OPINION (Spotlight Weekly)

Our Looming Energy Glut and The No Option Trap

By S.B. Pun

MW Glut Scenario : It is indeed heartening that Nepal Electricity Authority's (NEA) 6 Mega Watt (MW) Puwa in Ilam and the private sector Himal Power Limited's 60 MW Khimti on the Ramechhap\Dolakha border have started feeding valuable power into the national grid from April 2000. NEA's 14 MW Modi in Parbat and Bhotekoshi Power Company's 36 MW Bhotekoshi in Sindhupalchowk are slated to come before the end of this year. By July 2001, when NEA's major 144 MW Kali Gandaki A and the public-private 20 MW Chilime come on stream, we would have added a whopping 280 MW at a time when our total installed capacity is 315 MW. This will mean a total capacity of 595 MW in 2001, when our forecasted peak load then is 408 MW, resulting in a MW glut of 187 MW.

Giga Watt Hour (GWh) Glut Scenario: With the addition of Puwa's 42 GWh, Khimti's 350 GWh, Modi's 91 GWh, Bhotekoshi's 240 GWh, Chilime's 129 GWh and Kali Gandaki A's 840 GWh the annual average energy availability from these plants total to 1,692 GWh. The existing hydro plants' annual energy supplying capability is about 1,200 GWh, thus the total annual average energy availability in July 2002 will be 2,892 GWh. This is at a time when forecasted energy requirement July 2002 is only 967 GWh. Hence, there is going to be a huge energy spill of 925 GWh. In a tiny system, when the capacity is doubled, this is quite natural. Energy spilling had occurred in the past as well when Trishuli and Marsyangdi were initially hooked into the system. We need not wail about this natural phenomenon. But what we definitely need to wail about is our complete lack of preplanned strategy and complacency to tackle such foreseen energy glut scenario.

NEA GWh Rich But Cash Poor : As indicated above after Kali Gandaki A comes on stream, it has been forecasted that in July 2002 a massive 925 GWh of energy will be spilled. Khimti and Bhote Kosi's 590 GWh of annual energy is on the TAKE OR PAY basis at the generation level. This is quite distinct from the low voltage consumers' terminal level because the 23% loss has to be absorbed by NEA itself. NEA forecasts that it will be selling 1475 GWh of energy in July 2002. With BPC and the two private sector developers taking away 652 GWh from NEA, this is a hefty 44% of NEA's total energy sales. Hence, a very contradictory scenario of NEA as an extremely cash poor utility will emerge, despite being megawatt and giga watt hour rich. One can then visualize a scene where it will be the government itself and not the donors who will push to raise the electricity tariff in order to bail out NEA.

The Options: A. Spill : This is the path of least resistance. The two major private developers, Khimti and Bhote Kosi, are on the TAKE OR PAY basis. As NEA will have to pay them even if they do not generate, NEA will have to make them generate. NEA will instead backdown its own generation thus spilling the valuable energy that is tagged as 1.6 US Cents per unit from plants that have been built at high costs.

B. Increase Domestic Consumption: Instead of spilling this precious energy, NEA will be forced to increase its domestic consumption through such incentives as the cheaper Time of Day and Seasonal Tariffs. In fact NEA has already started the metering of high tension consumers with this time of Day Meters. But our absorption capacity is very limited and the consumers who have already switched over to gas cooking may be reluctant to resort back to electricity unless the savings is quite substantial. Some industries may increase its consumption through such incentive mechanism but the overall impact to the system will not be substantial.

C. Install Energy Intensive Industries : This is the best option for the country. The urea fertilizer plant that uses local indigenous raw materials (nitrogen from the air and hydrogen from water through electrolysis) is the best industry. We are already importing over 150,000 metric tons of urea from abroad spending our valuable scarce foreign exchange. Besides, fertilizer is one of the key inputs in the government's agricultural perspective plan initiatives. In 1985, the Japanese under our government's request, had conducted a feasibility study and found that a 80,000 metric tons urea plant requiring 80 megawatt of power was feasible provided that electricity was supplied at 40% of then prevailing tariff. This plant did not materialize more from the lack of commitment on our part than the lack of power, I believe. Similarly studies had been conducted in the past for putting in the arc furnaces for smelting scrap iron. This was also abandoned due to lack of power and high electricity tariff. We have abundant limestones for cement factories and though they are not electricity intensive industry, they, however, have very load factors. Our three cement factories at best can produce only 40% of the country's demand. Yet the fourth cement factory at Surkhet is still doubtful whether it will ever take off the ground. These are the industries where we must be serious and, if needed, be ready to sell them power at the spill energy value.

D. Export to India : We are today importing about 50 MW from India thus indicating that this amount could be easily exported back to India under the same existing networks. We are presently paying at about 4 US Cents per unit and if this status quo is maintained then a substantial cash shortage headache of NEA will be solved, provided that the Indian State Electricity Boards pay. But if this export is done at the Spill Energy Value of 1.6 US Cents per unit then we would be burning our candle at both the ends: Very little revenue to NEA's cash hungry coffer and our industries unable to compete with industries across the border that get power at spill energy value.

Industry Promotion Cell : One of the main functions of the Electricity Development Department is to promote the private sector in the development of the power sector. Now who should promote the energy consumption part? To a certain extent NEA, of course. But when it comes to large capital intensive and energy intensive industries, definitely not NEA. Is it the Ministry of Industries, the Ministry of Water Resources or the apex National Planning Commission? There is a strong need to create a cell that promotes and markets this glut of energy. The Industry Promotion Division at the Ministry of Industries could take the lead role. Anyway with only a year or so left before we begin spilling we are caught literally with our pants down. Do we export our "Khera gairakheko" Energy as differently from water at the extremely low spill energy value to industries across the border? Or do we hurry up and install suitable energy intensive industries that our country requires? Our time is running out.

Final Word : When we double our installed capacity from 300 MW to 600 MW it is but natural that there will be heavy spillage in the system. Despite this foreknowledge we, the planners and executives, are doing precious little to improve this state of affairs. This promotion of hydropower development is very important and a lot of attention has been given in this direction. Equally important but sadly neglected is the promotion and marketing of the power duly generated. Our past is replete with countless examples of the no option traps that we have fallen into. If we do not wake up still then, I am afraid, we are heading for another no option trap whereby we will be forced to export at the spill energy value of 1.6 US Cents per unit much to the detriment of our own industries that are being charged 9.2 US Cents per unit.

(Pun writes in issues of water resources)