Chapter 1: introduction

5.3 No Project Alternatives

The proposed Project with an installed capacity of 37.6 MW will generate on average about 201 GWh of energy annually. Though the project alone could not meet the current need of power in Nepal but certainly will be a step forward in meeting goals of the national energy security. Without the proposed Project scenario one would expect the followings:

• 
  The gap between the current power demand and supply will widen resulting in additional hours of load shedding;
  
• 
  Industrial, commercial, and service sector outputs will decline with negative implications on the national GDP output;
  
• 
  More and more youths will leave their hometowns in search of jobs in the third countries for livelihood earnings due to lack of local opportunities in the industrial, commercial and service sectors
  

Feasible Alternatives: Additional power generation capacity is urgently needed in Nepal to address the ongoing power crises. Technically other sources for power generation, including solar, biomass, solid waste and wind are not feasible at the present time in local context for large scale power generation to substitute the proposed project. Therefore, in the “no project” scenario, the technically feasible alternatives to KAHEP for grid-connected power generation are:

1. 
   Thermal power generation based on imported diesel
   
2. 
   Electricity import from India
   

5.3.1 No Project Alternative - Diesel Power Generation

The same amount of electricity from the proposed project, 201 GWh per annum on long term average, could be generated through the existing captive diesel generators by running them for extended hours, or through installation of a new grid-connected diesel generation plant. This alternative has cost as well as environmental implications.

Financial Viability: In case of the diesel-based power generation, the cost of unit energy generated ($ 0.30/kWh) is nearly 5 times the current retail price of the NEA supplied energy. NEA will need to rely heavily on the Government subsidies for fuel cost to make it financially viable, and it is unlikely that the Government will have the budget for this subsidy. Additionally, diesel is an imported commodity, hence there isa high risk to ensure supply of fuel to keep the plant running. It also requires a stable foreign currency from the national treasury which otherwise could have been used for other infrastructural development works to boost the national economy.

Environmental cost: The environmental concern of the diesel-based power generation is the greenhouse gas emissions, a cause of the global warming. It is estimated that about 160,800 tons of CO₂ would be emitted annually from the diesel-based generation in order to generate an equivalent amount of energy (201 GWh). This estimate is based on the CO₂ emission factor of 800 g CO₂/kWh¹⁰. In addition, there would be local and regional level environmental impacts due to the emission of particulate matters, SO₂ and NO_x emissions from the diesel plant.

Security of Fuel Supply: As discussed above, supply of fuels for even the existing diesel plants (51.5 MW) cannot be secured to keep the plan running. The risk of interruption of power generation due to the fuel supply issues is substantive.

Given these factors, the “Diesel power Generation” option is rejected.

5.3.2 No Project Alternative – Electricity Import from India

The same amount of electricity from the proposed project, 201 GWh per annum on long term average, could be imported through Nepal-India a cross-border 400 kV transmission line (currently under implementation with the World Bank funding). As indicated, this transmission line, once built, will provide a capacity of 1,000 MW and is expected to be commissioned in 2015-2016. NEA has signed a contract with its Indian counterpart for long term power import of 150 MW to Nepal. Through a short-term contract arrangement, NEA is likely to have incremental energy import from India, in the amount of 201 GWh per annum to avoid KAHEP construction.

Financial Cost and Risk: The cost of incremental electricity import from India based on the short-term contract arrangements would be more expensive than the cost of the 150 MW long-term commitments, which is already about double cost of power purchase from the KAHEP. The risk of price escalation based on the short-term contract arrangement is also high, given the forecasted power shortage in Indian power markets in medium and long runs. The cost of purchase from the proposed project was fixed and determined through a competitive bidding process. It will provide NEA the cheapest source of power among all the existing IPPs and will pose little financial risk in terms of price escalation.

Environment Cost: As India’s energy sector is heavily reliant on the coal based thermal power plants, import of energy from India will further promote the greenhouse gas emissions. Without the proposed KAHEP project, the same amount of electricity could be generated in India and exported to Nepal through the being built transmission line. Additional generation of 201 GWh in India will result in about 164,820 tons of additional CO₂ emission annually in India. This estimate of CO₂ emission is based on the average emission factor (820 g CO₂/kWh) of Northern, Eastern, Western and North-Eastern regional grids of India¹¹. Though Nepal has insignificant carbon footprint compared to developed nations, any actions that promotes greenhouse gas could be avoided if there is plausible alternatives for energy development based on the renewable resources such as hydropower.

Security of Power Supply: As discussed above, India will also be in shortage of power supply according to the system expansion planning in India. The system analysis conducted for the cross-border NIETTP project supported by the World Bank indicate that the Northern grid in India will be able to generate additional power at certain time of the year, but will not be able to guarantee power export to Nepal in the amount and at the time when the power is needed. Therefore, Nepal cannot purely depend upon the power import to meet its domestic supply and demand shortage.

Given all these factors, the “Incremental Power Import from India” option is rejected.

In the above context, “no project” scenario is more alarming, both at national and local levels, while with the project in place. Many local environmental and social concerns could be addressed effectively with the contribution to the regional, national and global levels, though in a small way. Therefore the “no project” option was rejected in favor of the project. A summary of the assessment presented above can be found in the Table 5.1.

Table 5.1: Summary of Project Alternatives.

SN	Alternatives	Major Conclusions
1	No Project	The gap between current power demand and supply will widen resulting to additional hours of load shedding, with serious socio-economic consequences. Market response to the load shedding would be a continued installation of a small captive diesel generation.
2	Fossil fuel based Power Plant	Cost of generation will be (at about 0.30 $/kWh) nearly 5 times of the current retail tariff, and not affordable by NEA/consumers. GHG emissions are estimated at about 160,800 tons of CO2 annually in order to generate an equivalent amount of energy (201 GWh), based on the CO2 emission factor of 800 g CO2/kWh. In addition, there would be local and regional level environmental impacts due to the emissions of particulate matters, SO2, NOx, and the emissions from the diesel plant.
3	Additional power import from India	Currently an additional power import from India cannot be secured and the cost is high. In the long run, Nepal will need import the coal based power from India in dry seasons, and export surplus hydropower to India in wet seasons. Additional generation of 201 GWh in India will result in about 164,820 tons of additional CO2 emission annually, based on the average emission factor of 820 g CO2/kWh of Northern, Eastern, Western and North-Eastern regional grids of Indian.
4	Solar	Cost of generation is much higher than the current retail tariff. Subsidies are needed to make it financially viable and unlikely to be available.
5	Wind	Technically, the power system in Nepal is not able to accommodate the intermittent wind power generation; Cost of generation is also much higher than the current retail tariff. Subsidies needed to make it financially viable are not available.
6	Other hydropower as alternatives	The proposed Project is one of seven projects/sites selected for a full feasibility/EIA study through a screening of 138 sites, including a rigorous environmental and social screening. Various alternatives on location and dam design were reviewed and the proposed Project was selected as a result of the maximum optimization.

5.4 Selection of KAHEP in the Context of Hydropower Projects in Nepal - Medium Hydropower Study Project

To evaluate the KAHEP selection criteria, a study “A Sectoral Environmental Assessment (SEA), 1997” was reviewed. This study was jointly conducted by the Ministry of Population and Environment (MOPE, now Ministry of Science, Technology and Environment, MoSTE), the Ministry of Water Resources (MOWR, now Ministry of Energy, MoE), assisted by NEA with the Medium Hydropower Study Project (MHSP) with support of the World Bank. Under this SEA, all potential projects above 10 MW installed capacity have been evaluated on the environmental and social grounds for sub-project funding under the Power Development Fund (PDF) of the Power Development Project. The study evaluated the candidate projects for funding through a screening and ranking process using a multiple set of indicators and criteria. The MHSP selected the Kabeli “A” (KAHEP) as one of the most potential sub-projects for the development and funding by the World Bank Group through PDF.

The concept of Comprehensive Assessment of Options (COA) as one of the seven priorities followed by the World Commission on Dam (1998-2000) was applied prior to release of the report by the WCD for the project identification and prioritization for development by the MHSP. The MHSP has made full use of stakeholder participation in identification of additional options and selection of ranking criteria. The geographical balance in the development of hydropower projects was also given a due emphasis.

The MHSP exercise included a nation-wide inventory of hydropower sites in the 10 to 300 MW range. While preparing the inventories, the projects already identified by NEA, projects identified under basin studies and projects identified directly by stakeholders were also included to increase the regional spread of sites and to expand the number of projects/sites. A total of 138 optional project/sites were identified. The multipurpose projects were eliminated from the project inventory list to primarily focus on the power development projects for further analysis and screening. Table 5.2 presents the steps in MHSP exercise and the final outcome of the analysis.

Table 5.2: Steps in MHSP Exercise.

	Options Inventory	Screening	Coarse Ranking	Fine Ranking
Site Selection	Expanded the initial inventory of 60 sites to 138 sites	Eliminated 94 sites out of 138 to base ranking on 44 sites	Coarse ranked 44 sites and selected 22 for fine ranking	Ranked 22 sites and selected 7 projects to proceed to full feasibility/EIA study
Stakeholder Involvement	Stakeholders defined criteria and adding sites proposed by stakeholders	Multi-criteria screening. Stakeholders reviewed sites and results	Multi-criteria analysis framework. Stakeholders involved in the developing criteria and criteria weights, project scoring method and reviewing ranking results presented in a series of preference matrix for all scales of options.

Source: ESMAP and Bank-Netherlands Water Partnership Program (July 2003)

Screening criteria were formulated in consultation with the stakeholders and NEA before finalizing them. The criteria were publicized, comments received from the stakeholders. The finalized screening criteria reflected:

• 
  congruence with regional development policies;
  
• 
  access road;
  
• 
  transmissions access;
  
• 
  hydrology and cost;
  
• 
  watershed conditions;
  
• 
  World Bank Group and national safeguard policies on social and environmental aspects;
  
• 
  indices, such as persons resettled and land take per MW, biodiversity impacts;
  
• 
  current level of study.
  

Based on the above screening criteria, 44 projects/sites were selected for a coarse ranking. Coarse ranking of sites was based on the multi-criteria analysis using a composite technical/economic criterion and a composite environmental/social criterion, which are summarized in Tables 5.3 and 5.4.

Table 5.3: Coarse Ranking Composite Technical/Economic Criterion

Criteria	Scoring System		Weighting
Economic Supply Cost (75%)	Discounted cost/Discounted energy (in USD/kWh), inclusive of civil, E&M, transmission, access road, environmental mitigation and cost contingencies		75%
System Fit for Medium-Term Supply (25%)	Project size	Installed capacity in three size ranges reflecting what is needed in the project basket for system planning	3%
	Firm Energy Contribution	Ratio of firm energy to average energy production from the project	10%
	Flexibility of dispatch	Storage and ability to dispatch at peak or seasonally	7%
	Regional Location	Regional supply-demand balance	5%
			100%

Source: Imran, Mudassar and Tjaarda P. Storm van Leeuwen (2006)

Table 5.4: Coarse Ranking Composite Environmental/Social Criterion

Criteria	Scoring System		Weighting
			Run-of-River Project	Storage Project
Physical Environment	Land take	Amount of land required for the project facilities, reservoir and access roads	17%	14%
	Watershed conditions	ICIMOD classification of watersheds in Nepal	17%	14%
	Downstream impacts	Potential of adverse downstream impacts	-	14%
Biological Environment	Biodiversity Impact	Potential for the project to adversely impact sensitive biological areas	14%	14%
	Aquatic System Impact	Length of river stretch and aquatic habitat adversely affected	14%	14%
Socio-Cultural Environment	Number of project-affected people	Estimated number of persons directly or indirectly affected by the project in terms of relocation or other disturbance	27%	33%
	Cultural Sensitivity	Potential for adverse socio-cultural impacts	8%	7%
			100%	100%

Source: Imran, Mudassar and Tjaarda P. Storm van Leeuwen (2006)

Based on the coarse ranking, 22 sites were identified to proceed to fine ranking and comments were invited from the concerned stakeholders and NGOs before finalizing the list of projects.

At fine ranking, further site visits and surveys were conducted to (i) collect additional data to prepare reconnaissance level project layouts with standardized methods for design, quantities and unit rates and (ii) prepare environmental and social impact assessments that were in effect with rapid appraisals and initial EIA scoping exercises. In parallel, meetings and workshops were held with national level civil society and professional groups to refine the fine screening criteria and weights. Additional criteria, such as project risk criteria, were introduced. Based on the above criteria, 7 projects/sites were selected for a full feasibility/EIA study. The KAHEP is one of them.

The KAHEP was selected by MHSP using the above criteria and the decision for its development was made. A rigorous environmental and social screening was applied by MHSP prior to KAHEP selection based on the local and national contexts. This way, KAHEP was found to be one of the most viable projects for the development from every perspective.