- 1 Definition / Scope
- 2 Market Overview
- 3 Key Metrics
- 4 Market Risks
- 5 Top Market Opportunities
- 6 Market Drivers
- 7 Industry Challenges
- 8 Technology Trends
- 9 Pricing Trends
- 10 Regulatory Trends
- 11 Other Key Market Trends
- 12 Market Size and Forecast
- 13 Distribution Chain Analysis
- 14 Competitive Landscape
- 15 Competitive Factors
- 16 Key Market Players
- 17 Strategic Conclusion
- 18 Further Reading
- 19 Appendix
Definition / Scope
Nepal has a huge hydropower potential. In fact, the perennial nature of Nepali rivers and the steep gradient of the country's topography provide ideal conditions for the development of some of the world's largest hydroelectric projects in Nepal. Current estimates are that Nepal has approximately 40,000 MW of economically feasible hydropower potential. However, the present situation is that Nepal has developed only approximately 851 MW of hydropower.
There is a huge potentiality of the market for hydroelectricity in Nepal. Even in domestic market, there is only 74% of populations have access to electricity and still there is a large scope for energy in domestic markets. The problem faced by different industries due to the lack of electricity and ultimately hampers the whole economy of the country. That is the reason, the industrial sector only contributes about 6% in national GDP and steadily decreasing. Nepal Electricity Authority (NEA) has sole authority to distribute and purchase of electricity.
Domestic and Industrial consumer category contributed 43.50% and 37.53% to the gross electricity sales revenue respectively. Rest of the consumer category accounted for the remaining 18.72% of the gross sales revenue. In the FY 2017/18, NEA had a total revenue of NRs 60,480.67 (USD 515) million as against the operational expenses of NRs 52,621.37 (USD 448) million.
The total energy available in NEA’s system increased by 12.79% to 7,057.93 GWh over the previous year's figure of 6,257.73 GWh
NEA has only authority to purchase and distribution of electricity in Nepal. However, other company can participate in the production and management of their business as independent power producers (IPPS) and can sell their electricity to NEA via PPA agreements. NEA spent NRs 33,817.27 (USD 287) million in purchasing power from the various Independent Power Producers (IPPs) and import from India
NEA has only authority to the distribution of electricity produced from independent power producers. So, there is a need for power purchase agreement (PPA) agreement with NEA before investing in hydroelectricity.
|Base Year||2018||Researched through internet|
Although bestowed with tremendous hydropower resources, only about 74% of Nepal's population has access to electricity. Most of the power plants in Nepal are the run-of-river type with energy available in excess of the in-country demand during the monsoon season and deficit during the dry season.
Furthermore, there is a poor development of transmission line. There are few cross-border transmission lines that linked Nepal and India currently operated in the country and there is no such a transmission line with China. However, these two large countries could be the large market share for electricity to export. So, there could be a risk of loss of electricity due to the poor connectivity with the transmission line.
Another risk is domestic demand for electricity. Industrial contribution to national GDP is about 6% means there is a very poor development of industry and poor demand for electricity.
Top Market Opportunities
Industrial development in the country is very poor. An adequate supply of electricity may boost up the industrial growth by serving as a catalyst and in future, a growth of industrial sector demand more and more energy which may be fulfilled by electricity. There are two major neighboring countries with huge population could be a substantial market. Bangladesh is also very much interested in purchasing and investing in hydroelectricity of Nepal.
There are about six thousand big and small rivers in three major river basins namely Koshi, Gandaki and Karnali including some southern rivers, and two border rivers, Mechi, and Mahakali in Nepal
There are few major transmission lines projects which are under execution and are cross-border transmission link Nepal-India and Nepal-China.
Government is planning to develop 3,000 MW in three years, 5,000 MW in five years and 15,000 MW in ten years. To support this goal government is planning to seek for each and every business model to make investment possible.
The energy sector is the largest FDI absorbing sector following by manufacturing, servicing, tourism, and construction.
Electricity shares about 3.39% of total energy consumption in the country, so there is the huge potentiality of electricity to increase share by reducing a traditional form of energy sources like fuelwood, agriculture residue and animal dung which shares about 77%. Water resources in Nepal can be exploited up to 43,000 MW, however, theoretical potentiality is estimated about 83,000 MW.
The hydroelectricity policy, 2001 has recognized domestic and foreign investors in hydropower generation, transmission, and distribution project through the sole or Joint Venture Company. Furthermore, nontourist visa and work permit shall be provided to the investors of the hydropower project, authorized representative, and necessary foreign expert, skilled manpower and their families until construction and operation of the project.
In doing business ranking Nepal is ranked in 105 in 2018. So, Nepal is ranked after Bhutan and India in South Asia.
Most striking challenges for the individual power producers could be the problem of acquiring land for operating business. Another challenge is producers oblige to sell their products to the NEA only. Producing hydroelectricity does not have such a market fragmentation because electricity produced by every producer is having the same kind.
In the innovative world, each and every time new technologies are emerged and these technologies change the scenario of industry. The innovation and new technologies evolved in global market have set the new benchmark in hydroelectricity. European industry completely relies on hydropower technology. As a matter of fact, all the global heads equipment of hydropower technology is in Europe. The hydropower markets in Europe account for more than 50% of the whole world market.
Generally, the water covers two-thirds of the earth; therefore, water demonstrates the largest source of energy. Hydropower is necessary, and it will unquestionably be at the heart of renewable energy technology in the world. Additionally, it supplies to the system immediately to meet the power demand promptly. As a matter of fact, hydroelectric pumped storage facilities are the only substantial way yet available to store electricity. Hydropower technology is reliable and mature since it has a role in a sustainable energy future by combating the challenge of global energy needed and reducing greenhouse gas emissions.
Nepal Authority has set a different price for a different season by distinguishing dry and wet season. In wet season due to the monsoon, water current is high and produces electricity at install capacity. However, in dry season plant cannot produce at full capacity because of low water current. This is the reason to differentiate the price per unit.
Government policy is continuously changing after the government has promulgated liberalization policy for supporting investments from non-governments sector. The Investment Board Nepal is a high-level fast track Government of Nepal agency established in 2011 to create an investment-friendly environment by providing a one-window service for foreign investors. The Department of Industry, responsible for the administration and implementation FITTA and promotion of industry in Nepal, particularly small and medium scale approx. USD 20 million and the Industrial Promotion Board provides foreign investment approval to projects with investment of between approx. USD 20 to 100 million.
The government has set the new different Foreign Investment Policy, Industrialization Policy, and Hydropower-Development Policy to encourage private investment in hydroelectricity. Furthermore, independent power producers (IPPS) can sell their electricity to the NEA and can set the agreement on PPP by bilateral negotiation with NEA and IPPS.
Additionally, the government has also planned to develop a cross-border transmission line with Nepal-China and Nepal-India, this will expand the market opportunity for investors. BIMSTEC has also approved the connectivity ....this will enable the investors to trade electricity with BIMSTEC countries like Bangladesh and Myanmar. The government of Nepal has also agreed with the Government of Bangladesh for electricity trade. This is the significant chance for the producer to fetch a good price. Investors can have a different model to invest like BOOT (Build Own Operate and Transfer). In hydroelectricity, the government has set the encouraging policy rather than restriction.
Other Key Market Trends
Hydroelectricity is capital intensive rather than labor intensive. Though, country face the foreign migration trends of unskilled labor force mainly from agriculture sector is not going to hamper the investment in hydroelectricity. Furthermore, skill labor forces required for hydroelectricity are available at lower cost.
Investors setting up enterprises in Nepal that will employ staff (either on a permanent, fixed term or consultancy basis) will need to follow Nepal’s labor laws. The government revises the minimum wage periodically, usually every 2–3 years. No employee can be paid less than the minimum wage. Wages and benefits are generally based on the collective bargaining agreement reached between the union representing the workers and the management.
Every enterprise has to pay an amount equivalent to one month’s salary to permanent workers as festival bonus under the accession to the WTO agreement Nepal has made a commitment to allow 15% of technical and managerial posts to be filled by expatriate staff by entities with foreign investment.
Market Size and Forecast
The electricity requirement depends mainly on the population and Economic conditions/activities (eg.GDP) of the country. In addition, electricity consumption depends on the development path followed by the country. If we follow low carbon path, the demand pattern follows a certain pattern. Likewise, following a high growth path changes the demand pattern accordingly.
Mostly the plan, policy and overall national vision guide the predictions of future energy/electricity requirement of the country. If the policy interventions are made and an enabling environment is created for using electricity in cooking and water heating in urban areas, mechanization in agriculture, the operation of electric trains, then the electricity demand will increase.
The sectoral demand in the country for electricity from 2015-2040 studied by water and energy commission secretariat has identified 26820 GWh at 4.5% economic growth rate and 52998GWh at 9.2 economic growth rate. By 2030, the installed capacity requirement is about 15,000 MW, whereas, by 2040, the demand will increase to 82,000 GWh for which the corresponding installed capacity requirement is more than 35,000 MW.
If the same kind of policy interventions is made while achieving 9.2% GDP growth rate, the installed capacity requirement will reach up to 18,000 MW in 2025 and more than 50,000 MW by 2040.
Global trend for energy requirement is continuously increasing. Additionally, most of the developed countries in Europe and North America are planning to transform their energy source from conventional to renewal source. Furthermore, major automobile companies declared that by 2030 they will stop to produce fossil fuel automobiles. This will significantly pressure the global market to transform to renewal source of energy. Hydroelectricity could be one of the significant sources for renewable energy.
Distribution Chain Analysis
Nepal Electricity Authority has almost sole authority to distribute electricity all over the country. Some privately owned company like Butwal Power Company is involved in the distribution of its own production in some part of the country. It is very difficult and very costlier for an individual producer to distribute their production because of the higher cost of transmission line establishment. So, it is better to set a PPA agreement with NEA. The table shows the average producer selling and distributor selling price.
About 75 companies are running with instalment capacity of 512 MW and about 107 hydro power projects are under construction with instalment capacity of 2356 MW.
There are also identified few potentially large hydropower and huge investment needed for the project. So, there is huge scope for investing in hydropower in Nepal.
Nepal is located between the two large economies, India and China. This strategic location offers unparalleled and preferential access to their markets. Nepal’s geographical location creates the potential for Nepal to become the transit point for Indo-China trade. The heads of states of both India and China have shown commitment to fostering trade and taking bilateral cooperation to a different level.
Key Market Players
Nepal Energy Authority (NEA), the government body is the key players in the market. The generation within the country has not been sufficient in eradicating load shedding; additional power had to be imported from India. The total energy imported from India was 2,581.80 GWh in fiscal year 2017/018 as compared to 2,175.04 GWh in the last year, an increase by 18.70%.
The total power purchased from Independent Power Producers (IPPs) within Nepal was 2,167.76 GWh, an increase by 21.97% from the last year’s figure of 1,777.24 GWh. The total energy available in NEA’s system increased by 12.79 % to 7,057.93 GWh in 2017/018 over the previous year’s figure of 6,257.73 GWh. Out of the total available energy, NEA’s own generation contributed 32.71% whereas those imported from India and local IPPs accounted for 36.58% and 30.71% respectively.
Hydropower has the potential to be the cornerstone of government finance, a key engine of Nepal’s economy and a vital means of industrialization. Furthermore it could be the potential tradable goods to earn foreign currency. But in order to harness that potential in the best possible way, Nepal first needs to sign good hydro deals
- HYDROPOWER PRICING IN NEPAL DEVELOPING A PERSPECTIVE, JALSROT VIKAS SANSTHA (JVS), NEPAL
- GWh- Giga watt hour
- MW- Megawatt
- NEA- Nepal Electricity Authority
- IPPs -Individual Power Producer
- PPA- Power Purchasing Agreement