
Hydropower currently accounts for nearly one-quarter of the world’s electricity production, with a total sum of 650,000 megawatts (MW) installed. It is not only a significant contributor in terms of the overall global energy balance, but is arguably the only renewable energy resource that is commercially exploitable on a large scale at present levels of technology.
Nepal is well endowed with enormous hydro-power resources. Nepal has roughly 83,000 MW of hydropower potential, half of which is economically feasible for development. Less then 1% of this capacity has been developed, while the demand for clean, renewable energy in Nepal, northern India, and southwest China is expected to at least double over the next decade. Demand for power in Nepal is outstripping supply by 25 MW or 10% per year. India’s energy deficit is expected to reach 20,000 MW by 2010, and China’s deficit will reach 330,000 MW by 2015.
Nepal is the major contributor of the Ganga Basin. The five major sub-basins inside Nepal are shown in table below. The annual discharge of outflowing rivers from Nepal to India is about 224 billion cubic meters. In a span of about 100 km, rivers lose a potential height of about 4,000 meters, thus providing a high linear density (33 MW/km) and large hydropower potential is shown in Table 1 below.
Table 1: Basin-wise hydropower potential in Nepal
Basin | Theoretical Potential (GW) | Economic Potential (GW) |
Major rivers | Small rivers | Total |
Koshi | 19 | 4 | 23 | 11 |
Gandaki | 18 | 3 | 21 | 5 |
Karnali and Mahakali | 32 | 3 | 35 | 25 |
Others | 3 | 1 | 4 | 1 |
Total | 72 | 11 | 83 | 42 |
Source: Dr. Hari Man Shrestha, 1966, Cadastre of Hydropower Resources, PhD Thesis, Moscow Power Institute, Moscow, USSR. Figures are rounded. |
This comparatively cheap source of power provides a distinct advantage for Nepal to embark on a program of rapid industrialization. So, Nepal's Maoists-led-present government has ambitious plans of generating 10,000 MW of electricity within 10 years. This ambitious plan is not unachievable if gone towards right direction. One positive step in this regard is Nepal has opened this sector for private investment and Foreign Direct Investment.
India has tremendous pressure on supply of electrical power in line with its rapid economic growth. There is vast deficit of supply against demand. India's plan to enter into Nuclear power generation through Indo-US Nuclear deal is the justification of such demand of cheap electricity energy. But if experts are to be believed, the nuclear power generation is not that cost effective and not easy especially due to its technological requirements and environmental constraints. So, tapping hydro power generation potential offered by neighboring country- Nepal should be viewed as a grand opportunity which is too costly to lose for India.
This is the right time for Indian government to take bold steps, by forging an alliance with Nepal in this hydro power sector. This is because present leadership of Nepal government has promised its people of economic revolution and Nepal's leadership clearly understands that without India's cooperation, it is not possible. So, the Nepalese leadership is expected to take India on board for tapping of hydro power development potential in the country.
India, no doubt, can further boost its economic growth by investing in hydro power generation in Nepal. Cheap electrical energy generated in Nepal can be transmitted through the power-highways. Nepal Electricity Authority and the International Leasing & Finance Services (IL&FS) of India have entered into an agreement to form joint venture companies' (JVCs) for development of the following transmission links infrastructure development:
95 Butwal-Gorakhpur: 400 kV T/L to be completed by the end of 2008/09.
95 Duhabi-Purnea: 400 kV T/L to be completed by the end of the 2008/09.
95 Dhalkebar-Muzaffarpur : 400 kV T/L to be completed by the year 2010/11
95 Anarmani-Silgudhi: 400 kV T/L to be completed by the year 2010/11.
More such developments are expected in times to come.
COMPARISON OF THERMAL AND HYDRO-PROJECTS
India has been more dependent on thermal power generation since long time. In terms of “bankability” (that is, the ability to raise finance to support a project), there are marked distinctions between hydro and other forms of power generation. If one excludes nuclear power as being, at least at present, an unsuitable candidate for independent power development on a number of grounds relating to environmental, safety and cost considerations, the principal comparison lies between hydro and fossil fuel thermal power stations. Hydro remains a sound long-term investment whose shelf life is almost indefinite compared with the 15- to 20-year life cycle of a typical thermal power station.
THERMAL VS HYDRO- FACTORS AFFECTING BANKABILITY
Particulars | Thermal | Hydro | Remarks |
| | | |
Capital Cost (US$/kilowatt) | 400-1,400 | (800-3,000)** | **At present, it is approx. 1500 USD/KW in Nepal. But it depends upon various factors. There are IPPs who have produced at lower than this rate. |
Operating cost | high | Low |
Construction risk | Low | high |
Construction time | 2-4 years | 3-6 years |
Project life | 15-20 years | >50 years |
Decommissioning costs | yes | unlikely |
Electrical and mechanical (E&M) plant | 80% | 30% |
Site influence | Low | High |
Technology | changing | mature |
Source: Private Financing of Hydro Projects, C R Head, PSWG Seminar, Croatia 1997. |
In making such a comparison it is easy to see why hydro has fallen out of favor since liberalization of the power sector because it is perceived to be capital-intensive, slow to implement and risky.
But this scenario of financing is changing now. International Finance Corporation (IFC), a World Bank affiliated group, has pledged loan for private hydro power generation entities and has already invested 10 per cent of the total investment in Khimti and Bhotekoshi Hydropower projects in Nepal. IFC has pledged to finance 25 per cent of the total fund required for two hydropower projects, bagged by two Indian companies also. India’s GMR Energy Ltd has got the contract to work on the Arun-III (402 Mw) project whereas Sutlaj Vidyut Nigam has bagged the 300 Mw Upper Karnali project. Moreover, Power Development Fund (PDF) is developed which is a component of Nepal Power Development Project (PDP) agreed between Government of Nepal and the World Bank to finance private development of small and medium sized hydro schemes. The PDF is expected to provide long term financing for private sector hydropower developments in Nepal.
In India also, a sea change has occurred in the sphere of power development after promulgation of the Indian Electricity Act - 2003. The states have unbundled their monolithic power utilities and electricity has become a commodity for trade. Small hill states such as Himanchal Pradesh, Arunachal Pradesh and Sikkim have seen an upsurge in hydropower development especially on the strength of the very progressive incentives the developers are receiving for hydropower investment.
Apart from hydro power generation in these hill states, India should forge an alliance with Nepal, as with Bhutan, to tap hydro power potential in order to meet the country's energy needs. Government should formulate power exchange policy and develop infrastructure. Once this policy comes into force, Indian private investors can benefit by investing in export-oriented-hydro power projects in Nepal. At present, Nepal Electricity Authority (NEA) also purchases electricity produced by Independent Power Producers (IPPs). NEA has fixed* the purchase rate for purchasing electricity from IPPs producing less than 5 MW. Licensing agreement and Power Purchase Agreement (PPA) is for 35 years (source: Hydro Power Policy 2001 of Nepal govt) and given the fact that the payback period from such project is 5 to 7 years, this licensing agreement period is more than sufficient from the investor's perspective to cash on its investment.
* (PPA is readily signed with developers of plants 5 MW and below on standard terms. The standard terms are: wet season rate of NRs. 3 per kWh, dry season rate of NRs. 4.25 per kWh, purchase rates escalated till 5 years at 6% p.a., PPA validity of 35 years)
Nepal's present government is likely to come up with new policies in this sector thereby easing the hurdles for the Independent Power Producers (IPPs). Nepal government has also entered into a series of bilateral agreements and has signed international conventions in order to guarantee the interest of investors. Some of those agreements and international conventions are:
- Bilateral agreements on investment protection with France, Germany and United Kingdom;
- Ratification of Multilateral Investment Guarantee Agency (MIGA);
- Ratification of New York Convention for the Enforcement of the Foreign Arbitration Award;
- Bilateral agreements on the avoidance of double taxes with India, Norway and Thailand; and
- Power Exchange Treaty with India.
Various Acts and Regulations, as shown above, have been promulgated and international conventions and protocols have been endorsed to show its full commitment to the protection of investor's interests in such investments. Since the large scale power development and evacuation involves more than one nation, it becomes necessary for a more coordinated involvement of bilateral and multi-national agencies. Such an involvement would encourage the business confidence of the private sector and, consequently, the flow of capital for development.
Hydropower is a renewable form of energy and it also has a potential to reduce the emission of green house gases from SAARC region. These factors also put Nepalese water resources in a good list for development. Nepal neither has a capability to invest by itself in large-scale multipurpose water resources projects nor has the capacity to absorb all the electricity produced by such projects. However, here is a need to develop these resources mainly for export to accelerate socio-economic development in Nepal and its neighboring countries. Therefore, it is high time to propagate the concept of regional benefits for hydropower development.
At a time, when Nepal is seeking help from developed countries for a sustainable development of its natural resources and improvement in quality of life of its citizens, it will be wise on Indian government's and private sector's part to make investment in hydro power development projects in Nepal.