National The Telegraph - Weekly (Nepal)

N A T I O N A L

Kamal Raj Dhungel, Central Department of Economics, TU

Table 2: Energy Consumption (in thousand Tons of Oil Equivalent; TOE)
Energy Sources	84/85	%	89/90	%	95-96	%	00-01	%
Fuel wood	4269	84.8	4735	84.8	5408	81.9	6165	77.2
Agriculture Waste	191	3.8	213	3.8	243	3.7	278	3.5
Animal dung	320	6.4	355	6.3	404	6.1	457	5.7
Coal	83	1.6	45	0.8	67	1.0	223	2.7
Petroleum	151	3.0	204	3.6	416	6.3	756	9.5
Electricity	21	0.4	40	0.7	66	1.0	108	1.4
Total	5035	100	5610	100	6604	100	7987	100
Source : Economic Survey MOF/HMG 2001

Analysis of Energy Consumption Over Time

The trend line equation has been estimated using time series data. The regression equations are estimated for each type of energy used. For traditional sources total energy consumption is considered whereas for commercial sources various sources are treated separately.

Biomass Fuel

It includes the consumption of fuel wood, agricultural waste and animal dung. The annual growth rate of bio-mass consumption in Nepal during 1984/85-1994/95 was 2 percent (see table printed in the previous issue). The result of the first regression equation is obtained by taking time as an independent variable and consumption of bio-mass in Nepal as the dependent variable. From the result, the growth rate is inelastic meaning any change in the time will have less than unitary (proportionate) change on the consumption of bio-mass. It is because there is no fuel substitution (for cooking, heating etc).

Commercial Energy Consumption

Coming to the consumption of commercial energy, Nepal has no proven source of hydrocarbons. Electricity is only the indigenous source of commercial energy in Nepal. This high growth rate of commercial energy consumption in Nepal can be attributed to the increased number of vehicles, urbanization and promotion of industrial activities. The growth tare is inelastic meaning any change in time will have less than unitary (proportionate) change on the consumption of commercial energy. It is because there is no fuel substitution for transport.

Coal

The third regression equate is related to the consumption of coal in Nepal. There was a declining trend of coal consumption during 1984/85-1994/95 (-2.2 percent). Analyzing the factors we conclude some values to be insignificant. However, the regression coefficients are positive indicating that there is a positive relationship between coal consumption and time. The overall significance of the fit of the regression equation seems very thin.

Petroleum Products

The overriding increase in the use of petroleum products has been conceived from the viewpoint of increased number of vehicles, rapid urbanization, expansion of road facilities and the changes in the lifestyle of the people. The annual growth rate of consumption of petroleum predicates during 1984/85-1994/95 was 9.5 percent. If this growth rate of petroleum products continues in the future, Nepal has to pay substantial amount of foreign currency it earns to meet the demand of POL products. The fourth regression equation has been established to show the trend of consumption of petroleum product over time. Analyzing the equation we see 95 percent change in petroleum product consumption has been explained by the change in time. In Nepal, the petroleum products import will increase substantially causing an unfavorable trade balance as well as a similar balance of payments.

Electricity

The only indigenous commercial source of energy in Nepal, electricity, at present contributes less than one percent of the total energy consumption. The hydropower potential in Nepal is about 83 thousand MW of which 25 thousand MW is economically feasible. However, the production of hydropower is less than one percent of the total hydropower potential. The annual growth rate of electricity consumption during 1984/85-1994/95 was 9.1 percent. At present, about 14 percent of the population has access to electricity (Ninth plan).

The fifth regression equation establishes a relationship between electricity consumption and time. The estimated slope coefficient is found to be 0.90. Changes in time are positively related to electricity consumption. The annual growth rate of electricity demand is about 9 percent. This highlights the importance of electricity consumption over the change in time.

Forecast of Energy Consumption

The estimated relationship between energy consumption and time can be used to forecast energy consumption. Of course, one needs to estimate future levels of real GDP and population prior to use the estimated equations to forecast energy consumption. However, assuming the present constant growth rate of real GDP as well as population makes the energy forecasting for future. It is assumed that the annual growth rate of population will remain 2.24 percent per annum and the real GDP growth rate will be around 4 percent per annum. Given this constant growth rate of population and real GDP, the future energy is estimated with the base of the energy consumption data of 1994/95.

Table 5: Estimated Energy Consumption (in million Gj)
Energy Sources	94-95	04-05	14-15	Growth Rate (95/95-14/15)
Bio-mass	262.3	302.5	369.5	1.7
Commercial	23.1	58.3	149.3	9.8
Coal	2.8	4.2	7.6	5.1
POL products	17.5	54.7	164.4	11.9
Electricity	2.8	6.6	16.3	9.1
Total	308.5	426.3	707.1	4.2

The energy estimated results already show an increasing trend of consumption of energy in Nepal. Biomass fuel energy will increase at an annual growth rate of 1.7 percent during 1994/95-2014/15. The consumption of biomass fuel was 262.3 million GJ in 1994/95 and estimated value shows it will reach 369.5 million GJ in 2014/15. There will remain a high annual growth rate of the consumption of commercial energy during the same period of time. It increases at 9.8 percent per annum. The consumption of commercial energy was 23.1 million GJ in 1994/95. It will reach 149.3 million GJ in 2014/15. There is sox-fold increase in the consumption of commercial energy during 1984/84 to 2014/15. The past trend shows that there is a declining trend in the consumption of coal. However, in the coming years the coal consumption in Nepal will increase by an annual growth rate of 5.1 percent. It is observed that there is a higher annual growth rate of the consumption of imported hydrocarbons in Nepal. It is expected that the continuation of imported hydrocarbons at this rate of growth per annum, Nepal will face acute problem in its balance of payments that will occur from the high degree of trade deficit. There is only one option to keep the consumption of imported hydrocarbons intact, Nepal should generate substantial amount of hydroelectricity from its abundant water resources and sell to other countries that can generate foreign currency in order to solve the acute problems of balance of payment. If this step is not taken seriously under consideration Nepal should reduce the consumption of imported hydrocarbons to minimum level. There will be nine-fold increase in the consumption of hydrocarbons during 1994/95-2014/15. Similarly, the historical fact shows that there is an increasing trend in the consumption of electricity in Nepal that need to generate addition elasticity by investing huge amount of money in this sector.

It is observed from Table 5 that the total energy consumption will increase at an annual growth rate of 4.2 percent. There will be more than double in the consumption of energy in 2014/15 to that of the consumption of energy in 1994/95.

Conclusion

While dealing with the energy consumption in Nepal, the second set of regression equation shows that there is a strong relationship between energy consumption and economic development. The elasticity coefficients are greater than one. This fact reveals that an increase in per capita real GDP will increase the amount of per capita energy consumption. The future energy consumption is made with the help of first set of regression equations, which reveals that energy consumption in Nepal will increase over time.