Thursday, July 25, 2024

Hydropower Development And Energy Export

Nepal utilizes its significant hydropower potential to achieve rapid economic growth and prosperity. It’s hydropower development and energy export have been long-term goals for economic development.
The country has an estimated 50,000 megawatts of economically viable hydropower potential. This action supports the demand for clean, renewable energy sources like hydropower. By advancing the global imperative to move away from fossil fuels. Let’s look at the challenges faced by Nepal to achieve hydropower development and energy export.


Nepal, part of the heavily populated South Asian subcontinent, recognizes the urgent need for a sizable energy source. The country is considering exporting electricity to nearby countries like India, Bangladesh, and perhaps China to reduce its growing trade deficit.

Nepal has successfully attracted large investments into its hydropower sector to realize this potential fully. The installed hydropower capacity has increased dramatically during the previous fifteen years, rising from 600 to an astonishing 2,600 megawatts. Notably, Nepal started selling energy to India during the rainy season, which brought in about $100 million in revenue in 2021. Although this amount might seem small compared to import costs, it indicates that entering global energy markets is feasible.

As attempts to improve the Power Trading Agreement between Nepal and India continue. Also, new transmission infrastructure is built, the energy sector is brimming with hope. Mainly, an agreement for energy wheeling between Nepal, India, and Bangladesh is on the horizon. Its implementation is essential since transmission lines that run through Bangladesh and Nepal must pass through Indian territory.

Obstacle Admist Opportunity

Despite what appears to be a promising future on paper, Nepal’s hydropower growth faces several internal obstacles. These obstacles are the cause of overlapping policies, unpredictability of policies, and unnecessary regulatory restrictions. Confederation of Nepalese Industries, a private sector group, has estimated 13,992 projects. That who have obtained survey permits are still awaiting power purchase agreements (PPAs) with the government-owned monopoly Nepal Electricity Authority (NEA). These initiatives, led by some 240 businesses, represent astronomical investments totaling $14 billion over five to seven years. PPAs are essential for obtaining funding from the financial markets to start a building project.

The creation of the Electricity Regulation Commission and its 2019 Bylaws and other factors have made it difficult to issue PPAs for run-of-river projects over the previous three years. The NEA claims that this regulatory structure has made it more difficult to independently issue new PPAs, which is made more difficult because there is only one buyer for the commission to oversee—the NEA itself. The National Energy Strategy of Nepal 2013 (updated in 2017) states that run-of-river projects should not exceed 30% of the total connected electricity, which presents an extra barrier. These projects comprise a sizable fraction of the 240 projects looking for PPAs. The NEA’s ambitions for hydropower development and energy export have power consumption to 400 kilowatt-hours by 2024. This probability are at odds with this strategy’s apparent objective to cap production at 15,000 megawatts.

Conflicting Interests and Economic Rationale

The landscape is made more complex by competing interests. Private sector developers support a guarantee of payment for their whole output, whereas the government advocates a “take and pay” strategy. Developers who have invested in multiple run-of-river projects are put in danger by this confusion because their survey license contract requires them to secure a production license through a finished PPA and financial closure within five years. As a result of the government’s decision to stop issuing PPAs, these companies’ investments are in danger, and their future is uncertain.

Frequently, Nepal’s energy strategy needs a solid economic foundation. Although there are several talks about potential overproduction and waste, the average annual energy usage per person is below 350 kilowatt-hours. Only about 10% of people in Nepal have access to electricity. Additionally, whereas day-ahead trading on the Indian Energy Exchange only nets Rs4.60 per unit, industrial units in Nepal are charged Rs8.40 per unit. This type of discrimination contradicts the national strategy intended to support industrialization.

Looking Ahead: Opportunities and Considerations

Nepal must also address its energy needs for planned energy-intensive projects. This includes large-scale chemical fertilizer manufacturing, green hydrogen generation, and metal ore processing. Introducing energy wholesale firms and domestic power wheeling. For example, allowing power producers in the Karnali basin to sell their output to the Biratnagar Industrial District could revitalize Nepal’s hydropower sector. Overcoming regulatory impediments and developing energy policies will be important as Nepal moves toward fulfilling its energy potential.

Luzon Technologies

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