Chapter 1: introduction

Chapter V: ALTERNATIVE ANALYSIS

In addition to the “no alternative”, this section focuses on the assessment and evaluation of the following aspects of the available alternatives: (i) choice of hydro versus other sources available for power generation in Nepal, including power imports from India; (ii) selection of KAHEP over other hydro projects; (iii) analysis of potential alternative sites for KAHEP; and (iv) design alternatives for KAHEP.

5.1 BACKGROUND

Nepal’s level of development with respect to energy is low by global and South Asia regional standards. An estimated 87% of the country’s total primary energy demand is met by traditional (non-commercial) forms of energy, reflecting the overwhelmingly rural distribution of population in Nepal⁹ and the virtual absence of relatively clean, commercialized forms of energy outside of urban areas. This heavy reliance on traditional energy sources brings with it the well-known problems of limited opportunities for rural economic development; environmental degradation; inefficiency in provision of energy services; and health impacts, particularly for women and children.

As per national census published in 2013, about 75% of the population in Nepal is estimated to have access to electricity (grid and off-grid), with a significant disparity between access levels in urban Nepal (around 90%) and rural Nepal (around 30%). Actual consumption of electricity remains very low, at about 70 kWh per capita, even for urban Nepalese, compared to 733 kWh for India and 2,600 kWh for China, as a result of severe limitations in the electricity supply which has not kept up with the sharp rise in demand of recent years.

Nepal’s total grid-connected generation capacity amounts to a meager 713 MW, of which 659 MW is based on hydropower, but the actual available capacity varies seasonally depending on availability of water. In Nepal 80% of rainfall occurs in the monsoon season during the months of June, July, August and September, coinciding with glaciers melting and the installed hydropower plants can run in their full capacity. During winter, the water available can support only 35% of the hydropower capacity to generate power, creating a huge supply-demand gap. This gap has grown sharply in recent years, with about 500 MW of demand not met in 2012. The real deficit could be much higher as the demand growth projection is significantly suppressed due to the constrained supply and the lack of a secure electricity supply strategy of the GoN. Even with the planned addition of around 1.375 MW of hydropower capacity by 2017 (based on Power Purchase Agreements (PPA) concluded projects and projects under construction) a capacity deficit of around 900 MW in dry season is expected.

Energy Crisis: Exacerbating this low level of development is a long-term crisis in the electricity sector. Load-shedding (rationing of electricity to grid-connected consumers) has long been a facet of the hydro-dependent power system in Nepal, where protracted conflict and weak institutions and finances have discouraged investment and hampered the addition of power generation capacity. In the dry season of 2011/12, load-shedding reached 18 hours a day and is expected to remain at this level, or worsen in 2012/2013. Current projections indicate that Nepal could significantly reduce its load-shedding by 2016, assuming timely completion of the first major cross-border high-voltage transmission line between Nepal and India. Until then (and possibly longer), Nepal will continue to be burdened by a heavy reliance on thermal generation which is costly and highly polluting, or to struggle without electricity, at a high cost to its people and its economy.

The implication of a routine power outage has a big impact on industry, commerce and service sectors. The GDP input from these sectors has correspondingly declined after 2007. Furthermore, there is an overall decline in the consumption of power in the production sector known for its growth with value addition (J. Power 2012).It has also impacted new jobs creation. Nearly 2 million youths are forced to leave their hometown in search for jobs out of country. This is an alarming situation when one considers the economic development of the country through enhancement of industrial, commercial and service sectors. The Independent Power Producers’ Association of Nepal (IPPAN) notes in its August 2010 publication ‘Hydropower Nepal, Resources, Use and Prospects’ that “never in the history of Nepal has there been so many hours of load-shedding. To say that it is simply a failure is an understatement as in fact it is a huge disaster. With the current load shedding, Nepal is losing almost one billion dollars in revenue a year. For a country whose gross domestic product is a mere 8 billion US Dollars (in 2009), this amount of annual loss of revenue is a serious blow to the economy.”

Response to Load Shedding and Environmental Consequences: As a response to the load shedding of the production sector, captive diesel generation sets has been installed. While no official data is available of the total captive generation capacity, an unofficial estimate suggests that Nepal has about 500 MW of small sized captive generation plants. Business is therefore enduring the high cost of back up diesel generation (in excess of 30 USc/kWh) for essential supply plus lost productivity due to the load shedding.

In recent years, to meet the immediate energy shortfall, Government of Nepal is planning for alternatives such as additional import of electricity from India. Nepal-India cross-border 400 kV transmission line is under implementation for development with the funding from the World Bank. Although a long term objective of the proposed transmission line is for the export of electricity to India, in the absence of adequate investment in the power development in Nepal, this very transmission line is likely to be used for the energy import from India even in the long term.