Country Profile
Nepal is a sovereign country located in South Asia. Although it is a landlocked country nestled between India and China, it is blessed with abundant natural resources and diverse geography. It lies between latitudes 26° and 31°N, and longitudes 80° and 89°E with an area of 147,516 km2 (56,956 sq mi).
The country has witnessed noteworthy progress in social and economic sectors in recent years. As underscored in the economic survey report of the fiscal year 2019/2020 published by the Ministry of Finance (Government of Nepal), the macroeconomic indicators by mid-March of 2019/20 are observed to be satisfactory. During this time, the inflation rate, balance of payment position, foreign exchange reserves, investment, and financial indicators are observed to be favorable for the economic stability of Nepal. There has been an improvement in the trade deficit and surplus in the balance of payment situation due to the contraction in import and expansion in export. Furthermore, financial services have expanded considerably and foreign direct investments are on an increasing trend. By mid-March of 2019/20, the foreign direct investment approved by the Department of Industry has increased by 165.4 percent to Rs.29.67 billion in comparison to that of the corresponding period of the last fiscal year. In regard to physical infrastructure development, satisfactory achievement has been made with the implementation of more national pride projects such as Nagdhunga - Naubise Tunnel Road and Upper Trishuli 1 in 2020.
Regardless of the rapid progress experienced in the overall economic activities until mid-march of 2019/20, the COVID-19 pandemic has severely affected the global economy due to which the growth of the Nepalese economy is projected to remain at 2.3 percent. The average economic growth rate over the last three years has remained 7.3 percent (in producer's price). Similarly, per capita gross domestic product (GDP) (in current price) is estimated to increase by 7.5 percent in comparison to that of the last fiscal year and reach US Dollar 1,085 (Rs.126, 018) in the fiscal year 2019/20. The economic activities were at a standstill due to the outbreak of the COVID-19 pandemic but looking at the present scenario, the country is advancing towards the resurgence of the economy.
References:
Economic Survey Report 2019/20
Author: Ministry of Finance, Government of Nepal
Energy Scenario
The plethora of perennial water resources originating from snow and glaciated regions of the Himalayas and diverse geography with altitudes ranging from Higher Himalayas in the North to the flat land of Terai in the South offers a quintessential scenario for the development of hydropower projects in Nepal. Nepal’s economically viable hydropower potential has been estimated to be over 42,000 MW but the current supply capacity of hydropower is far below Nepal’s viable potential as the country’s resource to production ratio in hydropower is at 3 percent.
The annual report of the fiscal year 2019/20 published by the Nepal Electricity Authority (NEA) provides some insights on the increase of energy generation and consumption in recent years. The total energy available is 7,741 GWh in which 3,021 GWh is generated by NEA-owned projects, 2,991 GWh is generated by the Independent Power Producers (IPPs) and 1,729 GWh is imported from India. With an increment of 18.57% of the energy generated from NEA-owned projects and an increment of 36.57% of the energy generated from the IPPs, the import of energy from India has reduced. The total energy imported from India has decreased by 38.55% and the total available energy in the system has increased by 2.51% in the fiscal year 2019/20 compared with the fiscal year 2018/19. Likewise, a total of 101 GWh of energy has been exported to India.
The number of consumers has also increased by 7.88% from 3.91 million in the last fiscal year to 4.22 million in the present fiscal year. Numerous projects which are under construction and in the planning phase are expected to fulfill the increasing energy consumption and peak energy demand in the future. Currently, there are 123 hydropower projects under-construction to add a generating capacity of 3,869 MW in the near future and 36 hydropower projects with a potential to generate 22,618 MW are in the planning stage. To sum up, remarkable progress has been witnessed in the country’s overall energy scenario with the reduction in energy import and commencement of energy export.
The cross-border power exchange has also started a few years back which is a stepping stone for cross-border energy cooperation and cross-border energy trade. The first large-capacity (400 kV) cross-border interconnection between India and Nepal namely Dhalkebar - Mujaffarpur was commissioned in February 2016 which is now exporting energy to India and also importing energy from India. Likewise, preparation of financial and implementation modality for the construction of the 2nd large capacity (400 kV) Butwal-Gorakhpur cross-border transmission line is in the final stage. More transmission interconnections are proposed such as 400 kV New Duhabi – Purnia Transmission line and 400 kV Lumki-Bareilli which are already in the planning phase for commissioning at different times periods. Another major development has been attained in the 400 kV Ratmate - Rasuwagadhi - Kerung cross border transmission line project from Nepal to China after the completion of its feasibility study and commencement of Environmental Impact Assessment (EIA) by NEA Engineering Company. After the completion of the joint test by both countries, preparation of a detailed project report (DPR) shall commence. The respective transmission line will have a capacity of 5,000 MW which is targeted to be completed within six years.
Although Nepal suffers from an energy deficit presently, the availability of abundant hydropower resources could provide a large surplus if strategically developed with a view to expanding energy trade to sub-regional and regional levels. Therefore, Nepal can provide energy to its neighbors and become a net exporter to the Indian market, as well as Bangladesh and probably beyond in the foreseeable future. This would not only contribute to the regional energy security but also will be instrumental to mitigate the import imbalance that Nepal is reeling today as the country to some degree also depend on the import of energy.
References:
Annual Report 2019/20
Author: Nepal Electricity Authority
Nepal harnessing the power of the Himalayas
Author: Dr. Gyanendra Lal Shrestha, Chartered Engineer, MICE, President Nepal Tunnelling Association
Image reference:
Nepal Energy Forum
Investment Opportunities in Nepal's Power Sector
Nepal's government has recognized an opportunity to earn revenues by exporting valuable hydroelectricity to the South Asia region. Ministry of Energy, Water Resources and Irrigation, Government of Nepal (GoN) has planned to produce 15,000 MW by the year 2028. To reach this target, the government is pursuing reforms to increase the capacity of public sector institutions and improve the investment climate for private sector investment in the hydropower sector. Nepal has historically relied on a mix of public and private financing in the electricity sector. The country’s current installed generation capacity is divided between the Nepal Electricity Authority (NEA) and independent power producers (IPPs) including domestic and foreign private sector investments. However, Nepal needs a three-fold increase in investment to meet the projected demand to utilize the sector’s export potential. For this, Nepal has started reforming its policies and laws to attract more domestic and foreign investments as well as financing from domestic and international capital markets for investment in the renewable energy sector.
Given that the government is in the process of attracting more investments from domestic and foreign investors and financing from various capital markets, Nepal’s hydropower sector is open to 100 percent foreign direct investment (FDI) as well as for joint venture with local companies. Besides investing or forming joint ventures, commercial opportunities also exist for businesses selling products as well as services in various stages of a hydropower project.
Moreover, to facilitate FDI for large hydropower projects of more than 500 MW, the Investment Board of Nepal (IBN) was set up in 2011. With the recent developments in the cross-border power trade with India and Bangladesh, the export market will soon offer compelling investment opportunities in Nepal. Nepal’s hydropower can have a key role in the regional energy market in South Asia for a better generation mix and ensure energy security; where the bulk of the generation is from nonrenewable sources mainly coal and thermal. A regional energy trade was facilitated as Nepal signed Power Trade Agreement (PTA) with India in October 2014, paving way for the free flow of electricity as a cross-border commodity. With the amendment of cross-border power trading regulation by India in December 2018, Nepal can export electricity to India, and other third countries mainly Bangladesh, Bhutan, and Myanmar. On 10th August 2018, a Memorandum of Understanding (MoU) was inked between the Government of Nepal and the Government of Bangladesh for bilateral energy cooperation, which is expected to further expand the energy market for Nepal in the near future.
Policy, Institutional and Regulatory Framework
The Government of Nepal (GoN) has introduced a host of policies, rules, and guidelines to accelerate the effective development of the hydropower sector. GoN has established generation, transmission, and power trading companies, which implies the disbanding of the monopoly held by the Nepal Electricity Authority (NEA) in the electricity market. With the setting up of a transmission and trading company, its purpose will be to conduct Power Purchase Agreements (PPAs) with the power producers and to institutionalize the trading market in the energy sector. In order to attract the FDI, GoN has issued sub-legislation governing licenses, the grant of financial incentives, and the provision of foreign exchange facilities for electricity projects. Further, the GoN has recently issued the policy for hedging of FDI towards ensuring benefits to foreign investors. In addition, some sector restructuring has been endorsed by the GoN and has been implemented. Moreover, the GoN has also highlighted the importance of employing Public-Private Partnerships (PPPs) and of using PPPs to construct transmission lines on a build/ transfer (BT) model. All these developments in policy and infrastructure point towards a future with more production of electricity through hydropower and a shift towards electricity-intensive consumption both at the household and industrial level.
