Energy is considered a key factor for Nepal’s inclusive economic growth. The current Three Year Development Plan highlights the potential of the energy sector to lay the foundations for the realization of Nepal’s development goals. The Government’s existing policy documents also emphasize the need to expedite energy sector reforms. In addition, to quantitative targets for electricity generation, transmission and distribution, the Government reiterates its commitment to energy sector reforms and to the promotion of private sector participation. Despite continuous endeavors by the Government, together with support from Development Partners, Nepal’s energy supply remains insufficient. This situation has proved to be a significant obstacle to the socio-economic development of the country. A comparison to international and regional data demonstrates, not only the inadequacies in terms of access to energy and modern energy services in Nepal, but also inefficiency in energy consumption patterns.
Beyond meeting the domestic demand, the considerable hydro power potential in the country promises to be a viable source of foreign exchange earnings. However, existing legal, institutional and economic barriers have hindered the process of harnessing this potential. At present, only about two thirds of the population has access to electricity and the electrical power supply is characterized by unscheduled power interruptions and severe power fluctuations especially during the dry season. Furthermore, transmission and distribution losses of electricity amount to over 22 %. Looking at the current situation, including an increasing demand for power and delays in adding new hydro power plants and transmission capacities to the system, a rapid improvement cannot be expected. Current consumer tariffs are not cost covering and do not provide sufficient incentives for the efficient use of electricity. Existing inefficiencies in the use of energy deepen the country’s trade balance deficit.
The 2014 signed Power Trade Agreement (PTA) between Nepal and India was expected to pave way for unhindered and nondiscriminatory power trade between the two countries and attract the development of hydro power plants and investment in distribution and transmission infrastructure. However, these hoped-for impulses for an accelerated development of the Nepalese power generation capacities have not been materialized yet. In February 2016 the Government of Nepal has declared an energy emergency and developed an action plan on ‘National Energy Crisis Prevention and Electricity Development Decade’.
German Development Cooperation (GDC) Activities and Contribution
In the past, GDC’s focus in the energy sector was the hydro power sector in Nepal. The hydro power plants along the Marsyangdi River were established under GDC through KfW, the German Development Bank. Marsyangdi Hydropower Plant (MHP) and Middle Marsyangdi Hydropower Plant (MMHP) with a total installed capacity of 140 MW constitute about 20 % of the existing power capacity of the state utility, Nepal Electricity Authority (NEA). After nine years in operation, support provided under GDC, for operations and maintenance in MMHP, will phase out in 2017.
In the last decade, as a result of strategic reorientation and decreasing funds, the focus of GDC in the energy sector has shifted to decentralized energy supply through expansion of on-grid transmission lines and promotion of renewable energy. In addition, GDC also focuses on promotion of efficient use of energy.
Transmission and Distribution – FC:
The Chilime-Trishuli transmission line project co-financed jointly by the European Investment Bank (EIB) and the European Union (EU) has been officially launched in October 2016.
The construction of a 27 km transmission line of double circuits at 220 KV voltage level, including two hub substations, community electrification and upgrading of the existing National Electrical Load Dispatch Centre will be led by KfW. Out of a total estimated cost of € 65 million, € 14 million will be provided as grant assistance under GDC. The contracts for works and supplies for all project components are expected to be signed within 2017 and the projects expected to be completed by 2019. Additionally, under FC Recovery Program 2015, € 5 million were allocated to restore the rural distribution system in Rasuwa and Nuwakot districts. The first electrification measures under this project will be implemented in 2018. Overall the project will be completed by 2019.
The global multi-donor program, Energizing Development (EnDev), facilitates access to electricity for rural communities in Nepal. By supporting the extension of the national grid and the development of micro hydropower plants, EnDev has enabled approximately 220,000 persons (43,500 households), 600 social institutions and over 3,000 businesses in Nepal to have access to electricity. The support is provided by strengthening capacities of government partners, financial institutions and community organizations. The activities of EnDev, a € 7.9 million program, including the promotion of productive use of electricity and enabling access to credit finance, will continue until June 2019.
Renewable Energy - FC and TC
The promotion of renewable sources of energy has been one focus of the GDC support to the energy sector in Nepal. Renewable energy projects under GDC in Nepal include the dissemination of biogas plants, solar power, efficient biomass stoves, as well as small hydro power plants in remote areas. In terms of solar PV, financial support has been provided through KfW to install about 145,000 solar systems for basic power supply to rural households in remote areas. In addition, 84 mp systems for drinking water supply have been completed. Finally, the establishment of a sustainable management and recycling system for used batteries in Nepal has been assessed in a recently finalized study.
In the biogas sector, financial support has been provided under GDC to expand the biogas program with subsidies to over 220,000 biogas plants over the last three decades. Financial and technical support has been provided for the critical restoration of more than 40,000 older plants constructed before 2003.
The latest commitment for the promotion of solar energy foresees the support for institutional solar PV for schools and health posts as well as PV powered pumps for drinking water 2017 to 2019.
In October 2017 the Renewable Energy for Rural Areas (RERA) Programme that support the off-grid renewable energy sector, implemented jointly by GIZ and the Alternative Energy Promotion Centre (AEPC), Government of Nepal has been launched.
RERA assists the transformation of AEPC, that until now follows a centralist approach, towards a more decentralized service delivery. Another focus lies on the capacity development of the newly elected local governments to enable them to provide and facilitate energy access to their citizens. This will allow for a more participative energy planning and implementation, also involving disadvantaged groups (DAGs) and women. RERA also works together with the private sector to improve energy services and the availability of energy products in rural and remote areas of Nepal. The RERA programme has a budget of € 5 million over a period of 3 years and will end in September 2019.
Energy Efficiency – FC and TC
Under GDC, the Government of Nepal is supported by GIZ via the Nepal Energy Efficiency Program (NEEP) to enhance the conditions for the planning and implementation of energy efficiency measures for the public and private sector. The € 7.9 million program that will run until 2017 has supported the Government of Nepal in drafting an Energy Efficiency Strategy and a Biomass Strategy. Both documents have been approved by cabinet and set a fitting political framework for energy efficiency in the future. NEEP also supported the establishment of the Energy Efficiency Center under the Federation of Nepalese Chamber of Commerce and Industry to provide energy efficiency services, resulting till date in the successful of nearly a hundred energy auditors who undertook over 200 energy audits. These interventions triggered most audited industries to double their energy efficiency investments. NEEP also backed the development and adoption of performance benchmarks for biomass burning cooking stoves, improving the health of end users affected by indoor air pollution from open fires.
A € 2 million project for supporting and motivating Nepalese industries to invest in energy efficiency measures is under implementation in cooperation with the NIDC development bank as implementing partner. By June 2018 at least 16 industries are expected to use the FC support for realigning Energy Efficiency in their industries.