Chapter 1: introduction

5.2 Choice of Hydropower versus other Sources of power

For the assessment of the alternative power generation in Nepal, available options are thermal power based on coal or fossil fuel, wind power, solar power, and electricity import from India. All these options were compared to the hydropower generation from the proposed project. These comparisons are made on the overall generic grounds. The purpose of this section is to find and analyze the type of energy that could be used instead of the proposed hydropower project. It is for this purpose, different energy sources available in Nepal and its comparison with hydroelectric project is analyzed below.

5.2.1 Fossil fuels

Petroleum Products: Fossil fuel supply covers nearly 5% of total energy requirements in Nepal. The major fossil fuels used are petroleum products (85%), mainly diesel, gasoline, and coal (15%). Nearly all fossil fuels are imported to Nepal. Nepal doesn’t have oil reserves and refineries.

At present two diesel-based thermal plants (53.5 MW in total capacity), are in operation in Nepal. These plants were installed to meet the demand in the peak hours in the evening. To operate the plants, diesel fuel is imported from India and there is scarcity of the fuel even in India. Owing to the lack of sufficient storage capacity within Nepal, the plants face shortage of fuel in the strike periods, which are frequent in Nepal. In the prevailing situation of increasing petroleum product prices, the cost of production is expected to be high and hence not affordable. The cost of unit energy generated from these plants (0.3035 $/kWh) is nearly 5 times of the current retail price of the NEA. NEA is already under a very weak financial position—losing about 3 USc/KWh for each unit of electricity supplied to its consumers—it cannot afford to run the existing diesel plants. For a poor nation like Nepal, it will drain the foreign currency reserve to import the petroleum fuel which otherwise could be effectively used for other developmental purposes. In a country with abundant renewable water resources, the petroleum fuel based thermal plant is not a sustainable option. Apart from this, these plants are facing objections from the adjoining communities due to high noise, air and water pollution. The emission of greenhouse gases from the petroleum fuel based thermal plants is the other disadvantage when compared to the hydro based power plants.

Coal: At present, coal consumption in Nepal is about 1% of the total energy consumptions. Coal deposits within Nepal comprises of scattered deposits of mud-coal, lignite and peat. Further, there is little prospect of finding large coal deposits in Nepal which could be economically exploited for use in thermal power plants. However, there is a possibility of establishing thermal power plant based on the imported coal. Two options of coal import are from India or from a third country. Because of the land locked nature of Nepal, import of coal from India is cheaper than from a third country. The sulphur contentsin of India’s coal deposits are high. Coal imported to Nepal from India for the operation of brick kiln in Nepal is already facing serious problems of air pollution and such problem on a bigger scale is very likely with operations of coal based thermal power plants. Similar to the petroleum fuel, coal based thermal plants will make Nepal more dependent on energy from a third country for the basic input. Additionally, environmental costs of air pollution (fly ash and green house gases) are expected to be very high.

Biomass and Solid Waste: there are other options for electricty generation. Electricity generation from biomass and municipal solid waste has become a commercially viable solution in many developed countries. In Nepal, the World Bank and other donors are supporting the review of biomass and solid waste resources for power generation and helping the Government to create an enable the environment for private sector participation. There is potential for biomass, such as agricultural waste and municipal solid waste, to play a complementary role in power generation in the near future. However, given a huge shortage of the power generation capacity in the range of 500-550 MW, uncertainties about available resources, policy and regulatory environment, limited interests of the private sector, and lack of experience and technical capacity in Nepal, it is unrealistic to expect a large scale power generation based on biomass and solid waste to substitute the amount of energy that could be generated by KAHEP, in short and medium terms. There are also other issues assocaited with the use of biomass and solid waste for power generation, such as collection of biomass or solid waste, possible negative impacts on air pollution and forest degradation, costs of power generation in the country context, and associated costs to mitigate those environmental impacts.

Conclusions :For the reasons discussed above, the fossil fuel options, including biomass and solid waste, are inappropriate for Nepal on techncial (sustainable supply of these resources), financial, environmental and economic grounds; when evaluation and choice are to be made in conjunction with the hydropower based on renewable water resources currently available in the country.

5.2.2 Solar and Wind power

The possible alternative to hydropower could be grid-connected solar and wind power. In Nepal, solar and wind energy resources potentials are yet to be studied.

Solar for Grid-Connected Power Generation: For the grid-connected solar power generation, several pilot projects were implemented in Nepal, each less than 1 MW, with grant funding from donors. Based on these pilot experiences and experience in other countries, the World Bank with NEA are reviewing a possibility of scaling up a grid-connected solar power generation based on the decentralized roof-top mounted Solar PV in major load centers. Major issues encountered in Nepal for large scale grid-connected solar power generations include: (i) there is no credible data on solar energy resources; (ii) it would be difficult to operate and dispatch solar power generation without a battery system for storage; a grid-connected solar power generation can only supply a grid at the same time with sunshine; (iii) poor quality distribution system in Nepal needs to be enhanced to operate with the decentralized solar power generation facilities; and (iv) whether a grid-connected solar PV for power generation with or without batteries is financially viable in the Nepal. From the pilot projects of a grid-connected solar power generation in Nepal, the capital investment per MW is about 2-3 times of hydropower capacity and the operational hours are about 1/3 to 1/4 of hydropower capacities, resulting in a cost of electricity from solar 5 to 10 times more expensive than from hydro. Giving the current retail tariff, huge government subsidies would be needed for a large scale grid-connected solar power generation if the capital investment cost could not be reduced. Given the economic condition of the country, the Government is not ready to have such financial resources for the subsidies. Therefore, a grid-connected solar power generation has a potential to play a complementary role in the power generation system of Nepal, but it is unrealistic to expect solar to be a major source of power generation in Nepal in short and medium run before the solar generation cost becomes competitive compared to the other generation costs.

Isolated Solar Home Systems (SHS) are widely installed in rural areas. It is believed that about 300,000 SHS have been installed for lighting up the rural households. It has played an important role in rural electrification in areas not covered by NEA grid. Donors are providing the increased funding in scaling up off-grid renewable energy development in Nepal, including SHS, biomass and biogas. While donors and the GoN are improving the enabling environment and increasing funding in off-grid renewable energy, it will help expand access to modern energy services in the vast rural areas, reduce the demand on grid-supplied electricity, but it will not be able to play a major role in the short and medium run in alleviating the acute power shortage in the grid-supplied urban areas in Nepal.

Wind Power is also source of clean energy; however, the potential of wind power, to a large extent depends on the wind velocity unknown in Nepal and subject to further resource mapping. Although the government plan for developing the wind energy sector in Nepal was initiated long ago, it is only after the Alternative Energy Promotion Center (AEPC) establishment in 1996 that serious attention was given for the wind power research and development. Despite all the efforts, the wind energy is still in its infancy in Nepal and only limited data is available for research and modeling. Nepal's rugged geography presents another challenge to wind energy projects. Wind energy development projects carried out by the private sector and NGOs in the past have met limited success, and unfortunately, some of the more viable efforts have folded due to lack of maintenance. For example, the Kagbeni wind power project, one of the biggest projects to date, was installed in 1987 under Danish Government funding. It was able to generate up to 20 kW before lack of maintenance forced it to shut down. The major constraint is that wind power can hardly be regulated.The expereinces of other countries show that a robust power system with a good energy mix may be able to absorb certain share of wind power, from system operation and stability point of view. The power system in Nepal is not very reliable with its poor maintenance. It has a long way before being able to accomodate the intermittent wind power generation. An isolated system with solar and wind hybrid gernation is under piloting in Nepal. It is unrealistic to expect that in short and medimum terms the grid-connected wind power generation can play a major role in supplying grid covered urban areas and load centers.

Providing wind and solar power for large populations in Nepal is technically and financially challenging and cannot be an alternative to hydropower. However, the development and use of renewable energy are actively being exploited in Nepal. The GoN and various donors have a strong committment in renewable energy development, including solar, biomass, biogas and wind. The AEPC was created for this purposes and have started work on development of all possible renewable energy resources in Nepal with donors’ support. Notable results have been achieved in off-grid micro hydro and solar home system development for the rural electrification. Serious funding by various donors is provided to AEPC to scale up the renewable energy development in Nepal. With all these parallel efforts, the use of solar and wind power and other renewable energy resources is expeceted to play an increasing role in the energy mix in Nepal.

5.2.3 Import of Electricity from Neighboring Countries

From balancing the power supply and demand in Nepal and the regional integration point of views, power import from India will play an important role in medium and long terms. This is because two countries have complementary resources for power generation – Nepal has rich water resources, much more than needed in the country, while India has a coal-dominated power generation system. In the long run, Nepal can sell its surplus generation in wet seasons to help India reduce its coal-fired power generation and the subsequent greenhouse gas emissions. Meanwhile, Nepal can obtain the much needed revenues for its poverty alleviation and growth, and can import power from India in winter time to fill in the gap due to the seasonal fluctuation of hydropower generation in Nepal. This way Nepal will be able to have more run-of-river hydropower capacity and will depend less on the large storage hydropower project to supply the demand in winter time, so as to avoid large reservoir inundation and the associated environmental and social impacts. Integration of the two power systems is part of the agenda of the South Asian regional integration, which is expected to bring more opportunities and synergy for economic growth at less environmental costs. Under this context, a 400 kV, 1.000 MW capacity cross-border transmission line linking the power systems of two countries is under implementation with the World Bank-supported Nepal-India Electricity Transmission and Trade Project (NIETTP). Power flows across the border are expected by June 2015. Both sides have a long-term commitment for a 150 MW power import to Nepal to alleviate the acute power shortage in Nepal; and more power is likely to be imported from India to Nepal on a short-term contract arrangements. While the line can provide a capacity of 1.000 MW for power flows, the exact amount of power import to Nepal is depending upon how much power is needed in Nepal and how much power could be supplied from India. Certainly, power generation from the new capacity in Nepal, such as KAHEP once built, will have a major role in determining a specific amount of energy import.

On the other side, India is starving for energy and much of the energy is based on coal-fired generation, causing serious environmental consequences. From the latest load forecasting and a system planning in India, India will face power shortage during medium and long terms. While some surplus of power in northern India may exist in certain time and can be exported to Nepal through the cross-border lines, it is hard to expect that sufficient amount of energy, at the right time (peaking hours in winter time) will be made available to Nepal. In addition, the cost of power import from India is about twice the cost of power purchase from domestic hydropower IPPs. Therefore, import from India can help alleviate the power shortage in Nepal to some extent, but can only play a complementary role rather than provide a full and sustainable solution to the power shortage in Nepal.