In the wake of prolonged political and climatic instability, Nepal, nestled between the borders of northern India and southwestern China, is rebuilding itself and requires the energy – literally and figuratively – to do so. Water is the country’s most important resource, but only 1% of the country’s total energy comes from hydropower. Despite Nepal’s substantial hydropower potential and 100 years of experience in hydropower production, the country finds itself able to meet less than 50% of total energy demand. The decade-long conflict between Maoist rebels and the state that ended in 2006, as well as the Kosi River floods in 2008, have paralyzed Nepal’s energy sector. Since the mid-2000s, there has been very limited investment in the energy sector.
Approximately 17% of Nepal’s near 27 million-person population lives in urban areas. The energy demands of any city is significant, especially Kathmandu, Nepal’s capital and most populous city with over one million inhabitants. Load-shedding has become part-and-parcel of daily life in Nepal. On average, the country experiences 12 hours of power cuts per day because of its exhausted power grid; cities like Kathmandu, Pokhara, Patan and Biratnagar face load-shedding of about eight hours per day. There are reports this month that daily power cuts will peak at as much as 18 hours. National power demand is between 900 and 1,000 megawatts per day, but supply is approximately 600 megawatts. An article published in The Himalayan Times earlier this year suggests that Nepal is only producing an additional six megawatts, or 1.5%, of hydro capacity annually – this is out of the country’s 42,000-megawatt generation potential from 66 hydropower plants – while annual demand increases by 10%. Erik Wilson notes in The Himal Southasian that: “If these numbers continue as such for the next 10 years, Nepal’s energy deficit will have increased more than fivefold. What would appear to be a relatively approachable energy deficit now would rapidly become insurmountable. And let’s not forget, the current energy deficit equates to 18 hours a day without power during the dry season. In 10 years at these rates there will surely be 24-hour blackouts for weeks at a time.”
What can be blamed for the lack of progress being made in Nepal’s energy sector? After all, the country is second in the world in terms of hydropower potential, just after Brazil – who has successfully produced 100,000 megawatts of energy. Predictably, the main culprit is politics; in recent years, the energy crisis in Nepal has become highly politicized. In 2008, when the Maoist party gained power, it drafted an ambitious plan to generate 10,000 megawatts of power over 10 years. But in 2009, when the Communist Party of Nepal, in a coalition with other political parties, superseded the Maoist party as the majority, the Maoists rejected all new hydropower projects. The party’s argument was that under the new government, most newly generated power would be sold to India, to the detriment of Nepali citizens.
In 2011, the current Government of Nepal recognized the burgeoning crisis and introduced a US$275m initiative to end the country’s energy crisis within five years. The government promised that under this initiative, the country would be free from load-shedding within that period. The government would also incentivize energy innovation via lowering or eliminating taxes and duties, improve the efficiency of existing thermal plants and support power production from waste. Former Finance Minister Bharat Mohan Adhikari stated that the aim is to produce an additional 2,500 megawatts of electricity.
The intentions of the energy initiative are encouraging; however, there is the issue of Nepal having limited investment and technological capacity for not only developing and harnessing greater hydropower productivity, but also for the upgradation and maintenance of current energy infrastructure. The floods of 2008 damaged electricity transmission lines, and they have yet to be fully restored. When the country’s new Prime Minister, Baburam Bhattarai, took office late last year, he made the indisputable point that economic growth and energy go hand-in-hand: economic development cannot take place in the absence of energy. That in mind, the government has been searching for other sources to meet energy demand, such as purchasing energy from India, as short-term solutions to a snowballing problem.
Last month, Bhattarai announced the Immediate Action Plan for Economic Development and Prosperity to “help achieve higher growth, create jobs and establish social justice.” The plan addresses the energy crisis by making provisions for accelerated hydropower development. Five hydropower projects were identified that could be operational within the next three years as long as the government shows its full support by, at the very least, nurturing a conducive environment to promote renewable energy production and distribution. While the government determines how to proceed with these plans in the most productive way, it has also been actively seeking regional country partners in its quest to augment the energy sector. For example, in December it was announced that Nepal has become the first beneficiary of the Asian Development Bank’s initiative encouraging clean and renewable energy. And earlier this month, it was publicized that Nepal and Bangladesh, another country with mounting energy challenges, have entered into a joint venture to set up a 3,000-megawatt power plant.
No matter the political affiliation of Nepal’s government, it has historically recognized the importance of its energy sector and the fast-growing demand of the country. It is clear that Nepal suffers no lack of energy-minded policies and programs, but follow-through has been an obstacle for various reasons, the most obvious being political bargaining. There are established institutions looking after the country’s power, namely the Ministry of Energy and the Nepal Electricity Authority, but thus far, they have not been effective in protecting and promoting the power grid. Instead of drafting new plans, it seems that the Government of Nepal needs to seriously consider making bold reforms to its compromised systems. The country’s hydropower potential is incredible, and the increasing investor interest in South Asia’s energy development cannot be ignored. What will give investors and project managers pause, though, is the lack of tangible government support and navigable regulatory environment that hurt energy innovation more than encourage it.