Electrifying Nepal

How can we get electricity faster to Nepalis in a more sustainable way, while having it positioned for the future? Distributed generation is the answer

A recent electricity access study published by Nepal Electricity Authority (NEA) has found that 77.82 percent of households now receive electricity from NEA. Sudurpaschim province is the least electrified with 59 percent, while Province 3 is electrified at 90 percent.

NEA has set the target of reaching 100 percent grid electrification by 2025. But why wait another six years for electricity? Why cannot it be done next year?

How can we get electricity faster to Nepalis in a more sustainable way, while having it positioned for the future? The answer lies in distributed generation.

Micro-grid, that connects a whole area to one or more generation source, is an example of a distributed generation. But it also could be a rooftop or even your electric vehicle. Distributed generation, if adapted, could provide quicker electricity access to those who don’t have it, improve the quality of grid electricity and modernize our sector. Distributed generation is a revolution Nepal cannot afford to miss.

Missing the opportunity

Decentralized generation is when electricity generation occurs in many smaller parts closer to the load rather than through a centralized large plant that is then supplied to many loads. Decentralized generation doesn’t mean off-grid generation. It is connected within the grid. Today’s decentralized generation even includes the notion of virtual power plant.

Many countries around the world are rapidly integrating distributed generation into their power network in exciting and innovative ways. Distributed generation is being used for grid reliability, security and integration of renewable energy.

A power system with distributed generation, as the world is discovering, is more robust, modular and efficient. It is driven by clean energy technology and now includes digital technologies. Ever thought that an electric vehicle could be an important part of the distributed generation network by helping to balance electricity demand and supply?

In Nepal, distributed generation, for example a solar microgrid or a micro-hydro, is treated as a secondary source to fill the gap during the time when there is no gird and when there is grid. Our current designs are promoting concepts of microgrids that could become redundant when the grid arrives.

In this process, we are missing an opportunity to catch up with the future. We should build microgrids to connect with the national grid, not connect the microgrid to the national grid.

Nepal is building its microgrids with the help of government subsidies and grants from development partners. The model is very simple: an EPC (engineering is also provided) is hired to build a microgrid and the EPC guarantees service for five years of operation. It is built in the hope that the national grid will arrive there in five years. After which the state of the microgrid is not a concern for any stakeholders. Huge investment to build a microgrid runs the risk of being wasted once the microgrid components start to break down after the service agreement is over.

The EPC model for microgrid needs to be challenged. One option may be to offer alternative models that allow microgrid developer and operator to ensure smooth operation over a long period of time. Microgrid operators will be responsible for building and operating the microgrid for a long period of time, while being held liable in some capacity for the entire period.

Who regulates microgrid?

There is no regulation for microgrids in Nepal. There is no clarity on what will happen to the microgrid once the grid arrives. Though the Electricity Act mentions that the national utility will have to buy any distributed generation which existed before arrival of the grid, this has not been implemented so far.

The recently formed Electricity Regulatory Commission has outrightly said that they will not regulate any generator that is less than a Mega Watt. Most microgrids are less than a MW. Alternative Energy Promotion Center (AEPC) has not formulated any regulation around microgrids, though AEPC is the government body in charge of building microgrids across the nation. There is no clarity on local government regarding microgrid regulations. So, the microgrids are left unregulated, by the main utility, by regulatory commission, by AEPC and by the local government. Lack of regulation is a major hurdle for private sector to invest in these microgrids.

But for a country like Nepal which has one of the most difficult terrains in the world, a 100 percent commercial microgrid is not a possibility. But Independent Power Producer (IPP) kind of model will ensure longevity of the microgrid and attract private sector investment.

Just like IPP signs a Power Purchase Agreement with NEA, a microgrid could also sign a PPA with the local municipality with backing from NEA. Like the IPP model, the contract could be for 25 years. NEA should make it clear on arrival of grid and process thereafter. Municipality and NEA should predetermine the terms and conditions for the microgrid operators if the central grid arrives. The developer should be made liable for the entire term of 25 years for smooth operation of the microgrid through a guarantee mechanism against any subsidy received by the developer.

Models to consider

There must be government’s and development partner’s intervention and support for building and operating micro grids. But how we design these interventions will play a crucial role in sustainability of these microgrids.

Nepal now has more “sick” micro hydro projects than functioning ones. A technically challenging project left for the community to operate, which lacks technical or managerial skills is bound to become “sick” at some point.

Generation based subsidy, though a tough model to implement, may be a better option. More so because the private sector today is so accustomed to EPC model, they do not want the hassle of operating a micro grid. Lack of regulation and proper protection for the private sector is also a key issue. If a micro grid operates like an IPP, NEA and municipality can subsidize the per unit rate and provide regulatory safety which is required for the private sector to make micro grids a viable investment.

The municipality with support from development partners and central government should provide incentive for private sector on the tariff. The generation subsidy can be front loaded to the first three to four years or held in an escrow account for disbursement.

Many of Nepal’s development partners and projects have falsely claimed that because they have contracted private sector to build microgrids, it constitutes a project under public private partnership (PPP).

A contract to build a microgrid to the private sector is not a PPP model. The contracting model does not get private sector adequately invested in the functioning of project. It gets them only in building the project. In such cases, only contractual obligation on the construction is important. The quality of power, the user experience of beneficiaries on the ground is not relevant.

In PPP model, private sector must be integrated with the community it is serving, leading to a successful and real PPP model. Electricity is the means to the broader development. If development stops at providing electricity, we will miss a lot.

The author is Chief Executive Officer at Saral Urja Nepal