Opinion | Hydropower and South Asian integration
Nepal's potential for generating hydropower in South Asia is now becoming a practical reality. Over the past decade, the capacity for hydropower production has increased significantly, going from 1,050 megawatts in 2012 to 2,700 megawatts in 2023. This is projected to further expand to 9,000 megawatts over the next 10 years, with 235 additional hydropower plants currently being built. Given that the national demand for electricity peaks at 1,700 megawatts, there is a surplus of around 900 megawatts that needs to be effectively utilized. The growth in electricity production has not only resulted in an increase in the energy sector, but has also spurred the development of related industries. In 2006-07, there were only 24 energy-related industries employing 5,424 people. However, as of mid-March 2023, this number had surged to 537 industries with 40,971 employees. Additionally, the energy sector creates indirect and induced opportunities in various other sectors of the economy, including transportation, manufacturing, irrigation, and access to clean drinking water.
In this context, energy can serve as an effective instrument and a foundation of Nepal's economy, lessening the country's reliance on non-renewable resources. It is high time to create strategies that encourage the use of energy within the country, export energy, and invest in transmission facilities. Becoming a leading force in green energy would bring economic, ecological, and political advantages to Nepal and the South Asian region.
According to the Nepal Electricity Authority (NEA), about 93 percent of its customers are residential and mainly use electricity for household gadgets like TVs, charging devices, and heating/cooling systems. Customers with higher electricity needs, such as businesses and industries, make up only 0.27 percent and 0.69 percent, respectively. Nepal has the lowest per capita electricity usage in South Asia, with only around 325 kilowatt-hours, compared to India's 1255 kWh, Bangladesh's 497 kWh, Sri Lanka's 631 kWh, and Bhutan's 5500 kWh. The low per capita consumption is mainly due to Nepal's reliance on fossil fuels in the transportation, cooking, and agricultural processing sectors.
In more optimistic news, the sales of electricity have seen a significant growth, going from 3 percent to 27 percent over the past ten years. This increase in sales has resulted in a revenue boost from $19 million to $64.5 million. While this positive change has helped reduce the consumption of fossil fuels, it is not substantial enough to make a major impact. The Nepal Oil Corporation has provided data indicating a decrease in the import of liquefied petroleum gas by 19.2 million kg (equivalent to 1.3 million cylinders) during the first eight months of 2022-23 compared to the previous year. This demonstrates the potential for utilizing electricity as a means to address Nepal's trade deficit, particularly through increasing domestic consumption. The government of Nepal has set an ambitious goal of raising per capita electricity consumption to 700 kWh by 2024 and transitioning from gasoline-powered vehicles to electric vehicles by 2031. Now is the time to implement policies that prioritize efficient energy use in households, manufacturing industries, transportation, irrigation support, and water supply.
India and Bangladesh are both emerging economic powerhouses, and they are actively seeking to reduce their reliance on coal and fossil fuels by significantly increasing their use of renewable energy. With a combined population of 1.57 billion people, these countries are also experiencing rapid urbanization and industrialization. As a result, their energy demand is expected to peak by 2040. India is particularly ambitious in its plans, aiming to transition to 100 percent electric vehicles and obtain 50 percent of its energy from renewable sources by 2030. Bangladesh, on the other hand, has its sights set on reducing carbon emissions by 22 percent before 2030. This is where Nepal can play a crucial role. With its abundant hydropower potential, Nepal has the ability to help these countries meet their energy needs and reduce their carbon emissions.
Nepal has initiated the trade of electricity with India through the Cross Border Electricity Trade, and this also involves a three-party agreement with Bangladesh. In 2022, Nepal successfully exported 493 gigawatt-hours (GWh) of electricity to India. Furthermore, there are plans to sell 50 megawatts of electricity to Bangladesh utilizing the Baharampur-Bheramara cross-border transmission line. Recently, Nepal has expressed its interest in establishing a long-term inter-governmental agreement for power trading with India and Bangladesh. This resulted in a significant agreement with India for a whopping 10,000 megawatts. If swiftly implemented, Nepal has the potential to become the leading energy provider in South Asia and contribute to the development of a sustainable economy. There is also the opportunity to extend this energy trade to Sri Lanka and Southeast Asia by expanding its cross-border energy commerce beyond its current agreements.
Nepal possesses a significant capacity for generating hydropower, ranking among the highest globally when considering the number of people and the size of the economy. However, tapping into this immense resource has been hindered by various obstacles. These include the complexity of the institutions and policies in place, insufficient infrastructure and investments, logistical challenges in remote areas, and concerns regarding the profitability of projects. The Nepal Electricity Authority (NEA) functions as a corporation owned by the government, making it susceptible to political interference. This interference manifests through the appointment of political allies to key positions within the NEA, meddling with its decision-making processes, and potentially safeguarding political interests. As a result, decisions related to determining electricity prices and establishing power purchase agreements have often been influenced more by political considerations rather than technical or economic factors.
Furthermore, the main issue faced by Nepal in terms of exporting energy is that India has rejected the import of electricity produced by hydropower schemes that involve Chinese and other foreign investments. Numerous private companies frequently raise concerns about obstacles in receiving tax refunds, obtaining permits, and acquiring necessary endorsements from the authorities. However, it is not only the government that should bear the blame; the private sector also shares responsibility for the deteriorating governance standards due to evident shortcomings and a lack of openness. As a result, it becomes essential to swiftly address and revamp Nepal's electricity sector, making it a pivotal policy priority.
In order to overcome these challenges, Nepal needs to implement changes in policies that remove political influence from both domestic and foreign investments. It should also encourage collaborations between the public and private sectors, prioritize the development of transmission infrastructure, provide financial incentives, and ensure sustainability in terms of the environment. This requires a joint effort from government and inter-governmental organizations as well as stakeholders in the private sector. The involvement of development partners, such as the World Bank's Green, Resilient and Inclusive Development program and the United States-Nepal Millennium Challenge Cooperation compact for electricity transmission and road infrastructure, is currently evident and important. Since export-focused hydropower projects will require additional financing of $0.5 billion to $1.0 billion annually, the support of international development partners will play a crucial role in achieving energy goals.
Electricity has the potential to play a crucial role in reducing Nepal's trade deficit by promoting local consumption, attracting investments in infrastructure, and facilitating regional integration through power exports. This collaboration among Nepal, India, Bangladesh, and international partners presents an opportunity to diversify energy requirements. Achieving this goal will necessitate steadfast dedication, assistance, and guidance from all involved parties.
