What’s cooking in Nepal besides politics?

Nearly 95% of Nepalis now have access to electricity, and the Nepal Electricity Authority (NEA) aims to achieve 100% this year. 

All the electricity will come from hydropower plants, but it is mostly used for lighting. A mere 0.5% of the power is used by households for cooking (see chart, below). 

The share of electricity to charge battery-powered vehicles is increasing, but not fast enough to use up the 4,000MW of hydropower that will be generated in the coming year. 

Nepal can export only about 600MW to India because it refuses to buy electricity from hydropower plants with Chinese involvement. This means a lot of expensively generated electricity will be ‘spilled’ (wasted) unless power demand is raised. 

“We need to promote electric vehicles, but not everyone drives. However, all 30 million Nepalis have to eat, so subsidising rice cookers and electric stoves can reduce LPG use,” reasons environmentalist Anil Chitrakar. 

But induction stoves and rice cookers might not be affordable to all, and electricity tariffs would have to come down with time-of-the-day metering. Spare parts and repair services for electric appliances are not readily available. Transmission lines need to be upgraded and supply made more reliable. Most major hydropower plants had to be shut down this week because of high sediment load on flooded rivers. 

Biomass (straw, dried dung, firewood) still makes up 59% of energy consumption for cooking, but imported Liquefied Petroleum Gas (LPG) is catching up with nearly 45% of households using cylinders. 

Household biogas, of which Nepal was a pioneer with 400,000 digesters built in the 1980s, has fallen to just 1.2% of households because of fewer families keeping livestock and LPG (chart, right).

LPG is heavily subsidised, making it both affordable and convenient. It has also helped reduce indoor air pollution and respiratory ailments among mothers and children, and contributed to the regeneration of forests. 

To meet its 2045 net zero target, Nepal has committed to reducing LPG use to 40% or below by 2030. But that will be difficult without cheaper alternatives, considering that in urban centres like Kathmandu and Pokhara, household LPG use is nearly 100%.

Gandaki Urja, Nepal’s biggest industrial-scale biogas plant near Pokhara, was built to process municipal and farm waste into bio-Compressed Natural Gas (bio-CNG), but is finding it difficult to compete with state-subsidised LPG.

“The operational cost of CNG means LPG is cheaper,” explains Kushal Gurung of Gandaki Urja. “Waste to energy projects simply cannot compete with subsidised fossil fuels.”

Piping gas directly to homes is not available. This means installing expensive liquefaction plants, and deposits for CNG cylinders is Rs27,000, while an LPG cylinder is only Rs2,100.

Gurung has a checklist for making urban-scale biogas viable in Nepal: involve municipalities in waste management under public-private partnership, segregate waste, burn biogas to recycle plastic, sell fertiliser as a byproduct, and earn carbon credit for methane produced by biogas. 

In Dharan, a bio-CNG plant run by Venture Waste to Energy (Vw2E) takes 30 metric tons of mixed solid waste daily from the municipality to produce methane and fertiliser through anaerobic digestion (box, below). Vw2E’s Bipul Raj Pandey says: “Bio-CNG is a very versatile fuel and can be used to generate electricity, or as cooking gas. We had the choice of competing with LPG or petrol and we chose to sell it to transporters.” 

The company produces 1,600 cubic metres of gas daily and could supply some 3,000 households in Dharan. But without piped gas, compressing the fuel into cylinders is expensive. It sells the gas as biofuel for three wheelers, and it can also be used to run cars.

In another success story, Ghorahi in Dang turns municipal waste into methane, and supplies 32 households with piped gas. This project is supported by a Rs22 million grant from the Alternative Energy Promotion Centre (AEPC) and Nepal Energy Development Company which hopes to eventually distribute piped cooking gas to 1,500 households.

Siddhant Raj Pandey of Business Oxygen (BO2), a private equity fund with a climate focus, says that unless the government subsidises renewable energy schemes, fossil fuels will win. 

BO2 invested in Gandaki Urja but it just could not match cheaper and more easily available LPG. The company tried to offset the cost by selling fertiliser from digester effluent, but uptake was slow. 

“How can anyone compete when fossil fuels are subsidised and not renewables like biogas?” argues Pandey. “If the government is really serious about net zero by 2045, it needs to start thinking about viable alternatives but for that, you need patient capital, viability gap funding, blended finance.” 

One fuel that Pandey says is already viable is bio-pellet sourced from forest biomass. That is because the tax on imported coal for industrial use was increased. A government-mandated bio-pellet mix like in India could help reduce the coal import bill. A BO2 partner supplies brick kilns and cement factories with fuel bio-pellets.

Biomass still makes up nearly 80% of Nepal’s overall energy consumption while electricity and solar account for less than 5% each (chart, left). Petroleum products, which make up 25% of all imports and totals more than all exports combined, make up 12.5% of energy use.

Energy generation on the other hand is entirely focused on hydroelectricity, which requires higher investment and is also at higher risk, as shown by climate-induced disasters like Melamchi in 2021 and Teesta in Sikkim last year. 

While the government has committed to ambitious climate targets in its Nationally Determined Contributions (NDCs) to reduce carbon emissions, and prioritises the promotion of renewable alternative energy sources, contradictory policies have discouraged investors. For example, it has capped non-hydro electricity in its energy mix at 10%.

Solar power plants are cheaper and faster to build and operate, but there are no subsidies for solar farm investors on the purchase of land. NEA has also been quoting a lower power purchase rate for solar electricity, and most recently capped it at Rs5.94 per unit. With added taxes and VAT starting this year on solar equipment, many investors are turning away (box, overleaf). “NEA is not enthusiastic about solar even though it does not compete with hydro and can even complement it during the dry season when run-of-river projects cannot meet demand,” says Raj Kumar Thapa of Solar Solutions, which is setting up 10 DC and 8 AC solar plants in Kapilvastu. “Given our current over-reliance on hydroelectricity, there is no way we can meet our net zero targets.”

Kushal Gurung of Gandaki Urja has also dabbled in wind energy in Nepal and found it to be less economically viable than solar. 

He warns: “Our lack of diversification in energy sources is a recipe for disaster.”  

Dung-powered cars

Biogas is mostly used as cooking fuel, but in Dharan a company is generating bio-Compressed Natural Gas (bio-CNG) from municipal waste to run auto rickshaws (pictured, above).

Venture Waste to Energy (Vw2E) is a private company that has for the past two and a half years been processing 30 metric tons of municipal waste to generate 1,600 cubic metres of gas every day, and distributing farmers the valuable fertiliser byproduct for free.

The bio-CNG is sold at Rs130 per kg to three-wheeler taxis that run up to 40km on one 1kg of gas. This translates into Rs4.77 per km with CNG, while the running cost of regular petrol auto rickshaw is Rs9.22 per km. 

The three-wheelers do need a one-time Rs35,000 CNG kit but this cost is easily recovered from savings on petrol.

“We can reduce urban waste by at least half and cut petroleum use by up to 17% with bio-CNG,” says Bipul Raj Pandey of Vw2E. Replicating this could save Nepal some of the Rs60 billion it spent on importing LPG from India last year.

Vw2E had the option of selling bio-CNG as household cooking fuel, but it was not economically viable because of state-subsidised LPG and the higher cost of CNG cylinders.

“If only our policies on investment were in place, bio-CNG could entirely replace LPG,” Pandey says. “It’s a win-win: we reduce urban waste by using it to generate cheap clean energy and also slash the petroleum import bill.”

Punishing the sun 

Nepal Electricity Authority (NEA) has called for bids to install 800MW of solar energy to the national grid but there is not much excitement among investors because of the low buying rate of Rs5.94 per unit. 

The new budget in June also introduced VAT and customs duty on solar equipment. Even though the cost of solar panels has declined globally, a weaker NPR vis-à-vis the USD and new taxes keep prices for panels and batteries high. 

“The PPA of solar is so low that if it wasn’t for the price of panels coming down, it wouldn’t have been viable,” says Siddhant Raj Pandey of BO2. “The government’s argument that India can produce at the same rate doesn’t apply, there are subsidies for solar in India which we don’t have.”

Every 5MW of solar energy requires 5.09 hectares of land but Nepal’s land ceiling does not allow individuals to own more than 3.82 hectares without additional documentation. There is no subsidy on land purchase for solar projects, either. Moreover, land once bought for solar power cannot be used for other purposes even if operators do not get a renewal for solar generation.

Unlike licensing hydroelectric projects on a first come first served basis, solar producers need to bid first, and the lowest bidders are granted the project. Usually by the time of implementation, there are other cost hikes. 

Like the last time, NEA called for tenders for a 64MW of solar power in 2007, first at the rate of Rs9.61, later reduced to Rs7.30 by the time of implementation, discouraging investors. So far, only 20MW plants have been installed.

“NEA has been reluctant to push for large-scale utility solar. Their reasoning is always that while peak demand is between 6-10PM, solar generates energy only between 9AM-3PM,” says Raj Kumar Thapa of Solar Solutions, which is setting up 10 DC and 8 AC solar plants in Kapilvastu.

He adds: “The new 800MW bid is a positive development but the PPA (Power Purchase Agreement) rate is too low to be attractive for investors, even banks do not think the bids are viable. At the very least we need viability gap funding. We should also remove VAT and cap duty at 1%.”

Solar is a daytime power source, but the price of large battery storage is coming down and solar power can be used to pump water to hydropower reservoirs in the daytime when demand is low so that electricity can be generated at peak morning and evening hours. Kushal Gurung likens the NEA’s reluctance to promote solar to that of preventing the latest model imported cars on the road because they have not been locally tested. The policy on non-hydro electricity mix should increase to 30% so it can buy more of the cheaper energy, he says. 

Nepal gets abundant sunlight nearly 300 days a year. This is about 2,100 hours of sunshine a year with 6.8 hours on average per day, much higher than northern hemisphere countries. Nepal has an estimated potential solar generation of 50,000TWhs annually, which is 7,000 times more electricity than what the country consumes at present. Besides, the sunniest parts of Nepal are trans-Himalayan districts like Humla, Dolpo, Mustang and Manang where solar photovoltaic panels are more efficient because of the cold.

“Realising Nepal’s solar energy potential will depend on us building high quality solar projects in areas close to demand centers, industrial corridors and rooftops in the short term,” says Anjal Niraula of Gham Power. “But our long-term future will involve pairing solar with battery technology across all levels of the grid i.e. transmission, distribution and also behind the meter. This will allow us to use renewable solar power that is both reliable and cost effective.”

What cost hydro?

Some industrialised countries are now demolishing dams to let rivers run free. The largest dam removal is currently taking place on the Klamath River in California, and 487 dams, weirs, culverts and other river barriers were removed across Europe in just 2023.

Dams slow the natural flow of water and warm it, promoting the spread of deadly algae and parasites, which in turn decimate fish populations and riverine biodiversity.

With an installed capacity of nearly 3,000MW and an additional 1,000MW on the way by the end of the year, Nepal’s planners now need to think of the environmental cost of hydroelectricity. Dams change the hydrology of rivers, and with the climate crisis, expensive infrastructure are also at the mercy of destructive floods.

The Melamchi disaster in 2021 and the Chungthang dam collapse in Sikkim last year were signs of things to come. Also in 2023, nearly 30 hydropower projects along rivers in eastern Nepal were damaged by monsoon floods.

“Large infrastructure in the Himalaya is a big no-no, especially with weaker mountains and warming climate. They will lead to big losses, we do not want a repeat of Melamchi,” warns water expert Madhukar Upadhyay.

He adds: “A much better option is to go for smaller infrastructure and spread them out and not put all our eggs in one basket.”

Infrastructure projects in Nepal need Environmental Impact Assessments (EIAs) but these are often copy-pasted formalities. Climate risk is not even factored in. 

One of the most prominent examples of this is Kulekhani Hydropower Station, Nepal’s only running storage-type project. It was designed to last 100 years when it was commissioned in 1982 but by the 1990s, a flash flood reduced its lifespan to just 30 years.

“There are global studies but they do not provide local context. We have rain forecasts but we don't yet know how the climate is changing the geometry of our rivers, vegetation, or soil moisture,” says Upadhyay. “Without these, we have no roadmap for infrastructure development.”

Energy expert Manjeet Dhakal agrees. “We talk about how heavy rains will affect our hydropower plants, but we haven’t even begun to think about increasing temperature affecting water availability, making the case for energy diversification beyond hydropower that much stronger.”

The last Nationally Determined Contribution (NDC) in 2020 set Nepal’s target to increase its share of clean energy to 15% by 2030 from only 9% today.

“Our dependency on hydropower makes us vulnerable to climate risk. While there has been some progress when it comes to clean energy in Nepal, we must leapfrog to diversify energy sources,” adds Dhakal, who advocates exploring the feasibility of hydrogen.

The Ministry of Environment has started the process to set the next NDC which must be submitted by February 2025. The new NDC will have targets for until 2035.

Dhakal, who advises Least Developed Countries (LDCs) at the UNFCCC, says: “We must analyse our energy mix to promote solar, wind and other clean energy sources, especially if we are to meet our energy and climate targets.”