter from the concerned from independent (and pre-qualified) consultants bank should also be submitted. Additionally, if the (also known as power verification consultants) in local government body is providing financial sup- the presence of members of RSC, DEECCS and the port, then a letter mentioning the same should also community. Additionally, the AEPC evaluates the be submitted. project impact and user satisfaction every two years through independent consultants. 80. To determine the capacity of the project for sub- sidy purposes, a standard of 200 W/household (max- 2.4. Role of the NEA in the Micro imum allowed 400 W/ household) is used. After the Hydropower Sector community assures funds (including subsidy) up to 75 percent for micro hydropower and 90 percent for 84. Prior to NEA’s establishment, the Department of mini hydropower of the total cost, the community Electricity of the Ministry of Water Resources, Nepal signs a contract agreement with the pre-qualified Electricity Corporation and other related develop- Figure 8: Micro hydropower project cycle flow chart Requisition form for Feasibility study on Preliminary feasibility study competitive basis Potential MHP (Community) (RSC, DEECCS or PQ Surveyor) (PQ Consultant) 13 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Submit detailed Community registers the users’ Appraisal of Feasibility study project design group (RSC and AEPC) (PQ Consultant & Community) (Community) Determine capacity of the project Conditional approval of Subsidy Obtain certificates from for subsidy (AEPC) DWRC or DoED (TRC approval) (PQ Consultant & Community) Final approval and payment of Sign contract agreement with PQ Assure 75%-90% funds including 60 % Subsidy as advance Installer subsidy (AEPC) (Community) (Community) Construction and Submission of test generation Payment of 80% Commissioning and handover report Subsidy (PQ Installer) (PQ Installer) (AEPC) One year of test generation, Payment of 90% Power output verification to operation, & 100% electrification Subsidy determine actual Subsidy (PQ installer) (AEPC) (AEPC) Community takeover completely Payment of 100% Subsidy Training of Operator and Manager and manage on their own. (AEPC) (AEPC & Community) RSC/DDC oversight. ment boards were responsible for managing the and distribution facilities in Nepal’s interconnected generation, transmission and distribution of electric- or isolated power system. NEA’s other major respon- ity nationwide. To achieve efficiency and a reliable sibilities are to recommend long-term and short- service to remedy the inherent weakness associated term plans and policies in the power sector to the with fragmented electricity organizations due to GoN and to determine the tariff structure for elec- overlapping and duplication of works, it became nec- tricity consumption (with prior approval from GoN). essary to establish an individual organization. Thus, the NEA was established on August 16, 1985 under 86. When the national grid reaches isolated micro the Nepal Electricity Authority Act 1984 through a hydropower distribution areas, then such interfaces merger of the various institutions involved in electric- will require coordination between the AEPC and ity generation, transmission and distribution. NEA. As discussed earlier, it is estimated that the national grid has already reached distribution areas 85. The main objective of the NEA is to generate, consisting of over 90 MHPs with an aggregate ca- transmit and distribute adequate, reliable and af- pacity of 2.7 MW. Figure 1 shows 18 districts where fordable power by planning, constructing, operat- the NEA’s national grid has reached or is about to ing and maintaining all generation, transmission reach isolated micro hydropower distribution areas. 02 Assessing the Policy and Regulatory Framework for Micro Hydropower in Nepal 87. The Electricity Act, 1992 requires the NEA to 2.5. Analysis of Policy and compensate the power plant once the national grid Institutional Issues reaches the micro hydropower distribution area. However, the management of lower capacity MHPs 91. Incomplete regulations regarding renewable 14 is cumbersome. Until recently, the NEA was reluc- energy are hindering the up-scaling of MHPs. Al- tant to connect MHPs of less than 100 kW. There- though many policies to upscale RETs have been Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications fore, the MHP would be shut down once the NEA put in place, full-fledged implementation of such grid reached its distribution area. This practice takes policies is not possible without promulgating the away the opportunity of the community to develop corresponding acts. For example, the Rural Energy its capacity to produce its own electricity and ben- Policy was formulated in 2006 but the correspond- efit financially. ing act such as the Rural Energy Act has not yet been formulated. Similarly, the Water Resource Act 88. The NEA has recently shown willingness in con- (1992) and the Electricity Act (1992) precedes the necting isolated MHPs to the grid provided that: (a) Hydropower Development Policy (2001). Therefore, a grid connection of MHPs does not add financial these acts need to be updated to support smoother liabilities to the NEA, (b) MHPs are of “grid-ready” implementation of the policy. Furthermore, impor- quality and do not create safety problems to the tant acts related to renewable energy development grid itself, and (c) only MHPs with synchronous gen- such as the Feed-In-Tariff Act and the Alternative erators (as compared to induction generators) are connected to the national grid to balance the reac- tive power needs. Box 1: Line ministries of 89. Currently the NEA is considering grid connection AEPC and NEA of MHPs or mini-grids lower than 100 kW. The mini- mum criteria are that the micro- or mini-grid must The AEPC promotes MHPs whereas the NEA use synchronous generators and seek prior autho- manages the national grid (along with gen- rization from the NEA for interconnection facilities. eration and distribution). As both institutions Furthermore, the NEA is considering provision of are under different ministries (AEPC is under MHPs or mini-grids up to 100 kW capacity with the the Ministry of Science, Technology and En- same FIT as the posted rate for hydropower projects vironment and NEA is under the Ministry up to 25 MW, i.e. NPR 4.80/kWh (wet season) and of Energy (MoEn)), coordination between NPR 8.40/kWh (dry season). If these policy changes them is infrequent. Furthermore, as the come into effect, it could benefit a number of MHPs NEA’s main objective is to cater to a wider of less than 100 kW capacity that are facing (or will consumer base and function as a commer- face) grid interface problems. The new NEA policy cial entity, grid connection of isolated MHPs changes are expected to be applicable to MHPs is not its priority. with capacities between 100 kW to 500 kW as well. Coordination between the NEA and AEPC 90. There have been a number of interactions be- requires an active role from the MoEn. The tween the NEA and AEPC regarding grid connection MoEn facilitating interactions between NEA of MHPs to solve grid connection issues. The AEPC and AEPC could ensure a closer coordination has prepared a document to standardize MHP grid between these two institutions. It should be connection called “Micro Hydro Projects Intercon- noted that the NEA does not formulate polic- nection Equipment: Standards and Specification, es but implements them under the directives 2013.” The action committee in the NEA has agreed of the MoEn. Moreover, since there is no rural to evaluate this document and provide feedback electrification master plan, the AEPC and NEA and/or approval. Based on the final version of the are not aware of each other’s current plan. standards and specifications, the NEA will provide approval for MHPs to be grid connected. Energy Promotion Board Act have yet to be ap- Figure 9: Prediction of MHP capacity (kW) that will be added till 2020 proved by the parliament. Since the current parlia- ment (which is also the Constituent Assembly) has 70000 Cumulative Capacity (kW) prioritized the drafting of the country’s constitution, 60000 parliamentary discussions on approving these acts 50000 15 have been scarce. Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 40000 92. Sections 29 and 30 of the Electricity Act, 1992 30000 (see Annex 3) requires the NEA and other distribu- 20000 tion companies to compensate the existing MHP 10000 if they encroach upon the MHP’s distribution area. 0 However, this act is seldom enforced and even in 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 rare cases that it is enforced, it promotes buying and then abandoning the MHP, rather than connecting Current Trend Projection it to the grid to safeguard government investment. 93. The generating stations of NEA and indepen- designation of water rights and has sometimes led dent power producers (IPPs) must demonstrate to conflicts (e.g. diversion of river flows upstream of a high level of safety and technological standards an existing MHP for irrigation). before being grid connected. However, MHPs are often designed as isolated systems to supply elec- 95. An increase in the subsidy amount (total amount, tricity mainly for lighting purposes. They have many amount per household and per kW) has resulted in inherent safety issues that are a concern for the NEA. an increase in both the number of power plants For example, most MHPs use wooden poles, which and the aggregate installed capacity. Change in have a shorter life span. Also, the use of electronic each subsidy policy in 2000, 2006 and 2009, also in- load controller (ELC) in MHPs (compared to gover- creased the average plant size as mentioned before. nors in NEA’s generating stations) deteriorates the power quality of these plants. To be grid connected 96. The establishment of the AEPC has significantly MHPs need to meet the grid’s technical standards, accelerated the growth of the micro hydropower which includes an “NEA quality” distribution system. sector. A central government body responsible for the promotion of MHP along with donor support 94. There is a need for the APEC to demonstrate has resulted in funds being available for subsidy. safety standards of MHPs to NEA personnel from Furthermore, the AEPC has also made available vari- various internal departments, such as transmission, ous support mechanisms, such as technical design, distribution, technical services, system planning and construction support and monitoring of MHPs. The finance (see Box 1). The recent decision by the NEA private sector has also been strengthened due to to buy power from MHPs at the same FIT as IPPs in- participation in design, manufacturing of equip- dicates that MHPs would also be treated similar to ment and site construction/installation. It takes IPPs. Currently, a generation license is not required about two years for the subsidy to make a visible for hydropower plants up to 1000 kW capacity to impact on installed capacity. This implies that MHPs facilitate simpler implementation of the MHP. How- should be built in about two years’ time from the ever, not requiring licenses has resulted in unclear start of subsidy disbursements. 03 Scaling Up Potential of Micro Hydropower in Nepal 98. The AEPC currently faces two contrasting prob- 101. This chapter analyzes the merits of pursuing lems in scaling up of MHPs. On the one hand, there is each of the systems by examining their technical, fi- a growing demand for MHPs from more communities; nancial, economic and institutional performance. The and on the other hand there is an increasing threat to objectives of this chapter are presented in Section 16 investors from the grid being extended into existing or 3.1. Section 3.2 discusses the framework for select- even under-construction MHP sites. Thus, even as the ing the pathways for scaling up MHPs. Sections 3.3, Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications AEPC tries to meet the growing demand for MHPs by 3.4 and 3.5 assess various aspects of scaling up MHPs scaling up its initiatives, it has to find means for pro- as a standalone system, MHPs as a mini-grid system, tecting prior investments made in MHPs that are un- and MHPs as a grid connected system, respectively. der threat from grid extension. Connecting such MHPs Based on the findings in these sub-sections, major to the grid is the only alternative to abandoning them. issues are discussed and appropriate suggestions to address these issues are presented in Chapter 4. 99. Until recently, the NEA was reluctant to connect any MHP that was less than 100 kW in capacity. From NEA’s 3.1. Objectives of the Chapter perspective, an MHP with low installed capacity was con- sidered not worth connecting to the grid as the power 102. The objectives of this chapter are to analyze and energy from such plants would be low compared how MHPs can be scaled up sustainably when: to the efforts required in managing them (e.g. meter l they operate as standalone systems; reading, dispatching monthly payment and monitoring l deficit of one or more MHPs can be compensat- quality issues). The AEPC had responded to this issue by ed by other MHPs in the vicinity that have surplus interlinking smaller MHPs (where larger MHPs do not power through a mini-grid system; and exist) to form a mini-grid of at least 100 kW in capacity. l the grid arrives in the vicinity of the plants. Therefore, the Baglung Mini-Grid was formed such that the aggregate installed capacity is 107 kW (6 MHPs were 3.2. Framework for Assessing interlinked). However, as discussed earlier, recent devel- Performance opments indicate that MHPs less than 100 kW are per- mitted to be grid connected, provided that they meet 103. The key research questions that would guide NEA’s technical (and safety) requirements. the analysis are as follows: l Should MHPs be scaled up as standalone, off-grid 100. Thus, the AEPC has three key system configura- solutions to enhance the access of rural commu- tions to address for scaling up MHPs in a sustainable nities to electricity? manner. These are: l Should MHPs be connected to the national grid l MHP as a standalone and off-grid system; either as individual MHPs or as a mini-grid of in- l Mini-grid system of MHPs that could eventually terconnected MHPs? be connected to the grid; l Should MHPs be interconnected to form off-grid l MHP as a grid connected system. mini-grids to better serve the community? Table 9: | Framework questions for analyzing feasibility of standalone MHPs, mini-grids and MHP–grid connection MHP Technical Financial Economic Institutional configuration Are MHPs technically reliable? Are MHPs financially Are societal invest- Is the current insti- Standalone viable? ments (subsidy) in MHPs commensurate tutional architec- ture and capacity 17 Are they capable of meeting local with economic welfare adequate to manage Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications MHP demand consistently? Is there adequate quantum and rate of delivered by them? MHPs? return to investors? Are MHP–mini-grids technically Is the incremental Does the incremental Can MHP Functional reliable? revenue (increased economic welfare due Groups make the PLF and increased to interconnection of transition to larger Do they lead to better plant load commercial loads) from MHPs into a mini- and more formal factors (PLFs) for the constituent interconnecting MHPs grid warrant a higher institutions? plants? adequate to cover subsidy if the financial incremental invest- viability is not attrac- Mini-grid ments? tive? Can they serve the local demand better than as standalone plants? Does higher overall plant capacity lead to serving more commercial demand? Can MHPs (as standalone or as Do the incremental rev- Does the incremental What are the institu- mini-grids) be connected safely to enues from connecting economic welfare deliv- tional forms needed the national grid? to the grid justify the ered by connecting the to manage a grid investments? MHP to the grid justify connected, genera- Will it make both the MHP and the the costs? tion and distribution national grid (NEA) more reliable Who should make the system? or unreliable? investments? How does this compare with the economic What support is Grid-connect- Overall, will the MHPs be net sup- What are the financial welfare delivered by needed to the com- ed MHP pliers of electricity or net import- implications for the just extending the grid munity and service ers from the grid? NEA, the MHP Func- without connecting to providers? tional Groups and the the MHP generator? Will this improve the PLFs of the community at large? What institutional MHPs? mechanisms are needed for the AEPC and the NEA to work Will this lead to development of together to support commercial and productive loads? this? 104. For each of these research questions, if the an- grid. With the subsidy and technical support provided swer is “yes”, then the study after taking into account by the GoN (through AEPC), the numbers of isolated the challenges and opportunities will propose a road- MHPs are steadily growing. This alone indicates that map for moving ahead. More specifically, in order to there is: (a) a demand in non-electrified rural communi- address the research questions, framework questions ties for MHPs, and (b) with subsidy support, communi- addressed in this chapter are presented in Table 9. ties are able to afford such MHPs. The majority of MHPs are functioning well beyond their economic life (15 3.3 Standalone MHPs years as per AEPC guidelines), which indicates that the technology has become sustainable. While communi- 105. As mentioned earlier, standalone MHPs serve ties have not been able to recover capital costs, they communities well in the absence of the national are able to meet the operation and maintenance costs. 03 Scaling Up Potential of Micro Hydropower in Nepal 3.3.1. Technical Reliability the dimensions of the basin, which results in silt par- 106. Isolated standalone MHPs were found to be do- ticles not settling down. Eventually, such silt parti- ing well except for a few minor technical problems. cles find their way to the turbine runner blades and The most frequent technical problems discovered damage them by their abrasive action. Therefore, by 18 during the site survey were turbine runner dam- designing appropriately dimensioned settling ba- age due to silt abrasion, bearing rupture, ELC break- sins and following the design during construction, Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications down, and belt damage (Figure 10). two most frequent problems in technical reliabil- ity can be avoided. The AEPC has prepared various 107. Silt problems arise from bad design and con- technical guidelines that address such design issues. struction of the settling (desilting) basin. A settling basin must be designed to lower the velocity of 109. Belt and bearings damages occur due to misalign- water by providing a large basin surface area such ment of the turbine-generator set. This problem can that abrasive silt particles can settle. The length and be avoided by aligning the sets precisely and by exclu- width of the basin must be large enough to trap all sively monitoring this process. Also, using a high qual- silt particles greater than a certain size, which varies ity belt and bearings can help prevent these issues. from 0.2 mm to 0.5 mm depending upon the head and type of turbine of the scheme. The dimensions 110. The ELC diverts unused electrical power to ballasts of the basin must be calculated based on the ideal (heaters) so that the frequency of the generator can be settling basin concept to minimize turbulence ef- kept constant. ELC is a home-grown electronic tech- fect. Additionally, the basin should be able to store nology manufactured in Nepal according to interna- the settled silt particles for a certain number of tional design. ELCs are found to be highly susceptible hours because MHPs are not designed for continu- to fault currents caused by lightening or short circuits. ous flushing. The settled silt particles then need to ELC breakdown can be avoided by using high quality be removed from the basin by opening gates or lightening/surge arrestors to protect from fault cur- valves and flushing the sediment using the incom- rents. Further research is being undertaken by various ing flow. To achieve satisfactory flushing, the bed ELC manufacturers to combat his problem. gradient of the basin must be designed to be steep enough to create velocities capable of removing all 111. These minor problems can be avoided to a the sediment during flushing. large measure by taking precautions, building a ro- bust design and its faithful implementation. If these 108. However, due to scarcity of funds (and some- measures are taken, technical reliability of MHPs will times space), communities often tend to decrease be very high. 3.3.2. Ability to Meet Power Needs Figure 10: Technical problems seen during MHP site survey 112. Most of the MHPs met the lighting power needs of households adequately in their service area. How- Deflector ever, most also were found to have a power deficit Electric pole 7% Turbine runner 7% during the peak hours. The subsidy for MHPs is pro- 19% AVR vided on the basis of 100–200 W/household. Due 7% Landslide to increase in household demand (500–800 W rice Belt 8% 19% cookers) and commercial use (7.5 kW agro-process- ELC ing motors) of electricity, this 100–200 W/household 11% Desilting Bearings and filtering ceiling for subsidy is becoming inadequate. This is 11% 11% resulting in load-shedding during peak hours and eventually, most MHPs will suffer from this problem as the demand for electrical energy increases and the installed capacity of MHPs remain constant. A better alternative is to switch to a supply based subsidy and Table 10 | Financial analysis assumptions for standalone MHPs Estimated value used in financial Parameter Remarks analysis Based on MHPs installed during January 1, 2012 to Decem- Plant size in kW 20 kW, 50 kW, 100 kW ber 31, 2013 19 Life of the plant in years 15 years Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications NPR* 450,000/kW for 20 kW; NPR 425,000/ Based on MHPs installed during January 1, 2012 to Decem- Capital cost of the plant kW for 50 kW; NPR 400,000/kW for 100 kW ber 31, 2013 Based on analysis of MHP financing and site survey. Around 50 percent subsidy, 40 percent equity, 10 Financing mix, including debt 10 percent of the capital cost is on average contributed by percent loans the community in kind Based on “Micro-Hydropower In Nepal: Enhancing Pros- 53 percent electro-mechanical, 20 percent Component-wise capital cost pects For Long-Term Sustainability”, Alex Arter, September, civil structures, 27 percent others. 2011 Loads: domestic and com- Domestic: 18 kWh/HH/month13 Site survey mercial Commercial: 4–5 kWh/HH/month14 Plant load factor 24 percent Derived from site survey results NPR 6/kWh-domestic and NPR 8/kWh- Tariff Derived from site survey commercial Operations and maintenance 2 percent of total capex annually cost NPR 12,000 for two operators and NPR Salary and administrative cost 10,000 for MHP manager. Total NPR 22,000/ Site survey month 7 percent on straight line basis on 73 Depreciation percent of capex Tenor and terms of loan 14 percent rate of interest, 7 years term Site survey *NPR 1 = US$0.0104; HH = household have a demand side ceiling of 500–1000 W/house- start of this study, the NEA was willing to connect hold or energy-based metered systems with subsidy only MHPs of 100 kW or larger capacity to its grid. to utilize the maximum capacity possible. 116. On an average every kW of installed capac- 3.3.3. Financial Viability ity serves eight households, which implies that 113. To determine financial performance of stand- when all households are drawing power from the alone MHPs the parameters listed in Table 10 below MHP simultaneously, each household can con- were estimated based on data collected during site nect up to a maximum of 125 W. An analysis of visits and from several published reports. the MHPs installed in Nepal15 from January 1, 2012 to December 31, 2013 (a period of two years) is 3.3.3.1. Plant size shown in Figure 11. 114. By definition MHPs range in capacity from 10 kW to 100 kW. Table 11 shows the details of the 117. Figure 11 shows that the proportion of plants plants covered in the site visits. of the three size categories of MHPs is similar. Ac- cordingly, for carrying out a financial performance 115. As can be seen from the table, the site visit fo- analysis of MHPs, standard plants of 20 kW, 50 kW cused on larger capacity MHPs. This is because at the and 100 kW were considered. 13 Calculated from an average usage of 120 W/HH operating 6 hours a day, 300 days in a year works out to 18 kWh/HH/month 14 Commercial loads in closed communities are linked to the households in the area who would be the users of such commercial services. Hence com- mercial loads have been expressed as kWh/HH rather than as kWh/commercial user. 15 Source: AEPC 03 Scaling Up Potential of Micro Hydropower in Nepal 3.3.3.2. Plant life 120. Overall the local community monetarily con- 118. Although there are several plants that are still tributes nearly 50 percent (40 percent community operational 20–30 years after they were first com- contribution16+10 percent loans), while the rest missioned, the general norm is to consider the life comes from the AEPC and other sources (VDC, 20 span of an MHP to be 15 years and the same has DDC) as capital subsidy. The average installed cost/ been assumed in this financial analysis. Fifteen years kW ranges from NPR 400,000 for a 100 kW MHP Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications would be too short a time for conventional larger to NPR 450,000/kW for a 20 kW MHP. The average sized power plants to be connected to the grid and cost/household is NPR 40,000 of which nearly a operated commercially, but for MHPs this is not pos- half comes from the local community itself, i.e. NPR sible because of the following: 20,000/household. Loans comprise a mere 10 per- l The quality of civil structures is such that they cent of the total finance mix which can be due to may not function well beyond 15 years. lack of access to loans or the ability of the communi- l Due to wear and tear, the turbine runners gener- ties to meet most of the non-subsidized cost of mi- ally do not last beyond 15 years. cro hydropower project implementation. The data l The uncertainty of the arrival of the grid does not from the AEPC on the last 58 plants that were sup- offer any advantages in designing MHPs for an ported with additional financing in 2013–14 (see extended economic life. The main issue is to seek Figure 12) indicate that the communities had lack opportunities to ensure that the MHPs are used of access to credit. until their economic lives are exhausted, such as by connecting to the grid. 121. Thus, the financing mix used in the financial analysis is 50 percent subsidy, 40 percent equity (lo- 3.3.3.3. Capital cost and financing mix of the MHP cal community contribution in cash and kind) and 119. The capital cost of the MHP is dependent main- 10 percent loans. ly on the head, the flow, the type of turbine, the length of the penstock and accessibility (remote- 3.3.3.4. Component-wise Capital Cost ness of location). Table 12 shows the capital cost 122. Capital cost of a typical MHP (see Figure 1317 ) and financing mix of the MHPs in the sites visited: comprises electro-mechanical components (53 per- Table 11 | MHP sites visited and their plant size Commercial Name of MHP Location District kW HH served kW/HH connections Gottikhel MHP Gottikhel Lalitpur 16 80 5 10 Midim Kholan MHP Ishaneshwor Lamjung 83 NA NA NA Bhujung MHP Bhujung Lamjung 64 365 6 14 Ghandruk I MHP Ghandruk Kaski 50 221 4 14 Ghandruk II/Bhirgyu MHP Ghandruk Kaski 50 289 6 29 Daram Khola I MHP Wamitaxar Gulmi 135 1,400 10 32 Daram Khola II MHP Wamitaxar Gulmi 85 900 11 19 Giringdi Kholan MHP Kharbang Baglung 85 838 10 34 Malekhu I MHP Mahadevsthan Dhading 26 300 12 6 Malekhu II MHP Mahadevsthan Dhading 18 118 7 5 Yafre MHP Yafre Taplejung 112 870 8 5 Total 724 5,461 8 168 HH = household Source: Site Survey 2014 16 This includes sweat equity and cash equity from the community Reproduced from “Micro-Hydropower In Nepal: Enhancing Prospects For Long-Term Sustainability”, Alex Arter, September, 2011 17 cent), a civil component (20 percent) and others (27 Figure 11: Size-wise number of plants installed during Jan 1, 2012–Dec 31, 2013 percent), which includes overheads and transporta- tion. Thus, for the purposes of calculating deprecia- tion, 73 percent of the capital cost will be treated as an asset block. A straight-line depreciation over 21 the life of the plant has been considered. This results 50-100 kW Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 10-19 kW in the depreciation of approximately 7 percent per 31 35 year for a plant life of 15 years. 20-49 kW 3.3.3.5. Loads: Domestic and Commercial 33 123. MHPs are primarily designed for delivering electricity (lighting) to households. Usually, MHPs are sized to deliver between 100–200 W/household subject to resource (head and flow of water) avail- ability. As presented above, 1.0 kW caters to about eight households (average load of 125 W/house- hold). A typical MHP-connected household uses electricity for about 5–6 hours in a day. Thus, the 124. Commercial loads (also referred to as loads average consumption is in the range of 18–22 kWh/ from productive end-uses) vary from place to place. household/month.18 The project design document Table 13 shows the types and number of productive (PDD) of the registered clean development mecha- end-uses found in the sites visited during this study. nism (CDM) project on MHPs by the AEPC also men- tions that the average kWh of electricity consumed/ 125. The most common productive end-uses are household/month in rural Nepal is 18 kWh. Thus, the agro-processing units19 followed by poultry farms. financial analysis uses 18 kWh/household/month as Hotels are the common productive end-uses in ar- the level of electricity use. eas of tourist interest, such as Ghandruk and Bhu- Table 12 | Capex and financing mix of MHP sites visited Cost Structure (NPR*) Name of MHP Total Cost Subsidy (AEPC) Subsidy (Others) Community Loans Gottikhel MHP 2,277,000  0 385,000 0 1,892,000 Midim Kholan MHP 34,900,000 16,700,000 0 16,000,000 2,200,000 Bhujung MHP 11,934,623  0 11,934,623 Labor contribution NA Ghandruk I MHP 3,400,000  0 2,100,000 400,000 900,000 Ghandruk II/Bhirgyu MHP 15,000,000 4,600,000 1,100,000 4,800,000 4,500,000 Daram Khola I MHP 59,000,000 14,500,000 0 40,500,000 4,000,000 Daram Khola II MHP 20,500,000 4,900,000 10,600,000 0 5,000,000 Giringdi Kholan MHP 22,341,000 6,375,000 2,166,000 12,100,000 1,700,000 Malekhu I MHP 4,414,711 NA NA NA NA Malekhu II MHP 4,314,977 NA NA NA NA Yafre MHP 40,000,000 14,400,000 6,450,000 14,315,000 0 Total 218,082,311 61,475,000 34,735,623 88,115,000 20,192,000 Average finance mix** 100 percent 28 percent 16 percent 40 percent 9 percent *NPR 1 = US$0.0104. **Since data from some installations are missing, the sum of subsidies, community contribution and loan will not add up to 100%. Source: Site Survey, 2014. 18 “Power And People: The Benefits Of Renewable Energy In Nepal”, Sudeshna Banerjee, Avjeet Singh, Hussain Samad, World Bank May 2010 An agro-processing unit comprises a rice huller and a flour mill run by a 10 hp (7.5 kW) electric motor. 19 03 Scaling Up Potential of Micro Hydropower in Nepal Figure 12: Source of total capex in 58 MHPs supported by AEPC 126. The proportion of kWh consumed by domestic and commercial customers is shown in Figure 14. Deficit/Additional 127. On average, 80 percent of the kWh is consumed 22 GoN support 21% GoN Subsidy 35% in an MHP in the domestic sector, mainly for lighting, and 20 percent for productive end-uses. This results Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Community Support in about 4–5 kWh of commercial loads/household/ 32% month. The CDM-PDD for MHP by the AEPC pres- ents an estimate of 9 kWh/household/month for commercial applications. However, for the purpose VDC Support of financial analysis in this study, commercial use of 4% energy at 4 kWh/household/month has been used. Other Support PAF Support DDC Support 5% 1% 2% 3.3.3.6. Plant load factor 128. Based on domestic and commercial consump- Figure 13: Component wise capital cost of MHP tions estimated in the preceding chapter, the esti- mated PLF for the plants surveyed are as presented in Table 15. Civil Component Others 20% 27% 129. However, these plants are well established and located in areas of high commercial transactions, Mechanical Component 13% such as market centers (Daram Khola II and Gir- Electrical Component ingdi Khola) and tourist areas (Ghandruk I & II and 40% Bhujung). An MHP study22 has pegged the PLF for MHPs at 18 percent while a World Bank study23 has mentioned 33 percent as the average PLF. This study uses a PLF of about 24 percent based on the esti- mates of domestic and commercial uses discussed in the preceding chapters. jung, which form a part of the Annapurna trekking 3.3.3.7. Tariff circuit. On average a single agro-processing unit exists for every 100–120 households. Furthermore, 130. Both power and kWh based tariffs were found larger plants tend to have a greater number of pro- in the MHPs visited. Table 16 provides details on tar- ductive end-uses. A typical agro-processing unit iffs in the MHP sites surveyed. would have a 10 hp (7.5kW) electric motor that is used for about 2–3 hours/day for approximately 131. On average a power-based tariff of NPR 100/100 20 days in a month serving about 100–120 house- W/month is equivalent to a kWh-based tariff of NPR holds. Similarly, a sawmill has a 5–7.5 kW electric 5.5. Domestic tariff has been taken at NPR 6/kWh for motor that is used for an average of 2–3 hours/ carrying out the financial analysis. Commercial tariff day for 20 days in a month. A typical poultry farm has been estimated at NPR 8/kWh. has a 500–750 W connection that is used for about 3.3.3.8. Operations and maintenance costs 8–10 hours/day for 20 days in a month.20 Table 14 presents the quantity of electricity consumed in the 132. The main operations and maintenance costs domestic sector and the commercial sector for the are related to repairs for the ELC, runner blades, in- sites visited during the survey.21 take channels and replacement of wooden electric 20 A minimum time gap is needed between two batches of broilers in the same poultry shed to allow for carrying out appropriate cleaning, disinfection operations and preparing the litter bed for releasing the next batch of Day Old Chicks (DOC). 21 The monthly consumption of kWh of electricity for domestic and commercial use has been estimated based on primary survey data 22 “Micro-Hydropower In Nepal: Enhancing Prospects For Long-Term Sustainability”, Alex Arter, September, 2011. 23 Power And People: The Benefits of Renewable Energy In Nepal, Sudeshna Banerjee, Avjeet Singh, Hussain Samad, World Bank May 2010, Page 13. Table 13 | Productive end-uses of MHP sites visited Daram Khola II Giringdi Khola Daram Khola I Midim Khola Ghandruk II Ghandruk I Malekhu II Malekhu I Gottikhel Bhujung 23 Yafre Total   Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Agro-processing 4 0 3 0 0 13 9 8 1 2 2 42 Poultry 0 0 2 0 0 10 0 15 4 0 3 34 Hotels 0 0 0 13 18 0 0 0 0 0 0 31 Sawmill 0 0 3 0 0 2 3 4 1 1 0 14 Grill/Welding shop 1 0 0 0 0 0 3 3 0 0 0 7 Crusher 0 0 0 0 0 1 0 0 0 0 0 1 Telecom tower 0 0 1 1 0 3 0 0 0 0 0 5 Ropeway 0 0 3 0 0 0 0 0 0 0 0 3 Small industries (Lokta/Chowmein/Soap) 0 0 0 0 3 2 3 3 0 0 0 11 Irrigation 0 0 0 0 0 0 0 0 0 1 0 1 Photocopier/Computer center 1 0 0 0 1 1 1 1 0 1 0 6 Others 4 0 2 0 7 0 0 0 0 0 0 13 Total 10 0 14 14 29 32 19 34 6 5 5 168 Source: Site Survey, 2014 Table 14  |  Domestic and commercial electricity consumption (kWh) for MHP sites visited Productive end-uses kWh consumed/month Name of MHP Household Agro-processing Poultry Others 24 Domestic Commercial Bhujung MHP 365 3 2 9 6,570 1,325 Ghandruk I MHP 221 0 0 14 3,978 6,840 Ghandruk II/Bhirgyu MHP 289 0 0 29 5,202 6,480 Daram Khola I MHP 1,400 13 10 9 25,200 2,550 Daram Khola II MHP 900 9 0 10 16,200 2,250 Giringdi Kholan MHP 838 8 9 17 15,084 3,818 Malekhu I MHP 300 1 4 1 5,400 390 Malekhu II MHP 118 2 0 3 2,124 300 Yafre MHP 870 2 3 0 15,660 480 Total 5,301 38 28 102 95,418 24,433 poles. These are estimated at 2 percent of the total 3.3.3.10. Financial analysis capital cost of the MHP on an annual basis. 134. Based on the above parameters, financial analy- sis has been carried out for 100 kW, 50 kW and 20 kW 3.3.3.9. Salary cost MHPs with and without capital subsidy covering prof- 133. Typically, an MHP that operates for more than it/loss statement, cash flow analysis, estimation of in- 10 hours per day employs two operators (NPR 6000/ ternal rate of return (IRR), net present value (NPV) and month each) and a manager (NPR 10,000/month) the levelized unit cost of electricity (LUCE). The details totaling a cost of NPR 22,000/month. A shift is usu- of the financial analysis can be found in Annex 4 and ally 10–12 hours in duration. the summary of the results is presented in Table 17. 24 Includes other productive end-uses such as sawmills, grill works, etc. 03 Scaling Up Potential of Micro Hydropower in Nepal Table 15 | Estimation of PLF of MHP sites visited the costs of major repairs, users are asked to con- Name of MHP kWh con- PLF tribute additional sums. The tariffs are also lower be- sumed / year cause after having contributed in cash and/or kind Bhujung MHP 94,740 17% for the construction of the MHPs, the communities 24 Ghandruk I MHP 129,816 30% are unwilling to pay higher tariffs reflecting the real Ghandruk II/Bhirgyu MHP 140,184 32% costs (see Box 2). Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Daram Khola I MHP 333,000 28% Daram Khola II MHP 221,400 30% 140. Thus, MHPs are run to recover operating costs only, with capital investments (local community Giringdi Kholan MHP 226,824 30% contribution) being treated as sunk costs. This leaves Malekhu I MHP 69,480 31% them financially vulnerable when they have to meet Malekhu II MHP 29,088 18% the costs of major repairs or even pay better salaries Yafre MHP 193,680 20% to their staff. Since it takes time to mobilize money Average PLF 26% from users to pay for maintenance and repairs, it gets postponed eventually leading to degradation 135. Results of a break-even analysis carried out for a of the assets, and loss of production and revenue. 100 kW MHP is presented in the Table 18. This further compounds the poor financial health of the MHPs. 136. Similarly, a break-even analysis was carried out for a 50 kW and a 20 kW MHP, and the results for all three 141. This mindset of only meeting operating costs capacities considered are presented in Figure 15. and the lack of pressure to deliver a RoE, leads to a dearth of interest in increasing loads during off- 3.3.3.11. Observations on Financial Analysis of peak hours. It also means that such MHPs would not Standalone MHPs be interested in taking loans since it would increase 137. From a conventional financial analysis view- their operating costs and they would be forced to point, the profitability of MHPs is poor, with or with- increase their revenue base by increasing off-peak out subsidy. Smaller plants in the range of 20–50 loads. Such MHPs are therefore not attractive to kW are not able to cover interest on loans and have banks and financial institutions. a negative return on their investment. Plants with capacity of 100 kW are relatively more profitable 142. Given this situation, standalone MHPs seem as they are able to cover all their operation and to be run more as social enterprises that deliver a maintenance costs, salaries and also pay interest on social good than as business enterprises. This orien- loans. However, even in their case the return on in- tation has been further accentuated by changes in vestment (RoI) is less than 1 percent. the subsidy policy that favor community-managed MHPs instead of entrepreneur-managed ones. This 138. The LUCE25 including a 16 percent return on to some extent explains the low load development equity (RoE) is higher for smaller plants and in all in MHPs (especially off-peak loads which are largely cases much higher than the tariff being charged. productive end-uses) and the lack of interest in fi- This implies that tariffs are not taking into account nancial institutions to finance them. the full cost and a reasonable RoE. In fact in the Bhu- jung MHP, the community recently decided to lower 143. Thus, MHPs today are financed by a mix of the tariff from NPR 100/100 W/month to NPR 65/100 capital subsidy and equity (sweat and cash). Com- W/month after the loan portion was paid off. munities that are able to mobilize their share of the capex (NPR 20,000/household) are able to set 139. Tariffs are set to just recover the operating costs up an MHP and those that are less affluent simply and sometimes even just the salary costs. To meet cannot afford to do so. With many sites in the hilly Levelized Unit Cost of Electricity is the ratio of discounted operating cost+ capex to discounted number of kWh generated over the lifetime of an MHP. 25 Figure 14: Proportion of KWh consumed in domestic and regions of Western and Central zones of Nepal26 commercial sectors getting slowly saturated with MHPs and with the grid also making inroads,27 the potential sites for 120% MHPs are now more in the poverty stricken far-west. 100% 25 This is one of the major challenges of scaling up 80% Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications MHPs in Nepal. 60% 40% 3.3.4. Economic Analysis 20% 144. In the preceding sections, the financial perfor- 0% mance of MHPs has been analyzed from the point Bhujung MHP Ghandruk MHP Dharam Khola I MHP Dharam Khola II MHP Giringdi Kholan MHP Malekhi I MHP Malekhi II MHP Yafre MHP Ghandruk II/ Bhirgyu MHP of view of the MHP as a business unit. In this section, the economic performance of MHPs is analyzed from the perspective of the society or economy at large. While in the preceding sections, the revenue generated from sale of electricity was set off against the costs of generating electricity, in an economic Commercial Domestic analysis, the benefits that accrue to society (in this case users/customers) would be set off against eco- nomic costs of generating electricity. A number of Figure 15: Break-even PLF and LUCE for standalone MHPs previous studies have estimated the economic ben- efits that accrue from electrification, and the find- 140 ings from these studies have been taken into ac- 120 count in the analysis here.28 In estimating economic 100 benefits and costs,29 all financial costs are taken net 80 of taxes, without subsidies, and the labor wage rate 60 of NPR 500/day is deflated to the minimum wage 40 rate for unskilled labor of NPR 318/day.30 20 - 3.3.4.1. Estimation of economic costs 20 50 100 145. The costs of setting up and running an MHP in- Plant Size (kW) clude only the capital cost and the operations and maintenance costs. Salaries are not a relevant eco- PLF at BEP (%) LUCE (Rs./kWh) nomic cost because they also feature as economic benefits of an MHP and thus cancel out each other. Table 19 presents the economic costs for a notional cess to television and radio, higher incomes from 20 kW, 50 kW and 100 kW MHP. increased productivity, improved health and educa- tional outcomes. A study that used a multiple lin- 3.3.4.2. Estimation of economic benefits ear regression model attributed an average annual 146. Several studies on the economic benefits deliv- increase in household income of US$121 (about 8 ered by MHPs have been conducted in Nepal. These percent of the average annual income) to electricity include: increased welfare enjoyed by households access alone. 31 However, while there is a correlation due to a shift from traditional (kerosene) lighting between higher income and access to electricity to electric lighting, increased knowledge from ac- through MHPs, the direction of causality is not clear- 26 These are the relatively more prosperous areas in rural Nepal hills mainly on account of employment in the Indian and British army and remittances from migrant workers. Steady remittance has ensured greater prosperity for this area. 27 The opening of the mid-hills road is increasing the spread of grid in the hills of Nepal 28 IEG/World Bank (2008), World Bank (2011), UNDP (2011). 29 This is the approach taken throughout this study for estimating economic costs 30 The daily minimum wage of NPR 318 was established in the Government of Nepal’s Gazette (Jeth 27, 2070). 31 UNDP (2011) 03 Scaling Up Potential of Micro Hydropower in Nepal Table 16 | Details of tariff in MHP sites visited Tariff/month Name of MHP Domestic Commercial 26 Bhujung MHP Ghandruk I MHP NPR* 65/100 W NPR 1.5/W/month NPR 8.00/kWh NPR 2/W/month Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Ghandruk II/Bhirgyu MHP NPR 150/100 W NPR 200/100 Watts Daram Khola I MHP NPR 100/20 kWh + NPR 10/ kWh NPR 1,500/190 kWh + NPR 10/kWh NPR 100, 150, 300/20 kWh (0.5, 2, 5 A) + Daram Khola II MHP NPR 1,500/190 kWh + NPR 8/kWh NPR 10/kWh  NPR 60, 100, 150/10, 15, 20 kWh/month Giringdi Kholan MHP  NPR 800/100 kWh/month (6.0A) + NPR 8/kWh (0.5A, 1.0A, 3.0A) + NPR 7/kWh Malekhu I MHP NPR 80/20 kWh + NPR 7/kWh NPR 7/kWh Malekhu II MHP NPR 70/ 20 kWh + NPR 5/kWh NPR 7/kWh Yafre MHP NPR 100/connection + NPR 8/kWh NPR 100/connection + NPR 10/kWh *NPR 1 = US$0.0104; A = Ampere Table 17 | Summary of financial analysis of standalone MHPs Plant size 100 kW 50 kW 20 kW Parameter With subsidy Without With subsidy Without With subsidy Without subsidy subsidy subsidy FIRR Cannot be calculated due to large number of negative net cash flows NPV (NPR* million) -21.62 -46.7 -13.68 -27 -8.02 -13.66 LUCE (NPR/kWh) 32.73 58.9 36.3 64.11 39.15 72.57 Profitability Covers O&M, interest on loans Covers O&M, and salaries but Barely covers salary costs alone and salaries. not able to service the loan. *NPR 1 = US$0.0104; O&M = operation and maintenance Table 18 | Results of break-even analysis for 100 kW MHP Parameter With Subsidy Without subsidy Total fixed cost (NPR*) 1,802,200.00 3,340,400.00 Total variable cost (NPR/kWh) 3.83 3.83 Sale price (NPR/kWh) 6.34 6.34 Break-even Point (kWh) 717,034 1,329,031 Break-even Point (NPR) 4,549,456.10 8,432,473.17 Sales (kWh) 208,800 208,800 Increase in sales needed to reach BEP (kWh) 508,234 1,120,231 PLF at BEP 82% 152% Current PLF 24% 24% *NPR 1 = US$0.0104 ly established. For example, it is not clear if higher income households and VDCs gain access to MHPs (community has to make significant investments Box 2: Relevance of to set up an MHP) or if access to electricity results conventional financial in higher income. Another study produced econo- analysis for community 27 metric estimates of 11 percent increase in non-farm owned assets Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications income from electrification through micro hydro- power; however, the gain in total income (farm plus Tariffs for use of community owned and op- non-farm) was not found to be statistically signifi- erated assets are usually set at only recov- cant.32 This is consistent with the observation that ering operating costs, primarily cash costs. MHP electricity is primarily used by households for They hardly ever take into account depre- lighting, and therefore may not have a substantial ciation (a typical non-cash operating cost) impact on economic outcomes. or factor in a RoE. 147. Therefore, in this study, consumer surplus from When faced with a major repair, however, access to better lighting has been taken as the low- the community contributes in cash and/or er bound of economic benefits from an MHP and all kind. This may be treated as drawing from other economic benefits have not been accounted the depreciation fund, which has been ly- for. Thus, the economic benefits are a conservative ing in a distributed form with the commu- estimate. As seen in the preceding section produc- nity. This is how irrigation schemes, rural tive end-use customers accounted for about 20 roads, temples and schools are managed. percent of all units consumed. Typically, electricity from an MHP replaces use of diesel in these units. Communities in Nepal manage MHPs in a Thus, economic benefits enjoyed by these users similar manner. Conventional financial analy- are directly related to savings from avoided cost sis that includes non-cash costs and factors of running a diesel engine. Finally, since electricity in a RoE fails to appreciate this method of tar- from MHP is carbon-free, economic benefits arise iff setting and management, and therefore in the form of revenue from sale of certified emis- deems MHPs as financially unviable. sions reductions (CERs) that stem from replacement of kerosene (for lighting) and diesel (for productive On the contrary, the fact that community end-uses). owned and managed MHPs have been in operation for a long period of time indicates 3.3.4.3. Lighting benefits for households the need to accept that these may not be 148. Households use electricity from MHPs primarily amenable to conventional bank finance, but for lighting, replacing the use of kerosene. The price are nevertheless operationally viable. of kerosene is NPR 105.5/liter and a household in ru- ral Nepal consumes about 3 liters of kerosene every month. One study33 showed that nearly 90 percent of the kerosene usage gets replaced in households dicated that household savings in lighting due to that are connected to MHP power supply. Thus, one electrification was about US$22 per annum, or ap- MHP-connected household saves NPR 285/month proximately NPR 177 per month.34 in expenditures on kerosene, while it spends about NPR 108/month (18 kWh x NPR 6/kWh) on elec- 149. However, using the change in household ex- tricity. In this scenario, the overall cash savings for penditure for lighting as a measure of the benefit a household/month is NPR 177. Another study in- of rural electrification underestimates the true eco- 32 World Bank (2011) 33 Ibid. 34 UNDP (2011) 03 Scaling Up Potential of Micro Hydropower in Nepal Table 19 | Estimation of economic costs of standalone MHPs Financial Cost Economic Cost Parameter 20 kW 50 kW 100 kW 20 kW 50 kW 100 kW 28 Capital costs/kW (NPR*/kW) Operation and Maintenance costs/kW (NPR/year) 450,000 9,000 425,000 8,500 400,000 8,000 389,802 7,796 368,146 7,363 346,491 6,930 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications *NPR 1 = US$0.0104; Note: 53 percent of capex is electro-mechanical, which attracts 13 percent VAT, and 20 percent of capex is labor; 2 percent of financial capex, less VAT, is taken as annual repairs and maintenance costs. nomic benefit because it only accounts for the fi- household consumer surplus is similar for 50 kW nancial savings delivered, whereas the quantum of and 100 kW MHP because the cost of kerosene is lighting provided by electric lights is far greater than constant and the LUCE only varies slightly). Details that provided by kerosene for the same amount of of the consumer surplus calculations are provided expenditure. Therefore, if MHP households gain by in Annex 5. reduced expenses on lighting (e.g. NPR 31.65 for kerosene plus NPR 108 for electric lighting com- 151. This analysis uses a lumen-based approach to pared to NPR 316.5 for kerosene alone), more signifi- value total household electricity consumption for cantly, they also gain by getting a far better quan- lighting, which may return an overestimate or an tum of lighting measured in kilo-lumen-hours (kLh) underestimate, depending on the Willingness to for a lower price. Table 20 provides details of price/ Pay for electricity for other applications.36 Where kLh and quantity of kLh consumed for kerosene us- data on Willingness to Pay for electricity for other ers and 20 kW MHP users. end-uses, such as radio and television especially, is available, more precise calculations of consumer 150. The MHP consumer clearly gets a source of surplus can be determined by separately calculat- energy that is cheaper and provides better light- ing the consumer surplus from television and from ing and yet pays far less than what it would have radio usage according to the appropriate demand cost them, if they used kerosene. Based on the two curves for those end-uses. price points and consumption points for kerosene and electricity-based lighting, a constant elasticity 152. The vast consumer surplus calculated above (log linear) demand curve is derived, and the con- represents the virtual savings that an MHP house- sumer surplus calculated from this functional form hold could accumulate on account of the superior amounts to NPR 1,414/household/month or NPR technical performance (on a kilo-lumen-hours ba- 16,973/household/annum for a 20 kW MHP (the per sis) of MHP electricity compared to kerosene light- Table 20 | Costs of lighting from kerosene and 20 kW MHP Consumption Price Type of Lighting Remarks (kLh/month) (NPR*/kLh) Use of kerosene lamps producing 37 lumens for 4 hours a day, which Without project 4.4435 71.28 requires 3 litres of kerosene per month, is assumed. Current price of (kerosene) kerosene (unsubsidized) in Nepal is NPR 105.5/litre. Use of incandescent bulbs with 15 lumen output per watt assumed. With project 270 1.63 Each household consumes about 18 kWh/month. Levelized unit cost (electricity from MHP) of 20 kW MHP electricity: NPR 24.43/kWh. *NPR 1 = US$0.0104 Rao (2011) 35 36 The demand curve derived is an estimate based on just price and consumption points for kerosene and electricity for lighting. A demand curve for shift in lighting preference that is based on a large and systematic sample would probably show a lower consumer surplus for lighting because, beyond a certain point households may prefer to spend money on other uses of electricity rather than on for lighting alone. ing and the much lower cost of MHP electricity if households may continue to rely on manual agro- it were to consume all 18 kWh for electric lighting. processing or on water mills, mechanical/electrical In reality, some of the 18 kWh consumption attrib- mills can do the same task more efficiently and fast- uted to the household is likely to be used for other er. With the advent of electricity, households gain applications, so it would not consume the quantity by having agro-processing units that are nearer to 29 of lumen-hours assumed in the calculation above, them and also pay a lower price per kg of grain pro- Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications and therefore would not enjoy the associated level cessed.37 In turn, entrepreneurs running such units of consumer surplus from lighting if the Willingness gain by saving on the cost of fuel. to Pay for other applications is lower than that for basic lighting. 155. The net savings on the purchase of fuel for the most common end-use, agro-processing, has been 153. More importantly, the assumption that the used as a representation of the benefit from micro household could and would spend the amount hydropower to all productive end-uses. The typical necessary to consume 18 kWh at the levelized commercial load is a 10 hp (7.5 kW) diesel engine cost of MHP electricity is an economic construct. that consumes 1.67 liters of diesel/hour. As per the It is highly likely that some portion of the house- findings of site surveys, the prevalence of one such hold budget would be reallocated to other uses agro-processing unit for every 100 households has instead of being utilized for electricity consump- been assumed. Commercial loads are assumed for tion, i.e. savings accumulated from the availability 2–3 hours/day (2.5 hours taken as the average) for of a cheaper form of lighting need not be spent 20 days per month. This yields 600 operating hours on consuming more lighting, especially consider- per year per 7.5 kW agro-processing unit. ing that consuming 18 kWh at the levelized cost of MHP electricity would significantly exceed the 156. Based on these parameters, the annual expen- household budget that would have been allocated diture to operate this typical agro-processing unit for kerosene lighting. on diesel fuel (at the current price of NPR 105.5 liter) has been calculated and compared to the expen- 3.3.4.4. Benefits from reduced expenditure on energy diture on equivalent electric power (7.5 kW x 600 for productive end-use hours = 4500 kWh). The computation of the LUCE 154. When electricity from MHPs becomes avail- generated from a 10 hp (7.5 kW) diesel engine is able, productive end-uses (agro-processing, poul- presented in Annex 6. Calculation of the levelized try farming and others) are found to switch from unit cost of micro hydropower electricity for 20 kW, diesel-based generation to micro hydropower. Ac- 50 kW and 100 kW MHPs is also provided in Annex cess to electricity from MHPs enables improvement 5. Table 21 shows details of savings to an agro-pro- in productivity of existing activities, such as cereal cessing unit on account of shifting from diesel to grinding, rice-hulling and oil expelling. While some electricity from micro hydropower. Table 21 | Net savings for one 7.5 kW agro-processing unit when shifting from diesel to MHP electricity MHP Capacity Type of Energy 20 kW 50 kW 100 kW Expenditure on Diesel (NPR*/year) 171,391 171,391 171,391 Expenditure on MHP (NPR/year) 109,426 103,347 97,268 Net savings (NPR/year) 61,965 68,044 74,124 *NPR 1 = US$0.0104 Notes: Annual consumption of 4,500 kWh equivalent. Levelized unit cost for diesel generation: NPR 38.09/kWh. Levelized unit cost of MHP electric- ity for 20 kW, 50 kW and 100 kW MHP, respectively: NPR 24.32/kWh, NPR 22.97/kWh, NPR 21.62/kWh. Typically, MHP based agro-processing units charge NPR 1–2 less/kg of grain processed. 37 03 Scaling Up Potential of Micro Hydropower in Nepal Table 22 | CER revenue potential for MHPs of different ery unit of electricity generated from an MHP, an capacities (at 23.8 percent PLF) equivalent amount of diesel is avoided and emis- CER revenue sions of CO2 mitigated. Table 22 presents the CER Installed capacity CERs (NPR*/year) revenue potential for 20 kW, 50 kW and 100 kW 30 20 kW 41.8 28,063 capacity MHPs. 50 kW 104.4 70,157 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 100 kW 208.8 140,314 159. Emission reduction from MHP amounts to 2.09 tons of CO2/year/kW of installed capacity. As can be *NPR 1 = US$0.0104; 1 CER = 1 ton of CO2 eq seen above, at a negotiated price of NPR 672/CER,38 the value of CERs for a 100 kW MHP operating at ap- proximately 24 percent PLF is NPR 140,314/year (see 157. This differential represents the net saving per Annex 5). annum on energy expenses for a 7.5 kW agro-pro- cessing unit, which has then been extrapolated 3.3.4.6. Summary of economic benefits and costs to average commercial loads of 20 kW, 50 kW and from MHP 100 kW MHPs to arrive at the annual economic 160. Analysts have identified a number of important benefit for productive end-use for MHPs of these benefits that they attribute to accessing electricity. sizes. This includes higher household income, increased production and productivity (from efficiency gains 3.3.4.5. Benefits from sale of CERs through electro-mechanization), time saved (and 158. As per the CDM-PDD on MHPs in Nepal, sub- therefore time available for productive activity or mitted by the AEPC and registered with the Unit- recreation), better education indicators, health ben- ed Nations Framework Convention on Climate efits from improved indoor air quality and better Change (UNFCCC), diesel has been accepted as awareness (particularly with respect to nutrition and the baseline (or business as usual) option for pro- fertility), as well as women’s empowerment. Meth- viding electricity in rural Nepal. The CO2 emissions odological limitations restrict the scope of this anal- coefficient for diesel is 0.9 kg/kWh. Thus, for ev- ysis to three categories of benefits that can be more Figure 16: Summary of annual economic costs and ben- reliably quantified: (i) the consumer surplus from efits of standalone MHPs the provision of electric lighting to households, (ii) the savings on fuel from switching from diesel to 15,000,000 micro hydropower for agro-processing, and (iii) the 13,000,000 Economic cost/benefit (NRP/year) CER revenues from avoided CO2 emissions.39 11,000,000 9,000,000 161. Benefits on account of income increase in 7,000,000 households40 and from new productive end-uses 5,000,000 have not been taken into account since the cause– 3,000,000 effect relationship between the provision of elec- 1,000,000 tricity and the benefits is not very clear. For example, -1,000,000 it is not clear what has caused the increase in house- -3,000,000 hold incomes for MHP-connected households com- -5,000,000 pared to non-electrified households. Similarly, the 20 kW5 0 kW 100 kW net profit from an end-use such as poultry farming Amortized capital cost* Operation & maintenance From sale of CERs cannot be attributed entirely to the provision of PEU energy savings Consumer surplus from lighting electricity. Even when benefits from electricity pro- vision are estimated for an end-use, such as agro- 38 Price/CER is US$7 (US$1 = NPR 96). This is the rate that has been offered by the World Bank for micro-hydro based emission reduction in Nepal. 39 Since the estimation of economic benefits from lighting apply to the entire domestic load, the benefits from utilization of TV, radio and other household appliances are imputed in this value, albeit imprecisely. Similarly, the calculation of fuel savings for agro-processing is applied to the entire commercial load of an MHP and thus includes an approximation of fuel savings from other productive end-uses as well. 40 UNDP (2011) has estimated an increase in yearly income of US$121/household for MHP connected households over non-electrified households. processing in this study, only the benefits from re- Table 23 | Summary of results of the economic analysis duced expenditure on diesel have been estimated. Parameter 20 kW 50 kW 100 kW Such estimates exclude the likely benefits of a shift NPV (NPR* million) 17.75 45.00 91.16 from manual or water mill based agro-processing to EIRR 33.71% 35.52% 37.51% MHP. The economic benefits estimated are there- LUCE (NPR/kWh) 24.32 22.97 21.62 31 fore conservative. Figure 16 displays a summary of Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications LUBE (NPR/kWh) 68.08 67.34 66.57 the economic benefits and costs from 20 kW, 50 kW Benefit/Cost ratio 2.80 2.93 3.08 and 100 kW MHPs operating at 24 percent PLF. *NPR 1 = US$0.0104; LUCE = Levelized unit cost of electricity; LUBE = Levelized unit benefit of electricity 162. As can be seen above, the economic benefits from micro hydropower arise overwhelmingly in consumer surplus from electric lighting. Given that ing an ELC would be nearly the same for a 20 kW the load for most MHPs is heavily weighted towards system and a 100 kW system. Due to lack of specific domestic consumption for lighting, and given the data on repair and maintenance costs, this has been relatively low level of consumption for productive estimated at 2 percent of capital costs. Similarly, end-use, this is not surprising. However, when using smaller plants cannot provide sufficient starting cur- a lumen-based approach to calculate consumer sur- rents for inductive loads and therefore, cannot sup- plus, as has been done here, the consumer surplus port the standard agro-processing motors of 7.5 kW. may be overestimated if the penetration of more But for a 20 kW MHP this should not be a problem, if efficient lighting options, such as compact fluores- all agro-processing units do not start up simultane- cent lamps (CFLs), prompts households to reduce ously. Apart from this, all other costs and benefits their monthly electricity consumption, rather than are nearly linear and thus, the above analysis should maintain or expand consumption through the uti- present a fairly accurate picture. lization of additional bulbs or other household ap- pliances. This is particularly likely to be the case with Table 24 | Parameters for diesel generation equivalent MHPs that have installed metering systems. This to 20 kW MHP consumer surplus calculation is also based on the Input Parameters Units Value assumption that households are consuming almost Plant size kW 20 the entire load that is available to them (up to 125 Plant life Years 15 W/household), and therefore the MHP is operating Capital cost of diesel genera- at close to capacity at peak hours. Based on these tion set (less 13% VAT) NPR million 0.62 parameters from Figure 16, Table 23 provides a sum- Transmission and distribution mary of results of the economic analysis of 100 kW, system (T&D) NPR million 2.73 50 kW and 20 kW MHPs running at 24 percent PLF. Total capital cost NPR million 3.35 Specific fuel consumption of 163. As can be seen in Table 23, rural electrification diesel l/kWh 0.33 through MHPs returns substantial economic ben- Economic cost of diesel NPR/l 105.50 efits. All three sizes of MHPs considered generate Hours of operation in a year hr 2,400 healthy economic rates of return, and the net pres- Operations and maintenance ent value ranges from NPR 17.73 million for a 20 kW (O&M) for every 250 hours of MHP to more than NPR 91 million for a 100 kW MHP. operations NPR 10,000 Annual O&M cost for 2400 hr 164. The results are fairly similar for all three sizes of of operation NPR 96,000 plants because most of the costs and benefits have Overhaul for every 6000 hr of been taken as scalable in a linear manner. However, operations NPR million 0.15 in reality, some of the repair and maintenance costs Escalation % 5% would be step costs. For example, the cost of replac- Note: T&D cost is taken to be the same as for a 20 kW MHP. 03 Scaling Up Potential of Micro Hydropower in Nepal Table 25 | Parameters for SPV equivalent to 20kW MHP Input Parameters Unit Value Plant life Years 20 PV Panel capacity kWp 42 32 PV Panel cost NPR* million 4.07 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Power electronics (inverter, charge controller) capacity kW 30 Power electronics cost (less 15% customs duty, 13% VAT and 13% tax on inverters) NPR million 2.06 Battery capacity Ah 7000 Battery cost (less 15% customs duty and 13% VAT) NPR million 3.89 Transmission and distribution (T&D) system NPR million 2.73 Labor/transport cost NPR million 1.63 Total capital cost NPR million 14.38 Annual O&M 2% Annual O&M cost NPR million 0.29 Escalation % 5% Cost of battery replacement (every 6th year) NPR million 3.89 Cost of power electronics maintenance (every 6th year) NPR million 0.41 *NPR 1 = US$0.0104; T&D cost is taken to be the same as for a 20 kW MHP. 165. Clearly, the economic benefits of an MHP, ir- 167. Table 24 indicates the parameters used to cal- respective of the size, are far greater than the culate LUCE from a 20 kW diesel plant.41 As a com- economic costs. Thus, there is a strong reason to parable diesel plant would be expected to provide support the delivery of electricity through MHPs. the same level of service as an MHP (i.e., about 22 However, it could also be argued that the benefits kWh per household per month), this diesel plant is of rural electrification could probably be delivered assumed to operate for 5 hours in the evenings for through other energy technologies or by extending domestic electricity consumption and for 2.5 hours the grid; and the cost of delivery could be different during the day to serve the commercial load in the offering a different value proposition. The next sec- community. tion explores this issue. 168. Similarly, the same level of service delivered by 3.3.5. Comparison to other Types of Generation a 20 kW MHP could be provided through a SPV sys- 166. The preceding section showed that there are tem, but the system would need to be optimized to considerable benefits to be realized from rural elec- be able to meet the evening lighting load (through trification, primarily from the provision of electric sufficient storage capacity) and should feature an lighting for households. It is worth considering inverter that can deliver the reactive power required whether these benefits can be delivered at a lower for 10 hp motors for productive end-use during cost through other means, such as diesel and solar the day time. The parameters of a SPV solution that photovoltaic (SPV), which represent the most feasible could provide the level of service equivalent to a 20 alternatives in Nepal. Therefore, the cost of delivering kW MHP is given in Table 25.42 Given the difficulties the same quantum of electricity and level of service faced with repairs and replacement in rural areas, provided by a 20 kW MHP through a SPV system and costing for better quality components was done through a 20 kW diesel plant were examined. (e.g. batteries and inverters that come with 5-year 41 Diesel generation cost data based on interview on August 21, 2014 with Mr. Rajesh Kumar Singh, Manager, MAW Engineering (P.) Ltd., Kathmandu, which represent Escorts, Greaves Cotton and Perkins range of engines. 42 Solar PV parameters and cost data based on consultation on August 22, 2014 with Anjal Niraula, Business Micro-grid Lead, Gham Power Pvt. Ltd. warranty), which veered towards the upper end of Figure 17: Comparison of LUCE for various generation sources the cost range. 70.0 60.1 55.0 169. Based on the parameters stipulated in Table 24 60.0 and Table 25, the LUCE from the different forms of 50.0 33 NPR/kWh energy is presented below in Figure 17. Analysis was 40.0 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications based on a 20 kW MHP, a 20 kW diesel plant and 30.0 24.3 a 42 kWp SPV system at 6 percent discounted rate. 20.0 The calculations are based on economic costs and 10.0 the assumption that transmission and distribution 0.0 costs account for approximately 35 percent of the MHP Diesel Solar PV total cost of the MHP. Accordingly, 35 percent of the cost of a 20 kW MHP is included as transmission and distribution cost in the calculation of levelized costs the other large micro hydropower program that for diesel and solar PV scenarios. The calculation of was managed by the AEPC, did not favor a partic- levelized unit cost for diesel-based generation and ular form of organization, today the AEPC actively distribution and SPV-based generation and distribu- promotes only community managed MHPs. Table tion are provided in Annexes 6 and 7, respectively. 26 shows the organizational forms managing the MHPs visited during the site survey. 170. It can be seen from the figure that the LUCE from a 20 kW MHP is considerably less than that 172. Except for the Midim Kholan MHP (which is un- from a diesel plant or solar PV system delivering the der construction) and the Yafre MHP (which is tem- same level and quality of service. Whereas the level- porarily under repairs), the rest of the MHPs were ized unit cost for diesel and solar PV are fairly similar, found to be operational. This in itself is a testimony the levelized unit cost for MHP electricity is less than to the management capabilities of the local com- half of that for the other energy alternatives consid- munity.43 Moreover, some of the MHPs are more ered and thus represents the best value for money than 10 years old and are still functioning well. for rural electrification. Since the level and quality of service have been fixed when costing the com- 173. In all the MHPs visited, customers were satis- peting alternatives, the economic benefits derived fied with the quality of service and the response from each of the options is identical, but the eco- of the management in addressing problems. De- nomic costs of MHP are more attractive by a large spite expressing the need for more energy to serve margin. Therefore, where technically feasible, MHP their ever-increasing needs, most of the customers represents the least cost option for providing off- closely identified themselves with the MHP and its grid communities with access to electricity. performance. 3.3.6. Institutional Performance 174. On the tariff front, managers have displayed 171. A variety of organizational forms are practiced a great degree of innovation and understanding in the management of MHPs. They could be legal of the community’s needs. Tariffs have been set and registered business entities, such as coopera- in consultation with the community and care has tives and companies or even individual entrepre- been taken to ensure that they are affordable, while neurs and recognized groups (usually MHFGs) also covering at least the operational costs. In Siwai drawn from the user community. Community man- Khola, a newly commissioned MHP, customers were aged MHPs were successfully pioneered during the being charged NPR 300 for the first 10 kWh and NPR REDP and following the changed subsidy policy of 10/kWh for every additional kWh. The high initial tar- 2006, MHFGs have emerged as the largest orga- iff is to pay off the debt component of the capex as nizational form to manage MHPs. Although ESAP, soon as possible and make the MHP debt free. 43 In the Village Energy Security Programme that India ran during 2007–2010, local community found it very difficult to handle the technology (biomass gasification) and Village Energy Committees that were set up to manage the energy systems were largely ineffective. 03 Scaling Up Potential of Micro Hydropower in Nepal Table 26 | Organizational forms of MHP management Name of MHP Location District Organizational Form Gottikhel MHP Gottikhel Lalitpur Private limited company 34 Midim Kholan MHP Ishaneshwor Lamjung Cooperative Sub-committee of Conservation Area Management Committee Bhujung MHP Bhujung Lamjung Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications under the guidance of ACAP Sub-committee of Conservation Area Management Committee Ghandruk I MHP Ghandruk Kaski under the guidance of ACAP Sub-committee of Conservation Area Management Committee Ghandruk II/Bhirgyu MHP Ghandruk Kaski under the guidance of ACAP Daram Khola I MHP Wamitaxar Gulmi Cooperative Daram Khola II MHP Wamitaxar Gulmi Private entrepreneurs in partnership with a local school Giringdi Kholan MHP Kharbang Baglung Cooperative Malekhu I MHP Mahadevsthan Dhading Cooperative Malekhu II MHP Mahadevsthan Dhading MHFG Yafre MHP Yafre Taplejung MHFG 175. Overall, as discussed earlier, the MHPs are being ful model of community mobilization and empow- run as social enterprises and therefore, tariff is not set erment that the AEPC has promoted. A key factor is to maximize profits, but to adequately cover costs. also the substantive contribution of the community However, costs of major repairs are not factored in in setting up the MHP, which ensures that they man- adequately and this often results in the MHFG going age its operations and maintenance well. The AEPC back to the users to collect money to pay for repairs. would do well not to significantly reduce the share of the community in the capex.45 176. The evident success of the MHFG in the face of similar institutions facing failure in India44 is mainly 178. A strong sense of shared ownership and pride on account of the excellent community mobiliza- in the MHP among the community has helped tion and preparation activities undertaken by the enormously in collecting electricity charges from AEPC starting from the REDP in 1996. The six princi- users. This usually has been the bane of rural elec- ples followed by the AEPC to foster a strong sense of tricity distribution businesses elsewhere. During the participation, ownership and thereby management mobilization of the community and formation of among the community are shown in Table 27. MHFGs, the importance of making adequate profits and creating a repair and maintenance fund should 3.3.6.1. Observations on institutional performance be emphasized. The site-visit impression has been of standalone MHPs that the community at large and the MHFG see their 177. Overall, it is concluded that MHPs are being role as one of delivering electricity as social goods. managed well. MHFGs and cooperatives (that MH- The community does not see electricity generation FGs usually evolved into) have shown a high de- as one that leads to business development in the gree of commitment and capacity to manage the area and they certainly do not view the MHP itself as complex task of implementing a micro hydropower an income generation opportunity. project. Indeed, the task involves managing sev- eral activities and actors spanning from community 179. If a part of the income from the MHP is channeled management to vendor management, to financial back to the community (shareholders in the MHP) closure, and others. Equally important is the success- in the form of dividends on investments then there 44 India: Biomass for Sustainable Development: Lessons for Decentralized Energy Delivery Village Energy Security Programme, World Bank, 2011 45 AEPC may offer concessional financing to lower entry barriers, but dilution of local contribution should be avoided. Table 27 | Six principles followed by the AEPC for management among the community Community mobilization Activities Key observed results principle l Community organizations46 are formed well before the process of planning an l Due to systematic mobilization of the community, MHFGs are truly representative of the community and enjoy their 35 MHP. confidence. Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications l MHFG is formed by each community l The fact that they are able to mobilize nearly NPR 20,000/ organization sending its representatives. household demonstrates the confidence that they enjoy. l MHFG is given the task of coordinating l Public presentation of progress and other details ensures and managing all activities pertaining to transparency design, installation and commissioning l This is testified by the fact that there are very few MHFGs that of the MHP. have misappropriated money collected or mismanaged finances. Organization l It is also tasked with mobilizing funds l Key result is the strong sense of ownership among the Development from the community, VDC, DDC, etc. community and the equally strong sense of purpose among the l On commissioning of the MHP, they are MHFG. responsible for day-to-day operations and l This is reflected in the community putting up sums of money or management of the MHP. labor to pay for costs of repair and maintenance that could not l They have to report to the community be covered by operational profits alone. periodically on the progress, utilization of l The fact that many MHFGs have gone on to be registered as funds and revenues and expenditure after cooperatives is a direct result of the excellent organization and commissioning of the MHP. development efforts. l The MHFG has a tenure of 3 years and l Formation of the cooperative puts the MHP on the path to a elections are held periodically. proper business organization form. l Having a fund at their disposal gives a sense of security to the community to meet any challenge. l Each member of the community l Handling savings and credit teaches the community the skills of organization(s) has to save a certain accounting and the importance of transparency in dealings; both Capital amount on a weekly basis. lessons that are important for managing large investments such Formation l The amount is pooled and used for as for MHPs. mutual lending for both productive and l The act of savings and lending binds the community together consumption purposes. and results in a better sense of team play. l The habit of savings leads to better mobilization of funds for the MHP. l Training in operations and maintenance is given to operators picked up from the l Technical training to local operators is a key reason behind the local community of the MHP. successful technical performance of MHPs. Skill l Local operators are also well equipped to l Book keeping skills are reflected in the good account keeping Enhancement handle minor problems. seen in most of the MHPs. l Training is also given for enhancing skills in l Many of the MHPs visited were issuing receipts for electricity bookkeeping, administration, management charges collected reflecting systematic operations. and community development. l In general, where special efforts have been made productive end-uses have emerged. l However, it is to be noted that electricity is often only an enabler l Several productive end-uses are Technology and a not a driver. promoted and training is given to Promotion l Access to markets, local resources and access to finance are real interested entrepreneurs. drivers for productive end-uses to emerge. l Nevertheless, the approach of productive end-uses has shown promising results. l Importance of environment in ensuring Environment livelihoods and quality of life. l Has created a good sense of importance of the environment Management l Contribution of MHPs and RETs in and how MHPs contribute to it. protecting the environment. l During the site visit discussions were held with several women l Special emphasis is given to the members of MHFGs as well as MHP cooperatives. Women’s participation and role of women in l In a predominantly male dominated hierarchical society, that Empowerment community organizations and MHFGs. Nepal is, the role, participation and knowledge of women with respect to MHPs and the functioning of MHFG was impressive. 46 Community organizations are similar to self-help groups, but consists of both men and women. 03 Scaling Up Potential of Micro Hydropower in Nepal would be more interest in running the MHPs as a busi- 3.3.7. Stakeholders’ performance ness. Currently, this does not seem feasible due to low 181. The performances of various stakeholders that PLFs and low tariffs. In fact, the low tariff itself may be help deliver an MHP are analyzed herein. The roles viewed as a way of transferring profits to the commu- of the community and the MHFG have already been 36 nity, but doing it overtly would draw attention to profit discussed in the previous sections. making as an objective of MHP management. Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 3.3.7.1. Analysis of the Project Cycle for setting up an MHP 180. If the MHP were to be connected to the grid 182. To better understand the roles and perfor- there would be considerable profits and a sound mance of the stakeholders, it is essential to ana- profit sharing mechanism including standard rules lyze the project cycle for setting up an MHP.47 The and practices would need to be devised. Therefore, process begins with the demand creation followed grid-connected MHPs should be viewed as a busi- by the community making a request to the AEPC ness that helps the community to earn an income through the RSC and/or the DDC for setting up an from a local resource without destroying it. MHP for them. This step usually precedes a process of community mobilization that has been described in the preceding section. Figure 18 shows the vari- ous steps once the application for helping a com- munity set up an MHP is received by the RSC. 48 Figure 18: Steps, processes and outputs of the MHP project cycle Step Process Output Community becomes interested in MHP Demand Awareness generation through media Creation and village visits by RSC Community mobilization and MHFG formation starts Observations  This takes 6 months to a year and is essential since the community is the project developer and manager Step Process Output Community makes an application to the RSC/ AEPC sanctions DFS. Community with RSC Demand DEECCS/AEPC; the RSC conducts a pre-feasibility support selects DFS consultant from a list of Processing analysis and recommends for DFS preparation AEPC pre-qualified consultants. Observations  This takes about 1-2 months. Community pays 50 percent of its share as an advance to consultant Step Process Output DFS DFS is prepared by the consultant and report Preparation submitted to RSC. AEPC releases 40 percent of DFS is revised and/or accepted. Conditional and subsidy for DFS preparation. RSC verifies DFS approval for subsidy release is made by Approval and submits to AEPC which verifies it and either AEPC to CREF. asks for revisions or accepts it Community releases 50 percent of its share of DFS cost. Observations  This process may take up to 6-9 months depending on AEPC workload and quality of DFS. This is a bottle- neck currently, mainly on account of quality of the DFS. 47 The project cycle for setting up an MHP has been presented in Section 2.3, Figure 8. 48 The current practice is for the District Environment, Energy & Climate change Office (DEECCS) to only process applications up to 10 kW and for the rest the RSC is the agency on the ground. Step Process Output MHFG begins mobilization of balance of funds MHFG mobilizes the funds and deposits 80 Mobilization from the community, VDC, DDC, other donors and banks. percent of it in cash in a designated com- of Funds munity managed account. RSC provides handholding support This is a make or break step. 37 This takes about 1-3 years. Some communities may fall away at this step. However, this step makes the Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Observations  community take strong ownership of the project and readies them for the project implementation stage. Some soft loans would help speed up the process, but equity in hard cash should not be diluted too much given that they run the MHP as a social enterprise. Step Process Output Lowest bidder is selected as the installer and MHFG enters into a contract for installation and commis- RSC calls for online bidding from pre- Selection sioning of MHP. MHFG releases 50 percent of its qualified installers, forms a Bid Evalu- of installer share as advance; AEPC gives 60 percent of subsidy ation Committee which includes the MHFG Chairman as advance against bank guarantee. After a joint site visit by the installer, RSC and DFS consultant, the balance 10 percent is released to them This takes about 2-3 months. This process is well laid out and is understood well by all stakeholders. Selection of the lowest bidder has reportedly resulted in several new installers quoting 50 percent lower than the estimated amount in the DFS. AEPC should carry out an analysis of all bids received in a year and Observations  especially verify abnormal bids. The process of the joint site visit before installation starts, puts great onus on the DFS consultant to do a sound job and also provides the installer an opportunity to verify the DFS before signing the contract with the MHFG Step Process Output MHP installation is complete and ready for testing Civil works by MHFG and electro- and commissioning. Bank guarantee is released on Installation mechanical by installer. Installer is of MHP delivery of electro-mechanical equipment at site. responsible for all aspects of MHP Community pays its share simultaneously. installation RSC/DEECCS provides verification This takes about 1-2 years depending on the terrain and funds flow. Some installers reportedly do not Observations  complete the task on time and misuse the funds given to them. MHFG is at their mercy during this stage. Step Process Output Successful POT results in a commissioning report and POT is done by RSC in the presence release of 20 percent to installer. After POV, another 10 Power output of MHFG, installer and AEPC, and the percent is released. Quantum of final subsidy amount test (POT) and plant is commissioned. Power output is determined after POT and POV. If generation is less, Verification verification (POV) is conducted by a subsidy is reduced and excess payment recovered from 3rd party inspector usually during installer. At the end of 1 year another check is conducted. November-May (lean flow season) If satisfactory, balance 10 percent subsidy is released to installer POT takes 2-3 months. POV is done usually within the year of commissioning. Largely, the QA only verifies the power output and is at the end of commissioning. There is no material and in-process verification of electrome- chanical components that attract 50-60 percent of total costs. In effect, the quality of the work under the direct Observations  control of the installer is verified only after commissioning. Oversight of civil works is not stringent as installer deputes a technical person only for providing marking and level. RSC cannot physically serve many installation sites with their manpower. Thus, QA is a weak link in the MHP installation and commissioning process; especially the quality of electromechanical equipment. 03 Scaling Up Potential of Micro Hydropower in Nepal Table 28 | Status of pipeline of MHP projects during the NRREP period Under Conditionally Detailed Particulars Demand Collection Total Construction Approved Feasibility Study 38 Identified demand numbers of MHP Total (kW) 167 5,418 263 8,071 219 5,839 185 6,401 834 27,397 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 183. Observations on key stakeholders’ performance provide a solid standard for pre-qualification of are presented herein. installers and manufacturers rather than just de- pending on documented evidence of capability, 3.3.7.2. Alternate Energy Promotion Centre as is being done now. 184. The AEPC is the main institution that designs, l On the lines of the biogas program, the AEPC drives and manages the micro hydropower pro- should put in place a comprehensive post-in- gram in Nepal. It is driven by its mandate to provide stallation survey of MHPs and monitor a sample energy access to rural Nepalese through renewable of projects. A sampling plan may be drawn such energy sources in a cost effective manner. Micro hy- that MHPs installed in a particular year are moni- dropower is one of the key RETs that it promotes for tored for a maximum period of five years after achieving this objective. commissioning. The sample drawn could be rela- tively higher during the first year and gradually 185. After the lull in the early 2000s due to po- tapered off to zero by the fifth year. Thus, a new litical conflict in Nepal, the AEPC has successfully set of samples would be added every year from brought the micro hydropower programs back on new MHPs installed while the few that have been track. However, as discussed earlier (see Figure 9), at monitored for five years would be dropped out the current growth rate it will be difficult to actu- of the sampling plan. ally implement a 25 MW aggregate capacity on the l The above two measures would provide a proper ground by 2017. Table 2849 shows the status of the basis to pre-qualify DFS consultants and install- pipeline of micro hydropower projects during the ers, and also monitor the performance of the first NRREP period. RSCs. 186. As mentioned in the previous section on the 187. A consistent feedback by the installers on the project cycle, the AEPC should take steps to im- project cycle is that it takes too long for decisions to prove the quality of DFS being prepared, and make emerge from the AEPC. This is understandable since the quality monitoring process (especially during the AEPC is highly centralized in its decision making installation) more stringent and concurrent. And, it process. Of late, it has completely decentralized the should definitely institute the following steps. decision-making process for pico hydropower to the DEECCS, but it is yet to do so for micro hydro- l Given that electromechanical components are power. However, reportedly there are moves afoot nearly 50 percent of the total cost of an MHP and to set up regional centers of AEPC with powers to a major part of the installer’s off-site cost, AEPC sanction MHPs as well. This is a step in the right should carry out a 3-stage inspection process direction, however, given the vast sums of money covering the materials stage, in-process stage involved and the large number of projects being and pre-shipment inspection. executed, the AEPC should progress cautiously. The l A 3-stage inspection will ensure that the qual- present system of approvals is well thought out with ity of the components delivered at the site is as adequate checks and balances, but AEPC’s decision- per design and material specifications;50 and will making is not the only bottleneck. 51 49 Based on “Micro Hydro Power Development in Nepal”, Madhusudhan Adhikari, National Adviser, Community Electrification, AEPC/NRREP 50 Use of mild steel in place of stainless steel for making jet nozzles, using copper coated aluminium plates for earthing were some of the quality issues mentioned during our discussions with RSC and manufacturers 51 Indeed, a major cause for delay after the installer has been chosen is the time taken by the community to mobilize its share, which may take from 6 months to 2 years. 188. Overall it is concluded that the AEPC is perform- this fact. However, it is to be noted that they are too ing well in promoting and setting up MHPs in Nepal. stretched to provide adequate oversight on quality In installing 25 MW of MHP, the AEPC would have aspects of equipment, civil construction and instal- successfully mobilized NPR 5,000 million by way of lation. Furthermore, oversight provided by RSCs is community contribution from rural Nepal.52 How- mainly visual and does not involve any equipment 39 ever, a key challenge in scaling up MHPs would be to make actual measurements. Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications community fund mobilization and quality of equip- ment, installation and service. Furthermore, apart 192. The role of the RSC would be crucial and their from the subsidy and other financial support (which capabilities would come under huge stress during has been planned well), the AEPC also needs to in- scaling up of the micro hydropower program. In ad- crease technical human resources along with more dition, with the new initiatives of mini-grid and grid engagement from the private sector to achieve the connectivity coming up, their capabilities should 25 MW target by 2017 along with the quality control be built up, especially in technical matters, by pe- activities listed above. riodic trainings, exposure visits and workshops to exchange knowledge and practices. As key partners 3.3.7.3. Regional Service Centres of the AEPC and their extension in the field it would 189. RSCs are usually NGOs that are entrusted with be useful for the AEPC and the RSCs to interact fre- the responsibility of promoting RETs among rural quently. communities. In all there are nine RSCs for promot- ing MHPs in Nepal. Each RSC covers 5–10 districts 3.3.7.4. District Environment, Energy and Climate and has about 8–10 personnel for promoting MHPs. Change Section Of these 2–3 engineering staff that provide techni- 193. Under the REDP, DEECCS’s role was equal to cal support, while 3–4 field coordinators provide on that of the RSCs. But since the REDP ended, the ground support for community mobilization and AEPC has preferred to work with and through the organization development. RSC for implementation of the micro hydropower program. Currently, DEECCSs are restricted to pico 190. RSCs have a crucial role to play in the project hydropower projects and other RETs. However, they cycle for an MHP. From demand creation to instal- are also responsible for providing oversight to MHPs lation and commissioning of the MHP, they are during installation and expected to assist the DDC involved in every stage. They play the role of men- in technical matters related to RETs. toring the community in general and the MHFG in particular in setting up an MHP. They are local veri- 194. Until recently, when the DEECCSs were han- fiers of progress and provide supervisory support to dling MHPs as well, they had assistant staff in the the AEPC during the project cycle. form of social and community mobilizers in addition to an officer, usually an engineer. The officers now 191. Each RSC has a target for total installed capacity have no assistance and are themselves in the pro- of MHPs that it has to help set up every year. In ad- cess of being absorbed by the DDC. There is good dition, it also has a target for enabling the setting up cooperation between the staff of the RSC and the of productive end-uses in MHPs, both old and new. DEECCS, which is useful while seeking clearances Thus, the skills-set needed for the range of tasks that for water rights or for mobilizing funds for MHPs. the RSC has to perform is large and varied. Overall, The AEPC should take care to ensure that DEECCSs the RSCs are found to be competent and capable of even after their absorption in to the DDC receive performing their roles. The steady stream of micro periodic training and are part of the sharing and hydropower projects in the pipeline is testimony to planning events that it may organize from time to 52 Interestingly, DoED, the parent ministry for NEA has proposed a Peoples’ Hydro Power as a programme to kickstart new power generation initiatives. It aims to mobilize local governments and local institutions as investors in the hydropower sector. It is proposing to provide a subsidy of nearly 75 percent to the DDC for setting up small hydropower projects. 03 Scaling Up Potential of Micro Hydropower in Nepal time. DEECCSs are RET specialists that the AEPC has manufactured components. Quotations are based helped place in the DDC and should continue to on thumb-rules rather than on any engineering- nurture them. based costing. Furthermore, most manufacturers custom-make components for each site rather than 40 3.3.7.5. DFS Consultants, Installers and Manufacturers use standardized components to fit a site. While this 195. Currently, there are 61 pre-qualified DFS con- delivers the best efficiency in energy generation, it Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications sultants and 78 pre-qualified installers for various ca- makes the equipment costly.54 Therefore, the AEPC pacities of MHPs. Thus, on an average each DFS con- should help the micro hydropower industry stan- sultant is preparing 3–4 DFSs every year while each dardize its components. A review of the manufac- installer is installing 2–3 MHPs. Taking an average turing, benchmarking of costs, and standardization, size of 30 kW, this is approximately NPR 15,000,000 will together help reduce costs. to 18,000,000 of turnover/installer/year. At a net profit margin of 10 percent this is approximately 199. Use of “pumps as turbine” is a time-tested ap- NPR 1,500,000 to 1,800,000 turnover/installer/year. proach in India and other countries especially for medium heads. Typically, pumps cost only 30–40 196. For manufacturers with large manufacturing percent of the cost of a custom-made turbine and investments who are also installers, this is not very could help reduce costs significantly. attractive and hence the feedback from larger man- ufacturers is that the industry has got very crowded. 200. Given the low volumes of business, large On the other hand, for installers who outsource ev- manufacturers are losing interest in the micro hy- ery component and play the role of system integra- dropower sector. The AEPC should take steps along tors, this is attractive. with the NMHDA to build the capacity of the in- dustry to manufacture and install mini hydropower 197. This could be one reason why newer install- plants. Apart from providing training and exposure ers are able to offer competitive bids while larger to manufacturers, the AEPC should also start sup- manufacturers are not able to match them. Indeed, porting more mini hydropower plants. Further, it appears that some of the installers are import- it should also identify appropriate technology to ing components when it is cheaper to do so rather harness the hydropower potential of low heads than procure from local manufacturers. Overall, and large flows that are prevalent in the lower hills while this will help bring down costs, there is a and the Terai belt of Nepal. Currently, in India, with need for caution with respect to quality. The abnor- technology received from Japan an “ultra low head mally low quotes from a few installers should be MHP”55 is being utilized on a quasi-commercial ba- investigated.53 Quality of manufactured compo- sis with support from the United Nations Industrial nents, the cost of equipment, capacity, and interest Development Organization (UNIDO). This would in MHP manufacturing would be crucial to any MHP help open up a whole new area of business to the scale-up program in Nepal. micro hydropower industry. 198. Given the ever-increasing installation cost of 201. Currently, manufacturers and installers are clus- MHPs, the AEPC should in collaboration with the tered around the Kathmandu valley and Butwal. If NMHDA institute a thorough engineering review the micro hydropower industry specialists and in- of the manufacturing process and establish bench- stallers are largely system integrators, then there is mark costs for the various MHP components. Inter- no need for them to be based in Kathmandu or But- actions with manufacturers and installers during the wal. Being closer to the area where future growth is field survey revealed a lack of systematic costing of expected would bring down costs of delivery signif- 53 One reason could be the need for having completed at least one MHP installation for a conditionally qualified installer to be treated as fully qualified. Therefore, new installers try to secure an order even by offering services below cost. 54 Given the low utilization of the plant it is a moot point if efficiency should be maximized or optimized with cost. 55 Works with 1–3 m heads. icantly. The AEPC should encourage entrepreneurs two MHPs are shut down, the others can continue in other parts of the Nepal hills to take up this task. to supply power although in limited loads (or to a small distribution area) thereby increasing system 202. As a first step, they should encourage at least reliability compared with isolated MHPs. 2–3 entrepreneurs as “local repair centers” to take 41 up repair and maintenance for every 100 MHPs un- 206. However in Nepal, mini-grids have been Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications der the guidance of the installer/manufacturer. For planned as one of the strategies to connect to the example, areas such as Taplejung, Panchthar, Ter- grid when it arrives in the vicinity of an MHP. The athum, and Illam have only one manufacturer in Bi- AEPC has been trying to form mini-grids that are at ratnagar as an option for service. If an installer from least 100 kW or more in size56 in response to NEA’s Kathmandu sets up an MHP, it takes more than a reluctance to let an MHP of less than 100 kW size to day’s journey to reach the site for after-sales service. connect to the grid. In such situations, a mal-functioning plant remains closed down for a long period and the community 207. In Nepal, mini-grids have only been attempted is rendered helpless. as pilot projects. One such mini-grid is already oper- ational since 2012 at Rangkhani, near Kushmishera 203. With a large base of functional MHPs, the AEPC in Baglung district. Therefore, technical reliability, should give after-sales service priority by decentral- financial viability and economic benefits of mini- izing repair and maintenance, and especially en- grids are not fully confirmed. Furthermore, in the abling onsite repairs. context of the NEA removing the 100 kW threshold for grid connection, the relevance of the mini-grid 204. Finally, quality inspection of manufactured has significantly decreased. Therefore, they could be components should be done in three stages: (a) implemented in some situations if financially fea- material inspection, (b) in-process inspection, and sible. (c) pre-shipment inspection. This is crucial to main- tain the high operational rate of MHPs in the field 3.4.1. Technical Reliability especially with a large number of new installers 208. The successfully implemented pilot mini-grid coming on board in the past few years. A compre- project in Baglung indicates that a mini-grid is hensive approach to consistently track and rate the technically reliable. The main challenges related performance of the installers and the MHPs installed to interconnecting MHPs are synchronization and by them should form the basis for pre-qualification. load sharing between them. To achieve synchro- nization, the three-phase synchronous generators 3.4. MHP Mini-Grid (alternators) of the interconnected MHPs must have the same voltage and frequency. Additionally, they 205. Interconnection of standalone MHPs into a lo- must be connected to each other at the moment cal grid is termed a mini-grid. Often, as a commu- the three phases of one alternator line-up with the nity’s power needs grow, isolated MHPs are unable three phases of the other alternator. to meet the growing demand. In such cases, a mini- grid could become the next available option. To 209. Generated voltage of an alternator is controlled form a mini-grid, some standalone MHPs must have by regulating the excitation DC voltage, which pro- power in surplus and others a power deficit. By con- duces the magnetic field in the alternator. This is necting these MHPs to form a mini-grid, the power achieved by an automatic voltage regulator (AVR), can be balanced between communities served by which constantly measures the fluctuations in the isolated MHPs, especially during off-peak and peak generated voltage and regulates the excitation volt- hours. Furthermore, with mini-grids, in case one or age accordingly. Frequency of a generator fluctuates Given the latest decision of NEA’s board to allow any size of MHP to connect to the grid, this reasoning for forming a mini-grid may not be tenable 56 any more. 03 Scaling Up Potential of Micro Hydropower in Nepal with fluctuations in load. Therefore, the load of the 214. When a few MHPs with surplus power during MHP must be kept constant to generate electricity peak times, a few MHPs with peak deficit, a few at a constant frequency. To achieve this, MHPs use MHPs with high loads during non-peak hours and a ELCs that divert the difference between the gener- few MHPs with no loads/low loads during non-peak 42 ated power and consumed power to dummy loads hours are interconnected and operated as a single (ballasts). A synchronoscope measures the phase distribution system, the overall PLF of the intercon- Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications voltages of the alternators and makes the intercon- nected system is expected to be higher than the nection at the time the phases are lined up. weighted average PLF of the individual MHPs taken together. 210. Even though ELCs can be found in international markets, these are very costly in terms of low-cost 215. The reason for the higher system PLF is for bet- MHP installation. In Nepal, locally made low-cost al- ter utilization of surplus capacities and is the primary ternatives are available but these tend to be less re- basis for forming a mini-grid of MHPs. It is pertinent liable and prone to breakdowns and malfunctions. to note that if there is no surplus during peak time in Moreover, inadequate protection systems make a few of the MHPs in the mini-grid, then there would these more susceptible to damage by fault currents. be no improvement in quality and quantity of elec- tricity delivered to households. Similarly, if there are 3.4.2. Ability to Meet Power Needs no significant productive end-uses coming up dur- 211. Mini-grids become pertinent where some of the ing non-peak hours, then the PLF of the mini-grid nearby standalone MHPs have a power surplus while does not improve significantly. More importantly, the others have a power deficit. The MHPs with power since productive end-use tariffs are usually higher deficit can be upgraded to deliver more power; how- than household tariffs, not having sufficient pro- ever, upgrading entails large quantities of civil and ductive end-use loads will lead to little increase in electrical works. At the same time, the MHPs with revenue for the mini-grid. power surplus are wasting power when nearby MHPs with power deficit have an immediate need for more 216. Major costs incurred in forming a mini-grid of electrical power. By connecting these individual MHPs, MHPs are in drawing of 11 kV high tension lines to loads can be shared between them to balance the sur- evacuate power from each MHP and inject it into plus in some MHPs with the deficit in some others. the distribution grid, installing appropriate ELCs with synchronoscopes which will automatically 212. The problem of load sharing is handled by con- sense the mini-grid parameters (voltage, current, ducting a load flow study. This study simulates the phase and frequency), and in matching the MHPs power delivered to probable loads and the losses in own parameters to synchronize the generating interconnection links (transmission lines) of a mini- MHP with the mini-grid. In addition, microproces- grid. If one of the MHP’s is shut down, the load flow sor-based controllers sense the size of the load from study also indicates the loads that have to be dis- the load centers and dispatch power from different connected from the mini-grid for proper operation. MHPs in proportion to their installed capacity. 3.4.3. Financial Viability 217. Finally, appropriate and adequate protection 213. Usually, MHPs in standalone mode suffer not systems are needed to ensure there is no backflow only from low PLFs but also peak deficit during eve- of current when an MHP is shut down for repairs and ning hours (17:00–22:00 hours) when most house- maintenance. Usually, the largest MHP is treated as holds are drawing power from it. During the rest the master and it sets the mini-grid parameters for of the period, they have very low loads and many other MHPs to match. In addition, it is used to pro- hours when there is no load at all and the power vide the necessary reactive power and active power generated is either dumped into the ballast or the to charge the HT lines and transformers. MHP is simply shut down. Table 29 | Details of feasibility studies of mini-grids Baglung/ Giringdi Gaudi Khola Parameter Tikhedhunga Ghandruk Chomrong Rangkhani Khola cluster Urja Valley No. of MHPs in mini-grid Mini-grid capacity (kW) 6 107 8 267 6 104 2 80 4 161 3 67 43 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Households 1,200 1,994 870 225 607 91 Incremental capex (NPR*) 15,029,500 44,367,311 22,535,295 5,756,878 15,347,815 8,018,264 Incremental capex/kW 140,463 166,170 216,686 71,961 95,328 119,676 (NPR) Incremental PLF 17 percent 13 percent 25 percent 12 percent 9 percent 8 percent Based on Taken at 75 percent of surplus capacity Expected to be achieved after 5 Basis for calculating PLF presentation available during off-peak hours for years after forming mini-grid referred to below productive end-use only Presentation by Shine Technocrats Pvt. Ltd., Oshin Power Services Pvt. Ltd., Butwal for Study carried out by Bhupendra Shakya, Kathmandu for AEPC58 ACAP59 RERL, AEPC57 *NPR 1 = US$0.0104 218. Thus, the capital cost incurred in setting up a 221. The incremental PLF resulting from the mini-grid mini-grid depends on the number of MHPs be- is largely dependent on how much surplus capacity is ing interconnected, the length of the high tension available in the mini-grid and more importantly how line and the extent of load development expected much of it is actually used. In general, most MHPs have which would determine the need for distribution a peak load deficit (17:00–22:00 hours) and surplus transformers. However, the first two factors greatly during off-peak hours. Table 30 shows the estimated determine the capex of a mini-grid. surplus in the mini-grid feasibility study carried out in the ACAP MHP clusters. Incremental PLF is estimated 219. Given that the formation of a mini-grid is ex- by all these studies by making first order estimates of pected to result in a higher PLF for the mini-grid as a productive end-use loads that could come up during whole, due to reasons mentioned above, incremen- off-peak hours. For example, the above-mentioned tal analysis has been used to assess the financial per- study in the ACAP MHP clusters has assumed that 75 formance of mini-grids. Table 29 shows details for a percent of all surplus capacity would be used for a few mini-grids drawn from several detailed feasibility period of eight hours (09:00-17:00 hours) by produc- studies commissioned by the AEPC and ACAP. tive end-uses. 220. The capex is generally higher for a mini-grid 222. The study carried out by Shine Technocrats as- with a larger number of plants that are being inter- sumed a gradual increase in productive end-use connected. This is self-evident, because irrespective loads culminating in a peak load of 189 kW and 105 of plant size the cost of interconnection is the same kW for the Giringdi Khola and Gaudi Khola mini- for a 10 kW MHP and for a 100 kW MHP. Furthermore, grids, respectively. However, in the present study the distance between the MHPs also determines the for simplicity of analysis, it has been assumed that capex. Table 29 shows that on an average the cost/ incremental PLF is reached in the first year of the kW of mini-grid capacity incurred as capex is NPR mini-grid operation itself. Table 31 presents the fi- 135,000; while, the cost/kW for a new MHP ranges nancial performance of mini-grids based on details from NPR 400,000 to NPR 450,000 (see sub-section presented in the preceding paragraphs. on financial analysis of MHP as standalone). 57 A Community Managed Micro Hydro Connected Mini Grid in Nepal — Challenges and Opportunities, Bhupendra Shakya, February, 2013 at Berlin. 58 DPR for Interconnection Of MHPS in Baglung District, Shine Technocrats Pvt. Ltd, October, 2013. 59 Report on Feasibility Study of Local Micro-Grid Connection in ACAP Cluster Areas, Oshin Power Services Pvt. Ltd., November, 2013. 03 Scaling Up Potential of Micro Hydropower in Nepal Table 30 | Estimated surplus in the mini-grid’s feasibility study carried out in ACAP MHP clusters Plant Surplus power (kW) Surplus power (kW) Cluster MHPs Capacity Peak time Off-peak time (kW) (17:00-22:00) (09:00-17:00) 44 1 Sabed Ulleri MHP 40 40 0 1 25 18 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Siwai Kholan MHP 26 7 21 Chane Kholan MHP 35 5 25 2 Bhirgyu Kholan MHP 50 1 15 Ghandruk-I Ph. MHP 50 0 15 Ghatte Khola-I MHP 30 0 12 3 Ghatte Khola-II 12 0 5 Ghatte Khola-III 25 0 9 Total 308 14 145 Source: Report on Feasibility Study of Local Micro-Grid Connection in ACAP Cluster Areas, Oshin Power Services Pvt. Ltd., November, 2013. 3.4.3.1. Observations on financial analysis of mini-grids access to markets, and roads are more important in 223. From the above analysis it is clear that while developing such productive end-uses. some mini-grids make operating profits (income is able to cover operations and maintenance, and 226. Finally, from a technical, financial and manage- salaries, but not depreciation and servicing of loans), rial perspective, it is easier to operate and manage a all of them fail to make net profits. Furthermore, an single plant of 100 kW serving 1,000–1,200 house- analysis of the Baglung mini-grid shows that smaller holds spread over a large area than to deliver the plants are generating more power than before, but same service through a mini-grid of several smaller are making losses overall due to increased opera- MHPs. Mini-grids should be viewed as a “retrofit- tions and maintenance, and salaries. ting” approach to help smaller MHPs serve their load centers better by cooperating with other MHPs that 224. Given that the investment needed for every may have surplus capacity. kilowatt of a mini-grid is between 30–50 percent of the capex of a new MHP, the returns do not seem 227. From a policy point of view, mini-grids should be to be commensurate with the investments. It is not taken up only after a thorough case-by-case examina- clear how the productive end-use loads would in- tion of their technical and financial feasibility is done crease in such a substantial way once the mini-grid based on realistic projections of load development. is formed, when evidence from existing standalone Indeed, it is better to promote larger plants and draw MHPs of 100 kW shows otherwise. transmission and distribution lines to link up several communities rather than base the planning on the 225. It can be argued that a mini-grid of 100 kW ca- needs of a few wards in a VDC. The experience from pacity is not very different from a 100 kW MHP as Baglung and few more mini-grids that the AEPC is sup- standalone in load development. Therefore, sub- porting will provide more (realistic) data, which will then stantial efforts would be needed to step up load de- shed light on whether mini-grids are worth pursuing. velopment in mini-grids to reach the PLFs projected above. Thus far the experience of developing pro- 3.4.4. Economic Analysis ductive end-use loads, especially during off-peak 228. Where generation assets already exist, such as hours has shown that while electricity is an enabler, in the case of existing MHPs, the capital costs and it does not drive the development of such loads. the operation and maintenance costs associated The underlying business drivers such as demand, with the construction and operation of the constitu- Table 31  |  Financial performance of mini-grids Giringdi Baglung/ Gaudi Khola Name of cluster Khola Tikhedhunga Ghandruk Chomrong Rangkhani Urja Valley cluster No. of MHPs in mini-grid 6 8 6 2 4 3 Mini-grid capacity (kW) 107 267 104 80 161 67 45 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Incremental PLF 17 percent 13 percent 25 percent 12 percent 9 percent 8 percent Incremental kWh 159,344 298,446 224,025 84,096 126,932 46,954 Incremental Tariff (NPR*/kWh) 5 5 5 5 5 5 Incremental income (NPR/year) 796,722 1,492,231 1,120,124 420,480 634,662 234,768 Incremental O&M (NPR/year) 300,590 887,346 450,706 115,138 306,956 160,365 Incremental salaries NPR/year 408,000 504,000 408,000 216,000 312,000 264,000 Incremental expenses NPR/year 708,590 1,391,346 858,706 331,138 618,956 424,365 Incremental operating profits 88,132 100,885 261,418 89,342 15,706 -189,597 NPR/year Depreciation @7 percent NPR/year 1,001,967 2,957,821 1,502,353 383,792 1,023,188 534,551 Interest on loan @ 14 percent on 420,826 1,242,285 630,988 161,193 429,739 224,511 20@ of capex. NPR/year Profit before taxes. NPR/year -1,334,661 -4,099,221 -1,871,923 -455,642 -1,437,221 -948,660 *NPR 1 = US$0.0104 Notes: l Incremental tariff is the difference between the price at which power is purchased by the mini-grid operator (NPR 4.5/kWh), from the MHPs (operating as IPPs in the mini-grid) and the selling price to the consumer (NPR 9.5/kWh). l Incremental O&M is taken at 2 percent of capex. l Incremental salaries are salaries incurred by the mini-grid operator, which includes 3 support staff and 1 manager. For simplicity sake, it is assumed that there is no increase in salary costs to individual MHPs. l Interest on loan is taken at 14 percent. Debt equity ratio is 20:80. ent MHPs that form a mini-grid can be considered a consumption is tied to productive end-use. Since sunk cost and excluded from consideration in the MHPs typically have a peak load deficit (17:00–22:00 economic analysis of the mini-grid. The analysis will, hours) and surplus during off-peak hours, it has been therefore, only account for the incremental cost as- assumed that the incremental consumption during sociated with the interconnection infrastructure peak hours is minimal and that incremental PLF can be necessary to operate the mini-grid, including the attributed entirely to increased consumption during distribution lines and electronic equipment. The ad- off-peak hours for productive end-use. ditional cost of salaries constitutes a transfer from one set of beneficiaries to another and can there- 3.4.4.1. Estimation of economic costs fore be disregarded in the economic analysis. Meter- 230. The economic cost of setting up and operating ing systems promote the optimization of electricity a mini-grid is derived from financial costs net of all consumption and may be introduced as part of a taxes, subsidies and duties. Further, labor costs are mini-grid where power-based tariffs used to be the deflated to real costs as explained in the section on norm (as was the case in the Rangkhani, Baglung economic analysis of MHPs as standalone. The eco- mini-grid), but they are not an intrinsic feature of a nomic costs of mini-grids are as shown in Table 32. mini-grid and would provide the same benefits as to a standalone MHP. Thus, the cost of metering sys- 3.4.4.2. Estimation of economic benefits tems is also excluded from the economic analysis. 231. The economic benefits of an MHP mini-grid has been calculated as the sum of the “savings-associ- 229. The primary benefit of a mini-grid is that it permits ated reduced expenditure on energy that can be more efficient allocation of available electricity, leading attributed to the mini-grid” and the “CER revenue to a higher PLF. The economic value of this additional derived from the avoided emissions”. 03 Scaling Up Potential of Micro Hydropower in Nepal Table 32 | Estimation of economic costs of mini-grids Tikhedhunga Khola cluster (Rangkhani) Gaudi Khola Urja Valley Chomrong Parameter Ghandruk Baglung Giringdi 46 Unit Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Incremental Economic Capex NPR* 13,646,254 40,283,948 20,461,250 5,227,041 13,935,273 7,280,300 Incremental Capex per kW NPR 127,535 150,876 196,743 65,338 86,554 108,661 NPR/ Incremental O&M - Economic 266,009 785,262 398,855 101,892 271,643 141,916 year *NPR 1 = US$0.0104 Notes: For Giringdi Khola and Gauda Khola mini-grids, the applicable VAT indicated in the feasibility study is deducted to calculate incremental economic capex. For Ranghanki, Tikhedhunga, Ghandruk and Chomrong mini-grids, 13 percent VAT is deducted from 80 percent of capex (assumed to be the share of electromechanical equipment) to arrive at the economic cost. Economic cost of O&M is taken as 2 percent of capex, less VAT. 3.4.4.3. Benefits from reduced expenditure on energy mini-grid consisting of three MHPs with a combined for productive end-use capacity of 67 kW. 232. The productive end-uses that are made possible by the availability of mini-grid electric- 235. As seen in the financial analysis of mini-grids, ity would have otherwise had to rely on isolated costs vary with the number of MHPs being intercon- diesel motors. The levelized unit cost of genera- nected and the distance between the MHPs, while tion from a typical 10 hp (7.5 kW) diesel engine interconnection costs are the same irrespective of therefore constitutes the expense that is avoided the size of the MHPs being interconnected. Benefits by utilizing electricity from micro hydropower are directly proportional to increase in PLF. Thus costs instead. Accordingly, the economic benefit from and benefits are unique to each mini-grid and there- the increased PLF is calculated as net savings on fore, any decision to embark on a mini-grid project energy for productive end-use from a shift from should be informed by careful consideration of site- diesel to electricity, where the electricity cost is specific costs. taken to be the unique levelized total unit cost of generation and distribution for each mini-grid. 236. As shown in Table 35, the net present value is Table 33 presents the net savings on energy per positive and the benefit–cost ratio is above one for year for each mini-grid. all the mini-grids except the Chomrong mini-grid, where the incremental benefits of the mini-grids 3.4.4.4. Benefits from sale of CERs do not justify the incremental costs. As indicated in 233. Increased electricity consumption for produc- Table 33 above, the Chomrong mini-grid features a tive end-use displaces the consumption of diesel low combined capacity of 67 kW and is only pro- in such enterprises. These avoided emissions result jected to achieve a modest increase of 8 percent in in CERs that could fetch additional revenue to the PLF. On the other hand, the Giringdi Khola cluster mini-grid. Table 34 displays the annual revenue that mini-grid boasts the highest installed capacity of could accrue to a mini-grid from the sale of CERs. the mini-grids examined, but it also comes with onerous costs attached, diminishing its economic 3.4.4.5. Summary of economic benefits and costs viability to some extent. 234. Figure 19 displays a summary of the economic benefits and costs for each of the six mini-grids ana- 237. Given that increase in PLF (especially through lyzed. Economic benefits exceed economic costs, sale of off-peak power) is key to the economic per- often by a considerable margin, for each of the mini- formance of a mini-grid, it is clear that significant in- grids, except for Chomrong, which is the smallest vestment other than merely in mini-grid infrastruc- Table 33  |  Net savings on energy per year for each mini-grid Gaudi Khola Urja Giringdi Khola Tikhedhunga (Rangkhani) Chomrong Ghandruk Parameter Unit 47 Baglung cluster Valley Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Mini-grid capacity kW 107 267 104 80 161 67 Incremental PLF % 17% 13% 25% 12% 9% 8% Incremental electricity consumption MWh 159.3 298.4 224.0 84.1 126.9 46.9 Diesel LUCE NPR/kWh 38.09 38.09 38.09 38.09 38.09 38.09 Avoided diesel expenditure NPR millions 6.07 11.37 8.53 3.20 4.83 1.79 Mini-grid LUCE NPR/kWh 17.3 20.3 16.7 17.2 19.7 21.3 Expenditure on electricity NPR millions 2.76 6.04 3.74 1.44 2.50 1.00 Net savings NPR millions 3.31 5.33 4.79 1.76 2.34 0.79 Note: Diesel consumption of 0.22 liters to generate the equivalent of 1 kWh equivalent in mechanical energy is assumed. ture will be necessary to achieve the incremental Figure 19: Summary of the economic benefits and costs for six mini-grids PLF.60 Thus, a few more pilot projects in mini-grid are required to conclude whether it is worthwhile to 8,000,000 Economic Cost/Benefit (NPR/year) continue in this direction (see Box 3). 6,000,000 4,000,000 238. An important limitation of this analysis is that 2,000,000 it only counts as benefits the net savings on energy 0 for productive end-use and the revenue from the -2,000,000 sale of CERs. Various analysts have pointed to the broad benefits (in terms of increased household in- -4,000,000 come, health and educational outcomes, women’s -6,000,000 Baglung Rangkhani Giringdi Khola Cluster Gaudi Khola Urja Valley Tikhedhunga Ghandruk empowerment, etc.) that can come about as a result Chomrong of electrification as described in the economic anal- ysis of standalone MHPs, and it might be expected that some such broad benefits may also arise from the additional consumption of electricity, but due to methodological limitations and concerns such benefits are not included in this analysis. *For a 15-year plant life at a 6 percent discount rate. 239. The main reason that the economic analy- Amortized capital cost* Operation & maintenance CER revenue Net savings on energy sis of a standalone MHP is favorable is due to the Net economic benefit vast consumer surplus associated with the delivery of electrical lighting to households. This benefit is absent in the analysis of mini-grids due to the as- sumption that increases in peak load for domestic by field surveys conducted as part of this study. Ac- lighting would be rare, if at all, due to most MHPs cordingly, the economic benefits arising from an already operating at or close to peak load capacity. additional unit of electricity consumed due to mini- Data from published literature suggest that this is a grid development is notably lower than those aris- reasonable assumption, and has also been validated ing from a unit for domestic consumption. Substantial investment of time and resources in building local capacity and the necessary ecosystem for additional productive activity has been made in 60 Rangkhani by the Government and by other development partners. 03 Scaling Up Potential of Micro Hydropower in Nepal Table 34 | Projected annual benefits of mini-grid from sale of CERs at US$7/tCO2 Giringdi khola Tikhedhunga (Rangkhani) Gaudi Khola Urja Valley Chomrong Parameter Ghandruk Baglung 48 cluster Unit Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Avoided emissions tCO2eq/year 159.3 298.4 224.0 84.1 126.9 47.0 CER revenue NPR*/year 107,079 200,556 150,545 56,513 85,299 31,553 *NPR 1 = US$0.0104 Notes: Default emission factor of 0.9 kg CO2eq/kWh utilized. Average technical distribution losses = 10 percent. CER price at US$7/tCO2eq, which amounts to NPR 672 at the current exchange rate of US$1 = NPR 96. Table 35 | Summary of economic benefits of mini-grids Parameter Giringdi khola Tikhedhunga (Rangkhani) Gaudi Khola Urja Valley Chomrong Ghandruk Baglung cluster NPV (NPR* millions) 15.92 2.62 22.05 11.03 5.89 -1.26 EIRR (%) 21.35 7.01 20.30 31.92 12.12 3.11 LUCE (NPR/kWh) 17.32 20.27 16.73 17.15 19.68 21.33 LUBE (NPR/kWh) 21.44 18.49 22.03 21.61 19.08 17.43 Benefit/Cost Ratio 1.92 1.05 1.85 2.67 1.33 0.86 *NPR 1 = US$0.0104; LUBE = levelized unit benefit of electricity. LUCE = levelized unit cost of electricity. 3.4.5. Institutional performance accountable to the customers in their distribu- 240. Although, currently there is only one mini-grid tion area (before the mini-grid was formed) both in operation in Nepal there is considerable agree- for operating the MHP as well delivering power at ment within the AEPC and other stakeholders on affordable tariffs now view maximizing profits as the institutional set-up needed to manage the mini- their main objective. Thus, the differing objectives grid. Briefly, individual MHPs are operated and man- of the MHPs as IPPs and the cooperative being re- aged as IPPs, while the distribution network is man- sponsible for delivering affordable power to the aged by the mini-grid operatorcooperative formed community can often lead to conflicts.61 This is fur- with the membership of all electricity users in the ther exacerbated when smaller MHPs make lower distribution area. This arrangement provides clarity profits or even losses due to higher operating costs in the operations and is therefore preferred. with growth in revenue not being commensurate with increased costs. 241. However, it often leads to lack of clarity on the roles of the MHFGs and the cooperative as institu- 242. Currently in the Baglung mini-grid system, FITs tions. One question that can arise is whether the are set at the same level for all MHPs in a mini-grid. individual MHPs are expected to maximize their This however, does not take into account that op- profits or should the cooperative’s interest over- erational cost/kWh for MHPs differ from one an- ride. Once an MHP begins working as an IPP, it other. Usually, larger plants have a lower operational tends to seek a higher price for sale of power to cost/kWh since salary costs are a step cost (increas- the cooperative to maximize its profit. Customers ing with every shift worked) and do not vary sig- on the other hand put pressure on the coopera- nificantly across the sizes of MHPs. Therefore, when tive to keep tariffs low. MHFGs which hitherto were tariffs are set for purchasing power from MHPs, care 61 At the time of this study, the Baglung mini-grid is the only operational mini-grid. However, it is reasonable to expect this behavior in future mini-grids as the roles of generation and distribution are separated and each entity acts to make itself viable. should be taken to ensure that every MHP’s opera- tional costs are being fully met with the revenue generated by them. Box 3: A promising mini-grid in Phungling, Taplejung 243. Overall, it can be concluded that in the Baglung 49 pilot an institutional model where MHPs serve as IPPs Phungling Bazaar is centrally powered by Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications with the mini-grid operator acting as a local load dis- a 125 kW Sobuwa Kholan MHP which only patch center and also doubling as a distribution net- generates 80 kW for 24 hours and a 250 kVA work manager is currently being tested. A few more diesel generator set which generates 160 pilot projects will help draw better lessons before kW during the daily eight-hour peak period. changes are integrated in the institutional model. The diesel generator set consumes 320 liters of diesel to operate for eight hours. 3.5. MHP Grid Connection With the escalation in diesel prices in the international market, operating expenses 3.5.1. Technical Reliability of the diesel generator set are very high 244. As discussed earlier, the technical performance resulting in increase in electricity tariffs to of standalone MHPs is relatively good. When such recover these operating costs. The tariff MHPs are to be grid connected, they need to meet charged to the consumers is set at NPR NEA’s grid connection criteria. The MHPs must main- 175 for the first 10 kWh, NPR 22/kWh for 10 tain voltage and frequency levels (among others) as kWh–25 kWh and NPR 25/kWh for 25 kWh well as meet all of the grid safety requirements. For and above. Rest of the demand is supplied example, the supply voltage of the MHP at major con- by distributed diesel generator sets (in nection points should not deviate by more than +10 isolated mode, i.e. not synchronized with percent of the nominal value. Similarly, the funda- the 250 KVA large generator) owned by mental frequency of the power supplied by the MHP various small-scale industries, offices, banks must be maintained between 48.75 and 51.25 Hz and other enterprises. (+2.5 percent of 50 Hz). Additionally, the maximum transmission loss should not exceed 4.5 percent of The AEPC and RERL have considered an the received energy (see Annex 3). Such standards integrated approach to fulfill the electricity and requirements for grid connection enforced by demand of Phungling Bazaar. Under this the NEA require high technical reliability and certain plan, they have considered implementing modifications (see Box 4) of grid-connected MHPs. the following three measures side by side: upgrading the existing Sobuwa Kholan 245. When the national grid arrives in the distribu- MHP to generate at full capacity of 125 kW, tion area of the MHP, it can be interfaced with the constructing a new mini hydropower plant national grid in various configurations62 as follows: called Middle Phawa Khola to generate (1) Option 1: Connect the MHP generator to the na- 400 kW, and interconnecting eight nearby tional grid and allow the national grid to take over MHPs into a mini-grid capable of supplying the local distribution services. (2) Option 2: Connect 660 kW of off-peak power and 492 kW of the MHP generator and the local distribution grid peak power. The total estimated budget to the national grid with provisions for providing for this integrated power system is NPR power to the local community through the MHP 190,368,258.00 (US$1,983,002.68). According generator and the local distribution grid during load to the AEPC, the proposed mini-grid will cost shedding or outages on the national grid. (3) Option NPR 57 million with an NPV of NPR 55 million 3: Shut down the MHP generator and local grid and and an IRR of 27 percent (see Annex 8). have the customers switch over to the national grid (for details on Options 1, 2 and 3, refer to Section “A Guidebook on Grid Interconnection and Islanded Operation of Mini-Grid Power Systems Up to 200 kW”, Chris Greacen, Richard Engel, Thomas Quetch- 62 enbach. Lawrence Berkeley National Laboratory & Schatz Energy Research Center April 2013 03 Scaling Up Potential of Micro Hydropower in Nepal 246. In terms of the benefit provided to the com- Box 4: Modifications required for munity as well as the MHFG, it is advisable to pursue grid connection of MHP Option 2.63 If this option is pursued, there are four specific benefits. First, the MHP’s PLF will improve 50 An isolated MHP with its own local distribu- and the MHFG can generate additional revenue tion grid must be modified in the following from selling electricity to the grid. Second, the in- Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications ways to operate in grid connected mode vested resources of the community and the GoN in in addition to providing power to the local building the MHP are prevented from being wasted. community during load shedding: Third, the local community gets unlimited power from the national grid and limited power from the l Disable the frequency control by the ELC MHP during load shedding on the national grid. and enable power factor control by AVR Fourth, the national grid adds a consumer base while grid connected. Conversely, enable (previously the MHP’s consumer base) with mar- frequency control by ELC and enable ginal investment. However, this option is the most voltage control by AVR while serving the challenging to pursue and includes the problem of community during load shedding on the islanding as discussed in Annex 9. national grid (i.e. during islanding mode). l Connect safely to the national grid by en- 3.5.2. Ability to Meet Power Needs suring appropriate frequency and phase 247. The ability of grid-connected MHPs to meet sequence. the power needs depend on the modality of such l Provide quality power to the national grid a grid connection. If the MHPs are connected to the with appropriate power factor, as well as grid only and not to the distribution area, then the voltage and low harmonic distortion. ability to meet the power needs of the distribution l Disconnect safely and quickly from the na- area will depend on the power available in the NEA’s tional grid during disturbances and load nearest sub-station, the length and voltage level of shedding and reconnect after such events. the incoming transmission line as well as the techni- cal parameters of the line. A single line diagram of an MHP with required modifications for grid connection with provi- 248. On the other hand, if the MHPs are connected sions for islanding is given in Annex 9. to the grid but are also designed to supply power to the local distribution area, then they will be able to function (within their distribution area and up to their capacity limit) when the NEA resorts to load 3.5.5. Institutional Performance). (4) Option 4: Buy shedding. The advantage here will be that the dis- bulk power from the national grid to provide addi- tribution area will have electricity supply during tional power to the local community through the load shedding hours and the MHP’s PLF will also MHP’s local distribution grid. Meanwhile, the local improve. Another option in such a system is for the MHPs can continue to operate in their distribution MHP to supply electricity to the distribution area areas and not supply to the grid. (5) Option 5: Use and sell surplus power/energy to the grid. the MHP generator and distribution grid only as a backup during load shedding or outages on the na- 3.5.3. Financial Viability tional grid. In this option, the MHP generator will not 249. With the NEA grid being extended into many be connected to the national grid but will supply parts of the mid-hills of Nepal, there is strong ap- the local distribution grid in isolated mode during prehension among the community (local investors) load shedding hours on the national grid. and the AEPC about the future of the MHPs installed Curiously, discussions with NEA revealed that they are interested in Option 1, where MHP becomes an IPP and sells power exclusively to the grid, while 63 NEA takes over the distribution network and treats the community as its normal customer. in the area. There is a concern that these invest- local requirement. Of the rest, it is assumed that 90 ments could get stranded if efforts are not made to percent would be sold to the NEA giving a PLF of 66 connect them to the grid. However, until recently percent65 from selling power to the grid. Taking into the NEA was not very keen on permitting such iso- account the power sold to the NEA and power sup- lated MHPs to connect to the grid citing technical plied to the local community, the overall PLF rises to 51 issues, and especially the concern that it would 90 percent from 23.84 percent when the MHP was Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications compromise grid quality and result in several safety operated as a standalone system. Table 36 shows problems. details of the values for key parameters used to carry out the financial analysis. 250. Overall, the NEA has agreed to permit MHPs of 100 kW capacity64 and above to connect to the 3.5.3.1. Results of financial analysis of grid- grid. Among the sites visited under this study, the connected MHPs Midim Khola (100 kW) MHP was built specifically for 251. The analysis is presented here at two levels: connecting to the grid and supplying power to it l To ascertain if the incremental investment in grid as an IPP. Financial analysis of a grid-connected 100 connectivity yields attractive returns through an kW MHP is presented in this section assuming that incremental analysis, and it would supply power that is surplus after meeting l To ascertain if the increased revenues from con- the needs of the local community. Accordingly, as necting to the grid make the MHP financially via- described in the preceding sections on MHP as a ble, taking into account both MHP capex and the standalone, a PLF of 23.84 percent is taken as the cost of making the grid connection. This analysis Table 36 | Details of parameters used for financial analysis of grid connection S. No. Parameter Estimated value used in financial analysis 1 Plant size in kW 100 kW, 50 kW and 20 kW 2 Life of the plant in years 15 years NPR* 40,000,000 for 100 kW, NPR 21,250,000 for 50 kW, NPR 9,000,000 for 20 kW plus NPR 4,900,000 for connecting to the grid. In addition, NPR 1,000,000 for every km of 3 Capital cost of the plant 11 kV line drawn from the MHP to connect to the grid. Distances assumed are 0, 1, 2, 5, 10, 20 km. 4 Financing mix, including debt 50 percent subsidy, 40 percent equity, 10 percent loans 5 Component-wise capital cost 58 percent electro-mechanical, 18 percent civil structures, 24 percent others. Loads: domestic and commer- Domestic: 18 kWh/household/month 6 cial Commercial: 4–5 kWh/household/month 7 Plant load factor 23.84 percent (local supply), 66 percent (grid). Overall, 90 percent PLF 8 Tariff NPR* 6/kWh-domestic, NPR 8/kWh-commercial, and NPR 6.0/kWh sold to grid66 3 percent of total capex annually. This is higher than for standalone operations since Operations and maintenance 9 the plant will be run 24x7 once it is grid connected and wear and tear is expected to cost be higher NPR 18,000 for three operators, NPR 8,000 for an accountant and NPR 10,000 for 10 Salary and administrative cost MHP manager. Total NPR 36,000/month 11 Depreciation 7 percent on straight line basis on 76 percent of capex 12 Tenor and terms of loan 14 percent rate of interest, 7 years term *NPR 1 = US$0.0104 64 NEA has now agreed to permit any size of MHP to connect to the grid. Therefore, the analysis covers 20 kW, 50 kW and 100 kW over various distances of an 11 kV line drawn from the MHP and connected to the grid. 65 Distribution losses of 10 percent are taken into account before calculating surplus. Hence the total is only 90 percent PLF. 66 As per the recent board decision of the NEA, current rates applicable to IPPs would be offered to MHPs, viz., NPR 8.40 (dry season-4 months) and NPR 4.80 (wet season-8 months)/kWh. 03 Scaling Up Potential of Micro Hydropower in Nepal is important because the incremental analysis 255. The above charts show that a 50 kW MHP con- may provide positive results but if the MHP as nected to the grid is barely profitable operationally a whole does not make profits, or worse, makes at 100 percent grid availability; it makes profits be- greater losses then, the incremental investment fore taxes only up to a grid distance of 5 km when 52 is not worthwhile. grid availability is 100 percent. If grid availability is only 50 percent, the MHP makes no profits before Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 252. Figure 20 shows the results of the incremental taxes, beyond a grid distance of 2 km. financial analysis of various sizes of MHPs connected to the grid over various distances and at 100 percent 256. On the other hand a 20 kW MHP connected to and 50 percent availability of the grid for evacuation the grid is clearly financially unviable since the in- of power from the MHP to the grid. cremental revenue does not cover the incremental expenses at all distances from the grid. This means 253. Clearly, the incremental investment in con- that such plants may need capital subsidy to be able necting a 100 kW MHP to the grid is fully justified to connect to the grid, while a 100 kW plant may not by the substantial returns that it gets from sale of need a capital subsidy. surplus electricity to the grid. Even without subsidy, the investment is profitable. However, while incre- 3.5.3.2. Financial analysis of grid connected MHPs on mental operations profits and incremental profits full cost basis before taxes are positive at both 100 percent and 50 257. However, a more important analysis is whether percent grid availability at all distances, incremental this investment and the increased revenue from profits before taxes are negative for 50 percent grid it would make investment in the MHP as a whole availability beyond 5 km of grid extension. This indi- profitable. The analysis of standalone MHPs (in the cates the importance of having an assurance of grid preceding section) showed that they are not profit- availability to evacuate power from the MHP. 67 able and barely cover operational costs even with capital subsidy. Financial analysis for 100 kW, 50 kW 254. Similar analyses are presented for a 50 kW and a and 20 kW MHPs connected to the grid at various 20 kW plant connected to the grid over various dis- distances from it has been carried out.68 The results tances from the grid at 100 percent and 50 percent covering, financial internal rate of return (FIRR), NPV, grid availability in Figure 21 and Figure 22. LUCE and break-even point (BEP) are presented in the subsequent figures. Figure 20: Incremental financial analysis of connecting 100 kW 258. Figure 23 shows that FIRR is positive only with MHP to the grid subsidy, but is well below the interest rate of 14 4.00 Incremental operat- percent and expected RoE of 16 percent, and thus ing profits (100% is likely to be unattractive to bankers and private 3.00 grid availability) investors. However, compared to the standalone Incremental Profit before taxes (100% MHP, the FIRR for a grid-connected 100 kW MHP is 2.00 NPR Million grid availability) substantially higher.69 The FIRR for 50 kW and 20 kW 1.00 Incremental operating MHPs could not be calculated due to negative cash profits (50% grid flows across all distances. 0.00 availability) 0 1 2 5 10 20 -1.00 Incremental Profit 259. Figure 24 shows that the NPV for a 100 kW MHP before taxes (50% grid that is grid connected is positive only with subsidy availability) -2.00 and up to a 5 km distance from the grid. In all the Distance of grid extension (km) other cases including 50 kW and 20 kW (see Figure 67 In India, there is a constant demand from mini/micro hydropower plants connected to the grid to provide them deemed generation status when the grid is not available for evacuating power. 68 Analysis has been carried out with and without capital subsidy. The financing mix is 50 percent subsidy, 40 percent equity and 10 percent loan. 25 and Figure 26) MHPs, it is negative. Results of the Figure 21: Incremental financial analysis of connecting 50 kW MHP to the grid break-even analysis are presented in subsequent figures. 2.00 Incremental operating 1.50 260. Figure 27 shows that the number of kWh of 1.00 profits (100% grid availability) 53 0.50 Incremental Profit before sales required to break-even is well below the cur- NPR Million Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 0.00 taxes (100% grid availability) rent sales for a subsidized 100 kW MHP that is grid 0 1 2 5 10 20 -0.50 connected with 100 percent grid availability, up to Incremental operating profits -1.00 a distance of 10 km from the grid. Without subsidy, (50% grid availability) -1.50 the BEP is well above the current sales indicating -2.00 Incremental Profit before that the MHP will not break-even without subsidy. -2.50 taxes (50% grid availability) The scope for increasing sales in kWh is limited since -3.00 Distance of grid extension (km) the plant is already operating at 90 percent PLF in this scenario. However, if the tariffs were increased, the BEP would shift lower. Figure 28 shows that ex- cept for a 100 kW MHP that is connected to the grid Figure 22: Incremental financial analysis of connecting 20 kW at less than 20 km distance all other sizes of plants MHP to the grid do not break-even despite a capital subsidy. 1.00 Incremental operating prof- 0.50 its (100% grid availability) 3.5.3.3. Observations on financial analysis of MHP 0.00 0 1 2 5 10 20 grid connection -0.50 Incremental Profit before NPR Million taxes (100% grid avail- 261. Grid-connected MHPs even at 90 percent PLF -1.00 ability) are not financially attractive at current tariffs un- -1.50 Incremental operating prof- der both subsidized and non-subsidized capex. At -2.00 its (50% grid availability) current tariffs, without subsidy on capex, the MHP -2.50 Incremental Profit before cannot service its loan (10 percent of capex is debt). -3.00 taxes (50% grid availability) However, at the LUCE of NPR 8.90 the IRR for the -3.50 Distance of grid extension (km) subsidized MHP shoots up to 22 percent and pres- ents a financially attractive proposition. The LUCE that includes a 16 percent RoE, is a true reflection of a subsidized MHP’s cost of delivering electricity in a to the load center and various lengths of the 400 rural setting. The unsubsidized LUCE is a reflection V line (distribution line) depending on the density of the full cost basis of delivering 1 kWh of electric- of households in an area. Furthermore, depending ity in a rural setting. The current rates being offered on the load (kW), the capacity and number of trans- by the NEA are a gross underestimate in contrast to formers would vary. Table 37 presents the inputs the cost that would be incurred by the NEA if it were used to derive the estimated cost of grid extension. delivering power by extending the grid to a typical MHP village and has been estimated in the follow- 263. Based on the above inputs, the LUCE for deliv- ing section. ering power in the hills of rural Nepal with a grid ex- tension of 0 km, 1 km, 2 km, 5 km, 10 km, and 20 km 3.5.3.4. Estimating the cost of delivering electricity in and for household density of 50/km2 and 75/km2 rural Nepal through the national grid and for supplying to 200, 500, and 1,000 households 262. An attempt has been made in this section to was estimated (see Annex 4). Figure 29 shows the estimate the cost of extending the national grid results of the estimation for a density of 50 house- to deliver electricity in the rural hills of Nepal. Typi- holds/km2 and 75 households/km2 for serving cally, when the grid is extended it includes an 11 kV 1,000 households, which is equivalent to the service line (transmission line) from the nearest substation provided by a 100 kW MHP. FIRR for a standalone 100 kW MHP could not be calculated due to negative cash flows throughout the lifetime of the project. 69 03 Scaling Up Potential of Micro Hydropower in Nepal Figure 23: IFIRR for grid-connected 100 kW MHP 264. The levelized cost of delivering 1 kWh of elec- 12.00% tricity by extending the grid to serve 1,000 house- 10.00% holds with a density of 75 households/km2 ranged 8.00% from NPR 17 to NPR 25 depending on the length of 54 6.00% the grid extension. In comparison, Figure 30 shows 4.00% FIRR % FIRR with subsidy that the levelized cost of 1 kWh of electricity from Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 2.00% 0.00% FIRR without susbidy a grid-connected 100 kW MHP without subsidy 0 1 2 5 10 20 -2.00% ranged from NPR 11 to NPR 13. -4.00% -6.00% 265. Figure 31 compares the LUCE of subsidized -8.00% grid-connected MHPs, and the current NEA tariff for -10.00% IPPs and NEA’s cost of delivery. Clearly, the NEA’s cost Distance of Grid Extension (km) of delivery is higher than the LUCE for even a 20 kW grid-connected MHP. Further, the current IPP tariff Figure 24: NPV for grid connected 100 kW MHP being offered to the MHPs for connecting to the 20 grid is well below the NEA’s own cost of delivering 10 power to a remote community. Thus, it is cost-effec- NPV(NPR Million) 0 0 1 2 5 10 20 tive for the NEA to let MHPs supply power to local -10 communities rather than extend the grid and force -20 NPV with subsidy the MHP to shut down. For every kWh supplied by -30 NPV without subsidy the MHP to the local community, the NEA would -40 save NPR 6.0 (NPR 17 less NPR 11). -50 -60 266. If the NEA purchases power from the MHP to Distance of Grid Extension (km) supply to areas around the MHP by extending the Figure 25: NPV for grid connected 50 kW MHP grid, it saves on operational costs even if it purchas- 0 0 1 2 5 10 20 es at NPR 11/kWh which is the full cost LUCE for a -10 grid-connected MHP operating at 90 percent PLF. NPV(NPR Million) -20 267. On the other hand, if the NEA buys electricity -30 NPV with subsidy from an MHP at the subsidized LUCE of NPR 9.00 it -40 NPV without subsidy makes substantial savings over its cost of delivery, -50 which is NPR 17/kWh in the rural Nepal hills. There- -60 fore, there is considerable scope for NEA to offer Distance of Grid Extension (km) higher PPA rates to grid-connected MHPs than is being offered now. These comparisons have been Figure 26: NPV for grid connected 20 kW MHP made for 0 km grid extension. As the distance in- 0 0 1 2 5 10 20 creases, the difference in LUCE for an MHP and the -10 NEA cost of distribution (CoD) increases. NPV Rs. Million -20 268. The MHP also benefits by increasing its profit- -30 NPV with subsidy ability if the PPA price is revised to reflect the true -40 NPV without subsidy cost of delivery (including 16 percent RoE) for grid- -50 connected MHPs. Thus, while the LUCE of NPR 9.0 -60 represents a realistic cost plus return on equity Distance of Grid Extension (km) structure for a 100 kW MHP after accounting for subsidy, the levelized CoD for NEA represents the Figure 27: Break-even point for grid connected 100 kW MHP avoided cost. 1.80 1.60 269. Overall, it can be concluded that a grid-con- 1.40 Break-even Point with 55 BEP (Million kWh) nected MHP that is able to evacuate surplus power 1.20 Subsidy to the grid round the clock is profitable, provided 1.00 Break-even Point without Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications the PPA is signed at a rate that covers capital and 0.80 Subsidy operating costs, and offers reasonable RoE. At cur- 0.60 Current sales in kWh rent tariffs, it is not profitable. 0.40 0.20 - 0 1 2 5 10 20 270. Thus, if the PPA is signed at a reasonable rate to cover costs and guarantee return for every kWh Distance of Grid Extension (km) supplied to the grid, many private sector compa- nies and cooperatives would be interested in mak- ing investments as is the case for larger hydropower Figure 28: PLF at break-even point with subsidy for grid con- plants. nected MHP at various plant capacities 500% 271. Finally, from the NEA’s perspective, it incurs a 450% certain cost of service which as seen in the calcu- 400% 20 kW MHP Plant Load Factor % lations presented earlier is directly related to the 350% length of the grid being extended, the density 300% 50 kW MHP of population, but equally importantly, the load/ 250% household or total load being served by the extend- 200% 100 kW MHP ed line. A 22 kWh/household/month consumption 150% is significantly low which makes the cost of service 100% very high; and is a key reason why the NEA (and dis- 50% tribution companies in most countries) is not inter- 0% 0 1 2 5 10 20 ested in serving rural customers. Remoteness and Distance of Grid Extension (km) inaccessibility worsen this situation. 272. However, if the grid is extended and used to kWh/year. Taking into account the cost of service for not only deliver power (which is low) to the local the NEA and the LUCE for power produced from the community, but also to evacuate power being gen- MHP with no subsidy, the savings/kWh purchased erated by the community, the incremental savings from the MHP vis-à-vis its own cost of delivery is NPR that the NEA makes per kWh in terms of avoided 8.00. Thus, the savings from total power evacuated cost will make the investment in grid extension from the MHP to NEA annually is NPR 4,653,500. more attractive. As is evident, instead of merely extending the grid to serve rural Nepal, the NEA would be more at an 273. For example, for a grid extension of 5 km serv- advantage using the same line to purchase power ing 1,000 households with a density of 75 house- from the local MHP and evacuate it to serve other holds/km2, the capital cost to the NEA is NPR nearby customers of the NEA. 22,250,000 excluding the cost of household wiring. If it were just extended into a remote community 274. Overall, it would be a win–win situation for then it would deliver about 264,000 kWh annually. both the MHP and the NEA if the grid extension On the other hand if it were connected to a 100 kW leads to surplus power from the MHP being evacu- MHP and the same 11 kV line was used to evacu- ated and purchased by the NEA. However from the ate this power to serve other customers of the NEA, NEA’s point of view in terms of management and then the total power evacuated would be 581,688 associated transaction costs, it may be better for it 03 Scaling Up Potential of Micro Hydropower in Nepal to retire a plant by compensating the community 3.5.4. Economic Analysis for their investments rather than buying power from 275. In the preceding section, the financial viability it over a period of time. The basis for compensation of a grid-connected MHP was explored. In this sec- could be the book value of the asset plus a 16 per- tion, the economic viability of connecting a stand- 56 cent RoE for the period that the MHP was in use. As alone MHP and MHP mini-grids to the national grid against this it would have to set off the NPV of cost are assessed separately. As in the financial analysis, Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications of power purchased from the MHP and the NPV of both incremental and total economic analyses are savings from using power from the local MHP to presented in this section. serve local customers. Table 38 provides an example of a financial analysis for a five-year-old 100 kW MHP 3.5.4.1. Economic costs that gets connected to the grid. 276. Economic costs are estimated by taking finan- cial costs net of taxes, duties and subsidies. Labor Table 37 | Input parameters for estimation of grid extension costs Parameter Amount Remarks Average domestic load demand (kWh/month/HH) 22 NEA Report 2012/13 Interconnection Cost Interconnection equipment including control pan- 4,300,000 Fixed cost irrespective of MHP capacity els, switchgear and protection (NPR*) 11 kV Distribution Line (incl. all accessories but excl. Transformer) Type of conductor depends on power to be evacu- Overhead ACSR (NPR/km) 1,000,000 ated and the distance 400 V Distribution Line (incl. all accessories but excl. Transformer) Overhead ACSR (NPR/km) 300,000 “Squirrel” conductor Average cost for a rural HH (actual cost depends on Service wire connection and house wiring (NPR/HH) 6,000 number of connections/outlets in a HH – NPR 10,000 to 15,000 for urban HH) Taken from “Sustainability of rural energy access Distribution line length km per sq. km load area 4 in developing countries”, Doctoral thesis of Brijesh Mainali, 2014 Transformers for Grid Connection 50 kVA 0.4/11 Transformer (NPR) 350,000 Nepali make 100 kVA 0.4/11 Transformer (NPR) 600,000 Nepali make 200 kVA 0.4/11 Transformer (NPR) 900,000 Nepali make  Other Parameters Cost of electricity generation (NPR) 6.00   NEA system losses 23% NEA Report 2012/13 Effective rate at distribution point (NPR) 7.79   Life of system (Years) 40   O&M annual cost as percent of capex 3%   Load escalation factor 5%   Discount factor 6%   Debt : Equity 70: 30   Interest rate and tenor 14%, 7 years   Depreciation straight line method 2.5%   *NPR 1 = US$0.0104; HH = household costs are deflated to reflect real costs as explained Figure 29: NEA cost of delivery to remote communities in the section on economic analysis of standalone 30.00 MHPs. The key capital costs of connecting an MHP 25.00 to the grid depends on the interconnection equip- ment distance of the 11 kV extension line to con- 20.00 Cost of Delivery- 57 NPR/kWh nect to the grid and a 100 kV transformer. For mini- 15.00 50hh/sq.km Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications grids, it is assumed that the NEA would only permit 10.00 mini-grids that are operating at 11 kV. Cost of Delivery 5.00 =75hh/sq.km 277. Based on the parameters specified in Table 37, 0.00 0 1 2 5 10 20 the economic costs of grid extension at various dis- Distance of grid extension (km) tances (0, 1, 2, 5, 10, and 20 km) are presented in Table 39. Where the cost of the interconnection equipment is constant (and remains so for systems up to 500 kW in size), and the cost of the transformers where re- quired is fairly modest, the cost of grid connection is Figure 30: Cost of delivery of grid connected 100 kW determined mainly by the distance to the grid, i.e. by MHP vs NEA grid extension the cost of the 11 kV distribution line required. 30.00 Levellized Unit Cost of Delivery 3.5.4.2. Incremental economic benefits 25.00 NEA Levellized 278. As before, economic benefits are considered 20.00 Cost of Delivery- 75hh/Sq.km (NPR/kWh) to originate entirely from the increase in PLF at- 15.00 tributed to the following interventions: fuel savings from switching from diesel to electricity for produc- 10.00 LUCE from 100 kW MHP Grid tive end-use (as represented by an agro-processing 5.00 Connected unit, i.e. the avoided cost of diesel-based genera- 0.00 tion), and the sale of CERs based on the avoided CO2 0 1 2 5 10 20 emissions from fuel switching. Economic benefits Distance of grid extension (km) from grid connection vary between a standalone MHP and a mini-grid because some increase in PLF would have already been achieved in the formation of the mini-grid and thus the incremental PLF from grid connection for a mini-grid is lower than that for Figure 31: LUCE of subsidized MHPs vs NEA tariff and a standalone MHP. NEA cost of delivery 30.00 279. Figure 32 presents the economic benefits aris- ing from grid connection of various sizes of stand- 25.00 LUCE-20kW grid alone MHPs at various distances of grid extension. It connected is assumed that starting from a 24 percent PLF for a 20.00 LUCE-50kW grid NPR/kWh standalone MHP, 90 percent of the remaining elec- connected 15.00 tricity is evacuated to the grid once the grid connec- LUCE-100kW grid tion occurs. connected 10.00 NEA Tariff 280. Figure 33 presents the economic benefits 5.00 NEA COD achieved from the grid connection of a 100 kW mini-grid at various distances of grid extension. 0.00 0 1 2 5 10 20 Note that the 17 percent incremental PLF achieved Distance from the grid (km) by the Rangkhani, Baglung mini-grid is taken to be 03 Scaling Up Potential of Micro Hydropower in Nepal Table 38 | Financial analysis for a five-year-old 100 kW MHP connected to the grid NPV of power purchased from MHP 40.28 Book value of MHP as at end of 5 years 14.08 NPV of saving for NEA by using local power to supply RoE at 16 percent for 5 years that the MHP has 9.62 14.37 to local community been operational 58 Net payout by NEA if MHP is connected to the grid 30.66 Total payout as compensation 28.45 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications NPR 1 = US$0.0104; All figures in NPR million. Source: Based on grid connected 100 kW MHP with 0 km grid extension. representative of the increase in PLF achieved from 282. As can be seen from these figures, there are mini-grid formation. Thus, the incremental PLF for substantial economic benefits to be realized from a grid connection is deducted accordingly for the grid connection because mini-grids, and especially mini-grid. Due to the lower incremental PLF asso- standalone MHPs, feature relatively low capacity uti- ciated with grid connection of mini-grids, the net lization, leaving a relatively large fraction of the gen- economic benefits are relatively lower compared to eration potential available for export to the grid. Un- standalone MHPs of similar total capacity, but the der prevailing conditions of scarcity, the evacuated net economic benefits are seen to be negative for a electricity will displace distributed diesel generation 20 kW mini-grid even at a grid connection distance elsewhere (perhaps in nearby market towns). There- of 10 km. fore, to the extent that this low cost additional gen- eration displaces reliance on more expensive diesel 281. The PLF for both the standalone MHP and mini- generation elsewhere, the economic benefits from grid are adjusted to account for the technical dis- connecting a 100 kW system where the grid has tribution losses (of 10 percent) within their service arrived in the vicinity (0 km grid extension) ranges areas when calculating the incremental quantum of from about NPR 13.5 million to over NPR 18 million electricity generated and available for consumption per annum for mini-grid and standalone MHPs, re- upon grid connection. spectively. Revenue from the sale of CERs based on avoided emissions account for a relatively modest share of total economic benefits. Figure 32: Economic costs and benefits of grid connection 20 Amortized capital cost Operation & maintenance 15 CER revenue Net savings on energy NPR Millions/year 10 Net economic benefits 5 0 -5 0km 1km 2km 5km 10km 20km 0km 1km 2km 5km 10km 20km 0km 1km 2km 5km 10km 20km 100kW 50kW 20kW Figure 33: Economic costs and benefits of grid connection of mini-grid 16 Amortized capital cost 14 Operation & maintenance 12 CER revenue 59 10 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Net savings on energy NPR Millions/year 8 Net economic benefits 6 4 2 0 -2 -4 0km 1km 2km 5km 10km 20km 0km 1km 2km 5km 10km 20km 0km 1km 2km 5km 10km 20km 100kW 50kW 20kW 3.5.4.3. Summary of incremental economic benefits ing. When the avoided cost of generation is based and costs on distributed diesel generation, as is the case in 283. Figure 34 displays the NPV for investments in this analysis, even a 20 kW standalone MHP delivers grid interconnection for 20 kW, 50 kW and 100 kW an NPV of more than NPR 14 million when connect- standalone MHPs and mini-grid (for a 15-year plant ing to the grid at a distance of 5 km, and the inter- life at a 6 percent discount rate). The returns are connection of a 100 kW standalone MHP yields an positive for all the scenarios considered up to grid NPV of NPR 127 million even where grid connection extension of 10 km, except for the 20 kW mini-grids. requires a distance of 20 km. At 20-km grid extension, neither 20 kW standalone MHPs nor 20 kW mini-grids represent a good invest- 284. Similarly, Figure 35 shows that the economic ment opportunity. Considering the immense sav- internal rate of return (EIRR) is attractive for a 100 ings on the avoided cost of generation (from diesel) kW standalone MHP and mini-grid even up to a grid realized through grid connection, and the relatively interconnection distance of 20 km, whereas both modest cost of grid connection, the vast magnitude 50 kW options clearly represent a good proposition of the NPV for almost all the scenarios is not surpris- at up to 10 km grid extension. For 20 kW systems, Table 39 | Economic costs of grid extension at various distances Distance of grid extension (km) Breakdown of Costs 0 1 2 5 10 20 Economic costs (NPR*) Capex with transformer 4,449,027 5,356,991 6,264,956 8,988,850 13,528,673 22,608,319 O&M with transformer 133,471 160,710 187,949 269,665 405,860 678,250 Capex without transformer 3,904,248 4,812,212 5,720,177 8,444,071 12,983,894 22,063,540 O&M without transformer 117,127 144,366 171,605 253,322 389,517 661,906 *NPR 1 = US$0.0104 Notes: O&M costs are given on an annual basis and assumed to be 3 percent of capex per annum; indicative transformer cost is for a 100 kVA 0.4/11 transformer and the actual cost may vary according to the size of the transformer required. 03 Scaling Up Potential of Micro Hydropower in Nepal connection to the grid should be appealing at a cost (and thus returns high economic benefits distance of up to 2 km. This suggests that there are from MHP generation) also ensures that much of good grounds for preserving an MHP (irrespective the electricity that could be theoretically exported of its size) through grid connection once the grid to the grid cannot be evacuated in practice due 60 has reached within a few kilometers from the MHP. to the prevalence of load shedding. Since electric- ity cannot be evacuated to the grid during load- Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 285. One reason why the grid connection appears shedding hours, much of the economic benefits to be so evidently preferable is the enormous eco- from MHP generation cannot be realized. Figure 37 nomic benefits obtained by exporting electricity presents the NPV for each scenario when only 50 to the grid when 90 percent of surplus capacity is percent of the electricity available to be exported assumed to be utilized for export-oriented genera- to the grid is evacuated (50 percent here approxi- tion, which displaces relatively expensive reliance mates the weighted average of load-shedding on diesel elsewhere. As illustrated in Figure 36, all hours over the course of a year). MHPs generate economic benefits well in excess of NPR 20/kWh when connected to the grid at a dis- 287. As the economic benefit from evacuation to tance of 5 km. the grid constitutes the most significant compo- nent or total economic benefit, it is to be expected 286. However, the same energy scarcity that justifies that the NPV for all the scenarios would suffer. In- the assumption of diesel generation as the avoided deed, when 50 percent of the electricity cannot be evacuated, grid connection of 20 kW MHP ceases Figure 34: NPV for different scenarios of grid connection to be an appealing option at any distance of grid extension. However, grid connection of a 100 kW 200 MHP remains economically viable, as does grid 100 kW Stand- connection of a 50 kW MHP at a distance of less alone MHP 150 than 10 km. 100kW NPR millions Mini-grid 100 50 kW Stand- 288. The financial analysis of grid connection in the alone MHP previous section indicates that grid connection 50 50kW Mini-grid is not a financially viable endeavor at current FIT. 20 kW Stand- Communities and entrepreneurs are therefore un- 0 alone MHP likely to undertake such a venture, in which case 0 1 2 5 10 20 the substantial economic benefits from grid con- 20kW Mini-grid -50 nection would be foregone. This presents a com- Grid extension (km) pelling argument for the application of subsidies in an efficient manner to render grid connection fi- Figure 35: EIRR for different scenarios of grid connection nancially viable, and to enable significant econom- ic benefits from grid connection to be realized. 450% 400% 100 kW Stand- 289. However, two caveats must be taken into con- 350% alone MHP sideration. The economic benefits as calculated in 300% 100kW Mini-grid this analysis are based on a CER price of US$7 per 250% 50 kW Stand- ton of CO2 eq. While there is a precedent for this EIRR 200% alone MHP negotiated price in the ongoing MHP CDM proj- 150% 100% 50kW Mini-grid ect in Nepal, it may reasonably be posed whether 50% 20 kW Stand- even a fraction of this price would be available 0% alone MHP under current market conditions, and in any case, -50% 0 1 2 5 10 20 20kW Mini-grid even if the CER price should recover, CER revenue will always be subject to the vagaries of the carbon Grid extension (km) market. Since CER revenue accounts for a mere 2 percent or so of the total economic benefit from Figure 36: LUBE for different scenarios of grid connection grid connection, this may not be such a critical issue 35 in any case. 30 290. On the other hand, the fact that the avoided 35 61 cost of generation accounts for the vast majority of Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 100 kW NPR/kWh the economic benefits from grid connection merits 20 50 kW closer inspection. Under current conditions of crip- 15 20 kW pling generation shortage in the country, there is am- ple justification for the selection of distributed diesel 10 generation as the basis for avoided cost calculation. 5 Anecdotal evidence corroborates the proposition 0 that unmet demand across the country is being, at 0 1 2 5 10 20 least partly, satisfied through diesel generators. Grid extension (km) 291. A recent World Bank study estimates close to 200 MW of distributed diesel installed capacity gen- Figure 37: NPV for 50 percent evacuation to the grid after grid connection erating 340 GWh per annum in Kathmandu Valley alone; this accounts for almost 8 percent of the elec- 80 tricity supplied across Nepal.70 However, when and 60 100 kW Stand- alone MHP if large hydropower projects in the pipeline begin 40 100kW NPR millions generating electricity in sufficient volumes to meet Mini-grid peak demand in the country – and projections state 20 50 kW Stand- that this should happen well within the economic alone MHP 0 life of 15 years assumed for the calculations in this 0 1 2 5 10 20 50kW Mini-grid analysis, at least during the wet season – the rel- -20 20 kW Stand- evant baseline for the avoided cost calculation will alone MHP -40 then be run-of-river hydropower generation. The 20kW Mini-grid economic benefits from grid connection of a 100 -60 Grid extension (km) kW standalone MHP or mini-grid can be expected to diminish drastically once that happens. more dispersed communities further away and a 292. It is worth asking whether grid connection of lower cost to serve a larger load center that is closer MHPs will still be economically viable once the on- and more densely populated. going energy crisis is resolved. Figure 38 presents the NEA’s avoided cost of generating (or buying) 3.5.4.4. Economic analysis using avoided cost to NEA electricity and delivering it to micro hydropower as baseline service areas of various characteristics. 294. Using the avoided cost to NEA as the counter- factual (the least-cost option, i.e. the cost of serving 293. The unit cost to NEA depends on the size of a 100 kW load center with population density of 75 the load center (on the quantity of electricity being households/km2, is assumed), the NPV for the vari- delivered), the distance that has to be covered to ous MHP scenarios were calculated. The results are deliver the electricity (expenditure on transmission presented in Figure 39. infrastructure will vary accordingly), and the popula- tion density of the service area (which affects the 295. Once NEA’s avoided cost is taken to be the al- distribution infrastructure requirement). As can be ternative, the economic benefits from connecting expected, NEA incurs a higher cost to serve smaller, MHPs to the grid are much reduced, as shown in World Bank (2014): “Diesel Power Generation: Inventories and Black Carbon Emissions in Kathmandu Valley, Nepal” 70 03 Scaling Up Potential of Micro Hydropower in Nepal Figure 38: NEA’s avoided cost Figure 40. The EIRRs are negative at all distances of grid extension for a 20 kW MHP (so EIRRs for 20 kW 45 standalone MHP and mini-grid are not plotted in the 40 20kW load center, figure), and thus, from a societal point of view, there 62 35 50hh/km2 20kW load center, is no longer a case to be made for interconnection 30 75hh/km2 of 20 kW MHPs. Even 50 kW MHPs only make sense Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 50kW load center, 25 50hh/km2 at close distances for grid connection. While 100 NPR/kWh 20 kW MHPs remain the best option for grid connec- 50kW load center, 15 75hh/km2 tion, they no longer promise the impressive level of 10 100kW load center, benefits as seen in the figure. It confirms that the 50hh/km2 EIRR for grid connection of MHPs is far more mod- 5 100kW load center, est once sufficient grid electricity can be supplied 0 75hh/km2 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 by the utility. Grid extension (km) Notes: 160 households served at an average load of 125 W per household = 20 kW load center; 3.5.4.5. Full-cost economic analysis of grid- 400 households = 50 kW; 800 households = 100 kW. Avoided cost includes IPP rate for genera- connected community MHPs tion, system losses and transmission and distribution cost. 296. The incremental economic analysis of grid con- nection of existing MHPs and mini-grids presented in the preceding section shows that grid connec- Figure 39: NPV for NEA’s avoided cost scenario tion represents an attractive social investment op- portunity, at least for larger MHPs that are relatively 30 100 kW Stand- close to the grid. alone MHP 20 100kW Mini-grid 297. It should be noted that the incremental cost 10 50 kW Stand- of grid connection is relatively modest only because NPR millions alone MHP the initial investment in the MHP itself had already 0 50kW Mini-grid been made. Older MHPs were built to serve the 20 kW Stand- nearby community, and thus grid connection con- -10 alone MHP stitutes an attempt to retrofit an existing asset to -20 20kW Mini-grid increase its productivity or to rescue an investment 0 1 2 5 10 20 from impending obsolescence. Mini-grids are a step -30 in that direction, and grid connection is the logical Grid extension (km) end to such an effort. 298. Today MHPs are being planned or under con- struction specifically with grid connection in mind, Figure 40: EIRR based on NEA’s avoided cost scenario such as the Midim Khola. These MHPs tend to be larger – at least of 100 kW installed capacity. What 80% 100 kW Stand- alone MHP is the economic viability of a new community MHP 60% 100kW that will enjoy the benefits of grid connectivity from Mini-grid its inception? For the purpose of economic analy- 40% 50 kW Stand- sis, such an MHP will capture the economic ben- EIRR alone MHP 20% efits associated with the consumer surplus arising 50kW Mini-grid from households in its distribution area switching to 0% 0 1 2 5 10 20 20 kW Stand- electric lighting from kerosene lighting (its domes- alone MHP -20% tic load), from electricity displacing diesel genera- Grid extension (km) tion for productive end-use in its distribution area Table 40 | Economic costs and benefits of a new grid connected 100 kW MHP Grid connection distances (km) Parameter 0 1 2 5 10 20 Consumer surplus from lighting Net savings on energy 13.17 18.50 13.17 18.41 13.17 18.31 13.17 18.02 13.17 17.54 13.17 16.58 63 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications CER revenue 0.49 0.49 0.49 0.49 0.49 0.49 Total benefits 32.16 32.06 31.97 31.68 31.20 30.24 Operation & maintenance 1.18 1.21 1.24 1.32 1.45 1.73 Amortized capital cost* 4.05 4.15 4.24 4.52 4.99 5.92 Total costs 5.23 5.36 5.48 5.84 6.44 7.65 NPR 1 = US$0.0104; All figures in NPR million. *For a 15-year plant life at a 6 percent discount rate. (the commercial load), from the generation of elec- surplus power generated by the MHP so economic tricity for export to the grid, and from the carbon benefits can be realized from a greater number of revenue based on avoided emissions attributed to units. This represents the longer-term scenario and its existence. In terms of costs, the capital cost and is also illustrated in these figures. operations and maintenance cost of the generation asset itself as well as the capital cost and operations 302. On a full cost basis, 100 kW grid-connected and maintenance cost of grid connection will have MHPs are found to be attractive investments at grid to be included. Table 40 displays the full economic extension distances up to 20 km both in the near costs and benefits of a 100 kW MHP when it is able and long term, as are 50 kW MHPs, albeit to a lesser to evacuate its entire surplus power to the grid. extent. However, 20 kW MHPs only represent a good investment from the societal point of view up to a 299. As substantial economic benefits accrue from grid extension distance of 5 km. the operation of a standalone MHP and from the grid connection of such an MHP, a new MHP that is con- 303. The financial analysis in the earlier sub-section nected to the grid realizes the benefits from both indicates that grid-connected MHPs are not financial- these streams. The economic benefits from a new ly viable (even with a 50 percent subsidy on all capital grid-connected MHP are therefore vast. As discussed costs, i.e. for the generation asset plus the intercon- in preceding sections, carbon revenue is a modest part nection costs) at current tariffs, but the magnitude of total economic benefits and thus has a negligible of the economic benefits that can be captured from impact on the determination of economic viability. grid-connected MHPs calls for action both from the Government and micro hydropower communities to 300. However, a new MHP will not be able to evacuate ensure that these benefits are realized. as much electricity as it may wish to due to the preva- lence of load shedding, as discussed in the preceding 3.5.5. Institutional Performance sections. Figure 41 and Figure 42 illustrate the NPV and 304. Currently, there are no MHPs that are grid con- EIRR respectively of new grid-connected MHPs that nected and therefore, there is no experience of insti- can only evacuate half of the surplus power they could tutional performance of MHPs in this regard. When generate. This represents the near term scenario. the national grid arrives in the distribution area of an MHP, it can be interfaced with the national grid 301. Once there is widespread availability of NEA in various configurations as follows: grid electricity, the economic benefit per unit can be expected to be substantially curtailed since the l Option 1: Connect the MHP generator to the avoided cost will be in hydro-electricity rather than national grid and allow the national grid to take diesel, but it will be possible to evacuate all of the over the local distribution services. 03 Scaling Up Potential of Micro Hydropower in Nepal Figure 41: Net present value for new grid-connected MHP the MHP from the revenues earned by the MHP by 160 selling power to the grid.71 100kW 50% 140 evacuation 120 64 100kW NEA avoided 307. From an NEA point of view, if an MHP is treated NPR millions 100 cost scenario as an IPP, it would have to permit even private MHPs 80 50kW NEA avoided Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 60 to be set up exclusively for grid connection. Since cost scenario 40 the policy for allowing MHPs to connect to the grid 50kW Mini-grid 20 is being proposed to avoid community investments 20kW 50% evacu- 0 ation from being stranded rather than to help the NEA -20 tide over the peak deficit crisis, it does not make 20kW NEA avoided -40 cost scenario sense for the NEA to buy power from MHPs being 0 1 2 5 10 20 set up as IPPs. Therefore, the policy should clearly di- Grid extension (km) rect the NEA to allow grid connection of MHPs only Figure 42: EIRR for new grid-connected MHP if they are community owned and set up in the first place to serve them. 60% 100kW 50% evacuation 50% l Option 2: Connect the MHP generator and the lo- 100kW NEA avoided 40% cost scenario cal distribution grid to the national grid with provi- 30% 50kW NEA avoided sions for providing power to the local community cost scenario through the MHP generator and the local distribu- 20% 50kW Mini-grid tion grid during load shedding or outages on the 10% 20kW 50% evacu- national grid. 0% ation -10% 20kW NEA avoided 308. This is the preferred option by the AEPC and cost scenario -20% the authors of this report. MHP sells all its power to 0 1 2 5 10 20 the NEA at PPA rates as an IPP and buys at bulk NEA Grid extension (km) rates for communities as for CBRE. This would allow the community to access electricity at NEA rates, 305. This is the model being preferred by the NEA. which is highly subsidized. NEA gains by not hav- MHP is treated as an IPP and all power supplied by ing to manage the distribution network. The MHFG the MHP is fed into the grid. Local customers get being still responsible to the community has to con- electricity from the NEA at normal tariffs. However, tinue managing the distribution system and coordi- in the event of load shedding, customers do not nate with the NEA. In addition, the NEA gets access get served by the MHP. As an IPP the MHFG would to locally generated power that is cheaper than its seek to maximize profits by selling only to the grid. cost of delivery as described in the preceding sec- Furthermore, with the MHFG not serving the com- tion. The MHP as an IPP gets access to a higher PLF munity, the MHP could be taken over by private in- through connecting to the grid and can maximize vestors. The NEA also does not benefit since it would its output and thereby lower its LUCE substantially. also be responsible for local distribution and collec- tion of electricity bills in a remote location. 309. However, the NEA has indicated that it is not in favor of this option since it does not want to treat 306. From an AEPC point of view, the capital subsidy MHP customers on par with CBRE customers. The given to the MHP is not helping to serve the local NEA is apparently mulling over charging a commer- community, even during events of load shedding cial bulk tariff rate that is slightly higher than its IPP- by the grid. Therefore, it would have to put in place PPA rate if power is supplied to the local community a mechanism to recover the capital subsidy given to through the MHFG. This thinking runs counter to 71 In the Ramgarh MHP in Uttarakhand, India, which is a 100 kW MHP connected to the grid since 2005, 75 percent of revenue from sale to the grid goes to Uttarakhand Renewable Energy Development Agency (UREDA) since it had provided a 75 percent subsidy in setting up the MHP. Further, the MHP supplies power to the local community during load shedding by the grid. The MHP management is responsible for both supply of power to the grid, as well as acting as a franchise for the grid in managing the distribution network. logic. By supplying through the MHFG and making Figure 43: Configuration of Option 1 them responsible for managing the distribution, the NEA reduces its costs of service. 310. Furthermore, since power delivered by the NEA distributes MHP sells at 65 NEA’s PPA rate NEA is costlier than power purchased from the local to community MHP Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Grid as IPP MHP, it is better for the NEA to let the MHP supply as much power as possible to the local community, but charge the community normal NEA tariff. This will ensure that its losses in supplying power to a remote community are considerably reduced. Figure 44: Configuration of Option 2 l Option 3: Shut down the MHP generator and lo- cal grid and have the customers switch over to the national grid. MH to c P dist omm ribu unit tes y MHP sells at 311. For reasons discussed earlier, this is an option PPA rate NEA’s that all stakeholders are trying to avoid by ensuring MHP Grid the formulation of a policy for grid connection of MHP buys at bulk rate fixed community owned MHPs that are currently serving for CBRE the local community. 312. If the PPA FIT were set at a level adequate to cover the MHPs costs with a reasonable RoE (this is the same as the LUCE) then it would be profitable Figure 45: Configuration of Option 3 for the MHP. Therefore, institutionally, the organiza- tion managing the MHP should be on a sound foot- Shut down ing legally and in terms of representing the actual MHP owners, i.e. the community. There should be an ap- NEA distributes to community NEA’s propriate mechanism to channel the profits into Grid the community either by way of dividends to each MHP member household or for taking up community level development works or a combination of both. 313. The AEPC would need to put in place a process to ensure that the level of organizational develop- ment of the MHFG is adequate and proper business 3.5.5.1. International practices in grid connection of MHP processes that aid transparency, equity and good 315. International practices indicate that MHPs and governance are in place while the MHP gets con- RETs in general benefit from promulgation of acts nected to the grid and moves on to become a more that ensure standardization of grid connection (see business like organization. Box 5). Comparing different electrification options on the basis of LUCE (NPR/kWh) can help chose the 314. In addition, given the sensitivity of the MHP’s best alternative and even compare with consumer financial performance to grid availability for evacua- retail price of electricity (NPR/kWh) to set the appro- tion of power to the grid, “deemed generation” also priate FIT. referred to as “take or pay” status should be included as a clause in the PPA. 03 Scaling Up Potential of Micro Hydropower in Nepal 316. Passing laws that ensure discounted lending study presents a clear methodology for determining for grid connection of previously isolated systems FIT for grid-connected MHPs. Therefore, NEA, AEPC can help expedite the process considerably. Integra- and MHFGs can use this methodology as a guide to tion of technical standardizations, FITs, open access determine FIT for grid-connected MHPs and incor- 66 to grid and financial incentives for grid connection porate them into the standardized documents. under “One Window Services” can help simplify the Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications process for RETs interested in grid connection. This 317. Furthermore, a framework for creation and trading of Renewable Energy Certificates can ensure fair promotion of RETs including MHPs by requiring Box 5: Lessons from RET grid con- large hydropower projects to meet renewable en- nection practices around the ergy purchase obligations. It must be noted that world hydropower projects with capacity more than 20 MW are not considered renewable energy projects. Germany: Renewable Energy Sources Act If these international best practices are internalized (2004) prioritizes as well as outlines proce- under a “One Window Service” by the AEPC, grid dures for connecting RETs to the national connection of MHPs can be streamlined into a quick grid. It sets standards for purchase, transmis- and hassle-free procedure. sion, and payment for such electricity. 318. Although, there are examples from other China: Renewable Energy Law (2006) guaran- countries that are ahead in grid-connected MHPs tees financial incentives, such as discounted and RETs, in Asia and specifically in the Himalayan lending and tax preferences for RETs. region, Nepal is the forerunner in community man- aged off-grid micro hydropower systems. It has the Denmark: Feed-In-Tariff for RETs set at 70–85 largest number of off-grid MHPs installed and suc- percent of consumer retail price of electricity cessfully operated by rural communities. A central and open access to utility grid guaranteed government body coordinating the micro hydro- under “One Window Service”. power sector and administrating subsidy along with private sector involvement in design, manufac- Australia: Renewable Energy Act (2000) turing and installation, and the communities’ ability includes a framework to create Renewable to mobilize themselves and manage the plants post Energy Certificates by RETs and then sell installation has become an unique and successful to electric utilities to meet their renewable model. energy purchase obligations. 319. Other countries from South Asian Associa- Tanzania: Framework being developed tion for Regional Cooperation (SAARC) interested under the Electricity Act (2008) includes stan- in implementing national level micro hydropower dard documents, such as “Standardized Power programs have been drawing upon Nepal’s experi- Purchase Agreement” and “Standard Tariff ence in this sector. In order to formalize such ex- Methodology” applicable between renewable change of experience, in 2010 the AEPC in collabo- energy projects with capacity between 100 ration with USAID South Asia Regional Initiative for kW to 10 MW and buyers such as the national Energy (USAID/SARI Energy) established a Regional grid or local isolated grids. Centre of Excellence for Micro Hydro (RCEMH). The Centre showcases and transfers know-how gained See Annex 10 for more details on interna- by the AEPC and its supporting organizations and tional practices in grid connection. partners. 04 Findings, Recommendations and the Way Forward 4.1 Standalone MHP 4.1.1.3 Build grid-compatible MHPs 322. Once the national grid arrives in an MHP’s ser- 4.1.1. Technical Findings and Recommendations vice area, grid connection is unequivocally the next 4.1.1.1. Scale-up MHPs to reach more off-grid communities step forward. Therefore, while implementing new 320. MHPs are technically robust and help off-grid standalone MHPs, especially MHPs larger than 50 kW,72 they should be designed to be grid compatible. This 67 rural communities in Nepal gain access to elec- Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications tricity. Local communities have demonstrated ad- requires all new MHPs to have a distribution network equate capabilities to operate and maintain MHPs that meets NEA standards. This would ensure that the in remote locations. Furthermore, where there are MHP’s distribution network gets grid connected in the steep perennial streams in the vicinity, an MHP is future. Furthermore, mandatory metering of MHPs en- the least-cost option for rural community electrifi- ables their existing customers to make the transition to cation. Therefore, on the basis of technological per- NEA’s energy-based tariff system smoothly. The NEA is formance, MHPs should be scaled up to reach out also able to accept these customers without having to to more communities that are currently not being introduce a metering system. served by the national grid. 4.1.1.4. Strengthen quality assurance during design, 4.1.1.2 Make metering mandatory to improve energy manufacturing and installation efficiency 323. The robust technical performance of MHPs is a 321. MHPs are currently being built to cater to peak testament to the excellent technical capabilities of load, which mostly comprises lighting. Often, these the MHP industry in Nepal. However, as mentioned MHPs are unable to cater to increase in peak demand earlier with new manufacturers and installers com- arising from increase in the number of households ing in and experienced ones leaving the industry, the and/or increase in demand within each household. quality of manufactured components and execution Use of advanced lighting technologies such as CFLs of civil works has deteriorated. Therefore, the qual- and light emitting diodes (LEDs) will bring down ity assurance system during design, manufacturing household lighting loads without compromising on and installation should be strengthened. During the lighting quality. However, since most micro hydropow- design phase, the focus should be on improving the er supplied households are not metered, extensive use quality of the feasibility study reports such that they of power-based tariff is discouraging energy conserva- truly reflect site conditions. The AEPC should carry tion. Therefore, energy-based tariff should be enforced out a three-stage inspection process during mate- through metering which will provide adequate incen- rial, in-process and pre-shipment stages to ensure tives to users to make more efficient use of electricity. that the quality of the components delivered at site is This would in turn help lower the peak demand and as per design and material specifications.73 Similarly, allow the same MHP to serve more households. supervision and quality assurance of civil structures, which is usually executed by the community, should MHPs of 50 kW and above should be built for grid connectivity. For smaller MHPs, an intermediate step for the formation of a mini-grid has to be carefully examined. 72 Use of mild steel in place of stainless steel for making jet nozzles and using copper coated aluminium plates for earthing were some of the quality issues 73 mentioned during our discussions with RSC and manufacturers 04 Findings, Recommendations and the Way Forward be strengthened to help curb problems such as un- with subsidy. Most of them make modest profits dersized settling basins leading to frequent damage operationally but have no savings to pay for ma- of turbine runner blades. Quality assurance will pre- jor repairs. The main reasons for poor finances are vent unwarranted downtime as well as unexpected very low PLF and tariffs that are designed to just 68 future costs of repairs for the MHP. recover funds for salaries and routine repair and maintenance.75 When large repairs are necessary, Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 4.1.1.5. Create a network of local repair service providers MHFGs mobilize funds from the community, which 324. Remoteness of MHPs from manufacturers and becomes possible due to the strong leadership of installers who also provide after-sales services often the MHFGs and the active participation of the com- leads to prolonged downtimes and high costs of re- munity. These are key contributing factors for oper- pairs. Given the large installed base of MHPs especially ating MHPs over a long period of time despite being in central and eastern Nepal, the AEPC should identify, financially unviable. However, MHPs will not be at- encourage and nurture local workshops74 to provide tractive to private investors who look for attractive last mile after-sales services. In collaboration with the RoIs. Therefore, MHPs need to be viewed as social NMHDA, the AEPC should train local entrepreneurs to enterprises similar to rural roads or schools and not cultivate skills and expertise in repairing MHPs. from a conventional financial analysis perspective, especially when formulating or updating policies. 4.1.2. Financial and Economic Findings and Recommendations 4.1.2.4. Build capacity of MHFGs in tariff setting 4.1.2.1. Continue subsidy support to ensure delivery 328. The capacity of MHFGs and the user commu- of economic benefits nity should be built to adopt energy-based metered 325. Economic benefits that can be attributed to tariff rather than power-based non-metered tariff. MHPs especially due to consumer surplus from In addition, they should be trained in setting tariffs electric lighting are immense. Rural electrification such that revenues are adequate to cover operat- through MHP returns economic benefits approxi- ing costs including salaries, loan payments, as well mately three times larger than the investment and as repair and maintenance. operating costs. Although the economic benefits of an MHP are far greater than the economic costs, 4.1.2.5. Increase access to finance and educate MHPs are not financially viable in the conventional lenders on operational sustainability of MHPs sense. Therefore, subsidy should be continued to 329. Typically, the community mobilizes 50 percent support the delivery of electricity through MHPs. of the total project cost to set up an MHP and the remaining is provided through the AEPC as sub- 4.1.2.2. Prioritize MHP as the preferred RET to deliver sidy. Mobilization of funds from the community to off-grid electricity achieve financial closure is a major bottleneck in 326. Other than MHPs, SPVs are the most extensively MHP implementation. Access to finance could sig- used technology to deliver access to electricity to nificantly shorten this time but banks and financial off-grid locations in Nepal. Diesel generators are an- institutions (BFIs) are usually reluctant to lend to other alternative but rarely used for electrification these projects citing reasons of low profitability and because of high operating costs. Analysis shows uncertainty of institutional arrangements.76 On the that for delivering the same level of service as of other hand, communities are reluctant to borrow a typical MHP in rural Nepal, diesel and SPV-based from BFIs due to cumbersome procedures and high solutions remain more than twice as expensive. interest rates. Therefore, the AEPC needs to educate Therefore, from a policy point of view, MHPs should BFIs on the operational sustainability and good be the first choice to deliver off-grid electrification track record of MHFGs. The AEPC can help reduce where they are technically feasible. interest costs for these communities by parking a portion of its funds with selected banks. With higher 4.1.2.3. View MHPs as social enterprises loan amounts, MHFGs will also be compelled to in- 327. MHPs are run as social enterprises and are not crease consumer tariff to be able to payback such financially viable in the conventional sense, even loans and the interest. 74 Especially, units such as grill works, electricians, etc. 75 Where there is a loan, tariffs are set higher initially to pay off the loan and then reduced after that. 76 MHFGs are not legal entities. 4.1.2.6. Reduce costs by benchmarking and ally, the technical capacity of RSCs to provide over- standardization sight to project execution should be enhanced 330. To tackle the ever-increasing cost of MHPs, the through exchange of knowledge and experiences, AEPC in collaboration with NMHDA should insti- collective planning of strategies, and use of better tute a thorough engineering-based review of the equipment.78 Furthermore, the AEPC should dis- 69 manufacturing process and costing of MHP to es- qualify service providers who do not meet accepted Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications tablish cost benchmarks. Benchmarking should be standards of performance. This will help improve followed by standardization of MHP components service delivery as well as increase business volume as opposed to the total customization that prevails for service providers that are performing well. today for manufactured items. These two measures will help reduce costs. Moreover, specialization 4.1.3.3. Reorient MHP planning to aggregate should be encouraged subject to the volume of demand and optimize site potential business amongst manufacturers and alternative 333. AEPC’s MHP program is demand driven such technologies such as “pumps as turbines” 77 should that the project cycle starts when a community be tried out for further cost reduction. makes a request to the RSC to help it set up an MHP. Because the current unit of planning for an MHP is 4.1.3. Institutional Findings and a VDC/Ward, this practice often leads to develop- Recommendations ment of several small MHPs in the same area serv- 4.1.3.1. Support MHFGs to become legal entities ing adjacent communities. Each plant is built such 331. The institutional architecture to implement that it is adequate to meet the demands of the MHPs is very robust and well tested. MHFG as an community proposing the MHP. Analysis shows that institution is performing adequately and represents smaller plants are usually less viable even operation- the community well. It is able to raise significant ally and also cost more to set up than larger plants. funds from the community for equity and major Furthermore, the current process of MHP planning repairs. However, efforts must be made post-in- leads to underutilization of the hydropower poten- stallation to help MHFGs transition into a formally tial of the site. Therefore, the focus of planning for registered entity (company, cooperative or NGO). By MHPs should be changed from merely meeting the adopting a more business-like approach, the MHFG current power requirements of the community to will become capable to prepare business plans, optimizing site potential. When the pre-feasibility enter into agreements with the NEA and maintain study of an MHP is carried out by the RSC/DEECCS books of accounts. At the same time, it is equally im- to determine site capacity, they should simultane- portant to ensure that the MHFGs retain the spirit ously explore whether there are more load centers of “social enterprise” as they move towards a more that are not served in the vicinity and if a single large business-like approach. MHP can serve the combined load better. 4.1.3.2. Increase the institutional footprint of AEPC 4.1.3.4. Strengthen the pre-qualification process of 332. Quality assurance and monitoring of the per- service providers formance of installers and RSCs through concurrent 334. The current pre-qualification process is based and regular post-installation surveys are key areas on capability statements of DFS consultants, install- that need more attention from the AEPC. Therefore, ers and manufacturers as well as verification visits the AEPC should set up regional offices especially in to the manufacturing premises. In addition to these areas of expected growth in community electrifica- measures, a more systematic and concurrent qual- tion and start a procedure of devolving the decision- ity assurance and post-installation survey should be making process. Currently, there are only nine RSCs, adopted to monitor performance over an extended each covering several districts for not only promot- period of time and then rank such companies. Simi- ing MHPs, but also the entire range of RETs that the lar to quality assurance mechanisms for the biogas AEPC supports. With the advent of mini-grids and program, AEPC should put in place a comprehen- grid connectivity, the RSC’s workload will be further sive post-installation survey of MHPs and monitor a escalated. Therefore, more RSCs should be brought sample of projects. The sample could be relatively on board to support scaling up of MHPs. Addition- higher during the first year after commissioning and 77 AEPC could organize exposure trips to India where PAT has been in use for more than a decade. Currently, RSCs only provide technical oversight based on visual observation during project execution. They have no tools to provide any diagnostic support. 78 04 Findings, Recommendations and the Way Forward then gradually tapered off to zero by the 5th year. local demand better (at least in the deficit areas) Thus, a new set of samples would be added from than standalone plants. However, higher surplus dur- MHPs installed every year while a few that have ing peak hours is very unlikely since most MHPs are been monitored for five years would be dropped overloaded in this period, and therefore the increase 70 out of the sampling plan. in PLF is heavily dependent on greater utilization of off-peak power. The number of productive end-uses Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 4.1.3.5. Formulate and update relevant Acts in RET in the area is not likely to increase simply because of promotion the establishment of the mini-grid. Additionally, in- 335. Although many policies to upscale RETs have crease in commercial demand is also dependent on been put in place, full-fledged implementation of the local economy and market conditions, such as such policies is not possible without promulgating availability of raw materials, entrepreneurs, and infra- the corresponding acts. Therefore, these acts (Rural structure (e.g. roads). Nevertheless, the Baglung mini- Energy Act, Water Resources Act and Electricity Act) grid experience indicates that with mini-grid systems, need to be either formulated or updated to support commercial demand can increase as the overall ca- smoother implementation of the policy. Further- pacity of the system will be higher than the individual more, important acts related to renewable energy plants, enabling higher capacity end-uses that were development (Feed-In-Tariff Act and Alternative En- not possible before. ergy Promotion Board Act) should be approved by the Parliament. 4.2.2. Financial and Economic Findings and Recommendations 4.1.3.6. Support the micro hydropower industry to expand 4.2.2.1. Analyze site conditions to determine business into mini hydropower and low-head MHPs financial and economic viability 336. Due to the low volume of business, large and 338. Financially, mini-grids are not attractive since the experienced manufacturers are losing interest in the cost of interconnection among MHPs is very high and micro hydropower sector. Furthermore, analysis shows analysis shows that even for an optimistic scenario of that smaller MHPs are unsustainable even operation- PLF doubling after the formation of the mini-grid does ally. Therefore, the AEPC should collaborate with the not make it viable. Furthermore, the capital expendi- NMHDA to build the capacity of the industry to manu- ture of a mini-grid is entirely site specific and requires facture and install mini hydropower plants. Addition- a careful consideration of such issues when the invest- ally, it should also identify appropriate technology to ment decision is made. Similarly, the economic viabil- harness the hydropower potential of low-head and ity of a mini-grid depends largely on the increase in high-flow rivers that are prevalent in the lower hills PLF, amount of peak or off-peak electricity available, and the Terai belt of Nepal. Currently, entrepreneurs in and utilization of such electricity to replace diesel used India are demonstrating an “ultra low-head MHP” 79 on for commercial purposes. Although unlikely, if there a quasi-commercial basis with support from UNIDO is any surplus during peak hours, then the economic and technology from Japan. If this technology can be benefits are substantially higher compared to off-peak introduced in Nepal, it may open up a whole new area power. Therefore, mini-grids should be assessed on a of business for the micro hydropower sector. site-by-site basis for economic viability. 4.2. MHP Mini-Grid 4.2.2.2. Promote a larger capacity MHP rather than a new mini-grid 4.2.1. Technical Findings and Recommendations 339. Since the cost of interconnecting MHPs is large 4.2.1.1. Promote higher capacity end-uses to ensure and unrelated to their capacities,80 it would be more increase in PLF efficient to deliver power to a larger set of consum- 337. The experience from the Baglung mini-grid ers from a single large micro/mini/small hydropow- clearly demonstrates that mini-grid systems are tech- er plant rather than putting up several smaller MHPs nically viable as well as reliable. In a mini-grid cluster, and trying to interconnect them later to form a when there are some MHPs with a power deficit and mini-grid. For now, all decisions pertaining to invest- others with surplus power, the PLF can increase sig- ments in mini-grids should be made centrally by nificantly, and the mini-grid should be able to serve the AEPC. Furthermore, for new standalone MHPs, Works with 1–3 m heads 79 the pre-feasibility process should be modified to are metered. Operators of MHPs do not receive explore possibilities of a larger plant that serves a enough technical training, and therefore, are often larger distribution area rather than supporting sev- uninformed about operational and safety issues that eral smaller plants, which would be interconnected arise in the context of a national grid connection. It is later to form a mini-grid. recommended that the community’s technical and 71 managerial capabilities be improved to get them Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 4.2.3. Institutional Findings and Recommendations “grid ready” through appropriate training programs. 4.2.3.1. Give preference to larger plants spread across multiple communities than mini-grids 4.3.1.2. Install appropriate safety measures to 340. When a community initiates a single MHP that protect against unintentional islanding is later interconnected to other MHPs to form a mini- 343. Unintentional islanding is a potentially hazard- grid, problems in terms of identity and ownership ous condition that occurs when the grid-connected may arise. The community that previously had been MHP fails to properly shut down during a grid dis- displaying a strong sense of pride and ownership in turbance. It presents a hazard to line workers who their community-owned MHP cannot relate in a simi- might assume that the lines are not energized dur- lar manner to a larger mini-grid. This dual identity can ing a failure of the central grid. It also denies central lead to conflicts and put a huge strain on the leader- control over power quality and can damage utility or ship of the mini-grid.81 On the other hand if the com- customer equipment at the time of reconnection if munity were to start off as a larger micro/mini/small the process is not properly coordinated. Islanding can hydropower plant with a transmission and distribu- be detected by measuring over-/under-frequency, tion network spread across several wards/VDCs, then over-/under-voltage, rate of change of frequency, these issues of identity and ownership are less likely voltage phase jump, and reverse reactive power flow. to arise later. However, the process of mobilizing and With appropriate safety and control mechanisms, in- organizing a community that is spread across several tentional islanding should be used to provide reliable VDCs is not easy. The success of community-man- service to consumers of the grid-connected MHP aged distribution grids spanning over several VDCs when there is load shedding on the national grid. (e.g. South Lalitpur Rural Electrification Cooperative Moreover, a national grid connection at 400 V level and Lamjung Electricity Users Association) offers should be avoided as this results in high transmission hope and direction in this regard. losses and also gives rise to safety issues, such as feed- back into the grid. Thus, grid connection should be 4.2.3.2 Ensure market availability for off-peak power done at the 11 kV level, which is technically feasible for mini-grid and also addresses safety concerns. 341. The necessity to form a mini-grid stemmed from NEA’s preference of only permitting MHPs larg- 4.3.2. Financial and Economic Findings and er than 100 kW to connect to the grid. However, af- Recommendations ter the recent decision of NEA’s Board of Directors to 4.3.2.1 NEA should give preference to power from MHPs permit MHPs of any size to connect to the grid, this 344. At 90 percent PLF and assuming all surplus power rationale for forming a mini-grid is not relevant any from an MHP is sold to the grid, the LUCE of an MHP in more. Therefore, a mini-grid should be considered if the rural hills of Nepal is cheaper than delivering the there are guaranteed consumers for off-peak power same power by extending the national grid. Addition- from an MHP throughout the year. ally, economic analysis shows that delivering electricity through an MHP is cheaper than delivering electricity 4.3. MHP Grid Connection through NEA’s grid. Therefore, for every unit of electri- cal energy purchased by the NEA from an MHP and 4.3.1. Technical Findings and Recommendations sold in the rural hills, NEA incurs a lower cost. For ex- 4.3.1.1. Prepare the community for grid connection ample, the cost of delivery through NEA’s grid in the ru- 342. Given that the grid will soon reach most mi- ral hills is NPR 17–25/kWh depending on the distance cro hydropower sites in the mid-hills of Nepal, the of grid extension. On the other hand, it costs just NPR AEPC should ensure that all new MHPs have a grid- 9–15/kWh for a 100 kW MHP to deliver that energy. The compatible distribution system and that end-users NEA has agreed to offer weighted average FIT of NPR The interconnection cost is the same for a 10 kW or a 100 kW MHP. 80 The first mini-grid at Rangkhani is grappling with this situation 81 04 Findings, Recommendations and the Way Forward 6/kWh82 for MHPs; the same PPA rates that it offers to MHFGs would expect the AEPC to provide a capi- SHPs with capacities up to 25 MW. Therefore, it makes tal subsidy to finance a grid connection. However, financial sense for NEA to buy power from MHPs. The given the financial viability of larger MHPs on an AEPC should continue to determine FIT for hydropow- incremental basis, the AEPC should support MH- 72 er projects separately, since the current FIT is consider- FGs by providing credit facilities, where its funds are ably lower than NEA’s cost of delivery and unlike MHPs, “on-lent” by BFIs with a minimal interest spread (as Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications SHPs enjoy substantial scales of economy.83 well as risk guarantees) for grid connection of MHPs. Availability of low interest loans would make grid 4.3.2.2. Base grid connection of MHPs on distance to connection of MHPs even more attractive. grid and plant size 345. Based on incremental analysis, the financial and 4.3.2.5. Ensure availability of grid for power economic performance of a grid-connected MHP is evacuation or give deemed generation status attractive. However, as the plant capacity decreases 348. Financial performance of grid connection of and distance to the grid increases, incremental vi- MHPs is critically dependent on the percentage of ability reduces. Furthermore, if only 50 percent of surplus power that is evacuated to the grid. There- the surplus power from an MHP can be evacuated fore, it is crucial that either national grid availability to the grid due to non-availability84 of the grid, the is ensured or “deemed generation” status (take or PLF of the MHP falls drastically making grid con- pay85 ) is given to grid-connected MHPs by including nectivity unviable. In general, grid connection of an this in the PPA. In the absence of such a provision in MHP with capacity less than 20 kW was not found to place in addition to NEA’s unwillingness to finance be viable based on incremental analysis. Therefore, the cost of a grid connection, the MHP community it is necessary to undertake incremental financial would end up bearing the entire risk of the invest- analysis before connecting an MHP to the grid. On ment. Moreover, the primary investment in the MHP an economic basis too, when surplus power from an would also be rendered risky due to encroachment MHP is used to replace NEA’s grid power rather than of the national grid. diesel-based generation, then smaller plants tend to become unviable. 4.3.3. Institutional Findings and Recommendations 4.3.3.1. Effective coordination between NEA and 4.3.2.3. Encourage banks and financial institutions to AEPC to harmonize rural electrification programs finance grid connection of MHPs 349. MHPs are supported by the AEPC, whereas the 346. Loans financing for grid connection of larger NEA manages the national grid (along with genera- MHPs could be a potential opportunity for BFIs. tion and distribution). As MHPs start interfacing with Even at the current FIT rates announced by the NEA, the grid, greater and more effective coordination be- incremental analysis shows that larger plants are vi- tween the two institutions is necessary. However, the able. Furthermore, given that an MHP would have two institutions are under different ministries (AEPC is been in operation for a while before the grid arrives, under MoSTE and NEA is under MoEn) and coordina- lenders can assess the institutional stability and risks tion between them is infrequent and unproductive. better to arrive at an informed decision on lend- Therefore, coordination between the NEA and AEPC ing. The NEA as a buyer of power is a government- requires an active role from the MoEn to facilitate backed institution and therefore the revenue risk is information sharing and collaboration for planning further reduced from the perspective of the BFIs. and implementation. A unit/division within the NEA Therefore, the AEPC should facilitate the process by should be given the responsibility to oversee the rural creating greater awareness about financing the grid electrification program through grid extension. The connection of MHPs among BFIs. Small Hydro and Rural Electrification Division within the NEA, which was shut down in 2006, could be rees- 4.3.2.4. Facilitate access to low-cost loans rather tablished (or a similar unit established). The GoN has than providing capital subsidy been subsidizing the CBRE program, which extends 347. High interest rates deter MHPs from approach- the national electricity grid to rural areas, through the ing banks for financing; therefore, it is likely that NEA. Since the GoN provides subsidy support both 82 Weighted average of NPR 8.40/kWh (dry season) and NPR 4.80/kWh (wet season) 83 On a conservative estimate, typical installed cost/MW for SHP is NPR 170-200 million as opposed to NPR 400-450 million for MHP. 84 Since MHPs are proposed to be connected at 11 kV, when there is load-shedding on the national grid, they would not be able to evacuate power to the grid. to CBRE and MHP programs, it is crucial that these that there is investment from the AEPC, community and two programs be harmonized so that the subsidies local government in most MHPs, consensus would have are utilized optimally and the MHP-grid interface is- to be developed on how the profits from the operation sues are resolved in a planned way. Most importantly, of MHPs should be shared. Moreover, the AEPC should the NEA and AEPC should collaborate to prepare a build the capacity of RSCs and through them the com- 73 national rural electrification master plan. munity, to appreciate and understand incremental and Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications total financial analysis as a preparatory step to grid con- 4.3.3.2. GoN should protect MHP against grid encroachment nection. MHFGs should be upgraded to formal and le- 350. A local community invests in an MHP only if the gal entities before grid connection is enabled and a PPA GoN is unable to extend the national grid to provide is signed with the NEA. electricity to that area. However, encroachment of the national grid into MHP distribution areas could 4.4 Way Forward render such investments stranded and impact not only the community but also BFIs. Therefore, when 352. The power situation in Nepal is in a state of crisis. the grid eventually enters MHP distribution areas, it Although, there is no dearth of hydropower poten- should be the GoN’s obligation to safeguard the lo- tial in the country, inadequate investments mainly on cal community’s investments and assets. Although account of political instability and governance deficit the enabling law already exists in Sections 29 and 30 has literally plunged the country into darkness. How- of the Electricity Act, 1992, it needs to be enforced ever, the GoN is committed to extending access to and perhaps judicially reinforced if necessary. How- electricity to all parts of the country. The NEA and ever, the Act promotes compensating the existing AEPC are the main drivers of this effort. There is a MHP and then abandoning the asset. Instead, it is growing recognition of the importance of the AEPC recommended that the GoN should pursue a policy in delivering access to electricity to remote rural ar- of purchase of power rather than abandonment eas of Nepal. This study underlines the importance of of the MHP. If power is purchased from an MHP, it MHPs in doing so as the least-cost option to Nepal. would transform the sector as well as redirect large sums of money into rural Nepal and help improve 4.4.1. AEPC the local economy. Therefore, as long as it is finan- 353. Among the three pathways87 analyzed in this cially viable for the community MHPs should be study to further scale up access to electricity in the connected to the grid and their surplus power pur- rural hills of Nepal, the AEPC should pursue the chased as a general policy. pathway of MHPs as standalone vigorously to reach out to as many off-grid communities as possible. 4.3.3.3. Grid-connected MHPs should be responsible This pathway has the greatest potential to transform to supply electricity to the community during load lives in rural Nepal. Furthermore, the strategy, the shedding in the national grid institutions, the technology and the mechanism of 351. If an MHP acts as an IPP after being connected delivery are well tested and robust. Therefore, AEPC to the grid and does not serve the local community should scale-up MHPs by reaching out to off-grid at all, the rationale for AEPC subsidy (prior to grid con- communities in the rural hills of Nepal. nection) would not be justified. On a more operational level, such MHPs could be taken over through a lease 354. The AEPC should also work in close coordina- or even outright purchase86 by private investors who tion with the NEA and the relevant ministries at the would make substantial profits (provided the PPA rate is GoN level to ensure that the recent decision of the financial attractive). Therefore, MHP as an IPP with con- NEA Board of Directors to allow MHPs to be grid con- tinued responsibility to the local community (Option nected and sell power to the NEA does not remain 2) should be the institutional model supported by the a working arrangement between the AEPC and the AEPC. The processes for nurturing the MHFG and help- NEA, but is formulated into a policy of the GoN. Cur- ing it make the transition to a formal business organiza- rently, the offered PPA rates are a good beginning, but tion will have to be piloted and tested by the AEPC and they do not reflect real costs to the economy. There- the RSC before scaling up grid-connected MHPs. Given fore, the AEPC should work with relevant institutions 85 Alternatively, the NEA can guarantee a minimum payment equivalent to at least 50 percent off-take of power that the MHP is willing to supply to the grid, but is unable to do so due to grid non-availability. 86 By paying the depreciated cost for the community portion of the capex. 04 Findings, Recommendations and the Way Forward (e.g. Electricity Tariff Fixation Commission) to create a robust and fully justify development investments in policy basis for determining PPA tariffs for MHPs con- it in the form of capital subsidies. Therefore, scale- nected to the grid. Furthermore, unless there is guar- up and roll-out of MHPs in Nepal to enable off-grid anteed evacuation of all or at least the surplus power communities gain access to electricity continues to 74 generated by the MHP, a policy on grid connectivity is offer an attractive avenue for donors. ineffective. Therefore, the AEPC should work with the Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications NEA on modifying the current PPA to include either 358. Donors could support the AEPC to build ca- a “deemed generation” status to MHPs or a guaran- pacity to steer a comprehensive policy in the area teed minimum payment on grid outages hindering of grid connectivity of MHPs. Similarly, financing of evacuation of power from the MHP to the grid. grid connectivity offers a new area for donors to channelize funds through the banking sector rather 355. Given the reality of grid extension into rural than offering capital subsidies. Nepal, the AEPC should modify its current micro hy- dropower schemes to include the cost of metering 4.4.4. NEA and building an NEA standard distribution network 359. Grid connectivity of MHPs is a radically new in micro hydropower service areas so as to enable step for the NEA. It will help the NEA gain well-or- them to become grid ready. Furthermore, it should ganized and tariff-paying rural customers. In many work in close coordination with donors and finan- cases where the distribution network is up to NEA cial institutions to roll out a line of credit for grid standards, it would also not have to invest in creat- connectivity of existing MHPs at low interest rates. ing an entirely new distribution network. The NEA would also gain access to power close to load cen- 4.4.2. NMHDA and the MHP Industry ters and thereby save on transmission losses. 356. The NMHDA should work in close cooperation with the AEPC in scaling up the reach of MHPs to off- 360. To enable the first grid-connected MHP under a grid communities. More specifically, it should work PPA, the NEA should work with the AEPC to identify with its members on the twin objectives of cost re- a suitable site. Using the experience gained during duction and quality assurance. It should also seek the operationalization of the grid connection of that help and support of the AEPC, technical agencies and site, suitable guidelines for grid connection of MHPs donors to help streamline the MHP manufacturing could be drawn up by both the AEPC and NEA. process. The AEPC should support the MHP industry in expanding business potential by helping them 361. Overall, the study concludes that the AEPC gain access to mini hydropower and ultra low-head should vigorously pursue scaling up MHPs as stand- technology by enabling technology transfer. alone installations. Simultaneously, it should work closely with the NEA to gain experience by op- 4.4.3. Donors and Development Agencies erationalizing the grid connection of a few MHPs. 357. In the area of off-grid rural electrification, this Based on the experience gained it should also work study unequivocally shows that among the various on creating an enabling policy and procedure for RETs, where technically feasible, MHPs represent the grid connection of MHPs. As for mini-grids, the AEPC least-cost option to the community as well as the should support them on a case-by-case basis after economy as a whole. Furthermore, the study shows carefully assessing the actual demand for off-peak that economic benefits that flow from an MHP are power as well as financial and economic benefits. Scaling up MHPs as standalone, mini-grids and grid connected. See section 3.2 87 Annex 1: Institutions involved in the micro hydropower sector of Nepal This annexure briefly introduces various govern- new clean energy enterprises, promoting clean mental and non-governmental agencies, which energy and improving economic opportunities to support the micro hydropower sector of Nepal. relieve South Asian countries, such as Nepal from rising energy costs. In addition, RCHMH organizes ALTERNATIVE ENERGY PROMOTION knowledge on completed micro hydropower proj- 75 CENTRE (AEPC) ects and supplements it with regional best practic- Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications The AEPC was established on November 3, 1996 as a es to make it available to community stakeholders, semi-autonomous government agency governed by clean energy project developers and financial insti- a Board of Directors. It is a line agency of the Minis- tutions across South Asia. try of Science, Technology and Environment (MoSTE) and works as a national focal institution for alterna- National Rural and Renewable Energy tive and renewable energy promotion. AEPC’s man- Programme (NRREP) dates are policy and planning, resource mobilization, The AEPC started the NRREP on 16 July 2012 with technical support, monitoring and evaluation, stan- support from the GoN and various international de- dardization, quality assurance and coordination with velopment partners such as the World Bank (WB), stakeholders in the renewable energy sector. Asian Development Bank (ADB), United Nations De- velopment Project (UNDP), United States Agency for The AEPC has succeeded in private sector develop- International Development (USAID), Department for ment by involving over 400 private companies and International Development (DFID), German Society more than 350 local enterprises in the renewable for International Cooperation (GIZ), Danish Interna- energy sector while creating 30,000 jobs at the lo- tional Development Agency (DANIDA), German De- cal level and providing 1.5 million households with velopment Bank (KfW), Netherlands Development some form of renewable energy technology (RET). It Organization (SNV), Norwegian Ministry of Foreign has had positive impacts on rural education, health, Affairs (NMoFA) and the European Union (EU). and information and communications technology (ICT) sectors by providing electricity to 14 percent The NRREP is mainly focused on improving the living of the rural population. Various programs within the standard of the rural population by increasing their AEPC are briefly discussed herein. productivity and employment rates, reducing their de- pendency on traditional energy, and integrating alter- Regional Centre for Excellence in Micro native energy with socioeconomic activities to attain Hydropower (RCEMH) sustainable development. The program will continue The AEPC in partnership with USAID launched the for five years with a total budget of US$184 million. RCEMH project in 2010 for the development and promotion of micro hydropower projects. RCEMH Breaking up foreign aid to support rural areas and facilitates access to clean energy technologies the renewable energy sector has proven to be in- throughout the South Asia region by stimulating effective and has failed to deliver expected results Annexes in the past. Therefore, the NRREP organized itself as NEPAL ELECTRICITY AUTHORITY (NEA) a single program modality such that all of AEPC’s The NEA was established on August 16, 1985 under renewable energy programs supported by devel- the Nepal Electricity Authority Act 1984, through the opment partners are funded within the NRREP. This merger of the Department of Electricity of the Minis- 76 has helped to minimize inefficiencies, duplication, try of Water Resources, Nepal Electricity Corporation, non-coordination and fragmentation of aid for rural and other related development boards. An individual Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications areas and the renewable energy sector. organization was necessary to achieve efficiency and reliable service to remedy the inherent weakness as- Renewable Energy for Rural Livelihood (RERL) sociated with overlapping and duplication of works Between 1996 and March 2011, the UNDP-support- through fragmented electricity organizations. ed Rural Energy Development Programme (REDP) enabled more than 50,000 households to light their The main objective of the NEA is to generate, trans- homes, cook their meals and power their enterpris- mit and distribute adequate, reliable and affordable es from sources of clean energy. The REDP helped power by planning, constructing, operating and formulate policies and the institutional framework maintaining all generation, transmission and distri- for decentralized development and management bution facilities in Nepal’s interconnected or isolated of rural energy supplies. By its end, the project had power systems. NEA’s other responsibilities are to rec- helped establish district energy and environment ommend long- as well as short-term plans and poli- units (DEEUs)88 in 72 district development commit- cies in the power sector to the GoN, to determine the tees (DDCs) for local energy development. It had tariff structure for electricity consumption with prior also trained these communities to run and maintain approval of the GoN, and to manage training and their micro hydropower schemes. study to produce skilled human resources in genera- tion, transmission, distribution and other sectors. Such success led to the REDP model being adopted by the Government in its landmark Rural Energy Pol- NEA’s Load Dispatch Centre (LDC) located in Kath- icy (2006) and as the basis for its nationwide Micro- mandu is at the heart of the national grid (also called hydro Village Electrification Programme (MHVEP) the Integrated Nepal Power System (INPS)). Through funded by the World Bank. the LDC, the NEA supervises and maintains the quality of electrical power supplied to the consumers, works RERL is an extension of the successful partnership be- towards maintaining balance between demand and tween the GoN and UNDP in the renewable energy sec- supply, and tries to minimize power interruption. Su- tor with an aim to consolidate the best practices from pervision and monitoring is done through the com- REDP and continue scaling up access to energy. This puter-based Supervisory Control and Data Acquisition new program is being implemented by the AEPC and (SCADA) system that collects real time data from pow- has begun work on reducing barriers that hinder wider er stations and substations spread around the country. use of renewable energy resources in rural Nepal. These barriers include policy and regulatory barriers, inad- DEPARTMENT OF ELECTRICITY equate institutional capacity, the high cost of installing DEVELOPMENT (DOED) rural energy schemes, and limited technical expertise. Electricity Development Center (EDC) was estab- lished on July 16, 1993 under the Ministry of Wa- The RERL program will be a transition program ter Resources (MoWR). It was later renamed as the before the full-fledged Global Environment Facil- Department of Electricity Development (DoED) on ity’s (GEF) UNDP funded RERL program is finalized February 7, 2000. Its main objective is to develop and brought into implementation in 2014 for the and promote the electricity sector to improve its fi- next five years. The program plans to link with the nancial effectiveness at the national level by attract- NRREP. The current RERL program aims to complete ing private sector investment. The DoED is respon- the joint commitments of the AEPC and the World sible for assisting the Ministry in implementation of Bank for achieving the target of 4.25 MW electricity overall government policies related to the electricity generation through implementation of MHVEP. The sector. The major functions of the DoED include en- program further supports the AEPC to consolidate suring transparency of the regulatory framework, as the best experiences/practices of the REDP. well as promoting and facilitating private sector par- Now known as District Environment, Energy and Climate Change Sections (DEECCSs) 88 ticipation in the power sector by providing licenses support services to micro-hydropower construction and related services to all hydroelectricity projects. and supply companies. It also brings together rural electrification activities supported through the micro WATER AND ENERGY COMMISSION hydropower component of the World Bank Power De- SECRETARIAT (WECS) velopment Project. It is thus helping improve access to 77 The Water and Energy Commission (WEC) was estab- electricity services in rural areas. Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications lished by the GoN in 1975 with the objective of de- veloping water and energy resources in an integrated AGRICULTURAL DEVELOPMENT BANK and accelerated manner. Consequently, a permanent LIMITED (ADBL) secretariat of the WEC was established in 1981 and The ADBL was established in 1968 with the objective was given the name, Water and Energy Commission of providing institutional credit to the rural popula- Secretariat (WECS). The primary responsibility of the tion of Nepal. It first provided credit for turbine mills. WECS is to assist the GoN, as well as the different min- When these mills proved successful, it later started istries related to water resources and other related providing credit for electrification of these mills. Even- agencies in formulating policies and planning proj- tually, the ADBL started financing isolated MHPs. ects in the water and energy resources sector. ADBL was the pioneer institution that made invest- NEPAL MICRO HYDROPOWER ments in the micro hydropower sector of Nepal. It DEVELOPMENT ASSOCIATION (NMHDA) played an important role in promoting and creating access to alternative energy for the rural population. NMHDA was established in 1992 as an umbrella orga- In the beginning, ADBL provided credit support and nization for private companies working in the micro mobilized GoN’s subsidy. However, after the transfer hydropower sector in Nepal. Its major objective is to of the subsidy delivery duties to the AEPC, it has been spread knowledge and expertise in surveying, design- performing credit delivery and management roles. ing, and manufacturing of micro hydropower plants (MHPs) and necessary equipment, as well as installing, PRACTICAL ACTION commissioning, and after-sales services of MHPs. Practical Action’s Energy program in Nepal plans to benefit rural populations by increasing access to It aims to influence the hydropower policy of Nepal for green energy in lighting and cooking. The program promotion of micro hydropower technology, provide focuses on providing an enabling environment as technical support on MHPs to its members, and conduct well as developing and testing new innovative ideas activities for promotion, training and research in this sec- to engage and increase the role of the private sec- tor. NMHDA has been working as a liaison between the tor in providing access to modern energy resources, GoN, various donor agencies, and private companies for and financing. The program hopes to demonstrate the development of the micro hydropower sector. a decentralized energy system with particular focus on achieving minimum energy standards and total THE WORLD BANK (WB) energy access to achieve universal access to energy The WB approved a Power Development Project in by 2030. 2003 consisting of a US$75.6 million International Development Association (IDA) credit to assist Practical Action is involved in planning and imple- the GoN in meeting its power sector objectives. A mentation of advanced climate resilient energy complementary Carbon Offset Project to provide access; increasing private sector participation in additional financial support to AEPC’s Nepal Village the energy access market; mobilizing demand for Micro Hydro Program (NVMHP) was established. energy services in marginalized communities; intro- ducing minimum energy standards for energy ac- The Carbon Offset Project aims to develop a viable off- cess; and ensuring productive end-use of energy for grid micro hydropower market for villages, which will sustainable livelihood of poor households. not be served by the national grid for at least five years. It offers support to both the demand and supply sides In the 1990s, Practical Action was known as Intermedi- by providing information and social mobilization sup- ate Technology Development Group (ITDG). The then port, technical training, investment subsidy to commu- ITDG was actively involved in promoting MHP technolo- nities, market information, and business development gy including financing site installations of pilot projects. Annex 2 Details on plants visited and plant performance This annex provides a brief description of site visits Tables A2.1 and A2.2 list the various MHP sites, CBRE undertaken in the month of May, 2014 for the World sites and other service providers in the sector that Bank Technical Assistance titled “Nepal: Scaling up were visited. In addition, consultations were also Electricity Access through Mini and Micro Hydropower undertaken with Nepal Micro Hydropower Devel- Applications: A strategic stock-taking and developing opment Association, and other consulting firms 78 a future roadmap (TA #P144683)”. Sites visits included such as MEH, Sustainable Energy and Technology MHPs, community managed electrical distribution Management. Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications systems, RSCs and a number of MHP manufacturers and installers in Butwal. Table A2.1 | List of MHP sites visited S. No. Date of Visit Name of MHP Location 1 11 May, 2014 Gottikhel MHP Gottikhel, Lalitpur 2 12 May, 2014 Midim Kholan MHP Ishaneshwor, Lamjung 3 13 May, 2014 Bhujung MHP Bhujung, Lamjung 4 17 May, 2014 Ghandruk I MHP Ghandruk, Kaski 5 18 May, 2014 Ghandruk II MHP Ghandruk, Kaski 6 18 May, 2014 Malekhu I MHP Mahadevsthan, Dhading 7 18 May, 2014 Malekhu II MHP Mahadevsthan, Dhading 8 19 May, 2014 Daram Khola I MHP Wamitaxar, Gulmi 9 19 May, 2014 Daram Khola II MHP Wamitaxar, Gulmi 10 20 May, 2014 Giringdi Kholan MHP Kharbang, Baglung 11 25 May, 2014 Yafre MHP Taplejung Table A2.2 | List of stakeholders visited S. No. Date of Visit Name of Stakeholder Location 1 8 May, 2014 South Lalitpur Rural Electric Cooperative Lalitpur 2 14 May, 2014 Lamjung Electricity Users Association Beshi Sahar, Lamjung 3 27 May, 2014 North Engineering Company Pvt. Ltd Butwal, Rupandehi 4 27 May, 2014 Nepal Hydro & Electric Limited Butwal, Rupandehi 5 27 May, 2014 Oshin Power Service Pvt. Ltd Butwal, Rupandehi Key Features of Sites visited The 24 kW system was successfully connected to NEA’s grid for four months and then disconnected because Key features of the sites that were visited during the MHP owner (this is an entrepreneur run MHP) did May 2014 are summarized herein. not receive any payment for the electricity supplied to the NEA grid. The NEA grid system in this area is man- 79 I. Gottikhel MHP aged by South Lalitpur Rural Electric Cooperative (SL- Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications The Gottikhel MHP located in South Lalitpur district REC). However, the Gottikhel MHP and SLREC (or NEA) runs two different systems: an older 16 kW isolated had not worked out any FIT agreement, i.e. the rate at system and a newer 24 kW grid connected system. which the distribution system was to buy the electric- The old 16 kW turbine-generator unit supplies elec- ity supplied by the micro hydropower sector as well as tricity to consumers in an isolated mode. The new other conditions, such as maintenance responsibility 24 kW turbine-generator unit was installed as a pilot of the distribution lines, were not decided upon. project for grid connection with support from the AEPC and GiZ. This is the first isolated MHP in Nepal Keshab Ghimire, the head and owner of Mahankal to be grid connected. Bahuuddeshiya Utpadan Samuh Pvt. Ltd in Got- Figure A2.1 (a) 18 kW system (b) 24 kW system (c) Control panel for 18 kW system (d) Control and synchronizing panel for 24 kW system of the Gottikhel MHP (a) (b) (c) (d) Annexes tikhel mentioned that the 20 kW MHP was set up expanded over large parts of Ghimire’s distribution in 1995 with support from SNV (NPR 385,000), ADBL area, several agro-processing units got established, (NPR 900,000 @ 10 percent rate of interest) and which have cut into his end-use business. The end- Kathmandu Metal Industries (NPR 1 million). The user is greatly benefited by this development as 80 loan from Kathmandu Metal Industries was interest households get served closer to their doorstep. free and was repaid by Ghimire over a period of 12 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications years. II. Midim Kholan MHP The 100 kW Midim Kholan MHP located in Ishanesh- Drawing from his earlier experience of running a 6 wor, Lamjung district has signed a PPA with the NEA. kW plant, Ghimire opted for a HDPE-based head- The PPA rate (NPR 3.27/unit for the wet season and race even though it was costlier than a simple ma- NPR 5.73/unit for the dry months) was set by the sonry structure. This, he claims has helped him run NEA on the basis of the total cost of the MHP ex- the plant 24-hours a day all seven days of the week cluding the subsidy amount provided by the AEPC. for the past 19 years even though several landslides However, the actual power generated by the MHP occurred in the area during this period. during test runs has been only 83 kW. Due to the undersized head-race canal and partially completed Until the grid was extended into the distribution tail-race canal it has not been possible to divert the area of this MHP, it supplied power to 152 house- entire design discharge; and thus the reason for the holds @100 W/household for NPR 100/month. In inability to generate 100 kW of power output. This addition, it also powered a rice huller, oil press, weld- power plant is near completion and work on grid ing unit, masala grinder, maize huller and a sawmill, synchronization was ongoing during the site visit all operated by Ghimire’s company at the MHP site. period. The total monthly revenue from sale of electricity The plant is run by Shree Deurali Bahuuddeshiya and services rendered by the end-uses listed above Sahakari Sanstha — a cooperative that was started amounted to approximately NPR 85,000. Of this only about 14 years ago with GTZ support for promot- about NPR 16,000 came from households, indicat- ing dairying in the area. Currently, it has 1,500 mem- ing the importance of end-uses to this company’s bers who are all expecting to receive dividends top line and bottom line. Since the arrival of the grid, from profits accrued from sale of excess power to revenue plummeted down to NPR 30,000–40,000/ the NEA. Interestingly, the Paschim Lamjung Com- month, primarily on account of end-use applica- munity Electricity Users Association distributes NEA tions. Ghimire continues to supply electricity to 80 power in the local area. However, at the time of our households, and claims that he no longer collects visit there had been no power supply from the grid payments from them. for the past few months, due to technical reasons. With the advent of the grid two new end-uses have Ironically, the local MHP (which is owned by the Co- come up such as a Xerox center and a computer operative) was also not in operation because of pend- center. Both these need regular electricity supply ing electrical works and some significant civil structure which the grid is unable to ensure. Therefore, these modifications. Thus, the people of this area were re- units have also subscribed to Ghimire’s power sup- ceiving power from neither the MHP nor the grid. ply for which they pay NPR 500/month (as per Ghi- mire’s statement). Om Raj Ghimire, the president of the Cooperative said that the Cooperative took over an existing 40 Upon the arrival of the grid, consumers from the five kW system by repaying the previous owner’s loans. wards that Ghimire supplied power to and some The Cooperative, making a clear departure from from other wards travelled to his plant site to have its existing activities, decided to get into electricity their grains processed. Once the grid coverage area generation and distribution because it felt that it could serve the community better whilst also add- As for the PPA with the NEA, Ghimire said that it took ing significantly to its bottom line. The old 40 kW a lot of effort and money to materialize and that he MHP was demolished and a new 80 kW plant was had to camp in Kathmandu for nearly a month to built which was further modified to produce 100 persuade the NEA to offer a PPA at a reasonable rate. kW by increasing the head. However, Ghimire claims 81 that the contractor did not take into account the As per the PPA and the projection given to them Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications water needed for irrigation in the area and thus, the by the installer and the AEPC, a revenue of NPR 3.3 plant was not able to run at full capacity for want of million/year is expected from the sale of 800,000 adequate quantity of water. units/year to the grid (this means operating at 91 percent plant load factor, a tall order considering Ghimire felt that the quality of service and advice plant downtime and grid downtime) and a profit of provided by the contractor and the RSC in the NPR 2.2 million/year. However, it is three years since area was not satisfactory, and that they were over- work began on the 100 kW MHP and it is yet to be charged for the electro-mechanical portion of the completed and connected to the grid. plant. On hindsight, he felt that if the Cooperative itself had executed the plant’s construction, they could have done it for half the cost. Figure A2.2 (a) Turbine and generator set (b) Cooperative office (c) Power transformer for grid connection (d) Consultants meeting with the Cooperative President of Midim Kholan MHP (a) (b) (c) (d) Annexes III. Bhujung MHP Bhujung MHP is serving various end-uses, such as The Bhujung MHP located in Bhujung, Lamjung dis- agro-processing units, sawmills and ropeway lines trict consists of two cascaded MHPs: an upstream (that are used to transport harvest from the lower MHP of 80 kW and a downstream MHP of 20 kW. fields as well as to supply construction materials from 82 The 80 kW MHP is running well; however, it is only the riverbank to the village). Apart from household generating 64 kW (this power plant has never gen- lighting, the community has also started using elec- Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications erated the full 80 kW rated capacity). The 20 kW MHP tric appliances, such as rice cookers and televisions. was not operational during the site visit. The com- munity plans to synchronize these two MHPs and This MHP supplies power to Bhujung, Kamigaon, work on the synchronization is ongoing. The MHPs and an adjoining village situated across the valley. are under the supervision of the MHP Management Kamigaon is a Dalit-dominated village, while Bhu- Sub-committee, which is a part of the Conservation jung is a Gurung village and is part of the Anna- Area Management Committee. Technical, financial purna conservation area and has been preserved to and management support is provided by the Anna- showcase Gurung culture and way of life. Access is purna Conservation Area Project (ACAP). by a winding steep climb from Besishahar that takes about three hours on a 4-wheeler. The road ends The tariff has now been reduced from NPR 100 per abruptly from where one descends into Bhujung month per 100 Watts to NPR 65 per month per 100 by way of a set of steep stone-hewn steps. All nine Watts. This is because once all loans were paid back wards of the VDC are set into the steep hillside over- the community decided to lower the tariff. looking a deep but narrow valley that houses the power plant as well all village farms. Figure A2.3 (a) Operational 80 kW system (b) Not operational 20 kW system (c) Sawmill (d) Agro-processing mill served by the Bhujung MHP (a) (b) (c) (d) There are three agro-processing units and three for lighting and television. Although some of the sawmills in the village that use power from the MHP. households use rice cookers, in the absence of ad- Each plant uses a 7.5 kW motor and pays a tariff of equate voltage, it is not convenient. The ACAP had NPR 8/kWh. Pitraman Gurung, the owner of a saw- distributed rice cookers when the MHP was set up, mill, said that he ran his plant for only a few months to encourage use of electricity as well conserve 83 in a year depending on local demand. Given the forests by reducing the use of firewood for cook- Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications poor access to the village, he does not have any cli- ing. However, with increase in use of lighting and entele to cater to beyond Bhujung. He mentioned TV (almost 80 percent of households have it) and a that he paid about NPR 8,000/year that amounts to flat tariff structure (NPR 65/100W/month), domestic 1000 kWh/year, which is equivalent to running his usage (365 households) has highly increased. 7.5 kW motor for about 134 hours in a year. IV. Ghandruk I MHP Ram Prasad Gurung who runs a rice huller said that Ghandruk I MHP, a 50 kW plant located in Kaski dis- he ran his huller for about six months in a year when trict, is the first phase and upstream plant of the there was grain to be hulled in the village. Given the cascaded Ghandruk MHP system. It is also being run high starting current needed for running the huller, under the supervision and support of ACAP. The in- he works on alternate days so that other hullers in the take of the site is situated far away. Due to landslides area can also operate without overloading the plant. and floating vegetation (leaves and twigs), regular maintenance and cleaning of the intake structure is All productive end-uses are allowed to function only necessary. For a weekly cleaning of the intake, per- during 08:00-17:00 hours. Domestic load, which sonnel from Micro Hydropower Management Sub- is almost 56 kW of the 64 kW produced, is mainly Committee need to travel for almost half a day. Figure A2.4 (a) Turbine and generator set (b) Signboard of the MHP (c) Manager and operator of the Ghandruk I MHP in front of the powerhouse (a) (b) (c) Annexes As this was one of the first MHPs installed (1992) Apart from supplying electricity to the hotels and in the Annapurna region, the community received households, Ghandruk I MHP also provides electric- substantial support from various organizations and ity to a Nepal Telecom Corporation (NTC) tower. As donor agencies such as the ACAP, Canadian Interna- this power plant was not able to meet the peak load 84 tional Development Association (CIDA), Intermedi- demand of the area (and increase end uses), the ate Technology Development Group (ITDG – now community decided to build a cascade MHP down- Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications renamed as Practical Actions), British Embassy, and stream of Ghandruk I MHP. World Wildlife Fund (WWF–US). V. Ghandruk II/ Bhirgyu MHP As Ghandruk is along a popular trekking route in Ghandruk II MHP is the second phase and the the Annapurna region, it receives a high influx of downstream plant of the cascaded Ghandruk MHP tourists most of the year. There are over 30 hotels system. This power plant (commissioned in 2012) is that cater to trekkers and tourists. All these hotels also being run under ACAP’s supervision and sup- are supplied with electricity generated from Ghan- port. This MHP utilizes tail-water from the upstream druk I (13 hotels) and Ghandruk II (18 hotels) MHPs. Ghandruk I MHP. Figure A2.5 (a) Powerhouse and the penstock alignment of Ghandruk II (b) Turbine and generator set (c) Interview with consumer (d) Rice cooker in use (a) (b) (c) (d) End-uses of this MHP comprise a paper making reckons that the rice cooker does not save much (Nepali paper known as Lokta) enterprise, a water fuel wood but provides great convenience in cook- purification system, two bakeries, 18 hotels and ing. a monastery. Like all ACAP-supported MHPs, an MHP Management Sub-committee, which is part Similarly, Kisam Gurung, owner Gurung Cottage 85 of the Conservation Area Management Committee started with a 100 W connection for his hotel that Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications formed from the local community, also manages has increased to 1200 W acquired through a combi- these two. nation of subscribing to the additional allotment of 100 W to each subscriber once Ghandruk II came on Sundevi Gurung of Ghandruk is the Chairperson of stream and from purchases of rights to use the ad- the Ward 7 Women’s Group. Her group puts up cul- ditional 100 W from other households that did not tural shows to raise funds for development works in find the additional 100 W useful since they could the village. She started out with a 100 W connection not use it for anything other than lighting. Currently, 15 years ago when Ghandruk I began operations. he is paying a flat tariff of NPR 2/W/month. She had four bulbs of 25 W each totaling 100 W for which she paid NPR 100/month, which was reduced Both Sundevi and Kisam are happy with the service to NPR 65/month. When Ghandruk II was commis- but want more power; Sundevi wants to set up a sioned she was offered another 100 W connection, hotel while Kisam wants to offer more services for which she subscribed to immediately. In addition, which he needs more power. He is ready to subscribe she bought the rights to 100 W of connection for to another 800-1000 W if it would become available. NPR 10,000 from her neighbor who did not want He mentioned that a survey carried out in Ghandruk the additional allotment from Ghandruk II. Finally, revealed that there is an unmet demand for 147 kW she managed to convince other neighbors to let her even after Ghandruk II has been commissioned. use another 200 W from their quota of an additional 100 W each, making a total of 500 W of sanctioned Mankaji Sunar, a Dalit, started with a 100 W of con- load to her household. nection 15 years ago and has since moved up to 400 W and is paying a fee of NPR 600/month. He and his All these deals for more power were to run a rice family contributed about 30 days of labor (at NPR cooker (300 W), water heater (350 W), television, six 400/man day) during the construction of Ghandruk CFLs and one bulb. During our visit in the evening, II. Similarly, Aitha Kumari Parihar and Sunsari Parihar the rice cooker was being used. Sundevi mentioned (both Dalits) have subscribed to 200 W but find that that she used her rice cooker twice a day for about they cannot use a rice cooker due to poor voltage. 30 minutes each. The water heater and the televi- Indeed, it appears that for many households using a sion are kept on throughout the waking hours. She rice cooker is aspirational. Annexes VI. Malekhu I MHP Apart from household lighting, other end-uses Malekhu I MHP is a 26 kW capacity plant located in from this MHP comprise four small poultry farms, Mahadevsthan VDC, Dhading district. The distribu- one sawmill and one rice mill. Furthermore, many tion area of this MHP is about one hour’s drive on households within the distribution system of this 86 the gravel road from Malekhu town along the East– MHP use televisions. West highway. The NEA grid has arrived close to the Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications MHP distribution area. Mahadevsthan is a develop- ing town and the power plant is currently unable to meet the peak hour demand. Figure A2.6 (a) Turbine and generator set (b) Agro-processing mill (c) Satellite dish antenna (d) Woodworking shop served by Malekhu I MHP (a) (b) (c) (d) VII. Malekhu II MHP existing demand. Thus, the AEPC is considering es- Malekhu II MHP is a 18 kW plant located in Ma- tablishing a mini-grid connecting Malekhu I and II hadevsthan VDC, Dhading district. The powerhouse MHPs. The mini-grid system will be at 400 V (which of this MHP is about 4 km upstream from the pow- is at a lower level compared to the 11 kV Baglung erhouse of Malekhu I MHP. The headrace canal of mini-grid). 87 this power plant is also extensively used for irriga- Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications tion. During the irrigation season, the power plant Apart from household lighting, other end-uses from is shut down during the day as also there seems to this MHP are: a sawmill, a rice sheller (huller), a grind- be minimal demand for electricity from 10:00 am to er (to make incense “Sinkedhup”), and a lift irrigation 4:00 pm. This MHP also has excess power than the system (to supply water to uphill terraces (from the head-race canal)). Figure A2.7 (a) Turbine and generator set (b) Control panel (c) Irrigation pumping done at Malekhu II MHP (a) (b) (c) Annexes VIII. Daram Khola I MHP This MHP is run by Paropkari Sahakari Sanstha, The Daram Khola I MHP is the upstream MHP of the which is headed by Dharmendra Kr. Malla. This plant cascaded Daram Kholan MHP system. It is located in caters mainly to rural areas surrounding the Wami- Wamitaxar, Gulmi district and is run by the Paropkari taxar bazaar. The cooperative has a total member- 88 Co-operative. Although designed for 116 kW, this ship of 1,685, each of whom has contributed NPR MHP is generating 135 kW. Major problems include 5,000 as share capital. The cooperative started its Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications maintaining the head-race canal and the short lifes- activities about 20 years ago focusing mainly on pan of wooden distribution poles. savings and credit. It ventured into the business of electricity generation and distribution based on the The site is running well and commercial customers experience of its Executive Committee members are paying NPR 1,500 for the first 190 units. Produc- who were already running Daram Khola II as private tive end-uses from this MHP include 13 agro-pro- entrepreneurs. The cooperative is planning to set up cessing units, two sawmills, 10 poultry farms, an NTC a 1 MW mini hydropower plant on a PPP mode. tower, an Ncell tower and a computer center. The MHP is planning to add a 100 kW aggregate crusher This 135 kW MHP has surplus power even during during the off-peak hours. peak hours and supplies power across the stream to Kharbang in Baglung district. Figure A2.8 (a) Powerhouse (b) Two coupled turbines and the generator set of the Daram Khola I MHP (a) (b) IX. Daram Khola II MHP Two entrepreneurs (Dharmendra Kr. Malla and Ag- Daram Khola II MHP is the downstream MHP of the nidhar Ariyal) from Wamitaxar who invested initially cascaded Daram Kholan MHP system. It is located in about eight years ago, sold out 50 percent of their Wamitaxar, Gulmi district and is run by a private en- stake to a local school which made the investment trepreneur. Although designed for 70 kW, the MHP to earn returns. The entrepreneurs started out with is generating 85 kW. A major problem is the short a 10 kW watermill in the area before attempting the lifespan of wooden distribution poles. 85 kW Daram Khola II plant. The site is running well and commercial customers The plant caters to 900 customers now, but when it are paying NPR 1,500 for the first 190 units. Produc- began operations it was serving a mere 400. Today, tive end-uses include agro-processing units, three the plant is overloaded, especially during evenings sawmills, three welding shops, a noodles factory, when the load of all households comes online. The and a computer center. plant serves Wamitaxar bazaar, which means a num- ber of shops and establishments. Figure A2.9 Figure A2.9 (a) Powerhouse with penstock alignment (b) Coupled turbines and the generator set of the Daram Khola II MHP (c) Agro-processing unit (d) Karki Grill Udyog 89 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications (a) (b) (c) (d) Srijana Cyber and Stationery is a shop run by Yamu- television, a rice cooker (not able to use it due to na Ghimire (also an executive committee member very low voltage), a pressing iron, a table fan and of the Paropkari Cooperative) and receives power a ceiling fan. This is in addition to three desktops, from Daram Khola II. Yamuna started the cyber café a scanner, a printer and a photocopying machine. in 2006 and offers printing, scanning, photocopying, email, e-ticketing services. But the main business is Narayan Prasad Shakya runs a flour mill-cum-rice offering Skype calls at NPR 50/hour. Wamitaxar and huller using a 7.5 kW electric motor. Earlier he was its surrounding areas have a large population who running a diesel (8 hp = 5.96 kW) engine for the work outside Nepal and Skype calls are a cheap way same purpose. Typically, the diesel engine con- for their families to keep in touch. Yamuna started sumed 1 liter of diesel/hour and ground 100 paathis with a 2A connection, but soon shifted to a 5A con- (1 paathi = 4 kg) of grain in an hour. He charged NPR nection. Her monthly bill is around NPR 500 (of this 5/paathi. Using an electric motor (7.5 kW) he is able NPR 300 is for the first 40 kWh and remaining NPR to grind 240 paathis (960 kg) in an hour consuming 200 is for 25 units @ NPR 8/unit). Thus, on an aver- 7.5 kWh of energy. He charges NPR 2.5/paathi now. age she uses about 65 kWh/month. However, this Thus, the final customer has gained substantially includes her household use as well. She uses two in terms of reduced charges for getting their grain bulbs (60 W), 14 CFLs (3 x 15 W and 11 x 7 W), a ground. Narayan keeps his outlet open from 07:00- Annexes 10:00 hours and 15:00-18:00 hours every day for 20 ing, etc. He says that his income has doubled due to days in a month for all 12 months of the year. On an availability of electricity. Today, he employs seven to average his monthly bill is NPR 2,200, which trans- eight people. His monthly bill is around NPR 2,500. lates into 280 kWh/month (NPR 1,500 for 190 kWh However, this includes his domestic use as well, 90 and rest at NPR 8/kWh). Narayan also runs a photo which comprises a rice cooker. Since the voltage is studio, which has a separate electrical connection. very low during the day, he carries out all welding Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications work at night long after the households have gone Basant Bahadur Karki runs a grill and welding shop to sleep. under the name Karki Grill Udyog. He used to work in India, but decided to return to his village 15 years Raju Parihar is a Dalit who runs Ranu Tailoring in ago when he heard that a road was being laid Wamitaxar. He started with a 2A connection but through Wamitaxar. The road opened new avenues soon shifted to a 5A connection since he could not of income for the area. Karki found that a number use the pressing iron with a 2A connection. Even of vehicles were moving through Wamitaxar and now he cannot use the iron during 18:00-21:00 started offering puncture repair and air-filling ser- hours, but manages by scheduling it for other times vices which were both done manually. When power of the day when the voltage is better. He also uses supply began in the area with Daram Khola II he electricity to run his tailoring machines and claims decided to expand his services to include welding that he would not have been able to handle the vol- and slowly graduated to grill making, vehicle wash- ume of business but for electricity. Figure A2.10 (a) Digital photo studio (b) Jeweler working at night (c) Popular brand of rice cooker (d) Pradhan’s electric shop (a) (b) (c) (d) X. Giringdi Kholan MHP 110,000 of which NPR 35,000 is from the 23 indus- Giringdi Kholan MHP is located in Kharbang, Ba- trial customers, thus underlining the dominance of glung district. This MHP, initially operated by an household loads. All customers are metered and entrepreneur, is owned and operated by Giringdi meters are purchased by the end-users themselves. Khola Laghu Jal Vidyut Sahakari Sanstha — a coop- 91 erative that was set up exclusively for the purpose. The MHP has enabled several enterprises to set up Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Headed by Mitra Bahadur Pun, a former VDC Presi- shop in the Kharbang bazaar area. The Baglung dent, one striking feature of its executive committee Kalika Engineering Workshop is owned and run by that manages this MHP is their evident pride in the Chandra Vishwakarma, who returned from Malay- plant and their confidence in running it. sia where he was working at a plant that produced designer garden lights and fixtures. He has put Designed for 75 kW it now generates 85 kW but it that knowledge and experience here in producing gets overloaded during peak hours (from 6:00 pm grills and other structural items. His monthly elec- to 9:00 pm); daily load shedding also occurs in parts tricity bill is NPR 2,000–2,500 (the first 100 kWh is of the distribution system. charged at NPR 800 and the rest is at NPR 8/kWh) that amounts to about 250–300 kWh/month. He is Apart from lighting uses, the productive end-uses satisfied with the MHP power supply, but is affected of the MHP includes four fresh houses, five schools, when the MHP is shut down for a number of days one X-ray machine, three welding shops, four saw- for repairs. He is interested in taking a NEA grid con- mills, seven agro-processing mills, four digital photo nection, but plans to keep this connection as well studios, two cable TV providers, 15 poultry farms, since the NEA grid has a lot of load shedding. He one noodle factory, and one radio station. has paid NPR 1,000 as connection charges and NPR 5,000 for getting a meter, which had to be replaced The MHP has 868 connections of which 23 are in- at his cost if it breaks down. dustrial (each with 6A connections). The rest are largely households. Nearly 75 percent of connec- Drona Van owns and operates Kharbang Chow- tions are up to 1A. The total monthly revenue is NPR mein Udyog. Before returning to his village, he had Figure A2.11 (a) Powerhouse (b) Turbine and generator set (c) Control panel and the MHP system of Giringdi Kholan MHP (a) (b) (c) Figure A2.12 (a) Drona van making noodles (chowmein) (b) Students using mini-laptops (c) FM radio station (a) (b) (c) Annexes worked in India and Dubai. His last visit to Dubai was MHP serving the Phungling bazaar is facing heavy through a broker on a false work permit that caused electricity shortage, the local population in the ba- him to lose NPR 150,000. This is when he decided zaar area is currently using a diesel generator set to set up a business in his own village. With support synchronized with a NEA mini hydropower to serve 92 from the REDP and encouragement from his parents, the demand during peak hours. There is a potential he hit upon the idea of producing chowmein, which to connect and synchronize Yafre MHP instead with Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications he found was being consumed by many restaurants the NEA mini hydropower to power Phungling ba- and households in Kharbang bazaar. He uses two zaar. The AEPC has initiated a study on establishing motors of 2.25 kW and 1.5 kW each for making the a mini-grid system to serve Phungling bazaar and dough and for producing chowmein from dough. its outskirts. His monthly bill is NPR 1,300–1,800, which amounts to 160–230 kWh/month. Although the mixer and The diesel generator had broken down during the the chowmein maker can produce 400 kg of chow- site visit. When it was operational, the electricity mein in a day (eight hours), he makes only 100 kg sold from diesel generation was making a loss, due since the chowmein has to be cooked before it is to increase in price of diesel. Apart from lighting either sold fresh or after drying (mainly sun drying). uses, the productive end-uses included two agro- On an average he makes a net profit of NPR 7/kg of processing mills and three poultry farms. chowmein sold. The Yafre MHP is a year old and provides power to Shree Tribhuvan Uccha Madhyamik Vidyalay, Khar- 870 households. It was built at a cost of NPR 40 mil- bang is a government-run school. It has a full- lion of which the community cash contribution was fledged computer lab that has access to the Inter- NPR 10.4 million and community labor contribution net and other teaching aids in the form of CDs. It was about NPR 3.5 million which also included labor has 50 mini laptops that have preloaded textbooks for making a 3 km road to facilitate transportation for students of classes 2–7 and covers subjects such of MHP-related equipment. The MHFG was formed as mathematics, science, English and Nepali. The in 2008 and the contract for building the plant was school also runs basic computer literacy classes for given in 2011. The plant was commissioned in 2013 its students for which it charges NPR 1,000/student/ as the community took nearly three years to mobi- course. Teachers find the computer lab very useful lize their contribution. The plant is providing power since it gives them access to a large pool of subject to two agro-processing units, and three poultry matter as well as learning and teaching materials. units. A papermaking factory and a computer cen- ter are being set up now. Radio Saarathi is a community FM radio that is man- aged by Bishnu Bhusal. It was set up with assistance The agro-processing units were earlier run by diesel from the REDP and has a 100 W transmitter in addi- engines and charged NPR 3/kg for hulling and NPR tion to a mixer, computer, and other items. It runs 4/kg for grinding. Now they charge NPR 2/kg for on revenues from local and government advertise- hulling and NPR 3/kg for grinding. On an average, ments. The radio station consumes 250–300 kWh/ each unit pays NPR 5,000/month towards electricity month and broadcasts from 05:00 to 23:00 every charges. day. XII. Lamjung Electricity Users Association, XI. Yafre MHP Besishahar, Lamjung District Yafre MHP is located in Taplejung district and run by The LEUA began operations in 1997 with full fund- the Micro Hydropower Functional Group (MHFG). It ing support from NORDIC. Currently, it covers 34 was designed for 95 kW output but generates 112 VDCs in Lamjung and three in Tanahun districts cov- kW and its peak load is only 75 kW; therefore, it has ering 24,000 customers. The total connected load excess power than its peak demand. As a nearby is 8 MVA. There are 161 distribution transformers. Figure A2.13 (a) Turbine and generator set (b) Control panel of Yafre MHP 93 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications (a) (b) There is no load shedding in Lamjung district due engineers and field coordinators. The DCRDC works to the presence of two to three large hydropower in 10 districts in central and western parts of Nepal, stations built on Marsyagdi river that supply power while the NCDC works in three districts in eastern to the national grid. LEUA purchases 10 million kWh/ Nepal. year from the NEA. The main problem they are fac- ing is low load density in rural areas and high cost The key issues highlighted by both RSCs are listed of replacing electric poles, especially the older ones below: that are usually wooden. l Since AEPC is centralized, time taken to process applications for carrying out pre-feasibility stud- Harish Chandra Acharya, the Overseer says that they ies, subsidy release, etc. takes a long time. are barely able to meet their operations and mainte- l Quality control at field level, especially for civil nance costs. But for the presence of a large bazaar in works is not possible because the RSC has lim- the distribution area in the form of Besishahar, Bho- ited staff, a vast area to cover and a huge scope tevadar, Khimti and Sundar bazaars, the load would of work. be largely domestic and at a low density. A typical l Usually, civil works supervision is left to the in- rural portion of their distribution area would have staller while the local community executes it. a 25 kVA transformer for about 65 households. As- Often, the quality of work is below acceptable suming a loading of 70 percent of the capacity, this standards. translates to about 220 W/household that is at least l RSCs are not equipped with appropriate instru- twice the available capacity for use by households ments to assess the quality of electro-mechani- (110–130 W) being served through MHPs. cal and hydro-electrical parts of the MHP. l With the advent of open bidding among pre- XIII. Meeting with RSCs qualified contractors and the decision to go for The team met with RSCs at Baglung (DCRDC) and the lowest bidder, several instances of poor qual- Illam (NCDC) who have been working for nearly 10 ity of equipment have been noticed. For example, years with the main task to promote all AEPC tech- instead of using a copper plate for earthing, they nologies, such as SPV, biogas, improved cookstoves used iron plates that were coated with copper; or and micro hydropower. For promoting micro hydro- that the jet nozzle in the turbines was made of power they have a set of dedicated staff that include mild steel instead of the specified stainless steel. Annexes l DCRDC felt that the proportion of subsidy cur- potential but the people of the area were very rently (40 percent) was low and needed to be in- poor and had very little exposure to the outside creased, especially in areas where people do not world and their aspirations were very low. have the means to bring in the rest of it. l Moreover, those areas had very poor or even no 94 l However, in places of relative prosperity, they felt access and therefore, the cost of an MHP would that the current norm of 200 W/household is not be very high on account of transportation costs. Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications sufficient and should be raised to at least 400 W/ Even repairs would cost a lot since a technician household. would have to take a flight from Kathmandu or l They felt that in areas of lower prosperity such Butwal to reach the place. as the far west, a 200 W norm was acceptable, l Although, EEOs are also responsible for monitor- but not in areas such as Kaski, Baglung, Lamjung, ing the quality and progress of MHPs, they do not Gulmi. have the time or the reach to do so effectively. l Overall, the DCRDC felt that the areas surround- l Overall, it seems that EEOs (qualified engineers) ing the Kathmandu Valley, and central and west- are not being used well for promoting MHPs and ern Nepal, were gradually being saturated by the AEPC seems to be relying more on RSCs. MHPs. MHPs are successful here as these rural areas are relatively more prosperous as many are XV. Meeting with Manufacturers at Butwal employed in the Indian, Singaporean and British The team met with Tanka Kandel of North Engineer- armies and have regular salaries and pensions af- ing Company (P) Ltd and Madhav Poudel of Oshin ter retirement. Many others are working as skilled Power service (P) Ltd. The following issues emerged and unskilled laborers in Dubai and other Arab from the meeting: countries and send in regular remittances. l North Engineering Company is in the business l In addition to prosperity, exposure to the outside of MHPs since the past 20 years. In the past five world has stimulated their aspirations and they years they have manufactured 100 MHPs, in- are willing to spend money on acquiring facilities stalled 80 MHPs and provided survey and design that provide them convenience and sometimes services for 50 MHPs. also a source of income. l Today due to a large number of pre-qualified companies, competition is severe and unhealthy. XIV. Meeting with District Environment and With relative saturation in the central region Energy Officers (Kaski, Gorkha, Dhading, Baglung, Gulmi, etc.) The team met with Dinesh Kr. Singh and Pritam the only source of business is cascade plants and Wangdi Lama, District Environment and Energy Offi- mini hydropower (>100 kW, <1000 kW). cers of Panchthar and Taplejung districts. Following l There is no year round business for all companies are the key issues that were highlighted: in the micro hydropower sector. l Earlier the EEOs were responsible for both pico l Quality assurance is very poor in the micro hy- (<10 kW) and micro hydropower plants. They dropower sector with only the output being had supporting staff in the form of community tested, and the quality and dimensions of the and social mobilizers. equipment are being inspected. There are cases l Now, EEOs are only responsible for pico hydro- where the lowest bidder has offered to execute power and therefore do not have community the project for an amount equal to the value of and social mobilizers for support. All MHPs are the subsidy, usually around 50–60 percent. now implemented with RSC support. l Tanka Kandel advocated that the AEPC should l Pico hydropower plants are identified during constitute a team that would carry out random DDC planning meets and implemented by the checks of manufactures at various stage of man- local community with support from EEOs. ufacturing, such as material inspections, as well l Dinesh Kr. Singh who had earlier worked in Jum- as in process and final pre-shipment checks for la in the mid-west region of Nepal, said that the a sample of the system that each manufacturer mid-west and far-west had great hydropower produces in a year. l Based on these regular inspections, the AEPC to the grid and sell power to cities. This would should rate each manufacturer. These ratings ensure that rural areas with hydropower capacity should be taken into account for qualifying them would improve their economy by not only using for the next year/period. the electricity that they generate, but also from l He mentioned that the vision of Odd Hofton, a the sale of electricity to cities. In turn, cities would 95 Norwegian missionary was to model Nepal af- develop with electricity becoming available to Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications ter the Norwegian experience in the micro hy- them to start industries. This, in many ways is the dropower sector. His dream was to have a lot of dream of practitioners in the micro hydropower decentralized MHPs in Nepal that would connect sector in Nepal. Annex 3 Details on policies and grid codes relevant to MHP Excerpt from Electricity Act, 1992 96 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Excerpt from NEA’s Grid Code Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 97 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 98 Annexes Annex 4: Details on financial analysis Table 4.1 |  Inputs Parameters for a 100 kW MHP - Standalone Parameter Unit Without subsidy With Subsidy Plant size kW 100 100 Plant life Years 15 15 Technical losses kW 0% 0% 99 No. of connections No. 800 800 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Load/connection W 120 120 Operating load domestic kW 96 96 Operating load commercial kW 60 60 Operations/day (domestic) hr 6 6 Operations/day (commercial) hr 2.5 2.5 Operations/year days 300 300 Operations/year (commercial) days 240 240 Capacity Utilization Factor % 23.8% 23.8% Capital cost NPR million 40.00 40.00 Subsidy 50% - 20.00 Debt 20% 8.00 4.00 Equity 80% 32.00 16.00 Interest 14% 1.12 0.56 O&M NPR 0.80 0.80 Operators salary NPR 22,000 22,000 Tariff domestic NPR /month 0 0 Tariff domestic NPR /kWh 6.00 6.00 Tariff commercial NPR /month 0.00 0.00 Tariff commercial NPR /kWh 8.00 8.00 Escalation % 5% 5% Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 100 Table A4.2 | OverviewP/L for 100 kW MHP Standalone - with Subsidy Years Revenue Units 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Sales domestic kWh   172,800 172,800 172,800 172,800 1,2,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 Sales com- kWh   36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 mercial Annexes Sales NPR million   1.32 1.39 1.46 1.53 1.61 1.69 1.78 1.86 1.96 2.06 2.16 2.27 2.38 2.50 2.62 Expenses                       O&M NPR million   0.80 0.84 0.88 0.93 0.97 1.02 1.07 1.13 1.18 1.24 1.30 1.37 1.44 1.51 1.58 Operator salary NPR million   0.26 0.28 0.29 0.31 0.32 0.34 0.35 0.37 0.39 0.41 0.43 0.45 0.47 0.50 0.52 Interest on NPR million   0.56 0.48 0.40 0.32 0.24 0.16 0.08   - - capital loan Depreciation NPR million   0.98 0.98 0.98 0.98 0.98 0.98 0.98 0.98 0.98 0.98 0.98 0.98 0.98 0.98 0.98 Total expenses NPR million   2.60 2.58 2.55 2.53 2.51 2.50 2.48 2.48 2.55 2.63 2.71 2.80 2.89 2.98 3.08   NPR million PBIT NPR million   -0.72 -0.70 -0.69 -0.68 -0.66 -0.65 -0.63 -0.61 -0.59 -0.57 -0.55 -0.53 -0.51 -0.49 -0.46 Profit before Tax NPR million   -1.28 -1.18 -1.09 -1.00 -0.90 -0.81 -0.71 -0.61 -0.59 -0.57 -0.55 -0.53 -0.51 -0.49 -0.46 PBT/ month NPR million   -0.11 -0.10 -0.09 -0.08 -0.08 -0.07 -0.06 -0.05 -0.05 -0.05 -0.05 -0.04 -0.04 -0.04 -0.04 Table A4.3 | Cash Flow for 100 kW MHP as Standalone - with Subsidy Years Cash outflow 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Investment NPR million 20.00             Total expenses less depreciation NPR million   1.62 1.60 1.57 1.55 1.53 1.52 1.51 1.50 1.57 1.65 1.73 1.82 1.91 2.01 2.11 Principal NPR million   0.57 0.57 0.57 0.57 0.57 0.57 0.57                 Total cash outflow NPR million 20.00 2.20 2.17 2.14 2.12 2.10 2.09 2.08 1.50 1.57 1.65 1.73 1.82 1.91 2.01 2.11 Cash inflow Sales NPR million - 1.32 1.39 1.46 1.53 1.61 1.69 1.78 1.86 1.96 2.06 2.16 2.27 2.38 2.50 2.62 Net flow NPR million -20.00 -0.87 -0.78 -0.68 -0.59 -0.49 -0.40 -0.30 0.37 0.39 0.40 0.42 0.45 0.47 0.49 0.52 FIRR NPV NPR million -21.62 Table A4.4 | Levelized Unit Cost of Electricity @16 percent RoE for 100 kW MHP as Standalone - with Subsidy Years Discount 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 rate 6% Total capex and expenses over life time NPR million 20.00 5.16 5.14 5.11 5.09 5.07 5.06 5.04 5.04 5.11 5.19 5.27 5.36 5.45 5.54 5.64   NPV of total capex and life time expenses NPR mil- 70.36                               lion   NPV of total unit generated in life time million kWh 2.15 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21   LUCE at 16% RoE NPR /kWh 2.73                               Table A4.5 | P/L for 100 kW MHP as Standalone - without Subsidy Years Revenue Units 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Sales domestic kWh   172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 Sales commercial kWh   36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 Sales NPR million   1.32 1.39 1.46 1.53 1.61 1.69 1.78 1.86 1.96 2.06 2.16 2.27 2.38 2.50 2.62                         Expenses                       O&M NPR million   0.80 0.84 0.88 0.93 0.97 1.02 1.07 1.13 1.18 1.24 1.30 1.37 1.44 1.51 1.58 Operator salary NPR million   0.26 0.28 0.29 0.31 0.32 0.34 0.35 0.37 0.39 0.41 0.43 0.45 0.47 0.50 0.52 Interest on capital loan NPR million   1.12 0.96 0.80 0.64 0.48 0.32 0.16   - - Depreciation NPR million   1.96 1.96 1.96 1.96 1.96 1.96 1.96 1.96 1.96 1.96 1.96 1.96 1.96 1.96 1.96 Total expenses NPR million   4.14 4.03 3.93 3.83 3.73 3.63 3.54 3.45 3.53 3.61 3.69 3.78 3.87 3.96 4.06   PBIT NPR million   -1.70 -1.68 -1.67 -1.65 -1.64 -1.62 -1.61 -1.59 -1.57 -1.55 -1.53 -1.51 -1.49 -1.46 -1.44 Profit before tax NPR million   -2.82 -2.64 -2.47 -2.29 -2.12 -1.94 -1.77 -1.59 -1.57 -1.55 -1.53 -1.51 -1.49 -1.46 -1.44 PBT/month NPR million   -0.23 -0.22 -0.21 -0.19 -0.18 -0.16 -0.15 -0.13 -0.13 -0.13 -0.13 -0.13 -0.12 -0.12 -0.12 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 101 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 102 Table A4.6 | Cash flow analysis for 100 kW MHP as Standalone - without Subsidy Years Cash outflow 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Investment NPR million 40.00                               Total expenses less depreciation NPR million   2.18 2.08 1.97 1.87 1.77 1.68 1.59 1.50 1.57 1.65 1.73 1.82 1.91 2.01 2.11 Annexes Principal NPR million   1.14 1.14 1.14 1.14 1.14 1.14 1.14                 Total cash outflow NPR million 40.00 3.33 3.22 3.12 3.01 2.92 2.82 2.73 1.50 1.57 1.65 1.73 1.82 1.91 2.01 2.11                                   Cash inflow                                 Sales NPR million - 1.32 1.39 1.46 1.53 1.61 1.69 1.78 1.86 1.96 2.06 2.16 2.27 2.38 2.50 2.62 Net flow NPR million -40.00 -2.00 -1.83 -1.66 -1.48 -1.31 -1.13 -0.95 0.37 0.39 0.40 0.42 0.45 0.47 0.49 0.52 FIRR -                                 NPV NPR million -46.70                                 Table A4.7 | Levelized Unit Cost of Electricity @16 percent RoE for 100 kW MHP as Standalone - without Subsidy Years Discount rate 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 6% Total capex and expenses over life time NPR million 40.00 9.26 9.15 9.05 8.95 8.85 8.75 8.66 8.57 8.65 8.73 8.81 8.90 8.99 9.08 9.18   NPV of total capex and life time ex- penses NPR million 126.61                                 NPV of total unit generated in life time million. kWh 2.15 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21   LUCE at 16% RoE NPR /kWh 58.90                               Table A4.8 | Break-even Analysis for 100 kW MHP Standalone   Subsidy Without subsidy Total fixed cost NPR 1,802,200.00 3,340,400.00 Total variable cost NPR /kWh Sale price NPR /kWh 3.83 6.34 3.83 6.34 103 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Break-even point (kWh) 717,034 1,329,031 Break-even point (NPR ) 4,549,456.10 8,432,473.17 Sales (kWh) 208,800 208,800 Increase in sales needed to reach BEP (kWh) 508,234 1,120,231 PLF at BEP 82% 152% Current PLF 24% 24% Table A4.9 | Results of Break-even Analysis and LUCE for Standalone MHPs - with Subsidy Plant size LUCE PLF at BEP 20 39 122 50 36 109 100 33 82 Table A4.10 | Basis for Input Parameters for Financial Analysis of Grid Connected MHPs Based on analysis of MHP costs for Jan 1, 2012-Dec 31, 2013 & Capital cost/kW NPR million 0.4 site survey Additional capital cost for connecting to grid NPR million 4.9 Taken from quotation for Midim Khola grid connected MHP Cost of connecting to the grid through 11 kV line NPR million/km 1.00 ASCR, Dog conductor Subsidy from all sources 50% Based on analysis of MHP financing & site survey Technical losses 10% Allowed losses in MHP No. of household connections/kW 8 Based on site survey Load/household connection W 120 Based on site survey Operating load commercial kW/100 households 7.5 Based on analysis of productive end-uses from field survey Monthly units/households-commercial 4 Based on site survey Monthly units/households-Domestic 18 Based on site survey Based on rates agreed by NEA in its recent board meeting NPR 8.4/kWh for 5 months of year and NPR 4.8/kWh for 7 months Grid tariff 6.00 of year Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 104 Table A4.11 | Incremental Analysis of Connecting 100 kW MHP to the Grid (100 percent grid availability for evacuating power to the grid) Distance of grid extension km 0 1 2 5 10 20 Cost of interconnection equipment including transformer NPR million 4.90 4.90 4.90 4.90 4.90 4.90 Cost of 11kV distribution line NPR million 0.00 1.00 2.00 5.00 10.00 20.00 Annexes Incremental capex for grid connection NPR million 4.90 5.90 6.90 9.90 14.90 24.90 Incremental PLF (with 100% grid availability for evacuation of power to grid) % 66% 66% 66% 66% 66% 66% Incremental units kWh/year 581,688 581,688 581,688 581,688 581,688 581,688 Incremental tariff NPR /kWh 6.00 6.00 6.00 6.00 6.00 6.00 Incremental income NPR million 3.49 3.49 3.49 3.49 3.49 3.49 Incremental O&M @3% of capex NPR million 0.15 0.18 0.21 0.30 0.45 0.75 Incremental operating profits (100% grid availability) NPR million 3.34 3.31 3.28 3.19 3.04 2.74 Depreciation @7% NPR million 0.34 0.41 0.48 0.69 1.04 1.74 Interest on loan @14% on 20% of capex NPR million 0.14 0.17 0.19 0.28 0.42 0.70 Incremental profit before taxes (100% grid availability) NPR million 2.86 2.73 2.61 2.22 1.58 0.30 Table A4.12 | Incremental Analysis of Connecting 100 kW MHP to the Grid (50 percent grid availability for evacuating power to the grid) Incremental PLF (with 50% grid availability for evacuation of power to grid) % 33% 33% 33% 33% 33% 33% Incremental units million kWh/year 290,844 290,844 290,844 290,844 290,844 290,844 Incremental income NPR million 1.75 1.75 1.75 1.75 1.75 1.75 Incremental operating profits (50% grid availability) NPR million 1.60 1.57 1.54 1.45 1.30 1.00 Incremental profit before taxes (50% grid availability) NPR million 1.12 0.99 0.86 0.48 -0.16 -1.44 Table A4.13 | P/L for 100 kW Grid Connected MHP - with Subsidy (0 km Grid Extension) Years Revenue Units  0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Sales domestic kWh   172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 Sales commercial kWh   45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 Sales grid kWh   581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 Sales NPR million   4.89 5.06 5.24 5.44 5.64 5.85 6.07 6.31 6.55 6.81 7.08 7.37 7.66 7.98 8.31                                     Expenses                                   O&M NPR million   1.35 1.41 1.49 1.56 1.64 1.72 1.81 1.90 1.99 2.09 2.19 2.30 2.42 2.54 2.67 Operator salary NPR million   0.43 0.45 0.48 0.50 0.53 0.55 0.58 0.61 0.64 0.67 0.70 0.74 0.78 0.81 0.86 Interest on capital loan NPR million   0.63 0.54 0.45 0.36 0.27 0.18 0.09   - -           Depreciation NPR million   1.41 1.41 1.41 1.41 1.41 1.41 1.41 1.41 1.41 1.41 1.41 1.41 1.41 1.41 1.41 Total expenses NPR million   3.82 3.81 3.82 3.83 3.84 3.86 3.88 3.91 4.04 4.17 4.31 4.45 4.60 4.76 4.93                                     PBIT NPR million   1.70 1.79 1.88 1.97 2.07 2.17 2.28 2.40 2.52 2.64 2.78 2.92 3.06 3.22 3.38 Profit before tax NPR million   1.07 1.25 1.43 1.61 1.80 1.99 2.19 2.40 2.52 2.64 2.78 2.92 3.06 3.22 3.38 PBT/month NPR million   0.09 0.10 0.12 0.13 0.15 0.17 0.18 0.20 0.21 0.22 0.23 0.24 0.26 0.27 0.28 Table A4.14 | Cash Flow for 100 kW Grid Connected MHP - with Subsidy (0 km Grid Extension) Years Cash outflow   0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Investment NPR million 22.45                               Total expenses less depreciation NPR million   2.41 2.41 2.41 2.42 2.43 2.45 2.47 2.50 2.63 2.76 2.90 3.04 3.19 3.35 3.52 Principal NPR million   0.64 0.64 0.64 0.64 0.64 0.64 0.64                 Total cash outflow NPR million 22.45 3.05 3.05 3.05 3.06 3.07 3.09 3.12 2.50 2.63 2.76 2.90 3.04 3.19 3.35 3.52                                 Cash inflow                                 Sales NPR million - 4.89 5.06 5.24 5.44 5.64 5.85 6.07 6.31 6.55 6.81 7.08 7.37 7.66 7.98 8.31 Net flow NPR million -22.45 1.84 2.01 2.19 2.38 2.57 2.76 2.96 3.80 3.92 4.05 4.18 4.32 4.47 4.62 4.78 FIRR 10.2% NPV NPR million 8.09 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 105 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 106 Table A4.15 | Levelized Unit Cost of Electricity @16 percent RoE for 100 kW Grid Connected MHP - with Subsidy (0 km Grid Extension) Years Discount rate 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total capex and expenses over life Annexes 6% time NPR million 22.45 6.69 6.69 6.69 6.70 6.71 6.73 6.76 6.78 6.91 7.04 7.18 7.32 7.48 7.64 7.80 NPV of total capex and life time ex-   penses NPR million 73.97                               NPV of total unit generated in life   time million kWh 8.23 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 LUCE at 16% ROE   NPR /kWh 8.99                               Table A4.16 | P/L for 100 kW Grid Connected MHP - without Subsidy (0 km Grid Extension) Years Revenue Units 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Sales domestic kWh   172,800 72,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 Sales com- mercial kWh   45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 Sales grid kWh   581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 Sales NPR million   4.89 5.06 5.24 5.44 5.64 5.85 6.07 6.31 6.55 6.81 7.08 7.37 7.66 7.98 8.31                                     Expenses                                   O&M NPR million   1.35 1.41 1.49 1.56 1.64 1.72 1.81 1.90 1.99 2.09 2.19 2.30 2.42 2.54 2.67 Operator salary NPR million   0.43 0.45 0.48 0.50 0.53 0.55 0.58 0.61 0.64 0.67 0.70 0.74 0.78 0.81 0.86 Interest on capital loan NPR million   1.26 1.08 0.90 0.72 0.54 0.36 0.18   - -           Depreciation NPR million   2.35 2.35 2.35 2.35 2.35 2.35 2.35 2.35 2.35 2.35 2.35 2.35 2.35 2.35 2.35 Total expenses NPR million   5.38 5.29 5.21 5.12 5.05 4.98 4.91 4.85 4.97 5.11 5.24 5.39 5.54 5.70 5.87                                     PBIT NPR million   0.76 0.85 0.94 1.03 1.13 1.23 1.34 1.46 1.58 1.70 1.84 1.98 2.12 2.28 2.44 Profit before Tax NPR million   -0.50 -0.23 0.04 0.31 0.59 0.88 1.16 1.46 1.58 1.70 1.84 1.98 2.12 2.28 2.44 PBT/month NPR million   -0.04 -0.02 0.00 0.03 0.05 0.07 0.10 0.12 0.13 0.14 0.15 0.16 0.18 0.19 0.20 Table A4.17 | Cash Flow for 100 kW Grid Connected MHP - without Subsidy (0 km Grid Extension) Years Cash outflow 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Investment NPR million 44.90                               Total expenses less depreciation NPR million   3.04 2.95 2.86 2.78 2.70 2.63 2.56 2.50 2.63 2.76 2.90 3.04 3.19 3.35 3.52 Principal NPR million   1.28 1.28 1.28 1.28 1.28 1.28 1.28                 Total cash outflow NPR million 44.90 4.32 4.23 4.14 4.06 3.98 3.91 3.85 2.50 2.63 2.76 2.90 3.04 3.19 3.35 3.52                                 Cash inflow                                 Sales NPR million - 4.89 5.06 5.24 5.44 5.64 5.85 6.07 6.31 6.55 6.81 7.08 7.37 7.66 7.98 8.31 Net flow NPR million -44.90 0.57 0.83 1.10 1.38 1.66 1.94 2.23 3.80 3.92 4.05 4.18 4.32 4.47 4.62 4.78 FIRR -0.2% NPV NPR million -20.06 Table A4.18 | Levelized Unit Cost of Electricity @16 percent RoE for 100 kW Grid Connected MHP - without Subsidy (0 km Grid Extension) Years Discount rate 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total capex and expenses over life 6% time NPR million 44.90 8.26 8.17 8.08 8.00 7.92 7.85 7.78 7.72 7.85 7.98 8.12 8.26 8.41 8.57 8.74 NPV of total capex and life time ex-   penses NPR million 86.78                               NPV of total Unit generated in life   time million kWh 8.23 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 LUCE at 16% RoE   NPR /kWh 10.54                               Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 107 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 108 Table A4.18 | Levelized Unit Cost of Electricity @16 percent RoE for 100 kW Grid Connected MHP - without Subsidy (0 km Grid Extension) Years Discount rate 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total capex and expenses over life 6% time NPR million 44.90 8.26 8.17 8.08 8.00 7.92 7.85 7.78 7.72 7.85 7.98 8.12 8.26 8.41 8.57 8.74 Annexes NPV of total capex and life time ex-   penses NPR million 86.78                               NPV of total Unit generated in life   time million kWh 8.23 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 LUCE at 16% RoE   NPR /kWh 10.54                               Table A4.19 | Break-even Analysis for 100 kW MHP Grid Connected   0 km 1 km 2 km 5 km 10 km 20 km   Subsidy Without Subsidy Without Subsidy Without Subsidy Without Subsidy Without Subsidy Without subsidy subsidy subsidy subsidy subsidy subsidy Total fixed cost 2.47 4.04 2.51 4.12 2.56 4.20 2.70 4.44 2.92 4.84 3.38 5.64 Total variable cost/unit 1.68 1.68 1.72 1.72 1.76 1.76 1.87 1.87 2.06 2.06 2.44 2.44 Sale price/unit 6.11 6.11 6.11 6.11 6.11 6.11 6.11 6.11 6.11 6.11 6.11 6.11 BEP million kWh 0.56 0.91 0.57 0.94 0.59 0.96 0.64 1.05 0.72 1.19 0.92 1.53 BEP NPR million 3.41 6 3.50 5.73 3.59 5.89 3.89 6.40 4.41 7.30 5.61 9.38 Units sold 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 Units shortfall -0.24 0.11 -0.23 0.14 -0.21 0.16 -0.16 0.247 -0.08 0.39 0.12 0.73 PLF at BEP 63.6% 104.0% 65.4% 107.0% 67.1% 110.1% 72.6% 119.5% 82.3% 136.3% 104.8% 175.1% Current PLF 91% 91% 91% 91% 91% 91% 91% 91% 91% 91% 91% 91% Table A4.20 | Results of Break-even Analysis for Grid Connected MHP - with Subsidy Distance of Grid Extension (km) Plant size (kW) 0 1 2 5 10 20 20 157% 173% 191% 258% 462% Not Applicable 50 84% 88% 92% 106% 132% 205% 100 64% 65% 67% 73% 82% 105% Table A4.21 | NEA Cost of Delivery to Remote Communities Households served Grid (HH/ 200 500 1000 extension sq. km) (km.) CoD (NPR ) CoG (NPR ) Total CoD (NPR ) CoG (NPR ) Total CoD (NPR ) CoG (NPR ) Total 109 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 50 13.9 7.8 21.7 13.3 7.8 21.1 12.5 7.8 20.3 0 75 11.3 7.8 19.1 10.2 7.8 18.0 9.5 7.8 17.3                       50 15.9 7.8 23.7 13.9 7.8 21.7 12.9 7.8 20.6 1 75 12.9 7.8 20.7 10.9 7.8 18.7 9.8 7.8 17.6                       50 17.9 7.8 25.7 14.7 7.8 22.5 13.2 7.8 21.0 2 75 14.8 7.8 22.6 11.6 7.8 19.4 10.2 7.8 18.0                       50 23.6 7.8 31.4 17.0 7.8 24.8 14.4 7.8 22.2 5 75 20.6 7.8 28.3 13.9 7.8 21.7 11.3 7.8 19.1                       50 33.2 7.8 41.0 20.9 7.8 28.6 16.3 7.8 24.1 10 75 30.2 7.8 38.0 17.8 7.8 25.6 13.2 7.8 21.0                       50 52.5 7.8 60.3 28.5 7.8 36.3 20.2 7.8 27.9 20 75 49.4 7.8 57.2 25.5 7.8 33.3 17.1 7.8 24.9 Note: 200 households (HH) served at an average load of 100 W per HH = 20 kW; 500 HHs = 50 kW; 1000 HHs = 100 kW; CoG = cost of generation Table A4.22 | Cost of Delivery - 100 kW MHP vs NEA Grid Grid extension Distribution density NEA Levelized Cost of Delivery to 100 LUCE from 100 kW MHP Grid Connect- (km) (hh/sq.km) kW Load Center (NPR /kWh) ed - Without Subsidy (NPR /kWh) 50 20.33   0 75 17.26 10.54 50 20.64   1 75 17.57 10.68 50 21.03   2 75 17.95 10.81 50 22.18   5 75 19.11 11.22 50 24.10   10 75 21.03 11.89 50 27.95   20 75 24.87 13.24 Annex 5 Details on economic analysis Methodology for Calculating The prevailing kerosene price of NPR 105.5/liter and Consumer Surplus from Shift to the LUCE from the relevant MHP (20 kW, 50 kW or Electric Lighting 100 kW MHP) are used in the calculation. 110 Following IEG (2008) and UNDP (2011), a log linear Kilo-lumen-hour consumption per household per functional form for demand for electricity is as- month for electricity based on the average house- Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications sumed to estimate consumer surplus from a switch hold electricity consumption of 18 kWh/month (as to electric lighting from kerosene lighting. found in the site surveys) and a luminous efficacy of 15 lumens per watt on the assumption that the Consumer's surplus= majority of micro hydropower fed households are still using incandescent lamps. Kilo-lumen-hour consumption per household for With η= ln(Pt)-ln(Pe) and K=P/Qη kerosene (from Rao (2011)) describes consumption ln(Qt)-ln(Qe) of 3 liters of kerosene/month in India to use kero- sene lamps producing 37 lumens for 4 hours a day. Pe = Price in NPR per kilo-lumen-hour for electricity = 1.63 Based on the above, consumer surplus is calculated Qe = Kilo-lumen-hours consumed per month with to be NPR 1,416/household/month or NPR 16,993/ electricity = 270 household/annum for households that are served Pt = Price in Rupees per kilo-lumen-hour for kero- by a 20 kW MHP. sene = 71.28 Qt = Kilo-lumen-hours consumed per month with kerosene = 4.44 Table A5.1 | Input parameters for a 10 hp (7.5 kW) Diesel Engine Input Parameters Units Value Plant size kW 7.5 Plant life Years 15 Capital cost of diesel generator set less 13% VAT NPR million 0.186 Specific fuel consumption of diesel l/hr 1.67 Economic cost of diesel NPR /l 105.5 Hours of operation in a year hr 600 O&M for every 250 hrs of operations NPR 2,000 Annual O&M cost for 600 hrs of operation NPR 4,800 Overhaul for every 6,000 hrs of operations (approx. once in every 10 years) NPR million 0.03 Escalation % 5% Conversion Factors Diesel Electric Energy content/unit (MJ/liter and MJ/kWh) 37 3.6 Efficiency 35% 80% Effective energy/unit (MJ/liter and MJ/kWh) 12.95 2.88 Liter of diesel per kWh 0.22   Liters of diesel to produce 7.5kWh 1.67   Table A5.2 | Levelized Unit Cost of Electricity for 7.5 kW Diesel Engine Years Units 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Investment NPR million 0.19                               Expenses NPR million   0.11 0.12 0.12 0.13 0.13 0.14 0.15 0.16 0.16 0.17 0.21 0.19 0.20 0.21 0.22 Units generated kWh   4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 Discount rate 6% NPV investment + costs 1.66 NPR million Lifetime units generated (discounted) 43,705 kWh Levelized Unit Cost of Electricity (LUCE) 38.09 NPR /kWh Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 111 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 112 Table A5.3 | Economic Analysis for 20 kW MHP Years Units - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Units of electricity generated                                   Domestic kWh   34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 Annexes Commercial kWh   7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 Total MWh   41.76 41.76 41.76 41.76 41.76 41.76 41.76 41.76 41.76 41.76 41.76 41.76 41.76 41.76 41.76 Benefits                                   Consumer surplus on lighting NPR million   2.72 2.72 2.72 2.72 2.72 2.72 2.72 2.72 2.72 2.72 2.72 2.72 2.72 2.72 2.72 Net savings on en- ergy cost for PEU NPR million   0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 CER sales NPR million   0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 Total benefits NPR million   2.85 2.85 2.85 2.85 2.85 2.85 2.85 2.85 2.85 2.85 2.85 2.85 2.85 2.85 2.85 Expenses                                   O&M NPR million   0.16 0.17 0.18 0.18 0.19 0.20 0.21 0.22 0.24 0.25 0.26 0.27 0.29 0.30 0.32 Total expenses NPR million   0.16 0.17 0.18 0.18 0.19 0.20 0.21 0.22 0.24 0.25 0.26 0.27 0.29 0.30 0.32 Cash flow analysis Units Years Cash outflow   0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Investment NPR million 7.80                               Total expenses NPR million   0.16 0.17 0.18 0.18 0.19 0.20 0.21 0.22 0.24 0.25 0.26 0.27 0.29 0.30 0.32 Total cash outflow NPR million 7.80 0.16 0.17 0.18 0.18 0.19 0.20 0.21 0.22 0.24 0.25 0.26 0.27 0.29 0.30 0.32 Cash inflow                                   Benefits NPR million   2.85 2.85 2.85 2.85 2.85 2.85 2.85 2.85 2.85 2.85 2.85 2.85 2.85 2.85 2.85 Net flow NPR million -7.80 2.69 2.68 2.67 2.66 2.65 2.64 2.63 2.62 2.61 2.60 2.59 2.57 2.56 2.54 2.53 EIRR   33.69% Discount rate 6%   NPV 17.73 NPR million NPV investment + costs 9.91 NPR million NPV benefits 27.63 NPR million Benefits/cost 2.79   Lifetime units generated (discounted) 405.58 MWh Levelized Unit Cost of Electricity (LUCE) 24.43 NPR /kWh Levelized Unit Benefit of Electricity (LUBE) 68.14 NPR /kWh Table A5.4 | Economic Analysis for 50 kW MHP Years Units - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Units of electricity generated                                   Domestic kWh   86,400 86,400 86,400 86,400 86,400 86,400 86,400 86,400 86,400 86,400 86,400 86,400 86,400 86,400 86,400 Commercial kWh   18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 Total MWh   104.4 104.4 104.4 104.4 104.4 104.4 104.4 104.4 104.4 104.4 104.4 104.4 104.4 104.4 104.4 Benefits                                   Consumer surplus on lighting NPR million   6.70 6.70 6.70 6.70 6.70 6.70 6.70 6.70 6.70 6.70 6.70 6.70 6.70 6.70 6.70 Net savings on energy cost for PEU NPR million   0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27 CER sales NPR million   0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 Total benefits NPR million   7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 Expenses                                   O&M NPR million   0.38 0.39 0.41 0.44 0.46 0.48 0.50 0.53 0.56 0.58 0.61 0.64 0.68 0.71 0.74 Total expenses NPR million   0.38 0.39 0.41 0.44 0.46 0.48 0.50 0.53 0.56 0.58 0.61 0.64 0.68 0.71 0.74 Cash flow analysis Years Cash outflow   0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Investment NPR million 18.41                               Total expenses NPR million   0.38 0.39 0.41 0.44 0.46 0.48 0.50 0.53 0.56 0.58 0.61 0.64 0.68 0.71 0.74 Total cash outflow NPR million 18.41 0.38 0.39 0.41 0.44 0.46 0.48 0.50 0.53 0.56 0.58 0.61 0.64 0.68 0.71 0.74 Cash inflow                                   Benefits NPR million   7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 Net flow NPR million -18.41 6.66 6.64 6.62 6.60 6.58 6.56 6.53 6.51 6.48 6.45 6.42 6.39 6.36 6.33 6.29 EIRR  35.50% Discount rate  6% NPV 44.95 NPV investment + costs 23.39 NPR million NPV benefits 68.34 NPR million Benefits/cost  2.92 Lifetime units generated (discounted) 1,013.96 MWh Levelized Unit Cost of Electricity (LUCE) 23.07 NPR /kWh Levelized Unit Benefit of Electricity (LUBE) 67.40 NPR /kWh Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 113 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 114 Table A5.5 | Economic Analysis for 100 kW MHP Years Units 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Units of electricity generated                                   Domestic MWh   172.8 172.8 172.8 172.8 172.8 172.8 172.8 172.8 172.8 172.8 172.8 172.8 172.8 172.8 172.8 Annexes Commercial MWh   36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 Total MWh   208.8 208.8 208.8 208.8 208.8 208.8 208.8 208.8 208.8 208.8 208.8 208.8 208.8 208.8 208.8 Benefits                                   Consumer surplus on lighting NPR million   13.18 13.18 13.18 3.18 13.18 13.18 3.18 3.18 13.18 13.18 3.18 13.18 13.18 13.18 13.18 Net savings on energy cost for PEU NPR million   0.59 0.59 0.59 0.59 0.59 0.59 0.59 0.59 0.59 0.59 0.59 0.59 0.59 0.59 0.59 CER sales NPR million   0.14 0.14 0.14 0.14 0.14 0.14 0.14 0.14 0.14 0.14 0.14 0.14 0.14 0.14 0.14 Total benefits NPR million   13.91 13.91 13.91 3.91 13.91 13.91 13.91 13.91 13.91 13.91 13.91 13.91 13.91 13.91 13.91 Expenses                                   O&M NPR million   0.71 0.74 0.78 0.82 0.86 0.90 0.95 1.00 1.05 1.10 1.15 1.21 1.27 1.33 1.40 Total expenses NPR million   0.71 0.74 0.78 0.82 0.86 0.90 0.95 1.00 1.05 1.10 1.15 1.21 1.27 1.33 1.40 Cash flow analysis Years Cash outflow   0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Investment NPR million 4.65                               Total expenses NPR million   0.71 0.74 0.78 0.82 0.86 0.90 0.95 1.00 1.05 1.10 1.15 1.21 1.27 1.33 1.40 Total cash outflow NPR million 4.65 0.71 0.74 0.78 0.82 0.86 0.90 0.95 1.00 1.05 1.10 1.15 1.21 1.27 1.33 1.40 Cash inflow                                   Benefits NPR million   13.91 13.91 13.91 13.91 13.91 13.91 13.91 13.91 13.91 13.91 13.91 13.91 13.91 13.91 13.91 Net flow NPR million -34.65 13.20 13.17 13.13 13.09 13.05 13.01 12.96 12.92 12.87 12.81 12.76 12.70 12.64 12.58 12.51 EIRR 37.49%   Discount rate 6%   NPV 91.08 NPR million NPV investment + costs 44.03 NPR million NPV benefits 135.11 NPR million Benefits/cost 3.07   Lifetime units generated (discounted) 2,027.92 MWh Levelized Unit Cost of Electricity (LUCE) 21.71 NPR/kWh Levelized Unit Benefit of Electricity (LUBE) 66.63 NPR/kWh Estimation of Avoided CO2 Emissions and Economic Benefit from Sale of CERs Following the Nepal MHP CDM Project Design Document, the avoided emissions from an micro hydropower project (in tons of CO2/year) and the value of the associated CERs are calculated as follows: 115 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annual energy generation (in kWh per year) = Installed Capacity x Plant Load Factor x 24 hours x 365 days Average technical distribution losses = 10% CO2 emission coefficient for displaced fuel = 0.9 kg CO2eq/kWh Avoided CO2 emissions = Annual energy generation / (1 – Average technical distribution losses)) x (0.9 kg CO2eq/kWh) x (1/1000) CER price = US$7 per ton of CO2 Economic benefit = Avoided CO2 emissions x CER price Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 116 Annex 6 Annexes Calculation of levelized unit cost for 20 kW diesel based generation and distribution Years Units 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Expenses                                   Investment NPR million 3.35                               O&M NPR million   1.56 1.64 1.72 1.96 1.90 2.00 2.10 2.35 2.31 2.43 2.55 2.83 2.81 2.95 3.10 Units generated                                   Domestic kWh   34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 Commercial kWh   7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 Total kWh   41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 Discount rate 6% NPV investment + costs 24.37 NPR million Lifetime units generated (discounted) 405,584 kWh Levelized unit cost of electricity (LUCE) 60.09 NPR/kWh Annex 7 Calculation of levelized unit cost for 42 kWp (20 kW) SPV based generation and distribution Years Units 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Expenses                                             NPR Investment million 14.38                                         NPR O&M million   0.29 0.30 0.32 0.33 0.35 4.67 0.39 0.40 0.43 0.45 4.77 0.49 0.52 0.54 0.57 4.90 0.63 0.66 0.69 0.73 Units generated                                             Domestic kWh   34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 Commercial kWh   7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 Total kWh   41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 Discount 6% rate NPV investment + costs 26.34 NPR million Lifetime units gener- 478,984 ated (discounted) kWh Levelized 54.99 Unit Cost of Electricity (LUCE) NPR/kWh Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 117 Annex 8 A promising mini-grid site in Phungling Bazaar,Taplejung The AEPC has undertaken a study to implement a generates 80 kW for 24 hours and another 250 kVA mini-grid project in Phungling, the district head- diesel generator set which generates 160 kW dur- quarters and the central market place of the Taple- ing the 8-hour peak period is the central source of 118 jung district located in the north-east remote corner of Nepal. This would be the second pilot project after power for Phungling Bazaar. These two plants are synchronized and run by Taplejung Electricity Us- Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications the Baglung mini-grid and would provide additional ers Committee (TEUC), a not-for-profit organization information on the financial and economic viability established by the local residents and registered at of mini-grid systems. A brief description of the elec- the District Administration Office. The hourly power trification possibilities in Phungling Bazaar including consumption and generation of Phungling Bazaar is the Taplejung mini-grid system is provided herein. shown in Figure A8.1. CURRENT STATUS OF ELECTRIFICATION IN The AEPC study found that the diesel generator set TAPLEJUNG consumes 320 liters of diesel to operate for eight hours. With the escalation in diesel prices in the in- According to the AEPC, Phungling Bazaar has a sup- ternational market, operating expenses of the die- pressed peak hour demand of 700 kW and off-peak sel generator set are very high. Therefore, the TEUC hour demand of 400 kW. However, these demands charges a very high electricity tariff to recover these are not met because Phungling Bazaar is not yet operating costs. The tariff charged to the consumers receiving power from the national grid. A 125 kW is set at NPR 175 for the first 10 kWh, NPR 22/kWh “Sobuwa Khola” MHP (established in 2041 B.S.) that from 10 kWh to 25 kWh and NPR 25/kWh from 25 kWh and above. Rest of the demand is supplied by Figure A8.1: Hourly power consumption and generation for distributed diesel generator sets (in isolated mode, Phungling Bazaar i.e. not synchronized with the 250 kVA large genera- 600 tor) owned by various small-scale industries, offices, 500 banks and other companies. 400 Load in kW 300 ELECTRIFICATION BY NATIONAL GRID EXTENSION 200 100 As the national grid has not reached most parts of 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Taplejung, the district is currently electrified by iso- Hour of the day lated MHPs with a total generating power of 1056 kW. Due to the remote location and hilly terrain, it Load Generation is quite challenging to extend the national grid to Phungling Bazaar. The NEA started the extension of development of a 244 kW “Middle Phawa Khola” its 33 kV line from Phidim, Terathum district towards mini hydropower plant. For its implementation, Phungling Bazaar. Electric poles were extended up the Department of Local Infrastructure Develop- to Nangkholang VDC (10 km away from Phungling ment and Agricultural Roads (DoLIDAR) has already Bazaar) but the overhead conductors were installed pledged 80 percent of support and the community 119 only up to Bhaluchowk (40 km away from Phun- has formed a cooperative to borrow the remaining Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications gling Bazaar). 20 percent as loans. However, after further examina- tion the AEPC found that the hydropower site has Due to lack of regular maintenance and care, the the potential to generate 400 kW for a total cost of installed poles and conductors have already started NPR 112 million. Therefore, the community has de- to age and degrade. Moreover, there is no clear plan cided to develop the 400 kW plant in view of the to construct a 33/11 Substation at Phungling Bazaar escalating power demand. (except for land allocation) to distribute the electric- ity from the national grid. Hence, it seems unlikely 3. Interconnecting eight nearby MHPs into a mini- that the national grid will be extended to Phungling grid capable of supplying 660 kW of off-peak power Bazaar for another few years. Therefore, the AEPC felt and 492 kW of peak power: The DDC of Taplejung it was necessary to analyze other available options considered interconnecting 12 MHPs located near to electrify Phungling Bazaar. the Phungling Bazaar into a mini-grid. The mini-grid could supply 229 kW during peak hours after meet- ELECTRIFICATION BY ALTERNATIVE ing the demands of distribution areas of individual METHODS MHPs and 400 kW during off-peak hours for a total project cost of NPR 130 million. However, due to the The AEPC and RERL have considered an integrated ap- large capital required for such a small addition in proach to fulfill the electricity demand of Phungling capacity, the project was not found to be feasible Bazaar. Under this plan, they have considered imple- by the AEPC. But, due to the urgent need for more menting the following three measures side by side: power, the DDC again considered interconnecting three MHPs with the existing mini hydropower plant 1. Upgrading the existing “Sobuwa Khola” MHP to into a mini-grid. This mini-grid could supply 170 kW generate at full capacity of 125 kW: In the past, an of power with an investment of NPR 15 million. HDPE pipe was used to fix a 160 m section of the Based on studies done by the DDC, the AEPC and head-race canal damaged by a landslide, which RERL conceptualized a new design to interconnect has considerably reduced the discharge available eight MHPs into a mini-grid (see Figure A8.2). The for electricity generation. The AEPC has also identi- red line shows the 26.6 km long existing 11 kV line, fied that the intake structure requires some repairs and the green line shows the 16.5 km long addition- to operate at full capacity. After these repairs are al 11 kV line that needs to be constructed. The yel- concluded for an estimated cost of NPR 20 million, low pins show the location of the eight MHPs. The Sobuwa Khola can generate its capacity of 125 kW. proposed mini-grid will provide 660 kW of off-peak power and 492 kW of peak power for a cost of NPR 2. Constructing a new mini hydropower plant called 57 million. The AEPC found this mini-grid project to “Middle Phawa Khola” to generate 400 kW: The com- be more feasible with an NPV of NPR 55 million and munity in collaboration with the DDC initiated the an IRR of 27 percent. Annexes ESTIMATED BUDGET FOR THE The AEPC has determined that after the implemen- INTEGRATED APPROACH tation of the integrated approach Phungling Bazaar will have 1,185 kW power available during the off- If the integrated approach is undertaken by imple- peak time and at least 1,017 kW of power during the 120 menting all three possibilities, it is possible to in- peak period. According to the AEPC study, this pow- crease the electricity supply in Phungling Bazaar by er should be enough to supply both the off-peak Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 1,105 kW within two years. The breakdown of capac- and peak demands of Phungling Bazaar after two ity addition and estimated budget is as follows. years. Moreover, by replacing the use of diesel gen- l Upgrading “Sobuwa Khola” (45 kW): erators with RETs, the AEPC plans to avoid NPR 1.8 NPR 20,000,000.00 million each month in diesel costs alone and reduce l “Middle Phawa Khola” (400 kW): monthly carbon emissions by 48 TCO2 equivalent. NPR 112,668,258.00 l Mini-grid comprising eight MHPs (660 kW): A 90 kW “Chimal” MHP that is due to be commis- NPR 57,700,000.00 sioned in 2014 will supply power to Phungling Ba- zaar. This MHP can also be synchronized and inter- The total estimated budget for integrated power connected to the “Sobuwa Khola” MHP. system development at Phungling Bazaar is NPR 190,368,258.00 (US$1,983,002.68). Figure A8.2: Proposed Phungling mini-grid comprising 8 MHPs Annex 9 Technical discussion on grid connection of MHPs ISLANDING the MHP to continue operating autonomously and provide uninterrupted service to local customers as Islanding is the condition when a part of the grid (in well as uninterrupted revenue to the MHFG during load shedding on the national grid. This configura- this case, the MHP’s local distribution grid now con- nected to the national grid) becomes temporarily iso- tion is known as intentional islanding. Intentional 121 lated from the national grid but remains energized by islanding requires the following steps to be per- Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications power from the MHP. Islanding can be unintentional formed in the correct sequence and with appropri- or intentional. Unintentional islanding is a potentially ate timing: hazardous condition, which occurs when the MHP l The MHP must intercept abnormal conditions fails to properly shut down during a grid disturbance. on the national grid and disconnect the circuit It presents a hazard to line workers who might as- breaker to separate its generator and islanded lo- sume that the lines are not energized during a failure cal distribution grid from the national grid. of the central grid. It also denies central control over l Upon disconnecting, the MHP must immediately power quality and can damage utility or customer switch from “synchronized mode” to “isolated equipment at the time of reconnection, if not prop- mode” enabling the ELC to regulate the frequen- erly coordinated. Islanding can be detected by de- cy. Additionally, AVR needs to switch over from tecting over-/under-frequency, over-/under-voltage, power factor control mode to voltage control rate of change of frequency, voltage phase jump, and mode. reverse reactive power flow. Details on common re- l The settings of various protective relays need to lays used for detection in MHP-grid connection have be different in the islanded mode, since small been discussed later in this Annex. generators produce lesser magnitude of fault current than large generators on the national On the other hand, with appropriate safety and con- grid. Additionally, voltage and frequency toler- trol mechanisms, intentional islanding89 can be used ances need to be broader in the island mode. to provide reliable service to consumers of grid- l The MHP must continue to sense line voltage on connected MHPs when there is load shedding on the national grid. When the national grid power the national grid. In the case of an MHP connected returns, it must initiate reconnection only after to the national grid with regular load shedding, the ensuring that the MHP generator is synchronized MHP-grid interconnection can be designed to allow with the main grid. “A Guidebook on Grid Interconnection and Islanded Operation of Mini-Grid Power Systems Up to 200 kW”, Chris Greacen, Richard Engel, Thomas Quetch- 89 enbach. Lawrence Berkeley National Laboratory & Schatz Energy Research Center April 2013 Annexes FREQUENCY AND VOLTAGE CONTROL IN FREQUENCY AND VOLTAGE CONTROL IN ISOLATED MODE GRID CONNECTED MODE For a synchronous generator used in MHP, the fre- A small micro hydropower generator connected to 122 quency is determined by the rotational speed of the the national grid does not have to regulate its own generator shaft connected to the turbine. Faster rota- frequency. The small micro hydropower genera- Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications tion generates a higher frequency and slower rota- tor becomes a small part of a much larger system tion generates a lower frequency. A generator’s fre- consisting of large generators all spinning in lock- quency depends on the balance between the flow step. As long as it is connected to the grid, it will rate of water through the turbine and the amount of generate power at the grid frequency, which is set electrical load served by the generator. With no load, by very large generators operating on the grid. The the generator freewheels and runs at a very high grid-connected small generator makes no attempt speed. If the load is excessive, the generator slows to regulate the frequency. It just injects current in down and the frequency drops below the standard. step with the grid’s frequency. Therefore, the ELC must be disabled when the MHP is grid connected. Large and sudden changes in load or generation re- sources can result in frequency deviation. Therefore, Regulation of voltage by a grid-connected micro in the case of an isolated MHP, the generator must hydropower generator often depends on the pref- control the frequency. One method of frequency erence of the NEA. Frequency is subject to control control uses an electro-mechanical controller throughout the system by a few large generators, known as a governor, which opens the water sup- whereas, voltage varies from node to node through- ply valve in small increments to increase the water out the system depending on the distribution of flow at the moment it detects a drop in frequency. loads, generation, and the power factor correcting Conversely, the governor closes the valve in small capacitor banks. In some locations, the NEA may decrements when it detects excessive frequency. prefer that an MHP operate its AVR to keep a con- This negative feedback loop keeps the frequency stant power factor, which is known as “operating in within the specified limits under most conditions. power factor control mode”. This helps ensure that However, governors tend to be expensive (and their NEA’s efforts at regulating voltage through capaci- responses are slow for the isolated system) for use in tor banks, load tap changers, and voltage regulators small micro hydropower systems. are not complicated by the MHP simultaneously adjusting its AVR to also regulate voltage. In other In isolated MHPs, control of frequency is commonly cases, particularly in parts of the distribution system accomplished by an ELC, which manages the load where the NEA does not have good voltage regu- on the generator. By adding progressively higher lation, the NEA may ask the MHP to regulate volt- loads, the generator can be slowed down until it age, which is known as operating the AVR in voltage reaches the required rotational speed for the prop- control mode. NEA often determines this on the ba- er AC frequency. As long as the ELC maintains this sis of a power flow study, in which the system volt- constant load, also known as the design load, the ages, currents and power flows are modeled under frequency can be kept within the specified limits. To minimum and maximum load conditions with the maintain the design load, ELC diverts excess power addition of the proposed distributed generators. to resistive heating ballasts. However, frequency control by the ELC is not adequate when the load MODIFICATIONS REQUIRED FOR GRID exceeds the generating capacity of the source. If the CONNECTION OF MHPs load exceeds the generating capacity, the generator slows down, the frequency drops, and the voltage An isolated MHP with its own local distribution grid will sag. More advanced hydropower systems em- must be modified in the following ways to operate ploy automatic relays, which drop a section of the in grid-connected mode in addition to providing load when the frequency begins to sag. power to the local community during load shedding: l Disable frequency control by the ELC and enable A single line diagram of an MHP with required modi- power factor control by AVR while grid connect- fications for grid connection and with provisions for ed. Conversely, enable frequency control by ELC islanding is shown in Figure A9.1. and enable voltage control by AVR while serving the community during load shedding on the na- CONTROL 123 tional grid (i.e., during islanding mode). Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications l Connect safely to the national grid by ensuring The parallel operation of two or more generators is a appropriate frequency and phase sequence. complex procedure and requires an advanced con- l Provide quality power to the national grid with trol system, which is not normally included in MHPs appropriate power factor, voltage and low har- in Nepal. A microcontroller-based control panel is monic distortion. the main technology that makes synchronization of l Disconnect safely and quickly from the national MHPs with one another as well as the national grid grid during disturbances and load shedding, and possible. Synchronization requires measurement of reconnect after such events. Figure A9.1: Single line diagram of MHP grid connection with islanding Annexes electrical parameters, control with load sharing op- trips immediately if the current exceeds a set value; tions, synchronization and protection systems. this functionality provides fast clearing of high mag- nitude faults. However, since motors and some oth- The microcontroller-based ELC has incorporated er electrical loads draw a brief spike of high current 124 droop setting facility that shares the load in the when starting, relying on instantaneous overcurrent system proportional to the capacities of the genera- alone may result in undesired tripping when these Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications tors. The AVR provides the required excitation volt- types of loads are in use. To address this issue, the age and current to the generator to regulate the time overcurrent relay (51) allows a higher threshold output voltage of the generator. In the microcon- for shorter periods of overcurrent. (Usually, the cur- troller system, the AVR is equipped with droop volt- rent threshold is inversely proportional to the event age characteristics that allow parallel operation of duration.) the generators. The ELC regulates the active power whereas the AVR regulates the reactive power in the Another function of the time overcurrent relay (51) system. is to facilitate relay coordination. Faults close to the generator trip the overcurrent relay quickly, prevent- PROTECTION ing equipment damage. More distant faults gener- ally result in less fault current at the generator, so For the protection of power system equipment the time overcurrent relay trips after a delay, allow- (such as fuse, circuit breakers, contactor, relays and ing protective relays closer to the fault to trip first. emergency switches) and personnel working on them, these are included in the control panel. One Small generators can supply less fault current than of the special features of the control panel is the use large generators. If the difference between the fault of relays which sense any abnormal condition in the current and the maximum current under normal circuit and send tripping signals to the contactors conditions is small, detection of faults can be diffi- for quick and precise protection. Comprehensive cult. metering is used to indicate power, voltage, current, power factor and ballast load. The meter displays Synchronizing check (25) different system parameters and status of the fault The synchronizing check relay (also referred to as trips and system status. a synchronism check, synchrocheck, sync-check, or paralleling relay) is a key interconnection com- COMMON RELAYS USED IN GRID ponent for synchronous generators. Before a syn- CONNECTION OF MHPs chronous generator is connected to the grid, the generator voltage must be synchronized with the The functions of protective relays, circuit breakers, grid voltage, both in frequency and in phase. If the and other devices are indicated using device num- generator and the national grid are not synchro- bers, defined in the ANSI/IEEE C37.2 standard. These nized, large currents can flow at the time of connec- numbers are given in parentheses in this annexure. tion and damage the generator. The synchronizing check relay prevents the connection to the grid Instantaneous/time overcurrent (50/51) from being made when the generator is not syn- Excessive current (overcurrent) can be caused by a chronized with the grid. fault or by excessive demand. Overcurrent relays are widely used by utilities in electrical distribution sys- If automatic synchronization is used, the synchro- tems, for loads as well as for small generators. There nizing check relay may be part of the automatic are two closely related types of overcurrent relays, synchronization system. If manual synchronization often combined into a single package: the instanta- is used, the synchronizing check relay prevents the neous overcurrent relay (50) and the time overcur- breaker from being accidentally closed when the rent relay (51). The instantaneous overcurrent relay generator is not synchronized. Under voltage (27) required to detect the non-sinusoidal voltage wave- The under voltage relay trips if the grid voltage is form resulting from ferro-resonance. too low. One key function of the under voltage relay is to disconnect the generator if the national grid Over/under frequency (81 O/U) loses power. If the distributed generator continues The over-/under-frequency (81 O/U) relay discon- 125 to produce voltage, it could pose a hazard to util- nects the generator if the frequency is out of the Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications ity personnel who may assume that lines are dead acceptable range. This relay helps prevent uninten- since the national grid is not operating. In addi- tional islanding; if the generator disconnects from tion, with no national grid to regulate the voltage the grid, unless the remaining load is exactly equal and frequency, the distributed generator may not to the generator power output, the generator will remain within the required voltage and frequency either speed up or slow down, with a corresponding limits. The under voltage relay can also detect short increase or decrease in frequency. Recommended circuits and line-to-ground faults common on long over-/under-frequency protection settings for large- distribution lines that cause the voltage to drop. scale grids in Nepal are about 0.5 Hz below and 0.5 Hz above the nominal system frequency. Over voltage (59) Over voltage can be caused by a sudden loss of load Rate of change of frequency may also be taken into and result in major damage to system components. account to avoid nuisance tripping due to a normal On a grid-connected system, over-voltage can also drift in frequency; 2.5 Hz per second is a standard al- indicate an islanded condition if the generation lowable threshold. (This functionality is sometimes exceeds the local demand. The functions of under- given the device number 81R.) voltage and over-voltage relays are often combined into a single unit (27/59). Voltage-restrained over current (51V) In the case of a short circuit between phases or from Over voltage can also be caused by a phenomenon phase to ground, the initial high current spike decays known as ferro-resonance, which can occur when as the voltage drops. If the current decays too quickly, a distributed generator becomes suddenly isolated. it may drop below the threshold of the over-current Ferro-resonance occurs because distribution trans- relay (50/51) before that relay has a chance to oper- formers can have nonlinear inductance under cer- ate. The voltage-restrained or voltage-controlled tain abnormal conditions, such as a line break in one over-current relay (51V) allows the current threshold phase of a three-phase system or when distributed to depend on voltage, so that at lower voltages the generation and associated capacitors are islanded. relay trips at a lower current than at the normal sys- A peak or instantaneous over-voltage relay (59I) is tem voltage. Annex 10 International practices in grid connection of RETs INDIA Uttarakhand provides technical support to UREDA to roll out MHPs in the state. Specifically, the AHEC India holds the RETs responsible for performing an provides support in preparation of DFS, technical interconnection study to determine the required supervision and equipment testing. Currently, there 126 equipment, impacts on neighboring customers, are five MHP manufacturers in India that are active interconnection capacity, and measures to ensure in supplying MHP equipment. Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications safety of personnel and equipment. Additionally, there are no grid connection standards for RETs During the late 1990s and early 2000s, UNDP-GEF connecting to the grid at the distribution level. The supported the MNRE to roll out the hilly hydro- Central Electricity Authority Technical Standards for power program that aimed to help remote hill com- Connectivity to the Grid (2007) mentions connec- munities access electricity through the systematic tivity conditions at the distribution level. However, development of micro/mini and small hydropower these standards do not specify equipment ratings potential in selected hilly states in the country. A and give the electric utility a great deal of discretion terminal evaluation90 found that although the proj- in deciding the design of the interconnected facil- ect aimed to set up several standalone hydropower ity, which has created a barrier to grid connection projects, most of the projects ended up as grid con- for RETs. nected SHPs with several projects having commer- cial investors. However, the project did give a huge Micro hydropower generation in India is largely in fillip to the small hydropower sector in the country the hills of the Himalayas and parts of Western and and helped develop an active small hydropower Eastern Ghats. The Ministry of New and Renewable manufacturing, installation and development in- Energy Resources (MNRE) provides capital subsidy, dustry. which is channelized through state nodal agencies (SNAs). Among these currently, the Uttarakhand Unlike SHPs, micro hydropower projects did not Renewable Energy Development Agency (UREDA) attract the attention of commercial investors since is active in the area of micro hydropower develop- they were not very attractive financially and were ment. often plagued by low PLFs and low revenues. Even- tually, micro hydropower projects got limited to be- The Alternate Hydro Energy Centre (AHEC) that is lo- ing implemented by NGOs and local communities cated in the Indian Institute of Technology, Roorkee, with generous capital subsidy from the MNRE and Terminal Evaluation and Impact Assessment of The UNDP/GEF Project – Ind/91/G-31 – Optimizing Development Of Small Hydel Resources In The Hilly 90 Regions Of India, Indian Institute of Public Administration, New Delhi the SNA. UREDA, for example offers 70 percent to bio-oil but also biogas and improved cookstoves 80 percent capital subsidy and supports only local for cooking applications. Also for the first time, the communities in setting up micro hydropower proj- MNRE decided to work in close collaboration with ects. NGOs as implementing partners rather than work through the SNAs. More significantly, the program 127 However, a key feature of UREDA’s micro hydropow- envisaged that the biomass gasifiers would be Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications er program has been the use of metering and the owned and operated by the local community rep- encouragement given to grid connectivity once the resented by Village Energy Committees (VEC). A key grid enters the service area of the micro hydropow- task for the NGO (implementing partner) was to er project. Ramgad is a village in Uttarakhand that help in the formation and nurturing of these VECs. got electricity supply with a 100 kW MHP in 1995. In many aspects, this arrangement is similar to the UREDA provided bulk of the funds for setting it up. role that an RSC plays. But a key difference is that the Until 2004 power supply was through unmetered community has a significant equity (sweat and cash) connections, when the grid was extended to the in the micro hydropower sector in Nepal, but in the area. UREDA helped the Ramgad Urja Samiti that VESP, with 90 percent coming as subsidy from the was managing the MHP to connect to the grid. Each MNRE and the rest often from state governments, family put in INR 10,000 as contribution to partly fi- the local community was handed an asset for which nance the cost of grid connection. Under a tripartite they had virtually paid nothing. A World Bank study92 PPA with the Uttarakhand Power Corporation Ltd., found that VECs were unsuccessful largely because the Ramgad Urja Samiti gets 25 percent of the rev- the community had little stake in the asset (usually enue while UREDA gets 75 percent of the revenue a biomass gasifier) and the technology was not easy from the sale of power to the grid. for the remote communities to handle, especially with poor after sales service from distantly located Today, there are several micro/mini hydropower gasifier manufacturers. Figure A10.1 below depicts plants that are connected to the grid. Key problems the typical problem cycle in these projects. faced by them relate to quality and reliability of the grid for evacuating power and unattractive tariffs offered.91 However, overall, the micro hydropower Figure A10.1: Problem cycle of biomass gasifiers for rural electrification sector in India is tiny and has not been able to at- tract significant commercial interest in either own- Inadequate Improper training operations ership/ operations of MHPs or in MHP manufactur- ing. Interestingly, some of the micro hydropower Frequent installers in India reported having purchased tur- breakdown bines from Nepal. Lack of interest Poor after sales Low Village Energy Security Programme in operations service uptime During the first decade of this century, MNRE pilot- ed the Village Energy Security Programme (VESP) in about 200 locations in the country. The key feature Lack of confidence of the programme was total energy security to off- grid villages. This included not only the provision Non-payment No interest in of dues biomass supply of electricity access through local generation using biomass gasifiers or diesel generating sets run on 91 Cost of generation varies with the size of the plant. Larger plants enjoy considerable scales of economy. But energy regulators routinely club micro/mini hydropower plants with SHPs (usually up to 5 MW) while determining tariff on a cost+RoE basis. This tends to make the tariffs a little less attractive to MHPs. 92 India: Biomass for Sustainable Development: Lessons for Decentralized Energy Delivery Village Energy Security Programme, World Bank, 2011 Annexes It is interesting to note that the micro hydropower Board (CEB), addressed this issue in one instance program has successfully used the very same VEC in by subsidizing half the cost of grid upgrades for a the form of MHFGs to manage MHPs in remote lo- group of MHPs willing to connect to the national cations. A key enabler for this is the demand driven grid. 128 process of micro hydropower with the community having a very significant financial stake in setting up Recent regulatory changes and the publication of a Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications the MHP. project approval guidebook for grid connection of new and existing renewable energy projects have Biomass Energy for Rural India: UNDP-GEF and streamlined the process for bringing new renew- Government of Karnataka able generation online. Sri Lanka’s Sustainable En- Biomass Energy for Rural India (BERI), a project im- ergy Authority prepares the guidebook, which lays plemented in the Government of Karnataka, a state out a process in which an applicant first registers in south India with support from UNDP-GEF was a project and performs a pre-feasibility study. The based on mobilizing local communities to build a concise guidebook provides detailed instructions supply chain for biomass fuel to be used in commu- for the entire process, application forms, and appli- nity owned and operated biomass gasifier power cation process flowcharts in a single document. Ad- plants that are connected to the electricity grid at ditionally, checklists specific to the energy resource distribution voltages (11 kV). For the first time in type (biomass, hydro or wind) list the information India, a community owned and managed biomass required in the pre-feasibility study. gasifier power plant (3 x 100 kW + 1 x 200 kW) was connected to the grid at 11 kV. Subsequently, a TANZANIA PPA was also signed with the distribution company (Bangalore Electricity Supply Company) for pur- The Government of Tanzania through the Ministry chase of power from the power plant. Although, the of Energy and Minerals is establishing a framework plant was originally designed for supplying power for developing small power projects in collaboration to the nearby villages, it was soon realized that with with various international development partners. large irrigation pumping loads in the area, the plant The framework aims to accelerate electricity access would not be able to meet the demand. Therefore, by promoting development of small power projects a decision was taken to connect it to the grid and among local and foreign private investors. It includes operate it as an IPP. However, due to the instability “Standardized Power Purchase Agreement” and of the 11 kV rural feeder line and also several techni- “Standard Tariff Methodology” applicable between cal issues with the biomass power plant, synchro- the developer of renewable energy projects with nization of the plant with the grid proved elusive capacity ranging from 100 kW to 10 MW and buyers for long periods of time. Therefore, in the context of such as the national grid or local isolated grids. The MHPs being grid connected in Nepal, a significant framework, which is being developed pursuant to lesson is quality of power from both the generating Tanzania’s Electricity Act (2008), opens the possibil- plant and the grid is important to ensure evacuation ity of implementing rural electrification projects and of power to the grid. aims to reduce negotiation time and cost. SRI LANKA THAILAND Sri Lanka was an early leader in grid-connected In Thailand, 1,200 MW of renewable electricity gen- MHPs, majority of which were originally built as iso- eration projects are online and an additional 3,700 lated systems to power tea plantations. However, MW of projects have signed PPAs. However, Thailand grid capacity constraints have recently limited the recently made the process of national grid connec- ability of existing MHPs to connect to the grid. Sri tion more cumbersome by introducing subjective Lanka’s national electricity utility, Ceylon Electricity approval steps and requiring applicants to demon- strate financial soundness by posting refundable CHINA deposits. These changes have slowed down the previously dynamic renewable energy market. China passed the Renewable Energy Law in 2006 with the aim of increasing the use of renewable energy up DENMARK to 10 percent by 2020. The law requires transmission 129 companies to provide grid connection to RETs and Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Denmark has set a FIT requiring electricity utilities to to purchase power from these facilities. In addition, it buy all power produced from RETs at 70 percent to offers financial incentives such as discounted lending 85 percent of the consumer retail price of electric- and tax preferences for renewable energy projects. ity in the given distribution area. RETs are provided The tariff for renewable energy is set by the National open and guaranteed access to the national grid Development and Reform Commission at the nation- such that the national grid is required to finance, al level and is spread out among consumers. construct, interconnect, and operate the transform- er, transmission and distribution infrastructure for GERMANY RETs. Additionally, a general carbon tax is levied on all forms of energy, which adds approximately EUR Germany passed the Renewable Energy Sources Act 0.013/kWh of additional income for RETs. in 2004 to increase the share of renewable energy sources in power supply to at least 12.5 percent by To streamline the grid connection procedure of 2010 and 20 percent by 2020. The Act prioritizes as RETs, the Danish Energy Authority provides “One well as outlines procedures for connecting RETs to Window” services for renewable energy tenders, the national grid, and sets standards for purchase, site approvals, environmental impact assessments, transmission, and payment for such electricity by the construction, operation, and licensing of generating national grid. The Act also includes FITs and ascribes plants. responsibility of various interconnection costs. AUSTRALIA KENYA Australia passed the Renewable Energy Act in 2000 Kenya began offering FITs to encourage renewable with a target to add 9,500 Giga-watt-hours of re- energy development in 2008. However, so far there newable energy per year. The Act includes a frame- has been little project development in response. Ef- work titled the Mandatory Renewable Energy Tar- forts are under way for Kenya Power, the national get (MRET) scheme to create, trade, and surrender electric utility, to introduce new interconnection Renewable Energy Certificates (RECs). This scheme procedures. Under this scheme, Kenya Power would allows renewable energy credits to be created by respond to an initial Expression of Interest from RETs renewable energy generators and traded to elec- to connect to the national grid. A simple one-page tric utilities (that may have high renewable energy document would inform the RET of Kenya Power’s production costs) to meet their renewable energy opinion on the proposed grid connection and alert purchase obligations. the RET of any potential problems with the project from the national grid’s perspective. Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 130 Annexes Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 131 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