Nepal has the fifth highest hydropower potential in the world. Besides electricity, which can be used for peak energy supply, hydropower reservoirs can also play a role in regulating water in rivers, flood control and irrigation.
With federalism, Nepal has the potential to decentralise hydropower along with political power. All seven provinces, except Province 2 in the Tarai, have enormous capacity to develop hydropower to generate downstream benefits, such as increasing agriculture output, boosting tourism and generating employment.
The government’s current budget includes a provision to develop one large hydropower project in each province. Prioritising water value first and peak energy second, Nepal can double its megawatt potential by maximising storage and daily peaking of run-of-river projects, while regulating river flow.
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All this would allow 5.4 million households across Nepal to gradually replace imported cooking gas and traditional firewood with cheaper electricity, reducing Nepal’s trade deficit and improving health by eliminating indoor pollution from open kitchen fires.
If each family consumes 1KW of energy and if 3 million families switch from cooking gas and firewood, we will need 3,000MW in the morning and evening peak hours, which can be provided by new mega-projects designed to generate 15,000GWh. Of course, the distribution system would need to be improved and demand side reforms have to be in place.
The market value of the electricity generated could reach Rs180 billion, which would replace the import of Rs100 billion worth of cooking gas, Rs20 billion in transportation and petroleum products, and Rs50 billion worth of electricity for industries. With millions of people using electricity in the kitchen, indoor air would be healthier.
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The main problem for the provinces today is that they do not have this supply, which is impeding industrial development and job creation. Developing hydropower will replace high-value raw materials and energy imports, and allow gross value addition compared to investment in other sectors.
Income from selling the energy could provide the provinces with the resources to fund their own development projects. Initially, identifying and developing 500MW projects in each of the six provinces would generate a total of 3,000MW. The Nepal Electricity Authority’s current electricity rate of Rs12/unit would provide each province Rs30 billion in gross income — a total of Rs180 billion that could increase GDP by 10%.
This plan would need the central and provincial governments to work closely together, with Kathmandu providing the financial guarantee and licenses for the provincial governments to develop projects.
Cost of financing is a major component of the outlay in hydropower. Domestic banks loans at 13% interest would cut into profits, so projects would need international financing at 1-2% for 25 years. The Non-Resident Nepali Association could be the bridge to connect Nepal with financial assistance schemes like the Chinese Government’s BRI, the US Millennium Challenge Corporation, and others.
Nepal could also seek financial assistance from the Export-Import (EXIM) Bank of China, Asian Infrastructure Investment Bank (AIIB), Exim INDIA Bank, Japan International Cooperation Agency (JICA), Department for International Development (DFID), World Bank Group, Asian Development Bank (ADB), Export-Import Bank of Korea and others. Financing hydropower development of 5,000MW would require $12 billion in soft credit, to be paid back in 30 years, and earnings from these projects can easily sustain provincial development expenses.
The Nepal Government’s 6 projects for 6 provinces would take 6 years to come into production after necessary preparations, such as a study report, environmental impact assessment, land acquisition and lease. A cabinet decision is all it would take to fast track the process, and construction could begin by the second year.