CONFERENCE SESSION: ENERGY IN DEVELOPING NATIONS

PROGRESS IN, PROSPECTS FOR, AND BARRIERS TO REDUCING ENERGY

POVERTY IN NEPAL
Bishwaraj Bhattarai
Student Engineer
School of Engineering, University of Edinburgh
Kings Buildings, Edinburgh, EH9 3JL, Scotland, UK

Summary
Despite long running socio-political turbulence, Nepal has made some progress in providing energy
access to its citizens. The success results from suitable governmental policies, consistent support of
international development agencies, and overall positive response from public. However, significant
proportion of population is still away from access to modern energy. In this paper, the policy frameworks
leading to present developments are discussed. Current scenario is assessed and ongoing
developments are explained. Prospects for development, and the potential barriers are discussed.

1. Introduction

1.1 Energy Poverty and Development

Modern energy services like clean cooking fuel, and electricity are essential for well-being of people,
societies, and for national development. However, almost one third of people in the world face acute
energy poverty and do not have access to basic energy services like clean cooking fuel. Nepal is one
of the Least Developed Countries(LDC) in the world, and majority of people predominantly use
traditional firewood for cooking, heating, with LPG/Kerosene stoves in urban and semi-rural settings..
While lack of access to clean energy sources is indeed, one of the primary reasons for energy poverty,
poor financial situation also plays a significant role in a country where significant proportion of population
still lives under 1$ per day.

Energy consumption per capita is often a good indicator of economic, social, and human development
scenario of any country. Investing on energy access can be a significant driver for kick-starting
development. Access to modern energy services can improve health and well-being of specially women
and children, help bridge gender equality, promote women empowerment, and promote
entrepreneurship in forms of local small and medium enterprises (SMEs) through productive energy use
(PEU) of electricity, among others. Thus, access to energy is often a key step in achieving other goals
of sustainable development.

1.2 Aims and Objectives

The aim of this paper is to present the progress, potentials, and the barriers for achieving universal
energy access in Nepal. Specific objectives include:
analyse the policy measures undertaken by the government and their implications
describe the institutional framework adopted to disseminate various energy technologies
present the current scenario and the prospects for achieving universal energy access
discuss the barriers for eradicating energy poverty

2. Policy and Institutional Frameworks

2.1 Policies for progress

Although Nepal started developing systematic National Five-Year Plans since 1956-61, energy access
was not in the plan until the Seventh Plan(1985-90). Designs for Improved Cooking Stoves(ICS) were
developed and ICS along with biogas plants started dissemination with support from donors. The Eight
Plan(1992-1997) envisioned separate policies for energy and for alternative energy with the
establishment of Alternative Energy Promotion Centre in 1996, which would become a predominant
executive body for energy sector. Since Ninth-Plan(1997-2002) energy became one of the priority
areas(National Planning Commission, 2016). Rural Energy Development Program(REDP) began in
1996 with aim of promoting energy access in remote areas of Nepal. It ended in 2013 providing modern
energy access to over million people, and generating over 15 percent of national electricity from small
hydro(UNDP, 2012). The Energy Sector Assistance Program(ESAP) initiated by Danish Development

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Agency (Danida) in 1999 was
another instrumental scheme. It
ran until 2012, and was supported
by Dutch, German, and British
aids and executed by AEPC.
Upon completion it provided direct
access to clean energy to over 1.1
million people(AEPC, 2013).

Renewable Energy for Rural

Livelihood(RERL:2014-2019) is
an extension of both REDP and
ESAP. It is a comprehensive
project with scope going beyond
specific technologies. It covers
legal and institutional policies,
involving private sectors, capacity
Figure 1: Historical growth of per capita energy consumption of
development at every level, and
Nepal. Significant growth visible after 1995 when policies targeting
improving productive end use.
energy access came into effect(World Bank, 2014).
National Rural and Renewable
Energy Program-NRREP(2013-2017) is a component of RERL and includes biomass(ICS), biogas,
solar, electricity(small hydro or grid electrification) subcomponents, alongside Community Rural Energy
Fund(CREF) and PEU subcomponents.

2.2 Sectors and Institutional Framework

There are three categories along which energy access projects in Nepal are typically streamlined.
Cooking and Heating includes ICS and biogas. Improved Cooking Stoves are modified version of
traditional fire stoves designed to burn wood more efficiently, with a provision of chimney to ensure
minimal release of smoke and dust inside the kitchen. Centre for Rural Technology Nepal (CRT/N) is
the primary non-governmental organisation working for promotion of ICS, and is funded by government
and international development partners. The biogas sector is overseen by Biogas Sector Partnership
Nepal(BSP-Nepal), an implementing organisation with a partnership of Nepal Government, Netherlands
development organisation(SNV), Nepal Gobar Gas Company(private biogas company) and financial
institutions(banks). Renewables including solar, wind, or hybrid systems for domestic to micro-grid
scales, are undertaken mostly by AEPC. Participation of private sector, especially in Solar Home
Systems(SHS) and Small Solar Home Systems(SSHS) is increasing. Electricity is normally accessible
either through national grid operated by singular (generation-transmission-distribution) government
company called Nepal Electricity Authority(NEA), or through one of the rapidly developing small-hydro.
These small hydros are commissioned by AEPC with support of NEA.

3. Progress, Current Scenario.

Despite significant focus on reduction of energy poverty over recent years, traditional firewood is still the
dominant source of energy in Nepalese households. However the proportion is decreasing slowly, from
75% of total population in 19990 to around 64.4% in 2013(ADB, 2013).

3.1 Improved Cooking Stoves

Since its establishment in 1989, CRT/N had distributed over 281,662 ICS by 2014. Some of these were
installed under Biomass Energy Support Program(BESP) of AEPC, a component of ESAP scheme (CRT
Nepal, 2014). Different report from AEPC(2012) indicates over 500,000 ICS installed through AEPC
until 2011, with over 100,000 installed without subsidies. It is estimated that over 700,000 ICS have
been installed in 63 districts of Nepal(AEPC, 2016). ICS has had substantial role in improving energy
access for especially the poorest section of society who could not afford/run biogas, kerosene, lpg or
any other forms of modern energy.

Currently, the ICS scheme is streamlined parallelly by AEPC (through Biomass Energy Sub-Component
of NRREP scheme), and by CRT/N. AEPC is working on eastern, central, and western districts by
selecting 35 pre-qualified private ICS manufacturers and disseminating through 9 regional service
centres operated by different Non-Governmental Organisations(NGOs). There is no subsidy for mud
ICS in general, but for communities at high hills(over 2000m), and for metallic ICS, there is a subsidy of
Nepalese Rupees NRS 2700 for two pothole(1$NRS.105), and NRs 4000 for three potholes.

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Depending on material and labour costs, a mud ICS can cost upto NRS 1,000 while a metallic ICS for
domestic or institutional use can cost anywhere between NRS 1,000 to 10,000 or more depending on
size, build, and features. Government subsidies for institutional metal ICS is up to 50% of cost, not
exceeding NRS 5,000. The NRREP targets dissemination of 475,000 mud ICS and 35,000 metallic ICS
over 5 five years, by 2017 with more recent data not available yet. CRT/N is working in 7 districts of
most underdeveloped far-western region under Improved Cookstove Program with Carbon
Finance(ICF) scheme. It aims to distribute ICS to over 150,000 households within similar timeframe with
approximately 30,000 distributed by June of 2015(CRT Nepal, 2015; AEPC, 2012; AEPC, 2016).

3.2 Biogas Plants

Biogas sector is supported by SNV Netherlands, World Bank, KfW Germany via AEPC and executed
by BSP-Nepal. A number of pre-qualified private biogas companies(117 selected currently throughout
all 75 districts) are selected in every district to install and deliver subsidies, while there is an arrangement
for credit facilities to cover remaining costs from public limited banks and micro-finances. Amount of
subsidy depends on capacity(m 3), geographical location(higher for mountains, low for flat lands), and
institution(domestic or other). Cost of installation is approximately $100 per m3 (NRS 10,000). The latest
subsidy scheme (Govt. of Nepal, 2016) provides NRS 16,000 to 25,000 for 2m3 to 24,000-35,000 for
6m3 or above. Extra add-ins are provided for marginalised and low-penetration communities.
Tentatively, the government subsidy covers the significant proportion of establishment cost, especially
for low capacity(2m3) household system(Govt. of Nepal, 2016). Credit facility exists with interest rate of
over 10% from financing institutions. The NRREP scheme targets dissemination of over 130,000
household plants between 2012-2017 although no information is available on progress so far(AEPC,
2016a). The relative success of biogas program is attributed to the efficient implementation framework
involving donors-public-private- financing institution(Dhakal, 2008).

3.3 Renewables

Solar PV for electricity in Small/Solar Home Systems(S/SHS), and solar thermal for hot water(mostly
urban areas/trekking routes) are the predominant renewables with wind being relatively unexplored.
Solar PV systems are subsidised based on capacity and geographic locations, although the application
is primarily limited to lighting and in some cases running appliances. Solar PV sector is growing with
private sectors participation, with some pilot scale solar based minigrids and water pumping systems.
There has been no development so far in wind, except for identifying some potential sites. AEPC is now
working with international and private organisation to develop wind map(AEPC, 2016c). The current
subsidy scheme provides upto 50% of initial cost of SHS. A sum upto NRS 5,000 for 20Wp(market cost
10,000) and NRS 10,000 for 50Wp or more (cost 20,000 or more) is provided for remote areas, while
for urban areas, upto 40% of cost is provided. A subsidy of upto 60% of system costs( not exceeding
NRS 450,000) is also provided for Solar monigrid systems, and 40-60% of cost for PV pumping and
solar thermal systems(Govt. of Nepal 2016; AEPC 2011).

3.4 Small Hydro and Grid Electricity

Small hydro development scheme of Nepal is widely regarded as one of the best execution model for
other developing/least developed nations as well. The success is attributed to capital cost subsidy,
technical assistance, community involvement, and credit facility(Willcox 2015; Sovacool, 2013). Over
2000 small hydro with total capacity over 30MW have provided access to electricity to over 165,000
households since 1996. The NRREP scheme aims to develop 25MW worth small hydro between 2012-
2017 and electrify over 150,000 rural households. Small hydro scheme is managed by AEPC with the
involvement of District Development Committees, private consulting firms, pre-qualified private
suppliers/contractors, local community bodies, and social/non-governmental organisations. The subsidy
scheme provides around NRS 30,000 per customer for distribution and between NRS 100,00-200,000
per KW for construction/equipment depending on remoteness of location. The amount varies with
capacity, location, end use, etc. but subsidy is approximately enough for initial investment. Tariff of
electricity varies with project specification, capacity, and location, but it is usually below the grid
electricity tarrif(currently around $0.08/KWh, depending on Ampere connection and units
consumed)(Govt. of Nepal, 2016; WECS Nepal, 2013; AEPC, 2016b).

Likewise, NEA is also extending the national grid to remote areas, with priority on regions with potential
sites for large scale plants, population distribution and community engagement. NEA is also extending
grid from newly completed or under construction plants not just towards downstream, but also on the
opposite direction. 132 KV Kabeli Transmission corridor in the east, and Kohalpur-Mahendreanagar
transmission line in the west are at near completion. In centre, Tanahu Hydropower project, 140MW is

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under construction with rural electrification scheme. While east and central region in Nepal are realtively
well developed, with higher concentration of existing generation as well as transmission/distribution, the
access to electricity is limited only to accessible flat lands(Terai) in the west/far-west. NEA has now
implemented Community lead Rural Electrification Programme(CREP) to extend national grid to remote
communities based on local participation, which could help rapid extension of grid in some places, while
poorest and marginalised communities could be left behind. The percent of population with access of
electricity varies with source, but most agree it is around 70% while acknowledging poor quality of
supply. Government aims to achieve around 8% growth annually to meet target of 87% by the end of
13th national plan in 2017(NEA 2015; National Planning Commission 2016; Niti Foundation, 2015).

4. Prospects
As per the UNs Sustainable Energy for All(SE4ALL) program, Nepal aims to provide access to clean
modern energy to every household by 2030. However, a
study by Investment Board of Nepal(2016) projects that
the national energy mix in 2030 will still have over one
third of contribution from traditional fuel like wood or
animal dung, see figure 2.

ICS will play a significant role if Nepal were to achieve

the SE4ALL targets by 2030. ICS is getting wider
acceptance and newer designs have additional utilities
like space heating, water boiler attachment, improved
efficiency upto 25% (upto 50% wood saving), etc. Metallic
ICS, although relatively expensive, have better
performance, and potential for medium/institutional scale
usage. Both AEPC and CRT/N are now operating test
stations for developing better designs with wider
applications(CRT Nepal, 2014).

Upscaling to community/institutional scale, and

generation of electricity are the next avenues for biogas. Figure 2: Projected Energy Mix in 2030 with
AEPC plans to develop 200 institutional, 40 community, MAED-IAEA at base case scenario of
and 500 urban domestic biogas plants by 2017. 20 waste- moderate GDP growth(5%) and policy
to-energy (municipal) projects are in the pipeline. The measures(Investment Board of Nepal,
potential for domestic biogas is estimated to be over 1.9 2016).
million units, out of which, around 260,000 are installed according to estimates from AEPC(2016).

With increasing involvement of private sector, there is considerable growth in domestic solar PV sector
for lighting, and basic electricity services from mobile charging to television. NRREP scheme targets
deployment of 600,000 small/solar home systems, 1,550 institutional/solar pumping systems, and 7,500
solar dryer/cookers by 2017. Solar micro-grids, and solar-wind hybrids are increasingly getting more
attention with a deployment of a
few pilot projects(ADB, 2014).
Detail study of grid scale solar and
wind energy potential has not been
done yet, but estimates so far
indicate a tentative wind potential
of 3,000 MW(0 MW harnessed so
far), and a whopping 62 GWp for
solar(300W/m2), out of which a
mere 15 MW is installed(WECS Figure 3: An estimated potential of renewables in Nepal. Experts
Nepal, 2013). debate on these 'famous values' arguing real potential, especially
for hydropower, could be many times this figure(WECS Nepal,
The study by Water and Energy 2013).
Commission Secretariat(2013)
also estimates the necessary electricity development to achieve SE4ALL targets under low, moderate
and high growth scenarios. With medium economic growth and policy support, approximately 4,000MW,
11,000 MW and 31,000 MW have to be developed by 2020, 2030 and 2050 respectively(WECS Nepal,
2013). The installed capacity is just over 700MW, just over 1% of estimated potential, whereas projects
worth over 2,000MW are under construction and 5,500 MW worth are awaiting license after feasibility
studies(Niti Foundation, 2015). There has been limited participation of private and foreign investments
in hydropower, especially large ones. Government is now focusing on attracting private and foreign

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investment on hydropower sector. Some high-profile projects with 500MW or more capacity are in
pipeline with Foreign Direct Investment(FDI) from China, India, South Korea, among others.

5. Barriers for Development

5.1 Policies and Implementation

At least five ministries at centre are directly concerned with development and management of energy
sector and services, and there is very little coordination amongst them. Also there is limited participation
of all stakeholders, and limited community consultation and participation at preliminary design and
planning stages, often leading to public dissatisfaction and even protest(The Kathmandu Post, 2015).
The service delivery mechanisms are often unclear, complicated and concerned government agencies
often shying to take responsibilities, engaging in blame games. Recently, developments have been
made towards bringing the entire energy sector under National Planning Commission.

5.2 Socio-Politics

Nepal suffered a decade long civil war between 1996-2006, and is consistently unstable socio-politically.
Political parties often mobilize supporters to manipulate public against and bargain by delaying the
execution of major projects. Politically divided communities and parties are less likely to accept good
initiatives made by government of rival parties.

5.3 Subsidies and Financing

Energy access programs in Nepal are heavily subsidy based, much of which comes from international
donors. The subsidy delivery mechanism is often questionable in a country with systemic corruption and
inefficient bureaucracy. Lack of availability of credit, or worse, lack of access to any financial institutions
in remote areas make it challenging for government to continue supporting these schemes(The
Kathmandu Post, 2016).

5.4 Technological Barriers

There is little to none research and development, innovation to develop newer, large scale, and more
efficient technology for cooking stoves, biomass, or small hydro. Monitoring-Evaluation, and Quality
Control are often given least priority. The efficiency of cooking stoves is questionable, whereas biogas
plants in hills/mountains perform poorly in winter season. Both existence and capacity of transmission
lines also limit hydropower. Grid scale application of wind, solar, and hybrids are still limited by resource
assessment, data availability, etc.

5.5 Socio Cultural Challenges

Education and awareness is a big barrier as over 70% of households using any of these energy services
are literate. It is very difficult to convince people of disadvantages of traditional firewood usage, and opt
biogas/ICS even for relatively well-off households due to lack of awareness.

5.6 Private and Foreign Investment

Energy sector is still in infant stage with very limited participation of private and foreign investment.
Additional challenges are created due to incoherent and changing policies and socio-political instability.
Minimal private engagement means additional strain for government to be fully involved, and at times
less efficient, complicated, and slow deployment.

Conclusion

Nepal has made noteworthy progress in reducing energy progress in past two decades and aims to
provide universal access by 2030. Much of the success and failures in past was based on how well
issues of clear policy, simple delivery mechanism, public-private participation, credit access, community
involvement and post installation support, etc. were addressed. Policy clarity, focused and singular
implementation framework, private investment, and political commitment will play key role in determining
the future progress.

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