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Electricity Pricing And Load Shedding
By Dr. AB Thapa
Local newspapers are now reporting that very soon the Nepal Electricity Authority (NEA) is going to hike the electricity tariff although the electricity price in Nepal is one of the highest in our region. Similarly, the NEA is soon going to start the load shedding despite the fact that just sometimes back the NEA was saying that its electricity generation was in surplus to our country’s present need. Why there are such anomalies? Needless to say that this is highly undesirable situation and it is the direct result of our very poor management of the power sector. Let us examine why we are facing such problems.
NEA’s Financial Crisis
Very recently the Nepal Electricity Authority (NEA) had published its annual report 2003/04 which had been presented in full detail in various newspapers It is stated in the report that the NEA registered a net loss of NRs. 1.78 billion despite the fact that the electricity tariff of the NEA is one of the highest in our region. Most of the NEA revenue went towards payments to IPPs (private developers). About 43 percent of the total revenue generated was utilized in purchasing energy from IPP’s and about 30 percent to HMGN in the form of interest, principle and royalty. The cost of operation and maintenance of the NEA operated power stations is about 9 percent. At present Nepal Electricity Authority is facing a terrible financial crisis. The NEA has announced to hike again the electricity tariff to cover its losses. The present financial problems of the NEA are mainly of its own making. The NEA was warned of the dire consequences of careless handling of the IPP projects a long time ago. Water and Energy Commission had even circulated a proposal suggesting an alternative plan.
Shocking Deals With IPPs
The NEA might be shutting down partially or fully many of its own hydropower plants for a considerable length of period each year particularly in wet season to receive electricity purchased from the IPP owned hydropower plants. As a result, the NEA owned hydropower plants are operating each year on an average less than 3500 hours whereas the IPP owned hydropower plants are reported to be operating 6000 hours.
During the past financial year, according to the reporting of the NEA, the electrical energy available for use within the NEA system totaled 2381.496 GWh. This comprised of 1345.654 GWh obtained from the NEA’s own hydropower plants with a total installed capacity of 389 MW, and similarly 840.275 GWh purchased from the IPPs owned hydropower plants with a total installed capacity of about 141 MW. These data explain that on an average the NEA owned hydropower plants had been running for only 3460 hours in a year whereas the IPP hydropower plants 6000 hours. As a rule of thumb, the hydropower plants with a small storage reservoir to regulate the river flow on a daily basis according to the need for water to meet the peak energy demand are expected to run on an average for about 5000 hours or slightly less in a year unless the number of the average operating hours in a year has to be decided from some other specific considerations. In case of the hydropower plants without a storage pond to regulate river water on a daily basis, the installed capacity is decided solely on the basis of the availability of guaranteed river flow all the year round ( it is usually 90% probable discharge) since such plants would not be able to operate at higher capacity to meet the demand for peaking energy that would have required water supplies to the turbines in excess of the daily available guaranteed river water flow. This scenario would certainly change and we would have to adopt installed capacity in excess of the firm capacity if we are in need for seasonal energy.
IPP Supplied Electricity Totally Wasted
What would have happened now if we did not have any of the IPP owned hydropower plants? The NEA owned hydropower stations alone would have generated about 1940 GWh per annum if it is presumed that they operate 5000 hours each year. Similarly the NEA owned thermal plants with a total installed capacity of about 56 MW would have generated about 150 GWh if it is presumed that they would be operating on an average 3000 hours each year. If we would have purchased about 300 GWh electricity( perhaps about 75 MW in capacity) from India ( in the year 2002 it was 238 GWh ), the total electricity available for use would have been about 2390 GWh which is equal to the availability of electricity for use last year within the NEA system. Similarly the total capacity in the system would have been about 520 MW against the last year’s peak demand recorded at 515 MW. It implies that the electricity procured from the IPP owned hydropower stations is now almost totally wasted. In other words we are paying almost in vain Rs. 5.32 billion ( or 43% of the NEA revenue) to purchase electricity from the IPP owned hydropower stations.
Can We Export Seasonal Energy?
It is quite unfortunate that some of our friends in the Government are placing high hopes on export of seasonal energy to India to promote IPP projects. We should beware of such misleading perception. Our own study of the Upper Karnali Project carried out with the assistance of the World Bank explains that the value of our seasonal energy to Indian system to displace temporarily fossil fuel could be only about 10% of the value of the firm energy whereas the cost of energy transmission to India ( wheeling charge) could be somewhere around 15% of the total value of the mostly firm energy based on the recent agreements reached between various states of India. Thus we would be incurring a loss by exporting seasonal energy if special circumstances did not warrant India to buy such energy at a fairly high price.
Future Load Shedding
It is not a surprise that the NEA has announced its intention to start load shedding very soon. The IPP owned hydropower plants are not going to be helpful to the NEA to mitigate crisis of power shortage when the demand for electricity further increases. The total present firm capacity of all the IPP owned hydropower stations might be only about 60 MW during the critical dry season months when the demand for electricity is the highest despite the fact that the present total installed capacity is about 140 MW. As a result, the real total generating capacity in the system would be only about 505 MW( excluding procurement from India) which is less than the maximum peak demand recorded at 515 MW last year. Thus in the coming winter reason load shedding would be inevitable if electricity is not imported from India.
In Conclusion
It is often said that many developing countries are unable to bolster up the economy at a reasonable pace not for want of natural resources or capital. They are progressing very slowly because they have little or no understanding of their country’s development problems. Certainly in this matter Nepal is not an exception. Our country is also suffering from the same type of ailment. Planners and policy makers in our country need to have clear understanding of the development problems.
Unfortunately nobody is seen to be truly interested to diagnosis the ailment of the NEA. It is hoped that the PDF loan going to be provided to Nepal by the World Bank would not be spent to further worsen the financial situation of the NEA by investing on projects like the Khimti, Bhote-Kosi, Indrawati. Hydropower projects selected for the implementation must be suitable to fulfill our demand for power irrespective of the fact whether they are built by private developers or by the NEA itself.
(Dr. Thapa writes on water resources)
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