Challenges of Nepalese Energy Sector

Arjun Bahadur K.C., Dalhousie University, Halifax, Canada  (


Nepal has one of the most expensive power tariffs in the world despite having the huge free water resources, favourable terrain for its production and all kinds of human resource available in the country. This is due to no other reasons than the financial irregularities continuously present in the government and corporate systems in the country.


Energy is the key input for technological, social and economic development of a nation. The energy supply and demand characteristics have a great role to play in order to attain sustainable development in the country. Thus, meeting Nepal’s current energy demand would help foster higher economic growth. Energy demand increases not only due to the increase in population but also due to the people’s access to new utilities in the market. As the rate of globalisation has a quick impact in technology development, the most affected sector due to growth and globalisation is the energy sector and Nepal can not be its exception. Despite endowed with huge natural resources, Nepal has not been able to tap its vast energy resources for the benefit of the country.

In Nepal, with an increase in population, agricultural and industrial activities, the demand of energy is also increasing. However, Nepal has one of the lowest percapita energy consumption rates (14.06GJ) in the world. Less than one third of population has access to electricity and in the rural areas, where most people live, access is much lower. According to recent report of the Asian Development Bank (ADB), the demand for power in Nepal has increased steadily with an annual average growth rate of 8.5 % over the past decade, and is estimated to grow at least by 7.5% annually until 2020. However, the current energy generation trend shows that meeting this anticipated energy demand is likely impossible. It is reported that approximately 10% of the total energy demand in Nepal is met at present by imported petroleum products at a cost of over 40% of Nepalese total merchandise export. Despite great potential for hydropower development, power sector development has been constrained due to lack of visionary leadership, inefficient bureaucracy, insurgency, and most profoundly the corrupt mentality of the political stakeholders.

Nepal has one of the most expensive power tariffs in the world despite having the huge free water resources, favourable terrain for its production and all kinds of human resource available in the country. This is due to no other reasons than the financial irregularities continuously present in the government and corporate systems in the country. Nepalese power industry is more like a monopoly market under the control of Nepal Electricity Authority (NEA) which is responsible for generation, transmission and distribution. People are compelled to pay tariffs for one of the most unreliable supplies which are spent to pay three times salary of the majority of engineers in the name of project development! The conservative bureaucratic approach of the power development which NEA is taking is not going to help the country’s economy. We have bordering countries India and China which are emerging as the world’s economic superpowers. It is said that the only problem for India to maintain or increase the current economic growth is supply of sustainable energy. This offers Nepal an enormous potential for hydropower production and export to its southern neighbour. On the contrary, there was a recent agreement with India to purchase power. Nepal government’s unstable policies, undue political influence on the NEA and the latter’s lethargic management mechanisms have become the sole hurdles for the power development. Hence NEA’s current approach and management model should be completely deconstructed and a new setup should be developed realising the role of government’s service sector, local government and private sectors. The new framework should focus on systematic development of large hydropower for export and small, medium/micro hydropower plants for local consumption to achieve the sustainable economic development.

In Nepal, over 80 % of the total energy consumption comes from traditional energy resources. Biomass being the major contributing energy sector in Nepal, more than 75 % of the energy is supplied by firewood alone followed by 9.24 % from petroleum products, 5.74% from animal waste, 3.75% from agricultural residue, 3.53% from coal, 1.47% from electricity and 0.48% by renewable resources. The sectoral energy consumption pattern shows that the residential sector energy consumption is more than 80 % while the agriculture and others are the least energy consuming sectors. According to Water and Energy Commission Secretariat report of 1995 carried out for energy end use perspective, it was reported that residential cooking alone accounts for 65%, space heating accounts for 8%, agro-processing 3%, water boiling 2%, lighting for 1% while others account for over 20% of the total energy consumption in rural household sectors. Biomass has thus been very important source of energy in the Nepalese perspective. With the recent emphasis on renewable energy, there are various opportunities for economic development using these renewable resources.

Various sectors including the government have put a strong emphasis on development of renewable energy development. However, due to disintegration of efforts made by various agencies in the development of renewable energy, a little has been achieved. For example, micro hydro sector is one of most important renewable resources, yet, the total contribution of over three decades of micro hydropower development initiatives resulted in less than 20 MW of electricity. The important benefit of the micro hydropower development is that it creates local jobs in manufacturing equipment, construction, operation and maintenance and end uses. However, existing policies on micro hydro development including subsidy grants are not creating favourable environment to the poor people and communities to support their economic activities. This subsidy policy is based on ‘bigger the better’ and ‘more the merrier’ philosophy, higher the capacity, the more the subsidy. However, smaller projects usually are more expensive and generate less revenue unlike bigger projects which usually become less expensive and at the same time generate more revenue. If the government organisations such as Alternative Energy Promotion Center (AEPC) works based on the sole financial evaluation of the projects, then what is the difference between AEPC and a private company? There are numerous intangible and service aspects that need to be considered by the government sector. People of Dolpa for example that are in desperate need and micro hydro is the only alternative to support their economic activities are viewed by the same eye as that of people in Kavre where there are other options too. The subsidy is redundantly allocated where several barriers prevent from getting the real benefit for the people in remote areas. It is crystal clear that over 30% of the installed micro hydro projects are currently malfunctioning due to lack of mechanism of maintenance. Ironically, the new subsidy policy and financing mechanism largely ignores post-installation side of the projects thus making the whole micro hydro power development process truly unsustainable in the long-term.

Community based micro hydro projects envisioned by Rural Energy Development Program (REDP) of UNDP have been viewed as one of the most successful projects in terms of long-term sustainability. It has created a conducive environment for the targeted communities to empower themselves due to involvement of women, capital formation and mobilisation of available resources at local levels. However, the project selection was mostly influenced by the political biasness at the district level. Since many projects were selected on the political prejudice, it failed to implement its holistic approach leaving the micro hydro projects vulnerable. Moreover, financing criteria were based on the calculation of external cost of project components that largely overlooked the local contribution generously made by the community people. Conventional financing mechanism has not been supportive to the people who are below line of poverty. Hence, the existing subsidy policy should be reviewed in order to make micro hydro projects sustainable. Micro hydro projects have little or no impact on the environment and still can be the backbone of the rural economy of Nepal provided the pro-people policies are in place.

Solar energy is another resource which has a great potential in Nepal. Nepal has over 300 sunny days in a year giving high potential of solar energy use. Generation of electricity using photovoltaic cells has become very popular in rural Nepal. The government has put heavy emphasis on subsidies for installation of solar home systems (SHSs). The problem of this system is that it is too expensive for those residing in isolated areas and even after the subsidy it is beyond the reach of low income group. Moreover, there are several issues of solar electricity through photovoltaic cells in the long-term. First, solar cells have very low efficiency resulting in extremely high cost. Second, it has several long-term environmental problems. Solar cells consist of various heavy metals including synthetic chromium, lead among others. Synthetic silicon which the solar panels are made of is not easily biodegradable. The storage batteries also consist of heavy metals such as lead and chromium and toxic acids. These metals and acids are eventually discharged at some point resulting in water, land and air pollution.

It was recently revealed that water has ‘memory’ as the humans have; it is difficult to treat water once it is contaminated. Even with the low doses of toxic chemicals in water, human health and biodiversity are threatened. The other problem is that as the solar cells are brought paying hard currencies from abroad, and the government subsidy eventually drained outside the country, hence, photovoltaic electricity is not a sustainable option. Despite such issues, solar systems are promoted pretending that it has no environmental problems. This is because our technology development are focused on short-term and based on external and physical benefits. For example, the CFCs, which were considered miracle refrigerants, were banned after over 3 decades of use. The same is anticipated for photovoltaic electricity. Even though solar energy is the most clean and largest source of energy on earth, the conversion pathways make it bad from environmental perspectives. The most recent program of Energy Sector Assistance Program (AEPC) to distribute white LED based solar tuki will have most devastating impact on human health. This light is toxic and unnatural. The spectrum of light generated by white LED is exactly opposite to the natural light and human eye needs significant adjustment to be able to view the objects and will do no good in the long-term. This programme came through the sole corporate interest and the losers eventually will be the people of remote villages in Nepal. With the same amount of investment, other energy sources such as micro hydro and wind plants could have been built wherever possible that could create economic opportunities too. This is completely absent while implementing solar tuki programme. However, the use of SHS systems can not be denied in places when any other options for energy supply are not available.

Generation of electricity by concentrating the solar rays through series of heliostats to produce superheated steam that can run steam turbine to produce electricity is another option for solar electricity generation. This can generate temperature up to 15000C. However, this technology is expensive than other renewable sources. This can produce industrial process heat comparatively cheaper than other sources. Direct application of solar energy such as water heating is one of the most efficient energy tapping system. However, conventional method is based on water heating the maximum temperature of which is limited to 1000C. If the technology is changed to oil heating instead of water, the temperature can reach over 3000C. This can be transferred to meet necessary heat requirements by means of heat exchangers. The efficiency of such systems can reach over 70% and it will have no environmental impact at al. This could be the best method to be promoted to produce the industrial process heat in Nepal. Similarly, wind energy is also considered a clean energy source. Wind energy has very good possibility in the hills of eastern and mid western districts. The government should promote this energy source by proving opportunities to private investments at the local level. National and international incentives for this green power development, tax exemption to a certain level and grid connection options should be provided to promote this source.

Development of commercial biofuels has a great potential in Nepal. This can reduce the dependency on import of petroleum products from abroad. Even though biomass such as fuel wood, agricultural residue and animal wastes are the major contributing energy sources in Nepal, development of commercial liquid biofuels such as biodiesel and ethanol that can replace the import of diesel and gasoline respectively are largely ignored. As an example, Brazil started biofuel development after 1973’s oil crisis and now bio-diesel and bio-ethanol are the major contributing energy sectors. Brazil is the world’s largest producer of biofuels and is way ahead of the USA. Baggasse and molasses from sugarcane are primarily used for ethanol production and soy and palm oil are used for biodiesel production. Fossil fuels are the alternatives for Brazil unlike other parts of the world where biofuels are alternatives.

Nepal can also learn from Brazil model to develop biofuels that can make Nepal independent from importing fossil fuels. Disruption in supply of petroleum products has not only been the problem for sustainable economic development but has also contributed to political instability. The national energy policy should focus on bio energy development for sustainable economic progress. Our policy makers should realize the fact that Nepal has high potential for development of biofuels such as biogas from waste, bio-ethanol and biodiesel. Success of biogas projects in the country is the best example in this regard. Bio-ethanol from biogases and molasses from the sugarcase industry are the best feedstock for bio-ethanol production. Moreover, switch grass which is available in barren lands as well as waste corn stalks can be used to produce bio-ethanol. Recent developments on bio-ethanol production from ligno cellulose biomass have shown enormous potential for producing bio-ethanol from waste biomass products. Bio-ethanol can be used alone or in combination with gasoline in the current gasoline engines. +++

Similarly, biodiesel can be produced from various plants and vegetable oils in Nepal. The most important source of feedstock for biodiesel production is Jatropha Carcus (Sajiwan) oil in Nepal. Jatropha can be grown on barren lands, waste lands, and areas where other production is not possible due to dry climate. Oil from Jatropha oil is non-edible and can be easily converted into biodiesel to replace the petroleum diesel. Biodiesel can also be mixed at certain concentration that significantly improves the engine performance and reduces emission. Different species of Jatropha found in Nepal have sufficient fatty acid content to convert them into biodiesel. Jatropha is multipurpose tree which has several applications from medicine to diesel fuel. Traditionally it has been used as a natural tooth brush and paste. The oil can also be used as drying oil in industries. Once the Jatropha oil is converted to biodiesel, the glycerin as its by-products can be used to make soap. Jatropha seeds contain over 30% oil and approximate 2.5 kg of seeds can produce a liter of biodiesel and some amount of glycerin. Another plant species usually found in the high mountain areas called sea buckthorn also contains over 30% fatty acids in its oil which is also suitable for biodiesel production. There are hundreds of species of plants from which the oil can be extracted to make biodiesel fuel. This biodiesel can be used in the conventional diesel engine without any modification. Jatropha oil can also be burned directly to replace kerosene lamps in rural areas. Production of biodiesel and ethanol create over 4000 jobs per year for one TWh of energy which is highest among all energy sources and can contribute the national economy reducing the import of oil and creating local job market. India is planting Jatropha in millions of hectares as a national plan to replace the 30% of the transportation fleets by biodiesel within next few years. A recent report says that Jatropha planted in the three counties of Guizhou Province of China totals 26,667 hectare in 2007 and the figure will exceed 266,670 hectare by 2012 that promises an increase in annual income of 62.5 to 87.5 US dollars for each working households. Hence, biofuels can significantly contribute towards the growth of national economy.

The most important part of biofuels is that they do not produce greenhouse gases to contribute global warming. If the biofuel conversion process does not involve contamination of synthetic chemicals, the CO2 and other gases produced from biofuels are acceptable to plants. Emission of greenhouse gas particularly CO2 is of great concern today. Even though CO2 is considered as one of the major greenhouse gases, production of natural CO2 is essential for maintaining life on earth. Note that all, CO2 are not same and plants apparently do not accept all types of CO2 for photosynthesis. There is a clear difference between the contaminated CO2 from industrial process and clean CO2 produced from renewable biofuels such as from wood burning and human respiration. As various toxic chemicals and catalysts are used during fossil fuel refining, the danger of generating CO2 with higher isotopes cannot be ignored. Hence, it is clear that CO2 itself is not a culprit for global warming but the industrial CO2 which is contaminated with catalysts and chemicals, likely becomes heavier with higher isotopes and as a consequence plants cannot accept this CO2. As the plants have lives as humans have, they always discriminate lighter CO2 against heavier portion of CO2 from the atmosphere. While taking into account the impact of CO2 for global warming, we must distinguish between natural and industrial CO2 based on the source from which it is emitted and a pathway of the fuel that emits CO2 following from source to the combustion. Thus, development of biofuels in Nepal not only helps achieve sustainable economic growth but also helps save the environment. There should be policy shift to consider biofuels as mainstream energy sources and petroleum fuels as alternatives.

Source: – March 12, 2007

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