Small Hydropower Development in Nepal

Annual International Training course on “Small Hydropower Development”, Feb 02-13, 2010 at Alternate Hydro Energy

Center, IIT Roorkee, India.

Er.Sanjeev Pokhrel

Contents Overview of Nepal

Background

Overview of the Sector

Legal and Policy Environment

Present Scenario

Rural Electrification

Challenges of SHP development in Nepal.

Conclusion

Overview of Nepal

Land Lock Country surrounded by India on three side and by China on one Side.

Land Area:147,181 sq.km

Literacy Rate: 48.6%

Political System: Federal Democratic Republic.

Per Capita Income: US $200

Animal dung

Energy Source

Fire wood78%

Agricultural & Animal Residue

9%

Fossil Fuel10%

Electricity2%

Renewable Energy1%

Background Classification of Hydropower Plants in Nepal

Less than 5 kW : Pico Hydro

5kw to 100 kW : Micro Hydro

100 kW to 1000kW : Mini Hydro

1 MW to 10 MW : Small Hydro

10 MW to 100 MW : Medium Hydro

Above 100 MW : Large Hydro

Overview of the sector Nepal has a huge potential of Hydropower

Development. Technically 83,000 MW is viable, out of which more than half is economically feasible.

Three major river basins: Karnali, Gandaki, Koshi.

Less than 2% potential utilized. Access to electricity 40% ( 20% in rural area) Per capita energy consumption : 78 kWh Power import from India : 80-90 MW

Gov. Target for 10 Years : 10,000 MW

Overview of the Sector

First Hydropower Project: 500kW Pharping in 1911 to feed electricity to Singhadurbar (Royal RanaPalace).

Biggest Hydropower Project: Kali Gandaki 144MW Installed Capacity :690 MW

Hydropower : 635 MW Thermal Plant : 55 MW Total Capacity of NEA SHP : 18 MW Total Capacity of Private Sector SHP : 25 MW

Declared Energy Crisis Peak demand 845 MW & Supply 325 MW 11 hours of Load shedding/day.

Legal and Policy Environment Government has adopted the Hydropower

Development Policy of 2001 and encourages both local as well as foreign investment, especially for the development of SHP

Highlights of the Hydropower Development Policy, Nepal 2001

Development at an affordable price Uplift the living standard of the rural community Efforts to reduce the risk of investment To open market for sale of electricity both at

national and international level. Easy acess for the expatriates to work in the

country in relation to the project implementation

Legal and Policy EnvironmentGovernment Agencies in the power sector

i. Ministry of Water Resources (MoWR)ii. Water and Energy Commission Secretariat

(WECS) – planning and policy research.iii. Department of Electricity Development (DoED) –

licensing, facilitation, promotion, compliance monitoring and project study (regulating body under

Ministry of Water Resources).iv. Nepal Electricity Authority (NEA) – public utility

for generation, transmission and distribution of electricity (Government of Nepal undertaking company under Ministry of Water Resources, Formed in 1985).

v. Electricity Tariff Fixation Commission (ETFC) –tariff setting

Legal and Policy EnvironmentMoreover, for the promotiion of hydropower

projects, the DoED has been designated as ’One Window’ under the MoWR, with following responsibilities:

Issuance of survey and Project (generation) licenses.

Providing concessions and incentives.

Facilitating the import of the plant, equipments and goods required for the project.

Facilitating in the acquisition of government land required for the project.

Facilitating in obtaining various permits and approvals.

Legal and Policy Environment

Application Process for SHP

•Survey license. To study generation, transmission, distribution survey

To obtain survey license, desk study report should be submitted.

•Operation lisence. Production License (for construction and operation of a

production facility). Transmission License (for construction and operation of a

transmission). Distribution License (for construction and operation of a

distribution facility).For operation license, Feasibility Study Report along with Detailed Financing Plan should be provided. Power Purchase Agreement between the developer and potential energy purchaser should also be provided

Conditions of PPA between SHP developers and Nepal Electricity Authority(NEA)

The PPA period is 25 years whereas the license period is 35 years.

Delay penalty equivalent to 5% of the yearly revenue for each year beyond the agreed date.

If the developer is unable to deliver atleast 80% of the contract energy, the developer will have to pay penalty for the deficient unsupplied percentage of energy below the 80% bench mark.

If NEA is unable to purchase atleast 80% of the contract energy, they shall pay for the energy less than 80% not purchased.

Conditions of PPA between SHP developers and NEA (Contd…..) Hydrological risk should be taken by the

developer. However, there is some flexibility in energy output declaration, which should be done one month in advance.

Rates and conditions of PPA are mutually negotiated by the developers and NEA.

Royalty, Fees and Taxes

S.No Electrical Capacity

Up to 15 years After 15 years fromthe date ofcommercial operation.

Annual Capacityroyalty per kWh

Energy royalty per kWh

Annual Capacityroyalty per kWh

Energy royalty per kWh

1 Up to 1 MW - - - -

2 From 1 MW to 10 MW

Rs 100/- 1.75% Rs 1000/- 10%

3 From 10 MW to 100 MW

Rs 150/- 1.85% Rs 1200/- 10%

4 Above 100 MW Rs 200/- 2.00% Rs 1500/- 10%

Royalty for Internal consumption Project

Royalty, Fees and Taxes

S.No Electrical Capacity

Up to 15 years After 15 years from the date of commercial operation.

Annual Capacityroyalty per kWh

Energy royalty per kWh

Annual Capacityroyalty per kWh

Energy royalty per kWh

1 Export Oriented run of-the river Project

Rs 400/- 7.5% Rs 1800/- 12%

2 Export Oriented storage Project

Rs 500/- 10.0% Rs 2000/- 15%

Royalty for Export Oriented Project

Income Taxes:Income tax applicable for hydropower projects is ten percent lower than the normal. One percent tax is applicable on import of electromechanical equipment and import of steel for hydro mechanical works.

Present Scenario It is being realised now that the development of

hydropower is vital for development of the country. Many Indian and multinational companies have shown

their interest to invest in hydropower sector in Nepal. National and international banks and finance agencies

are willing to invest in hydropower sector in Nepal. Grid connection work with India is being expanded and

upgraded. Huge crisis of energy in Nepal, India and some SAARC

countries especially during the peak hours. Lack of infrastructures such as roads and

transmission lines, the main challenges to the hydropower development.

Present Scenario (contd…..) Connecting rural villages with national grid is

very expensive, hence small and mini hydro development, the only solution.

Many private parties are holding licenses but are not able to implement due to financial problems.

Most rural communities depend upon forest to meet their energy demand.

The price of petroleum products is continuously increasing and being out of reach of common people.

Local companies and contractors have designed and constructed several successful small and medium hydropower schemes.

Rural Electrification Decentralized Energy Concept.

Alternative Energy Promotion Center(AEPC)-Promotion of renewable energy technologies. Rural Energy Development Program(REDP)-UNDP/World

Bank( Working in 40 hilly district)

Energy Sector Assistance Program(ESAP)-Norway/ Denmark

Subsidy Policy(up to 100k W) : $USD 1740/kW for rural electrification.

Where as total cost of project/kw =$ USD 4860

75,000 HH has been electrified using micro hydro as off grid.

These programs has contributed a lot in achieving Millennium Development Goal ( MDG’s) at local as well as national level

Challenges of SHP development in Nepal.• Hydropower Financing

• Lack of project financing• Financing mismatch

• Lack of Nodal Agency• Lack of "one-stop shop" for hydropower development

• NEA as a Single Buyer• Monopoly• NEA's weak financial position

• "Affected" Communities• Local disturbance and more demand from locals• Possible solution: Shares to the local communities

Challenges of SHP development in Nepal.(contd….)• Poor Road and Transmission Infrastructure

• Road and Transmission Line: Prerequisites for private hydropower development

• Lack of infrastructure increases cost of projects• More government investment needed

• Power Purchase Agreement (PPA) Provisions• NEA not signing new PPAs: Too much run-of river projects• Standard PPAs have become non-standard• Electricity pricing not based on value of electricity to NEA• No wheeling provisions in place yet

Risks: Hydrological Risks, Geological Risks, Unstable political situation, Sediment problem

Conclusion Hydropower development can uplift the living

standard of the rural communities. The SHP, which is both environment friendly and easy

to construct, operate and maintain, should be developed rapidly.

Hydropower development can help to meet the peak demand within Nepal and India. Thermal plants are suitable to meet the base load.

Nepalese experience shows that the success of any given project is dependent on the involvement of local community right from the planning stage.

Development of hydropower can bring industrial growth thereby raising the overall economy of the country.

Conclusion (contd…)

Common public should be made aware of the positive impact that hydropower can bring to them.

There are plenty of opportunities to beome available through the investment in hydropower in Nepal.

Local manpower and companies already available, who have enough experience and capability to study, design and execute the medium and small hydropower projects.

Thank you for your kind attention