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Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized A strategicanddeveloping afuture stock-taking roadmap Applications Mini andMicro Hydropower Nepal: ScalingUpElectricity Access through a Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Nepal: Scaling up Electricity Access through b Mini and Micro Hydropower Applications Nepal: Scaling Up Electricity Access through Mini and Micro Hydropower Applications A strategic stock-taking and developing a future roadmap Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications ii Designed and Printed by: PrintDesigned andPrinted Communication, Kathmandu by: www.facebook.com/WorldBankNepal www.worldbank.org/np Email: [email protected] Fax: 4225112 Tel.: 4236000 Nepal Marg,Durbar Kathmandu, Yak and Yeti Hotel Complex P.O. Box 798 Nepal Office The World Group Bank promptly.work World grant to ofthe andwillnormally reproduce Bankencouragesdisseminationofitswork permission portions may beaviolationofapplicablelaw.permission andDevelopment/ BankforThe Reconstruction International The The without inthispublicationiscopyrighted. orallofthiswork material Copying and/ortransmittingportions Copyright Statement: ortheendorsementacceptanceofsuchboundaries. territory any ofthe donotimplyany mapinthiswork judgment onthepart World thelegalstatusofany Bankconcerning ofthedataincludedinthiswork. accuracy The boundaries, colors, denominators, andotherinformation shown on Executive Directors ofthe World Bankorthegovernments represent. they The World Bankdoesnotguarantee the The findings, interpretations, andconclusionsexpressed ofthe theviews inthispaperdonotnecessarily reflect Development/The and Bank International Reconstruction for isaproductofthestaff The report Bank. World Standard Disclaimer: Contents

Abbreviations and Acronyms------vi Acknowledgements------ix Executive Summary------x A. Background------x B. Objectives and Scope of the Technical Assistance------xi iii C. Study Methodology------xi D. Findings and Recommendations------xii E. Conclusions and way forward------xvi

1. Micro Hydropower Scenario in Nepal------1 1.1. Summary of Regulatory and Policy Environment------3 1.2. Efforts and Initiatives in Nepal------4

1.3. Objectives of the World Bank Technical Assistance------5 Applications Mini and Micro Hydropower through up ElectricityNepal: Scaling Access 1.4. Study Approach and Methodology------5 1.5. Structure of the Report------6

2. aSSessing the Policy and Regulatory Framework for Micro Hydropower in Nepal------7 2.1. Micro Hydropower Policy and Regulations------7 2.2. Subsidy in Micro Hydropower------7 2.3. Institutional Architecture and Project Cycle------10 2.4. Role of the NEA in the Micro Hydropower Sector------12 2.5. Analysis of Policy and Institutional Issues------14

3. Scaling Up Potential of Micro Hydropower in Nepal------16 3.1. Objectives of the Chapter------16 3.2. Framework for Assessing Performance------16 3.3 Standalone MHPs------17 3.4. MHP Mini-Grid------41 3.5. MHP Grid Connection------49

4. Findings, Recommendations and the Way Forward------67 4.1. Standalone MHP------67 4.2. MHP Mini-Grid------70 4.3. MHP Grid Connection------71 4.4 Way Forward------75 Nepal: Scaling up Electricity Access through iv Mini and Micro Hydropower Applications Figure 31,2013- Jan1,2012–Dec numberofplantsinstalledduring 11:Size-wise Figure 10: Technical- problems MHPsite survey seenduring thatwillbeaddedtill2020------Figure 9:Prediction (kW) ofMHPcapacity Figure hydropower 8:Micro - flow chart projectcycle Figure architecture 7:Institutional ofthemicro hydropower------sector ------eachsubsidyperiod addedduring Figure 6:Average (kW) plantcapacity Figure 5:Average------added(kW/year) eachsubsidyperiod during MHPcapacity Figure 4:Average numberofMHPs------addedeachyear eachsubsidyperiod during - Figure years withtwo shift ofsubsidyoninstalledcapacity 3:Impact Figure (whencompared ofsubsidyoninstalledcapacity atsamebaseyear) ------2:Impact Figure ofNepalshowing- MHP-national 1:Map grid interface Annex 10: International practices in grid connection ofRETs ingrid connection - practices Annex 10:International Annex 9: Technical ofMHPs discussionongrid connection - site inPhunglingAnnex 8:Apromising Bazaar, mini-grid Taplejung------basedgenerationanddistribution SPV Annex 7:Calculation oflevelized unitcostfor 42kWp (20kW) Annex 6:Calculation oflevelized unitcostfor------20kWdieselbasedgenerationanddistribution oneconomicanalysis------Annex 5:Details onfinancialanalysis------Annex 4:Details Annex 3: Details onpoliciesandgrid codesrelevantAnnex 3:Details to MHP------onplantsvisitedAnnex 2:Details andplantperformance involvedAnnex 1:Institutions inthemicro hydropower ofNepal------sector Figure for 37:NPV 50percent to evacuation grid connection thegrid after Figure 36:LUBE for different------of connection scenarios grid Figure 35:EIRRfor different------of connection scenarios grid Figure for 34:NPV different------of connection scenarios grid Figure------ofmini-grid 33:Economic costandbenefitsof connection grid Figure- 32:Economic costsandbenefitsof connection grid Figure 31:LUCE ofsubsidized------MHPs andNEAcostofdelivery vsNEAtariff Figure------100kWMHPvsNEAgrid extension ofgrid connected 30:Cost ofdelivery Figure to remote 29:NEAcostofdelivery communities------Figure 28:PLFatbreak-even pointwithsubsidyfor plantcapacities------MHPatvarious grid connected Figure 27:Break-even pointfor 100kWMHP- grid connected Figure for 26:NPV 20kWMHP------grid connected Figure for 25:NPV 50kWMHP------grid connected Figure for 24:NPV 100kWMHP------grid connected Figure 100kWMHP 23:FIRRfor grid-connected Figure 20kW MHP to the ------financialanalysisofconnecting grid 22:Incremental Figure 50kW MHP to the ------financialanalysisofconnecting grid 21:Incremental Figure 100kW MHP to the ------financialanalysisofconnecting grid 20:Incremental Figure------oftheeconomicbenefitsandcosts for sixmini-grids 19:Summary Figure 18:Steps,- processes andoutputsoftheMHP project cycle Figure ofLUCE 17:Comparison for generationsources various - Figure ofannualeconomiccostsandbenefitsstandaloneMHPs ------16:Summary Figure 15:Break-even PLFandLUCE for standaloneMHPs- Figure consumedindomesticandcommercial------sectors 14:Proportion ofKWh Figure 13:Component wisecapitalcostofMHP------Figure 12:Source oftotal capexin58MHPs by AEPC- supported Figure 40:EIRRbased onNEA’s avoided------costscenario Figure for 39:NPV NEA’s avoided------cost scenario Figure 38:NEA’s avoided cost------List Annexes of Figures ------126 121 118 117 116 110 18 15 13 11 11 11 10 10 10 99 96 78 75 58 61 60 60 59 57 57 57 55 55 54 54 54 54 53 53 52 47 36 33 30 25 25 22 22 21 62 62 62 61 2 Figure 45:Configuration ofOption3------Figure 44:Configuration ofOption2------Figure 43:Configuration ofOption1------Figure MHP------42:EIRRfor grid-connected new Figure MHP- 41:Netpresent valuefor grid-connected new Table 27: Table 26: Table 25: Table 24: Table 23: Table 22: Table 21: Table 20: Table 19: Table 18: Table 17: Table 16: Table 15: Table 14: Table 13: Table 12: Table 11: Table 10: Table 9: Table 8: Table 7: Table 6: Table 5: Table 4: Table 3: Table 2: Table 1: Box 5: Lessons from RET grid connection practices aroundBox- practices theworld 5:Lessons grid connection from RET Table 40: Table 39: Table 38: Table 37: Table 36: Table 35: Box 4:Modifications required ofMHP- for connection grid Box inPhungling, 3:Apromising mini-grid Taplejung- ofconventionalBox 2:Relevance financialanalysis owned assets------for community Box ofAEPCandNEA------1:Lineministries Table 34: Table 33: Table 32: Table 31: Table 30: Table 29: Table 28: List List of of Tables Boxes Six principles followedSix principles by theAEPCfor managementamongthecommunity Organizational forms ofMHPmanagement------Parameters for equivalentto 20kWMHP------SPV Parameters for dieselgenerationequivalentto 20kWMHP------ofresults oftheeconomicanalysis------Summary CER revenue potential for MHPs ofdifferent capacities------Net savings for------one7.5kWagro-processing from unitwhenshifting dieselto MHPelectricity Costs oflighting from kerosene and20kWMHP------Estimation ofeconomiccostsstandaloneMHPs------ofbreak-evenResults analysisfor 100kWMHP------offinancialanalysisstandaloneMHPs------Summary inMHPsites visited oftariff - Details Estimation ofPLFMHPsites visited------consumption(kWh)for MHPsites andcommercial visitedDomestic ------electricity Productive end-usesofMHPsites visited ------Capex andfinancingmixofMHPsites visited------MHP sites visited andtheirplantsize- Financial analysisassumptionsfor standaloneMHPs------Framework questionsfor analyzingfeasibility ofstandaloneMHPs,---- andMHP–grid connection mini-grids ------Changes insubsidyamountwithchangepolicy Current subsidyfor feasibility studyofhydropower projects------Current subsidyfor minihydropower implementation------Current subsidyfor micro hydropower implementation------ofmicro/miniDefinitions hydropower plantsaccording to AEPC------ofrecommendations for enhancingeffectivenessSummary ofscalingupmicro hydropower applications--- offindingsfinancialandeconomicanalyses------Summary ofcurrent micro hydropowerOverview inNepal------scenario Economic costs and benefits of a new grid connected 100kWMHP------Economic connected costsandbenefitsofanew grid distances------atvarious Economic costsofgrid extension Financial 100kWMHPconnected analysisforto the ------grid afive-year-old parameters forInput costs------estimationofgrid extension ofparametersDetails usedfor------financialanalysis of connection grid ------ofeconomicbenefits ofmini-grids Summary Projected from sale of CERsatUS$7/tCO annualbenefitsofmini-grid Net savings onenergy peryear------for eachmini-grid ------Estimation ofeconomiccostsmini-grids - Financial ofmini-grids performance inthemini-grid’sEstimated surplus outinACAP MHPclusters feasibility studycarried ------offeasibility studiesofmini-grids Details ------theNRREPperiod Status ofpipelineMHPprojects during ------2 ------104 64 65 65 65 64 34 32 31 31 30 29 28 28 26 26 24 23 23 21 20 19 17 26 63 59 58 56 51 48 48 78 76 45 29 47 46 44 43 38 35 45 xv xii 9 8 8 7 1 x v Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Abbreviations and Acronyms

ACAP Annapurna Conservation Area Project ADB Asian Development Bank ADBL Agriculture Development Bank Limited AEPC Alternative Energy Promotion Centre vi AVR automatic voltage regulator BEP break-even point capex capital expenditure CBRE community based rural electrification CDM clean development mechanism CDM-PDD clean development mechanism-project design document CEB Ceylon Electricity Board CER certified emission reduction CFL compact fluorescent lamp COs community organizations CoD cost of distribution Mini and Micro Hydropower Applications Mini and Micro Hydropower through up ElectricityNepal: Scaling Access CoG cost of generation CREF Central Renewable Energy Fund DANIDA Danish International Development Agency DC direct current DDCs district development committees DEECCS District Environment, Energy and Climate Change Section DEES District Energy and Environment Section DFID Department for International Development DFS detailed feasibility study DoED Department of Electricity Development DWRC District Water Resources Committee EDC Electricity Development Center EIRR economic internal rate of return ELC electronic load controller ESAP Energy Sector Assistance Program EU European Union EUR Euro FIRR financial internal rate of return FIT feed-in-tariff FM frequency modulation GEF Global Environment Facility GIS Geographic Information System GIZ German Society for International Cooperation GoN Government of Nepal HH households HT high tension RE RCEMH QA PPP PPA POV POT PLF PEU PDD PAT O&M NVMHP NTNC NSP NRREP NPV NPR NMoFA NMHDA NGO NEA MW mega-Watt MRET MoWR MoSTE MoEn MHVEP MHP MHFG m meter LUCE LUBE LPO LEUA LDC l/s kWh kW kilo-Watt kVA kLh kilo-lumen-hours KfW ITDG IRR IPP INPS INGO IFC IEEE IDA ICT

kilo-Volt-Ampere

kilo-Watt-hour pump asturbine Association Development International renewable energy Regional Centre for Excellence Hydro inMicro assurance quality partnership public–private power outputverification power outputtest plant loadfactor Productive Energy Uses project design document operation andmaintenance Nepal Village Hydro Program Micro National Trust for Nature Conservation provider national service EnergyNational RuralandRenewable Programme Nepalese Rupees ofForeign Ministry Affairs Norwegian HydropowerNepal Micro Association Development organization non-governmental Authority Nepal Electricity Energy Renewable Mandatory Target of WaterMinistry Resources ofScience, Ministry Technology andEnvironment ofEnergy Ministry Micro-Hydro Village Electrification Programme mini andmicro hydropower plants micro hydro group functional levelized unitcostofelectricity levelized unitbenefitofelectricity organizations local partner Users'Association Lamjung Electricity load dispatch center liters persecond Bank) Development Credit (German Institute Reconstruction Intermediate Technology Group Development rateinternal ofreturn independent power producers Integrated NepalPower System organization non-governmental International FinanceInternational Corporation andElectronics Engineers ofElectrical Institute information andcommunicationstechnology power purchase agreement net present value vii Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications REC renewable energy certificates REDP Rural Energy Development Programme RERL Renewable Energy for Rural Livelihood RET renewable energy technology viii RoE return on equity RoI return on investment RSC regional service centers SAARC South Asian Association for Regional Cooperation SARI Energy South Asia Regional Initiative for Energy SCADA Supervisory Control and Data Acquisition SHP small hydropower plant SLREC South Lalitpur Rural Electric Co-operative Ltd. SNA state nodal agency SNV Netherlands Development Organization

Mini and Micro Hydropower Applications Mini and Micro Hydropower SPV solar photovoltaic through up ElectricityNepal: Scaling Access TA technical assistance

TCO2 ton carbon dioxide

TCO2eq ton carbon dioxide equivalent ToR terms of reference TRC Technical Review Committee UNDP United Nations Development Project UNFCCC United Nations Framework Convention on Climate Change UNIDO United Nations Industrial Development Organization US$ United States Dollar USAID United States Agency for International Development VAT value added tax VDCs village development committees VESP Village Energy Security Programme W Watts WB The World Bank WEC Water and Energy Commission WECS Water and Energy Commission Secretariat

Conversions

Units of measurement kV = 1000 Volts kW = 1000 Watts MW = 1000 kW GW = 1000 MW

Effective exchange rate (September 07, 2014) US$1 = NPR 96 NPR 1 = US$0.0104 Acknowledgements

This report is the product of a World Bank executed sultancy Services for their valuable insights during technical assistance to the Government of Nepal un- the course of this study. Additionally, we thank Mr. der the overall leadership of the Alternative Energy Stewart Craine for sharing his MHP site location data Promotion Centre (AEPC), under the Ministry of Sci- with us. Significant contributions from the various ence, Technology and Environment (MoSTE). Spe- stakeholders during the two workshops are grate- cial gratitude is extended to the following officials fully acknowledged. from the MoSTE, AEPC and partner organizations of the AEPC: Dr. Govind Raj Pokharel, former Executive The World Bank team was led by Priti Kumar and Director of the AEPC (currently Vice Chairperson of Tomoyuki Yamashita and included Ajoy Karki, SC Ra- National Planning Commission of Nepal); Mr. Ram jshekar, Ashish Shrestha and Abhishek Yadav. Coun- Prasad Dhital, Executive Director of the AEPC; Mr. try Manager for Nepal, Takuya Kamata, and Energy & Kjartan Gullbra, International Senior Technical Ad- Extractives Practice Manager, Julia Bucknall, provided viser for the National Rural and Renewable Energy constructive feedback and guidance, as did Jie Tang, ix Programme (NRREP); Mr. Satish Gautam, National Rabin Shrestha, Pravin Karki and Gunjan Gautam. Peer Programme Manager of the Renewable Energy for reviewers were Kimberly Lyon, Chandrasekhar Govin- Rural Livelihood (RERL); Mr. Madhusudhan Adhikari, darajalu, Wim J. Klunne and Dana Rysankova. Sunita National Advisor of the Community Electrification Gurung, Sulochana Nepali, and Alina Thapa provided sub-component; Mr. Jiwan Kumar Mallik, Regional administrative support to the study team. Their con- Energy Officer of the RERL and Mr. Shiva Kumar Prad- tributions are duly acknowledged. han, Livelihood Promotion Specialist of the RERL. Dr. Jugal Bhurtel and Mr. Prakash Gaudel’s efforts in re- Editorial support by Vani Kurup is also duly acknowl- viewing the report and providing valuable baseline edged. Mini and Micro Hydropower Applications Mini and Micro Hydropower data are highly appreciated. through up ElectricityNepal: Scaling Access The Government of Nepal and the World Bank team We would also like to acknowledge Mr. Hitendra acknowledge and appreciate the financial support Dev Shakya, Director of the Power Trade Depart- provided for this activity by the Asia Sustainable and ment, Nepal Electricity Authority; Mr. Surendra Alternative Energy Program (ASTAE). Bhakta Mathema, President of the Nepal Micro Hydropower Development Association; Mr. Dilli The opinions expressed in this report and any errors Prasad Ghimire, Chairman of the National Associa- therein are the sole responsibility of the authors and tion of Community Electricity Users Nepal and Mr. should not be attributed to the individuals or the Krishna Prasad Devkota, Director of Universal Con- institutions acknowledged above. Executive Summary

A. Background cifically, micro hydropower plants (MHPs) have been serving off-grid rural households in the hilly regions 1. In spite of the techno-economic potential to gen- since they were introduced in Nepal in the 1960s. x erate 43,000 MW of hydroelectric power, Nepal is currently facing a crippling energy crisis. In the fiscal year 4. The Alternative Energy Promotion Center (AEPC) of 2013/14, Nepal’s domestic generation met only 60 was established in 1996 as a central body of the percent1 of the energy demand of grid-connected GoN to promote alternative energy, especially in ru- consumers. Import from India comprised 18 percent ral areas. Due to efforts by the Government of Nepal of the total energy supplied. Nearly, 22 percent of (GoN) and development partners since the 5th de- the demand could not be supplied, leading to load velopment plan (1975–1980), rural electricity access shedding in the grid for up to 12 hours per day. More- through MHPs and the number of stakeholders in over, around 33 percent2 of the country’s population, this sector have been steadily increasing. With sup- mostly in rural and remote areas, does not have any port from the AEPC, more than 25 MW of micro/mini Mini and Micro Hydropower Applications Mini and Micro Hydropower

through up ElectricityNepal: Scaling Access access to grid or off-grid electricity. hydropower schemes have been providing off-grid electricity to more than 400,000 rural households.6 2. Shortage of energy negatively impacts economic Table 1 presents an overview of the current micro development by suppressing agricultural productiv- hydropower scenario in Nepal. ity, environmental sustainability, health care, education and job creation. This specifically affects poor and rural 5. Significant achievements in the micro hydropow- households as they spend a large part of their income er sector have also brought about various challeng- and time fulfilling their basic energy needs.3 House- es that require new approaches. One such major holds that spend 10 percent to 30 percent4 of their challenge is to address the MHP–national grid in- income on energy expenses are considered “energy terface. As the state-owned electricity utility, Nepal poor”. According to this classification, 80 percent5 of Electricity Authority (NEA), extends its grid to rural Nepalese households are energy poor. areas, many MHPs become redundant if they cannot be grid-connected. According to a preliminary 3. Development of renewable energy technologies estimate by the AEPC, 90 MHPs7 with net capacity (RETs), both on-grid and off-grid, has become cru- of 2.7 MW have been affected by the grid exten- cial to increase energy access (including electricity) sion and this number is steadily increasing. The GoN for better overall development, poverty reduction continues to support isolated MHPs in areas where and shared prosperity. Isolated RETs such as micro the grid is unlikely to be extended within a five-year hydropower, solar photovoltaic (SPV) and biogas time-period. However, since the NEA does grid ex- can substantially improve the rural economy. Spe- tension planning on a yearly basis while the MHPs

1 “A Year in Review – Fiscal Year 2013/14”, NEA. 2 National Planning Commission (2014). 3 UNDP (2005). 4 “Measuring Energy Access: Supporting a Global Target”, The Earth Institute, Columbia University, USA (2010). 5 AEPC (2012). 6 “Assessment of Nepal Small Scale Rural Energy Market: Supply Side Assessment”, IFC (2014). 7 Based on data received by the AEPC from its outreach offices (2013) l 8. The broad ofthistechnical objectives assistance are: micro hydropower sector. Bank’s future strategy regarding scalingupofthe to andproposes theGoN guidelinesfor the World andoperationalrecommendationsprovides policy to themicro hydropowersues pertaining sector, analysesonis- thisstudyconducts thiscontext, In dations onhow suchscalingupcanbeachieved. hydropower projectsandto provide recommen- for scalingupmicro andopportunities barriers 7. This studyhas beencommissionedto understand by spectives theGoN. ships ongrid-based approaches requires per new be utilized. Thus, partner scalingupandbolstering building andoperatingtheseplantswillcontinueto ed, theresources thathave already beeninvested in hand, iftheseMHPs are allowed to begrid-connect have been made by the communities. On the other subsidized andbecausesignificant investments cially asimplementationofsuchMHPs hasbeen economic life is over is a waste of resources, espe perspective, shuttingdown suchplantsbefore their shut down andthenabandoned. From anational grid are notinplace, theseplantswillbeforced to policiesfor MHPs theright connecting 6. If to the master plan. a separate ruralelectrification doesnotformulatecompounded becausetheGoN affect MHPs inthelong term. This issueisfurther years, it is hard to predict howwill grid extension are built to have an economic life of minimum 15 munity (refer 2forthedetails);HHs=households. toAnnex munity MHP was* 24 kW Gottikhel grid connected as a pilot project. This MHP is now disconnected from the grid due to no feed-in tariff agreement theNEAand the local between com- Table 1 Technical B. Objectives Number Number ofHHs (kW) Capacity ity aspects of off-grid mini/micro ofoff-grid hydropower aspects ity and sustainabil- Investigate theperformance |O verview ofthecurrent micro hydropower scenario inN Assistance and Scope 400,000 25,000 1,400 Total of

the

Grid encroachedGrid - - - - 27,000 2,700 90 l cycles ofmicro hydropowercycles companies (surveyors, tional processes, flow of resources, andtheproject were reviewed. The current financial status, opera- of MHPs ofgrid connection inthecontext practices management were analyzed. best International technical innovations generation indistributed MHPs andimplications ofrecentgrid-connected 10. AEPC’s approach inpromoting isolated and perspectives. financial andcommunity ses from regulatory/policy, institutional, technical, roadmap for MHPs up-scaling wasbasedonanaly- emphasis oneconomicaspects. Preparation of a consultative andfield-verification processes with odology, which includedquantitative, qualitative, 9. This studyusedarigorous approach andmeth- l l C. Stud

epal and prospective plans. to thenationalgrid asperGoN’smini-grids vision andfor integratingestablishing mini-grids such scaling upmicro hydropower energy accessby for ations, andopportunities aswell asbarriers consider economic andsocio-environmental Investigate thetechnical, financial, regulatory, a sustainablemanner. tions for scalingupmicro hydropower accessin Provide strategic and innovative recommenda- assurance mechanisms. dards, environment goodregulatory andquality stan- availableincluding high-quality ensuring forpacity scalingupmicro hydropower access, AEPC andNEA’s institutionalandtechnical ca- Identify gapsandsuggestimprovements inthe practices. projects andfrom best localandinternational fromplants basedonlessonslearnt ongoing y Methodology Grid connected Grid None* NA NA Mini-grid 1,300 107 1 - xi Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Nepal: Scaling up Electricity Access through xii Mini and Micro Hydropower Applications Summary Executive ers andinstallers. manufactur NGOs(INGOs),surveyors, international organizations(NMHDA), (NGOs), non-governmental Hydropowerpal Micro Association Development micro hydropower such as AEPC, NEA, Ne sector andorganizations involvedous stakeholders inthe were- to ofvari conducted the views incorporate report, completionofthedraft and anotherafter 11. Two workshops, oneattheinception phase (NRREP) were reviewed. EnergyNational RuralandRenewable Programme organizations (LPOs)underthe and localpartner vices provided centers by (RSCs) regional service tions were studied. hydropower Micro related ser proaches, business models and management solu- for financialefficiency. The ap prevalent managerial andrecommendidentify current measures barriers manufacturers and installers) were reviewed to an MHP; (f) =Financial; (e) =Economic. an MHP; (f) time of anMHP; LUBE isthe or levelized unit benefit ofelectricity ratio ofdiscounted economic benefits todiscountedkWh generated numberof over the lifetime of Notes: LUCE orlevelized isthe ratio unitcost ofelectricity ofdiscounted operating cost pluscapital expenditure todiscounted generated numberofkWh over thelife *NPR 1=US$0.0104 robuststandalone MHPs andwell tested. isvery 13. The institutionalarchitecture to implement inChapternomic andfinancialanalysesconducted 3. rized inthissection. Table 2liststhefindingsofeco 12. The findingsand recommendations are summa- Table 2 D.1 St D. Findings source Type ofenergy I Standalone MHP Diesel Solar tion MHP grid connec delivery NEA’s cost of nstalled Capacity: and Summary offindingsfinancialand economic analyses |Summary alone MHP and - Parameter LUBE (e) LUCE (e) Consumer Tariff (f) LUCE (f) LUCE (e) LUCE (e) LUCE (f) LUCE (f) Recommendations 20 kW Subsidy Without 66 22 - 73 60 55 18–31 17–25 - - - - - Subsidy With - - 6–8 39 - - - - In Nepalese Rupees* per kilowatt hour (NPR/kWh) Nepalese Rupees*perkilowatt In financial closure is a major bottleneck in micro hy- bilization offundsfromto achieve thecommunity ance is provided through the AEPC as subsidy. Mo the total projectcostto setupanMHPandthebal- 14. Typically, mobilizes 50percent thecommunity of found to beoperationallyviablesocial enterprises. to deliver higheconomicbenefitsasMHPs were government subsidyfor MHPs mustbecontinued option. Additionally, RET efits andare theleast-cost providescaled upasthey significant economicben- hydropower). Therefore, standalone MHPs must be LUCE(by comparing (e) for diesel, solar, andmicro through MHPs andlevel ofservice same capacity is moreasexpensive asproviding thantwice the from ordiesel-basedlocalgrids SPV costs. Electricity = 66/223)thantheinvestment andoperating (LUBE)/tricity (LUCE) levelized unit cost of electricity economic benefits(i.e. levelized unitbenefitofelec- fication through MHPs threereturns timesmore increasing. As canbeseenin Table- 2,ruralelectri more remote dueto whichcapitalcostperkWis the otherhand, potential MHPsites are becoming steadily from 17kWin2002to 30kWin2013.On theyears,Over theaverage MHPsize hasincreased tion andempowerment modelisquite successful. well.the community AEPC’s mobiliza- community andrepresents satisfactorily stitution isperforming The micro hydro group functional (MHFG)asanin- 50 kW Subsidy Without 67 23 - 64 - - 12–18 17–25 Subsidy With - - 6–8 36 - - - - 100 kW Subsidy Without 68 24 - 59 - - 11–13 17–25 Subsidy With - - 6–8 33 - - - - - industry are undercutting costsby compromisingindustry manufacturers and installers who are the entering more profitable larger hydropower sector. New and moving towardsare leaving the the industry andmanufacturers MHPworkers 16. Experienced individualcommunities. smaller plantsserving more communitiesratherthanbuilding plant serving given to building a larger micro or mini hydropower potential ofthesite. Therefore, preference mustbe is leadingto under-utilization ofthehydropower adjacentcommunities, which the samearea serving resulting inthedevelopment ofseveral smallMHPs in and Ward upplanningunit. making tee (VDC) This is mand drivenwiththevillagedevelopment commit efficiency. AEPC’s micro hydropower program isde inallMHPs tobe mademandatory promote energy ‘grid compatible’ andNEAstandard should metering pal, theAEPCshouldensure thatallMHPs are built will soonreach mostMHPsites inthemid-hillsofNe which hindersgrid compatibility. Given thatthegrid of mostMHPsnetworks are notupto NEAstandards, discouraging energy conservation. The distribution tered andtheextensive useofpower-based is tariff micro15. Most hydropower households are notme setting. intariff their capacity loans and the accrued interest, thus strengthening compelled to increase to consumertariff repay the BFIs. increasing By theloanamounts, MHFGswillbe by providing low interest loansincollaborationwith MHFGs andhelpreduce interest costs for MHFGs of tutions (BFIs) on the operational sustainability the AEPC should educate bank and financial insti- have nosavings to afford major repairs. Therefore, larger MHPs modest profits make operationally, they the rangeofNPR33.00–39.00perkWh.Even when isin is NPR6.00–8.00perkWh,whereas LUCE (f) thatisbeing chargedthe consumertariff by anMHP being charged.er tariff As can be seen from Table 2, standalone MHPs ismuchhigherthantheconsum- and routine repair andmaintenance. The LUCE for that are designed to solelyrecover fundsfor salaries low(PLF)andtariffs plantloadfactor cause ofvery lyzed from a conventional be financial viewpoint not profitable withorwithoutsubsidywhenana- dropower implementation.StandaloneMHPs are - - - - - in order oftheproject. to provide supervision ing thenumberofRSCsandtheirtechnical capacity by establishingregionalmaking offices and increas- ports. Therefore, theAEPCmustdevolve decision but alsotheentire rangeofRETs thattheAEPCsup to promotecovering several districts notonlyMHPs, of repairs. Moreover, there are onlynineRSCs, each ten leads to prolonged downtimes andhighcosts of- installers whoalsoprovide after-sales services The remoteness ofMHPs from manufacturers and to standardize MHPcomponentsfor costreduction. shouldbemade andefforts prices current market into account shouldbeupdated taking benchmarks oftime.over period Furthermore, anextended cost to monitor andrankperformance installation survey ing a more assurance and post- systematic quality providers shouldberevisedprocess us- ofservice cution ofcivilworks. Therefore, thepre-qualification ofmanufactured componentsandexeon quality Furthermore, have become less relevant mini-grids ing to interconnect themlater to form amini-grid. - rather than putting up several smaller MHPs and try from asinglelarger micro orminihydropower plant tive to deliver power to alarger setofconsumers Wards or VDCs. Therefore, itwould bemore effec- willspan over several asthe mini-grid ship may arise andowner problemsmini-grid, ofidentity interms that islater interconnected to otherMHPs to form a Moreover, initiates asingleMHP whenacommunity and thepurchasingofcommunities. capacity peak power, existinginfrastructure suchasroads, individualMHPs,distance between for off- market suchas anddependsonfactors grids issite-specific regardless oftheircapacities. ofmini- The viability since thecostofinterconnecting high MHPs isvery Moreover, are notfinancially attractive mini-grids itviable. would notmake mation ofthemini-grid thefor ofthePLFdoublingafter timistic scenario off-peak power. Analysisshowseven that theop PLF isheavily dependenton greater utilizationof through anincrease ofmini-grids inthe viability ing ofMHPs thisperiod. during Therefore, financial asaresult unlikely ofoverload- peak hoursisvery power off-peak hoursbecausehighsurplus during large the loads only during can serve 17. A mini-grid D.2 Mini-grid - - - - - xiii Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications xiv Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Summary Executive give deemedgeneration sure ofgrid for availability power or evacuation on grid availability. Therefore, theNEAmusten- financial andeconomicbenefits are contingent high.However,grid are alsooverwhelmingly such powerEconomic benefitsofsellingsurplus to the MHPimplementationcostsassunkcosts.ing earlier costsdisregardanalysis basedongrid connection - asdemonstratedMHP isattractive by incremental 18. ofa grid-connected The financialperformance connection. theNEAremovedafter the100kWthreshold for grid 8 dropower plants(SHPs) enjoy substantialscales of NEA’s MHPs, andunlike smallhy costofdelivery - case sincethecurrent FITisconsiderablylower than continue to FITs determine for MHPs asa separate (IPP) oflarger hydropower plants. The AEPC should rates offered to independentpower producers season),whichare thesame and NPR8.40/kWh(dry for MHPs at NPR4.80/kWh (wet season) (FIT) in-tariff Recently, NEA’s Board ofDirectors passedthefeed- MHPs themto thenational grid. andconnecting NEA shouldgive preference to drawing power from from elsewhere.to its cost of delivery Therefore, the the ruralhills, the NEA incursalower costcompared MHPlarger than20kWandsoldin a grid-connected energy purchasedunit ofelectrical by theNEAfrom through NEA’stricity grid. As seenin Table 2,for every throughity an MHPis cheaper than delivering elec- 19. Financial- analysisshows thatdeliveringelectric step to gridthis studyasapreparatory connection. cremental andtotal financialanalysispresented in to understandthemethodologyofin- community oftheRSCsandthroughthe capacity themofthe and managedassets. The AEPCshouldalsobuild owned retainthat they ofcommunity theprinciple ventures, transition into businesslike itisimportant to scalingup.prior Ontheotherhand, whileMHFGs ing theMHFGinto aformal businessorganization the processes required andtransition- for nurturing fore, the AEPC and RSC need to pilot and formulate ment (PPA) withtheNEAfor grid connection. There istered entities to enter into power purchase agree MHPs. Furthermore, MHFGsneedto belegallyreg- D.3 Grid control of generating stationresulting inspillageofwater. generation refersDeemed to the energy, which ageneratingstationiscapableof butcannotgenerate dueto grid outagesbeyond the c ion onnect 8 status to grid-connected statusto grid-connected - - the grid and does not serve the local community at at thelocal community the grid anddoesnotserve to beingconnected asanIPPafter anMHPacts 22. If for ofMHPs. grid connection a minimalinterest spread (aswellguarantees) as risk cilities, where its funds are on-lent by BFIs along with MHFGs by providing creditAEPC should support fa- from approaching banksfor financing. Therefore, the required. However, highinterest rates deter MHPs is financiallyviable, subsidy isnot for connection grid of MHPs. oflarger Given MHPs thatgrid connection gardingfor connection grid financing opportunities should promote greater awareness amongBFIsre duced from theBFIs’ perspective. Therefore, theAEPC stitution andtherefore re therevenue isfurther risk NEA asabuyer ofpower isagovernment-backed in- ataninformedder to arrive decisiononlending. The inor andrisks better assesstheinstitutionalstability before period ofagrid, theBFIscan thearrival certain 21. Given that an MHP would be in operation for a resources inamore plannedandorganized method. programsscattered ruralelectrification and to invest master plan to harmonize tional ruralelectrification NEA andAEPCshouldcollaborate to prepare ana- importantly,planning andimplementation.Most the facilitate information-sharing andcollaborationfor and AEPCrequires role anactive from to theMoEn priority. Therefore, coordination theNEA between entity, of standalone MHPs grid connection is not its NEA’s asacommercial isto mainobjective function themisinfrequent.between Furthermore, asthe ofEnergy coordination (MoEn)), under theMinistry ofScience, istry Technology andEnvironment; NEAis are underdifferentMin- (AEPC isunderthe ministries NEA managesthenationalgrid. As theseinstitutions 20. While theAEPCpromotes standaloneMHPs, the powertheir surplus purchased asageneralpolicy. munity, MHPs to shouldbeconnected thegrid and MHPs. As longasitisfinanciallyviable for thecom- of power purchase ratherthanofabandonment nity’s investments andassets by pursuingapolicy be GoN’s obligation to safeguard the local commu- to thatarea.provide electricity Therefore, it should thenationalgrid isunableto toif theGoN extend economy. invests Alocalcommunity inanMHPonly - - - Table 3 extension programselectrification with grid the NEAandAEPC to harmonize rural Ensure effective coordination between providers service process of Strengthen pre-qualification entities MHFGsto become legal and support Increase institutionalfootprint ofAEPC potential to aggregate demandandoptimize site microReorient hydropower planning I ofMHPsconnection Encourage BFIsto finance grid distance to grid andplant size ofMHPs connection Grid to bebasedon standalone MHPs lenders onoperationalof sustainability Increase access to finance andeducate I protect againstunintentional islanding appropriateInstall safety measures to providers Create oflocalrepair anetwork service andinstallation manufacturing Strengthen assurance quality during energy efficiency to improve metering mandatory Make Build grid compatible MHPs I powersurplus MHPsConnect to thegrid andpurchase than anewmini-grid Promote MHPs larger capacity rather more off-grid morecommunities off-grid standaloneMHPs to reachScale-up recommendationsMajor plants to expand business into minihydropower themicro hydropowerSupport industry standardization and Reduce costs by benchmarking mproving technical performance mproving financialandeconomicperformance mproving institutionalperformance

Summary ofrecommendationsSummary for enhancingeffectiveness upofmicro ofscaling hydropower applications l l l l l l l l l l l l l l l l l l l l l l l l l l l l l

collaboration withBFIsaslow interest loansfor MHPs to thegrid. connecting costs.AEPC shouldnotsubsidize fundsavailable in grid connection Instead, itshouldmake awareness aboutfinancingofMHP connection. grid loan-financinginstruments available through BFIs AEPC shouldassistinmaking bycreating greater ofgrid beforeand availability anMHPto the grid. decidingonconnecting into accountplantcapacity, taking distances financialanalysisshould beperformed Incremental customization thatprevails today for manufactureditems. shouldbefollowed byBenchmarking standardization ofMHPcomponentsasopposedto thetotal to establishcostbenchmarks. performed processA thorough andcostingofMHPshouldbe engineering basedreview ofthemanufacturing and thegoodtrackrecord ofMHFGs. ofMHPsBanks andfinancialinstitutions(BFIs)shouldbeeducated ontheoperationalsustainability MHP whenthere isloadsheddingonthenationalgrid. islandingshouldbeusedto to provide consumersofthegrid-connected Intentional reliable service With appropriate safety andcontrol mechanisms, unintentional islandingcanbeavoided. to localworkshops provide encourage andnurture lastmileafter-sales services. Given thelarge installedbaseofMHPs Nepal, especiallyincentralandeastern AEPCshouldidentify, should bestrengthened. assuranceofcivilstructures, andquality whichisusuallyexecuted by thecommunity,Supervision specifications.material shipment stagesto ensureofthecomponentsdelivered thatthequality atsite isasperdesign and process material, inspection during in-process andpre- outathree-stage AEPC shouldcarry and lower more peakdemandto households. allow thesameMHPto serve Energy-based shouldbeenforced tariff through more metering to make efficientuseofelectricity system (to NEAstandards) andthat end-usersare metered. AEPC shouldensure MHPs thatallnew of50kWorabove have agrid compatibledistribution purchase ofpower ratherthanofabandonmenttheMHP. shouldsafeguardGoN thelocalcommunity’s investments of andassetsby pursuingapolicy NEA incursalower costcompared to transmissionfrom elsewhere. energy purchasedFor unitofelectrical by theNEAfrom anMHPandsoldintheruralhills, every the regardless oftheircapacities. are sincethecostofinterconnecting notfinanciallyattractive high MHPsMini-grids is very off-peak power. Financial withincrease inPLFisheavily dependentongreater ofmini-grids viability utilizationof perspective. from apolicy electrification fromMHPinruralNepal, atypical MHPslevel ofservice shouldbethefirstchoice to deliver off-grid more orthrice As thanthecostfor SPV- anddiesel-basedsolutionscosttwice deliveringthesame and operatingcosts. from MHPsReturns accord economicbenefitsapproximately three timeslarger thantheinvestment The NEAandAEPCshould collaborate to prepare master plan. anationalruralelectrification issues are resolvedoptimally andMHP-grid interface inaplannedway. micro hydropower programs, these needto beharmonized suchthatthesubsidies are utilized (CBRE) and basedruralelectrification both to community providesSince theGoN subsidy support information andcollaborationfor sharing planningandimplementation. shouldplay roleThe anactive MoEn to ensure coordination theNEAandAEPCto between facilitate providers are meetingtherequired atsite. quality ofMHPsA comprehensive post-installation shouldbeputinplaceto survey verifythattheservice planningofstrategies andexperiences, collective exchange anduseofbetter ofknowledge equipment. Technical ofRSCs to provide capacity oversight to theprojectexecution shouldbeenhancedthrough aprocess ofdevolving decision-making. andstart electrification AEPC shouldsetupregional officesespeciallyin areas ofexpected growth incommunity agreements withtheNEA,andmaintainingbookofaccountsshouldbestrengthened. (company, cooperative orNGO).MHFG’s inpreparing businessplans, capacity into entering shouldbemade post-installation to helpMHFGstransitionintoEfforts alegally registered entity install minihydropower plants. to and manufacture AEPC shouldcollaborate withtheNMHDA oftheindustry to buildthecapacity to serve more by loadcentersbuildingalargerto inthevicinity power serve plantshouldbeexplored. to optimizingsitethe community potential. out,opportunities study ofanMHPiscarried When thepre-feasibility The focus ofplanningfor MHPs shouldbechangedfrom merely meetingtheprevailing power requirements of AEPC canhelpreduce interest costsfor thesecommunitiesby initiatingacredit fundfor MHP. xv Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications xvi Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Summary Executive dropower applicationsispresented in Table 3. hancing theeffectiveness ofscalingupmicro hy- ofmajorrecommendations for en- 23. Asummary them for grid connection. improved through appropriate trainingsto prepare nity’s capabilitiesmustbe technical andmanagerial a national grid connection. Therefore, the commu- of in context operational and safety issues that arise ing, andtherefore, are uninformed often aboutsuch of theMHPs donotreceive enoughtechnical train- there isloadsheddinginthenationalgrid. Operators MHPwhen to consumersofthegrid-connected islanding should be used to provide reliable service propriate safety andcontrol mechanisms, intentional agrid disturbance.down However, during withap MHPfails to properly shut ous if the grid-connected tentional islanding, whichcanbepotentially hazard- One of the major safety issues isthe problem of unin- adequate safety measures to address highsafety risks. ing NEA’s load-sheddinghours. However, thisrequires to its previous area distribution even dur electricity high PLFoftheMHPs aswell ascontinuoussupplyof by theAEPC. Technically, thismodelwould ensure a shouldbetheinstitutionalmodelsupported munity an IPPwithcontinuedresponsibility to thelocalcom- substantialprofits.would make Therefore, anMHPas or even purchased by investors private outright who level, suchMHPs over couldbetaken through alease would notbejustified. nection) Onanoperational all, therationalefor to grid AEPCsubsidy(prior con- well asfinancialandeconomicbenefits. demandforassessing theactual off-peakpower as carefully basis after themonacase-by-case support ofMHPs.nection As for theAEPCshould mini-grids, andprocedure- ing anenabling policy for grid-con gained,the experience oncreat itshould alsowork ofafewthe grid connection pilotMHPs. Basedon bywith theNEAto operationalizing gainexperience installations. Simultaneously, closely itshouldwork vigorously pursuescalingupMHPs asstandalone thestudyconcludesthatAEPCshould 24. Overall E. C onclusions and

wa y forward - - - electrification programselectrification with extension. grid master plan to harmonize rural rural electrification institutions should collaborate to prepare a national be drawn upby boththeAEPCandNEA.Also, these able guidelinesfor ofMHPs grid connection could of that site,operationalizing the grid connection suit a suitablesite. gainedduring Usingtheexperience PPA, withtheAEPCto theNEAshouldwork identify 28. Toa MHPunder enablethefirst grid-connected creating anentirely network. distribution new NEA standards, the NEA would not need to invest in cases, where theMHP’s isupto network distribution well organized paying ruralcustomers. tariff In many ofMHPsdies. connection Grid willhelptheNEAgain ratherthanoffering sector capitalsubsi- the banking MHPs willallow donorsto channelize fundsthrough ofMHPs.connectivity Financing of grid connection to steerity inthearea acomprehensive ofgrid policy theAEPCinbuildingcapac - couldsupport 27. Donors process, assurance. costreductionandquality scaling up of MHPs, streamlining the manufacturing inclosecooperationwiththeAEPC should work ofexistingMHPsnection atlow interest rates. NMHDA donors andBFIsto facilitate alineofcredit for grid con- Furthermore, inclosecoordination itshouldwork with cro hydropower areas them grid ready. to make service in mi- building anNEA-standard network distribution power schemesto andof includethecostofmetering 26. The AEPCshouldmodifyits current micro hydro the MHPto thegrid. ofpower evacuation grid outageshindering from to MHPs oraguaranteed minimumpayment on PPA to includeeithera “deemed generation” status onmodifyingthecurrent shouldalsowork policy. It low MHPs inthe to ispreserved begrid connected decision oftheBoard ofDirectors oftheNEAto al- and therelevant to ensure ministries thattherecent inclosecoordinationshould alsowork withtheNEA by thenationalgrid for many years to come. It ties intheruralhillsofNepalthatwillnotbeserved alone MHPs by communi- reaching outto off-grid 25. The AEPCshouldcontinueto scaleupstand- - - 01 Micro Hydropower Scenario in Nepal

29. Before the 1960s, diesel-operated mills were rural areas served by MHPs, the absence of a grid used in the hills of Nepal for agro-processing. In connection policy for MHPs will render such plants the 1960s, small water mills known as “turbine mills” redundant. According to a preliminary estimate were introduced in Nepal using locally developed by the AEPC, the grid is currently approaching 90 turbines as an alternative to diesel-operated mills. MHPs9 with a total capacity of 2.7 MW and this By the late 1980s, small generators were added to number is steadily increasing. These plants will have the turbine mills for lighting the mills at night and to be shut down and abandoned as their customers supplying surplus power to light a few houses in switch to the national grid, which supplies power the vicinity. These turbine mills that were modified of better quality and does not impose power caps. to supply electric power were known as micro hy- Due to this trend, invested resources and the hard dropower plants (MHPs). work of the local community are going to be wasted. Figure 1 shows the map of Nepal with the exist- 30. Since the early 2000s more than 25 MW of mi- ing transmission and distribution lines down to 11 1 cro/mini hydropower schemes have been con- kV in MHP areas (i.e. hills and mountains) along with structed with support from the Alternative Energy the installed MHPs as of 2013. The Terai region and Promotion Center (AEPC) and its various develop- Dolpa district that do not have substantial MHPs are ment partners. The Government of Nepal (GoN) in shaded in the figure to indicate that these regions collaboration with development partners that sup- have been excluded from the geographical analysis. port Nepal’s rural and renewable energy sector, de- The demand for MHP in Dolpa is low since the op- signed the National Rural and Renewable Energy erating costs are high due its remoteness and the Programme (NRREP). The NRREP, being implement- need to often airlift the equipment. Furthermore, it Mini and Micro Hydropower Applications Mini and Micro Hydropower ed by the AEPC for five years (from 2012 to 2017) as snows for about six months and the local residents through up ElectricityNepal: Scaling Access a single program modality, aims to install an addi- do not have adequate time for community partici- tional 25 MW of mini/micro hydropower to provide pation due to more lucrative activities, such as har- electricity to an additional 150,000 rural households vesting “Yarsagumba” (a highly sought after medici- by 2017. nal herb).

31. With the Nepal Electricity Authority (NEA; the 32. In Baglung the grid has reached the northeast centrally managed utility responsible for supply of part of the district where the interface with the ex- grid electricity in the country) extending its grid to isting MHPs has occurred (Figure 1). The other 17

Table 4: | Definitions of micro/mini hydropower plants according to AEPC Plant type Definition Micro hydropower 10 kW to 100 kW Mini hydropower 100 kW to 1000 kW

9 Based on data received by the AEPC from its outreach offices (2013) Nepal: Scaling up Electricity Access through 2 Mini and Micro Hydropower Applications Figure 1: Map of Nepal showing MHP-national grid interface 01 Scenario inN Micro Hydropower epal in ruralareas) grid. have accessto theelectricity households (80percent ofNepal’s populationlives tonected the national grid, only 49 percent of rural to 93percent householdsthatare oftheurban con- does nothave accessto grid electricity. Compared 11 10 l l l l l l l l 34. Closeto 42percent 1.1. Summar motion ofthemicro hydropower sector. guidelines have to be reviewed for sustainable pro frameworks, aswell asregulatory mental andpolicy ofAEPCandNEA’sThe adequacy technical, environ- ed MHPs to canbesustainablyconnected thegrid. needto beanalyzedaspects to propose how isolat financial, managerial/ownership, andcommunity accessto theruralpopulation. electricity Technical, the benefitsofinvestment, andprovide sustainable nation to avoid duplicationofresources, maximize urgent level discussionandcoordi needfor- policy 33. hascreatedThe MHP–national an grid interface wasabha, Terathum, andPanchthar. - Sankhu Khotang, Okhaldhunga, Dolakha, anchowk, - Kavrepal Dhading, Sindhupalchowk, jung, Gorkha, Lam- Kaski, Pyuthan,Myagdi, Dailekh, Baitadi, Doti, have occurred where are: suchinterfaces districts micro hydropower are sector basedon: 35. environment and policy in the The regulatory technologies (RETs) includingmicro hydropower. accessinruralareas usingrenewable tricity energy has the major responsibility to(MoSTE) provide elec- ofScience, the Ministry Technology andEnvironment cation. To implementthesepolicies, theAEPCunder policies andregulations aimedtowards- ruralelectrifi holds inruralareas, hasputinplacevarious theGoN to mostoftheNepalesehouse provide electricity Polic

Nepal LabourForce (2008) Survey National Planning Commission (2014) Annual BudgetoftheGovernment ofNepal 2013 Mechanism, EnergyRenewable SubsidyDelivery Subsidy Policy for Energy, Renewable 2013 Rural Energy Policy, 2006 Hydropower Policy, Development 2001 formationAEPC Act order 1992 Act, Electricity Water Resource 1992 Act, y Environment y of Regulator 10 of the Nepalese population oftheNepalesepopulation y and

11 To To - - - sector participation inRETs. participation sector promotes initiated. private addition, thepolicy In based energy planningandsocialmobilizationare andvillagelevels. Asdistrict aresult, community- Energy Fund for subsidymobilizationat the central, andcreates aRural committees (DDCs)mandatory development anddistrict ment committees (VDCs) ticipation of local bodies such as village develop 39. RuralEnergy Policy,“The 2006” thepar makes by thesesmall/minihydropower projects. not catered by thenationalgrid would besupplied envisionsrural areas. thatruralmountainousareas It development of agricultural andindustrial support rural economy. focusesto onruralelectrification It hydropower projectsat thelocallevel to develop the by operatingsmallandmini with economicactivities electrification addition,itplansto tie-up country. In throughout the services electricity liable andquality re andextending sees generatinglow costelectricity 38. Hydropower Policy, Development “The 2001” fore and channelizinggovernment subsidy. to facilitating loans through financial institutions tion, and ensure an environment that is conducive energy sector,- participa sector encourageprivate the role inthealternative ofanationalfocal agency tion Order on alsostates thattheAEPCshouldtake energy programs/projects inruralareas. The Forma- local government bodiesto implementalternative dards, andcoordinate donorsand withinternational native energy, setandmonitor technological stan- the MoSTE. The AEPC’s mandate isto promote alter under AEPC wasestablishedin1996asalineagency ment Committee Formation Order the of the GoN, 37. According to theAlternative Energy Develop exempted from paying any incometax. pedite the development ofMHPs, theseprojectsare Additionally, (DoED). Development Electricity to ex registration of information issentto theDepartment with theDistrict Water Resources Committee andthe are aslongthey registeredthan 1000kWcapacity cense willberequired for hydropower projectsofless license. 1992” Act, Electricity “The provisions that no li- and water grinders to usewater resources withouta 36. The Resource“Water 1992” Act, allows water mills ------3 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Nepal: Scaling up Electricity Access through 4 Mini and Micro Hydropower Applications 01 Scenario inN Micro Hydropower electricity needs of 30,000 unelectrified households. needsof30,000unelectrified electricity to cater tional 4,500kWofgenerationcapacity to the firms. This amount wasallocated to installanaddi- implemented by communities, cooperatives and NPR 540millionfor continuation ofsubsidyto MHPs opment plans. The annualbudgetof2013allocated ofdevel- andevaluation mentation, andmonitoring sponsible for formulation, resource allocation,imple bodyre istheadvisory Planning Commission (NPC) plan(1980–85). five-year since itssixth The National energy development through its “Annual Budget” 41. for rural hasincluded financialsupport The GoN potential MHP sites. adetailedfeasibility studyof to conduct cial support and financial ofMHPsfeasibility by providing finan- mechanism,theAEPCevaluates thetechnical livery 2013” wasprepared Underthisde by theMoSTE. Mechanism, Energy“Renewable SubsidyDelivery inruralareas. delivery andservice better quality The to sector private commercialize RETs andfocus on encouragesthe socially disadvantagedpeople. It inhabited by thepoorest andmost the country aims to increase accessto RETs of inremote parts 40. “Subsidy Policy for Energy, Renewable 2013” (UNDP) andthe World Bank. The 9thdevelopment from theUnited Project NationsDevelopment port ment Programme (REDP)wasinitiated withsup and the RuralEnergya body of the GoN Develop 43. as thisperiod The AEPCwasestablishedduring andruralareas. urban the gapbetween to theenergy withanemphasis onreducing sector development plan(1992–97)gave special priority culture andsmall-scaleindustries. sector The 8th promoted MHPs asatool for developing theagri- ofalternative energy technologiesimportance and velopment recognized plan(1985–90),the GoN the the7thde of theelectromechanical equipment.In MHPs by providing 50percent subsidyonthecost generationfrom promoting electricity and started (ADBL) launched the “Rural Electrification Project” 85), the Agricultural Bank Limited Development tor. of the 6thdevelopment plan (1980– As a part committed to develop the micro hydropower sec- its5thdevelopment plan(1975–80),theGoN 42. In 1.2. Efforts epal and Initiatives in Nepal ------Intermediate Intermediate Technology Group Development the 1990s, as Practical46. In then known Action Trust Fund) from 2007to 2015. The NVMHPreceived US$1.96 million(fundedby a (US$19.36 millionIDA GrantandUS$1.94million TA). component received US$22millioninassistance rural areas. HydroThe Micro Village Electrification for for services improvingport accessto electricity ProjectDevelopment by providing additionalsup complementstheongoing ect World BankPower (NVMHP) was established. projThe Offset - Carbon to AEPC’sport Nepal Village Hydro Program Micro Offset Project to provide additional financial sup Carbon power objectives. sector Acomplementary (IDA) credits in 2003to in meeting its assist the GoN Association Development million International Power Project Development consistingofaUS$75.6 (seeAnnex1). er sector The World Bankapproved a have resulted inthegrowth ofthemicro hydropow- 45. Various institutionshave initiatives, taken which schemes have beenconstructed. 2000 more than25MWofmicro/mini hydropower since early development partners, and its various steadily increased. from the AEPC With support ers, andpublicaswell professionals asprivate has consultants, micro hydropower equipment install- cro hydropower includingfeasibility study sector schemes, inthemi- thenumberofstakeholders for44. Dueto micro thesubsidypolicy hydropower to energy by anadditional7percent. evaluate RETs andincrease ruralpopulation’s access bodies to plan, implement, promote, monitor and oflocal (2013–16) aimedto enhancethecapacity an additional7percent. The 13ththree-yearplan ment and aimed to increase rural energy access by of MHPs undertheleadershipoflocalgovern- ment plan(2010–13)promoted thedevelopment this accessby another5percent. The 12thdevelop development plan (2007–10) aimed to increase to energy from 7percent to 12percent. The 11th and aimedto increase theruralpopulation’s access (2002–07) setcleartargets for alternative energy directives andtargets. The 10thdevelopment plan formulationronmental protection withclearpolicy oping MHPs for economicdevelopment andenvi- plan (1997–2002)emphasized theneedfor devel- - - - l assistance. 49. The following are ofthistechnical theobjectives 1.3. Objectives isplannedonanannualbasis.and grid extension there master grid plan isnolong-term extension thebalance of 10 contributes percent.ty However, from provided the GoN that the communi- support available to theNEAthrough 90percent subsidy this program. Funds for are grid extension made thenationalgrid toNEA extends ruralareas under ed by theNEA.At therequest ofthecommunity, the (CBRE) program,electrification which is implement based rural has established the community GoN program, ofitsruralelectrification the 48. As part that are well. functioning from the ACAPplants implemented with support kW Ghandrukand80Bhujungare examplesof area. MHPs conservation suchasthe50 Annapurna promoting micro hydropower technology inthe hasalsoplayed asignificant vation (NTNC) role in (ACAP) undertheNational Trust for Nature Conser 47. Area Project Conservation The Annapurna by 2030. energy access to attainuniversal accessto energy minimumenergyon achieving standards andtotal focusdecentralized energy system withparticular aimsto demonstratehood ofpoorhouseholds. a It productive end-useofenergy for sustainableliveli- energy standards for energy access;andensuring marginalized communities;introducing minimum in mobilizingdemandfor energymarket; services intheenergy access participation sector private access planning and implementation; increasing rently involved inadvancingclimate resilient energy installations of pilot projects. Practical is Action cur hydropower technology includingfinancingsite involved(ITDG) was actively in promoting micro Technical internationally. and modelsinthe country andbestpractice ects tors from based on lessons learnt ongoing proj- mini/micro ofoff-grid hydropoweraspects sec- andsustainability Investigate the performance Assistance of

the W orld B ank

- - - 1.4. Stud l l l thermore, technical solutions for grid connection uted generationmanagementwere reviewed. Fur nical innovations and theirimplicationsindistrib 52. To understandthetechnical issues, recent tech- 2009–13. period, i.e. 2000–06, 2006–09and subsidy policy ing thenumberofMHPs each during constructed micro hydropower were sector analyzed by tally- AEPC’s anditsimplicationsonthe subsidypolicy were alsodiscussed. Additionally, thechangesin to overcome hindrances sible interventions policy to promoting micro hydropower wasanalyzed. Pos- tion of MHPs were also reviewed. AEPC’s approach ofgrid connec- inthecontext tional bestpractices questionnaires andinformal- discussions. Interna ers and installerswere consulted using structured ciation (NMHDA), manufactur aswell assurveyors, Hydropower Nepal Micro Asso Development Bank, ofMHPs,connection officials from AEPC,NEA, World 51. To for andgrid barriers up-scaling identify policy lyzed. oftheseissuescanbeana- such thattheimpacts proach andmethodologyhave beenformulated perspectives. community Therefore, thestudyap institutional, technical, financial, and managerial to analyze themfrom regulatory/policy, necessary 50. To prepare MHPs, aroadmap onup-scaling itis

a sustainablemanner. tions for scalingupmicro hydropower accessin Provide strategic and innovative recommenda- ronment, assurancemechanisms. andquality including available standards, envi- a regulatory forpacity scalingupmicro hydropower access, AEPC’s andNEA’s institutionalandtechnical ca- Identify gapsandsuggestimprovements inthe plans. national grid asperGoN’s visionandprospective to and integrating the such mini-grids mini-grids micro hydropower energy accessby establishing for scaling up and opportunities ations, barriers consider economic andsocio-environmental Investigate thetechnical, financial, regulatory, y Approach and Methodology ------5 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Nepal: Scaling up Electricity Access through 6 Mini and Micro Hydropower Applications 01 Scenario inN Micro Hydropower study approaches mentionedabove. The fieldvis- 55. Field visits were to conducted corroborate the ofMHPsup-scaling were discussed. guidance andtechnical back-stopping for further reviewed. mechanismsfor Institutional strategic organizations (LPOs)undertheNRREPwerepartner centersvided by (RSCs)andlocal regional service hydropower Micro proframework. related services Analysisand Development using theInstitutional were ofthecommunity analyzed action collective ment solutionswere studied. to facilitate Methods approaches,agerial business models and manage of themicro hydropower sector, theprevalent man- 54. To study andcommunity amanagerial perform for financialefficiency. andrecommendidentify current measures barriers ors, manufacturers andinstallers)were reviewed to ofmicro hydropower cycles ect - companies(survey operational processes, resource flows andtheproj- werethe MHPgrid connection alsostudied. Finally, NEA regarding technical andfinancial of feasibility for MHPs) was reviewed. Issues raised by the (FIT) basis for settingNEA’s buy-backrate (feed-in-tariff investigated offinancialviability. inthecontext The customers ofMHPsbusiness andcommunity were out.Additionally,els wascarried thevalueofanchor, A financialanalysisoftheproposed businessmod- were to grid connection thegrid after studied.tricity where relevant. Marginal revenues from sellingelec- were andgrid connection analyzedconstruction MHPs were studied. Marginal costsfor mini-grid power sector, thecurrent financialstatusofvisited 53. To afinancialstudyofthemicro conduct hydro visited MHPs were investigated. were reviewed. Technical problems prevalent in the tion Equipment Standards andSpecification,2013” the AEPCcalled Hydro Projects“Micro Interconnec - standardsgrid connection for MHPs prepared by analyzed. setof ExistingNEAgrid codesandanew of MHPs to thenationalgrid were (andmini-grid) epal - - - installers. manufacturers and tional NGOs(INGOs),surveyors, organizations- (NGOs),interna non-governmental cro hydropower sector, suchasAEPC,NEA,NMHDA, andorganizations involvedstakeholders inthemi- were to ofvarious conducted theviews incorporate report, completionofthedraft and anotherafter 56. Two workshops, theinceptionphase oneduring issues intheMHPsector. installers, andRSCswere visited to understand key manufacturers, includingsurveyors, MHP industry Chapter 3. Additionally, inthe stakeholders various are presented inAnnex2andalsosummarized in tails ofthesites visited inthecourse of thisstudy site visits were alsomadeto CBREentities. The de outside the AEPC system were also visited. Similarly, MHPs.(previously) grid-connected Isolated MHPs its includedisolated MHPs, systems and mini-grid in theAnnexes. the course of this study are during presentedtaken details, data and data analyses under Supporting tions to address theseissuesandtheway forward. presents thefindingsfrom thisstudy, recommenda- systems have been analyzed.and support Chapter 4 ability, economicbenefits, managementstructures reliability, to meetpower ability needs, financial reli- systems.nected For eachofthesystems, technical up ofMHPs andgrid con- asstandalone, mini-grid sented inChapter 2.Chapter 3discusses scaling andinstitutional issuesare preanalysis ofpolicy roleproject cycle, ofNEAinmicro hydropower and mechanism,institutionalarchitecture and delivery and and regulations includingthesubsidypolicy ter. Assessments ofthemicro hydropower policy ology adopted have in thischap beendescribed Assistance (TA) andstudyapproach andmethod- ofthis objectives initiatives undertaken, Technical environment, and policy cluding the regulatory 57. The micro hydropower inNepal- scenario 1.5. Structure of

the Report - - - - 02 Assessing the Policy and Regulatory Framework for Micro Hydropower in Nepal

2.1. Micro Hydropower Policy and fore, the subsidy for RETs has been instrumental in Regulations providing clean energy solutions to rural areas at lower investment by the communities. Due to the 58. Policy and regulations relevant to the micro subsidy support many rural areas are able to access hydropower sector have been discussed earlier in modern clean energy, and promote local entrepre- Chapter 1. Analyses of these policies are presented neurship and economic development. in this chapter. Section 2.2 assesses the role of subsidy and its impact on micro hydropower sector 60. Subsidy for micro hydropower development is 7 growth. The institutional architecture and project provided by the GoN (through donor support) and cycle are discussed in Section 2.3. Section 2.4 pres- implemented through the AEPC based on: ents the role of NEA in micro hydropower especially l Subsidy Policy for Renewable Energy, 2013. in the context of the MHP–grid interface. Finally, l Renewable Energy Subsidy Delivery Mechanism, Section 2.5 presents the analysis carried out on pol- 2013. icy and institutional issues. 61. The AEPC’s updated “Subsidy Policy for Renew- 2.2. Subsidy in Micro Hydropower able Energy, 2013” has the main objective of in-

creasing access to RETs in very remote parts of the Applications Mini and Micro Hydropower through up ElectricityNepal: Scaling Access 59. High costs of renewable energy systems and the country inhabited by the poorest and most socially insufficient capital of rural populations are major disadvantaged people. The current subsidy policy barriers in implementing RETs in rural Nepal. There- encourages the private sector to commercialize

Table 5: | Current subsidy for micro hydropower implementation Subsidy for Micro Hydropower Project (in NPR*) Subsidy Category Category “A” VDCs Category “B” VDCs Category “C” VDCs

Subsidy per household 25,000 25,000 25,000

Subsidy per kW 130,000 100,000 70,000

*NPR 1 = US$0.0104 Note: The maximum subsidy amount per kW (including household subsidy) will not exceed NPR 255,000 for Category “A”, NPR 225,000 for Category “B”, and NPR 195,000 for Category “C” VDCs. For possibility of productive end-use in the future, subsidy for additional 1 kW per maximum of 5 households will be provided. Nepal: Scaling up Electricity Access through 8 Mini and Micro Hydropower Applications 02 Framework for Micro Hydropower inN A mechanism changedintheyears 2000,2006,2009, 64. andthesubsidydelivery The subsidypolicy sidized by theAEPC(see Table 7). to 80percent ofthetotal feasibility studycostissub out adetailedfeasibility MHPs. studyofthenew Up 63. The AEPC providesfor carrying financial support powers level organizations. to district ies. This by initiative theAEPCto wastaken devolve (DEECCS) evaluates and approves of feasibility stud- vironment, Energy andClimate ChangeSection plants(picohydropower),capacity En- theDistrict of morewith capacity than 10 kW MHPs. For lower technical and financial studies feasibility for projects mittee of the Parliament. The AEPCevaluates the approved by theFinancial Com- andInfrastructure Energyto theRenewable SubsidyPolicy, 2013and nism, 2013” wasprepared according by the MoSTE 62. The - Mecha Energy“Renewable SubsidyDelivery VDCs respectively asdefined GoN. by the “C” remote,VDCs implyvery remote andaccessible er implementationrespectively. Category “A”, “B” and rent subsidyavailable for micro andminihydropow- inruralareas. ery Table 5and Table 6show thecur RETs, deliv- andfocus andservice onbetter quality *NPR 1=US$0.0104 with capacity from 500kWto 1000kWmust connect kWto eligibleforsubsidy. atleast1000householdsor5 per be “C”NPR 170,000forCategory VDCs;Projects withcapacity from 100kWto 500kWmust connect kW, atleast500householdsor5per andprojects Note: The maximum kW(includinghouseholdsubsidy)willnotexceed subsidyamountper “A”, NPR220,000forCategory “B”, NPR190,000forCategory and *NPR 1=US$0.0104 Ta Ta ssessing theP L Subsidy Category Subsidy perkW Subsidy perhousehold Category “A”Category VDCs Category “B”Category VDCs Category “C”Category VDCs ocation b b le 7:|Currentle subsidyfor feasibility studyofhydropower projects 6:|Currentle subsidyfor minihydropower implementation egulatory andRegulatory olicy 10 kW–50 kW Subsidy for DetailedFeasibility Study (inNPR*) 225,000 200,000 175,000 120,000 20,000 Category “ Subsidy for Hydropower Mini P epal A ”VDCs - - becomes operational within two years.becomes operationalwithintwo subsidy disbursementsare made, thepower plant approved (i.e., project isata “ready to go” stage)and implies thatoncethefeasibility studyofanMHPis have oninstalledcapacity. animpact The figure mately years two are required for thesubsidyto Therefore, that,onaverage, itisexpected approxi- nual subsidy amount and the installed capacity. years) shows astrong correlationthean- between The updated graph inFigure by two 3(withashift two wasmade fit occurredby years. whentheshift was brought by forward oneto five years. The best tion ofMHPs willrequire time),thesubsidyamount time gap(i.e. subsidydisbursementandconstruc- a after bursed isreflected intheinstalledcapacity of the 66. subsidy Assumingdis- that the impact both parameters are compared for thesameyear. donothavestalled capacity agoodcorrelation when installed.pacity The annualsubsidyamountandthein- amount ontheannualincrease inaggregate MHPca- 65. Figure 2presents oftheannualsubsidy theimpact subsidy amountare presented in Table 8. change. updated with eachpolicy The changesin mechanismhasbeen increased andthedelivery and mostrecently in 2013.Subsidyfor an MHP has 50 kW–100 kW 295,000 275,000 250,000 roject (inNPR*) roject 100,000 18,000 Category “B”VDCs 100 kW–1000 kW 1,200,000 1,100,000 1,000,000 70,000 16,000 Category “C”VDCs implies thatonce thefeasibility studyofanMHPis have oninstalledcapacity. animpact The figure mately years two are required for thesubsidyto Therefore, that,onaverage, itisexpected approxi- nual subsidy amount and the installed capacity. years) shows astrong correlationthe an- between The updated graph inFigure by two 3(withashift two was made fit occurredby years. whentheshift was brought by forward oneto five years. The best tion ofMHPs willrequire time),thesubsidyamount time gap(i.e. subsidydisbursement andconstruc- a after bursed isreflected intheinstalledcapacity of the 66. subsidy Assumingdis- that the impact *NPR 1=US$0.0104;HHhousehold Ta Rehabilitation A E MHP connected Grid- O Cooperative Community/ hydropower Micro P lectricity lectricity articulars dd-on b wned MHP le 8:|Changes insubsidyamount withchangeinpolicy le NPR 35,000 not exceeding cost 50 percent ofthe NPR 27,000/kW NPR* 70,000/kW 2000 NPR 85,000 not exceeding incremental HH NPR 10,000/ NPR 60,000/kW not exceeding NPR 6,000/HH NPR 85,000/kW not exceeding NPR 10,000/HH 2006 NPR 62,500/kW not exceeding cost 50 percent ofthe NPR 60,000/kW not exceeding NPR 6,000/HH NPR 125,000/kW not exceeding NPR 15,000/HH 2009 Y ear ofSubsidyP 2008–10, and2009 in2011–14.Similarly, theimpact andnumber in 2002–07,2006 installed capacity of2000should impact the changeinsubsidypolicy itselfhasbeenrevised. Forsubsidy policy example, ofsubsidyinthetransition years whenthe impacts of thesubsidy. when comparing This isimportant years two visible only after from the disbursement ofMHPsber andcapacity installedwould become inthenum- theimpact 67. Dueto shift, thistwo-year years.becomes operationalwithintwo subsidy disbursementsare made, thepower plant approved (i.e., projectisata “ready to go” stage)and mini/micro hydropower by GoN supported major damageto power houseorrehabilitation ofold NPR 50,000/kWnotexceeding NPR1,000,000/plant for minor damageto civilstructure NPR 10,000/kWnotexceeding NPR200,000/plant for subsidy ofNPR5,000/kWnotexceeding NPR70,000/kW C Category VDC: NPR6,000/HHandtransportation subsidy ofNPR10,000/kWnotexceeding NPR80,000/kW B Category VDC: NPR7,000/HHandtransportation subsidy ofNPR20,000/kWnotexceeding NPR90,000/kW A Category VDC: NPR8,000/HHandtransportation NPR 15,000/HH exceeding NPR195,000/kW C Category VDC: NPR15,000/HHand70,000/kWnot not exceeding NPR225,000/kW B Category VDC: NPR15,000/HHand100,000/kW not exceeding NPR255,000/kW A Category VDC: NPR25,000/HHand130,000/kW 2013 exceeding NPR170,000/kW C Category VDC: NPR16,000/HHand70,000/kWnot not exceeding NPR170,000/kW B Category VDC: NPR18,000/HHandNPR100,000/kW not exceeding NPR220,000/kW A Category VDC: NPR20,000/HHand120,000/kW olicy 9 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 10 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 02 subsidyperiod Figure 4:A Figure 3:I same baseyear) Figure 2:I 12 AEPC(2013 - 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Number per year (No./year) - 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 100 120 20 40 60 80 0 Framework for Micro Hydropower inN A ssessing theP mpact of subsidy on installed capacity (whencompared ofsubsidyoninstalledcapacity atmpact mpact of subsidy on installed capacity withtwo ofsubsidyoninstalledcapacity yearsmpact shift verage ofMHP number 2009 2007

2002-07 2008

50 2010 2009 2011 2010 egulatory andRegulatory olicy 2012 2011 2012 s addedeachyear duringeach 2013 2008-10 2013 69 2014 Projected Figure Projected Figure 2014 2015 2015 2016 2016

2017 epal

2011-13 2017 95 kW 00,000) (in NPR Subsidy kW 00,000) (in NPR Subsidy and 30kW, respectively asseeninFigure 6. 2011–13, theaverage plantsizes were 17kW, 24kW also beenincreasing. 2002–07,2008–10 and During in 2000,2006and2009,theaverage plantsize has 69. Similarly, withthechangeineachsubsidypolicy growing. in the rate atwhich the micro hydropower is sector progressive witheachchangebringing anincrease riod. Therefore, thechangesinsubsidyseemto be have increased steadily for pe each subsidy impact ofMHPsrate ofthe numberandcapacity added 68. As canbeseenfrom thesefigures, theannual ing thesubsidyperiods. crease inaggregate ofMHPs capacity installed dur sidy periods. Figure 5shows theannualrate ofin- in numberofMHPs thethree installedduring sub onwards. Figure 4shows theannualrate ofincrease of2013willbeseenfrom 2015 of thesubsidypolicy ecuting organization. The 75DEECCSs monitor and level asthenationalex andtheAEPCworks policy thepublicsector,72. In atthe works theMoSTE groups.community ofchannelizingsubsidiesfor MHPspolicy solelyto because since 2006 the AEPC has been following a aresince they notviewed asprofitable andalso investmentsmake intheinfrastructure(i.e. MHPs) However,sales services. doesnot sector theprivate supplyandinstallation,after-manufacturing, whereas is involved the sector private in consulting, assistance, andcoordination assurance, andquality focuses building, on capacity technical and financial and adopts a demand-based approach. The AEPC sector closelywiththeprivate alsoworks Nepal. It forfocal promoting agency alternative energy in 71. As mentionedearlier, theAEPCisnational 2.3.1. Instituional Ar (MHFG) asthefocal pointispresented inFigure 7. power withthemicro sector hydro group functional 70. The institutionalarchitecture ofthemicro hydro 2.3. Institutional Project Cy cle ure chitect 12 Architecture and

- - - - - requests three sealed quotations from pre-qualified requests three sealedquotations from pre-qualified feasibility study.preliminary then The community outthe consultantsalsocarried the pre-qualified outby the RSCorDEECCS. somecases,carried In feasibilityor DEECCS. study is then A preliminary MHP fillsandsubmitsa requisition to theRSC form interested thecommunity cycle, inbuildingan discussed hereafter. As a first step ofthe project isshown in flowchart project cycle Figure 8and role to implementMHPs. The micro hydropower stitutional architecture andneedsto play anactive 76. is the focalThe community point within the in- 2.3.2. P 2.4. inSection is discussedfurther the nationalgrid. The role oftheNEAinthiscontext ture becomesrelevant ifMHPs to needto connect 75. The NEA’s role withintheinstitutionalarchitec- improvedinvolved water insupporting mills. providers (NSPs). nationalservice two The NSPs are fessional staff membersemployed innineRSCsand stipulatedin achieving targets. There were 350 pro ergy for theAEPC RuralLivelihood (RERL) to support En- directly engagedintheNRREPandRenewable lio ofprograms. Additionally, 75staffmembers were in coordinating andmanaging theexecutive portfo manent staffmembersofwhom10 were involved 74. As of2012/13fiscal year, theAEPChad35per development and promotion ofRETs inthecountry. groupsinstitutions andcommunity/users for the civil society, institutions, academic nationalbanking NGOs, sector,ministries, private theirdepartments, closelywithdonoragencies,the AEPCworks related micro hydropower projects. At thenationallevel, companies to implement gage AEPC pre-qualified communitiesneedto en- receive subsidysupport, turing, supplyandinstallationofMHPs. order to In anddesign), manufac- volved inconsulting(survey a numberofcompaniesthatenablesthemto bein- sector, theprivate 73. In theAEPChaspre-qualified ties inimplementingtheprojects ontheground. panies andcooperatives) thatassistthecommuni- level. trict There are nineRSCs(NGOs, com- private by theAEPCatdis- projectssupported supervise roje ct Cy c le - - - subsidy period Figure 6:A Figure 5:A Figure 7:I subsidy period

*PQ =pre-qualified Average Plant Size (kW) Number per year (kW/year) 1000 1500 2000 2500 3000 3500 Local government PUBLIC SECT 10 15 20 25 30 35 500 Monitoring and Implementation 0 5 VDC &DDC 0 evaluation DEECCS nstitutional architecture ofthemicro hydropower sector bodies verage plant capacity (kW) addedduringeach verage (kW) plant capacity verage added(kW/year) MHPcapacity duringeach RSC 2002-07 2002-07 OR 17 828 Procedures, guide electricity users electricity lines andsubsidy Grid connection MHFG Rural AEPC NEA 2008-10 2008-10 1651 24 - PRIV PQ Manufacturers PQ Manufacturers Elecromechanical PQ* Surveyors Feasibility Study and Suppliers PQ I A equipment TE SCT 2011-13 nstallers 2011-13 2813 30 OR 11 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 12 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 02 Framework for Micro Hydropower inN A signs a contract agreement with the pre-qualified agreementsigns acontract withthe pre-qualified mini hydropower ofthe total cost,thecommunity 75 percent for micro hydropower and90percent for assurescommunity funds(includingsubsidy)up to imum allowed 400 W/ household) isused. After the sidy purposes, a standard of 200 W/household (max 80. To oftheproject for thecapacity determine sub be submitted. then a letter mentioning the same should also port, local government bodyisproviding financialsup bank shouldalsobesubmitted. Additionally, ifthe letter from cluded, theconcerned asupporting proposal. a loanagreement If with a bank is con- ited shouldbesubmitted alongwiththeproject 79. Abankstatement for amountdepos- theequity from theDoED. information of survey need to obtain a certificate whereas mini hydropowertee (DWRC), projects directly from the District Water Resources Commit of registrationcertificate for preferential water use hydropowerAEPC. Micro projects need to obtain a and environmental are aspects) submitted to the detailed projectdesign community (incorporating vate company. aprojectbusinessplanand Next, users’ group suchasaMHFG,cooperative- orapri 78. To applyfor subsidy, registers thecommunity a as well asdrawings oftheproject. report monitoring to theDFSandsubmitaquality to ensureisbeingdoneaccording thatconstruction twice qualified consultantmustvisitthesite atleast is approved for implementation. pre- The selected 20 percent subsidy is only provided if the project TechnicalThe remaining Committee (TRC). Review therecommendationcent isdisbursedafter ofthe andDFSisprovidedfor andanother40per survey from the DDC. At this time 40percent ofsubsidy the AEPCalongwithaletter ofrecommendation it toexamines and assesses the DFSand forwards companyselected prepares theDFSreport. The RSC onacompetitiveis selected basis by theMHFG. The 77. From thethree sealed quotations, onecompany isprepared.port basis ofwhichadetailedfeasibility study(DFS)re anddesign onthe consultants for detailedsurvey ssessing theP egulatory andRegulatory olicy epal ------tion by theAEPCandcommunity. releases theremaining 10percent onrecommenda- of the planned households are the CREF electrified, year ofsuccessfuloperationandifall(100percent) tional 10percent subsidyamount.Finally, one after related theCREFreleases handover anaddi- report, households, the submission of generation test and generation ofelectricity, verificationofconnected more households.at thisstageto electrify After the Additional subsidy canalsobeprovided electricity). fication that75percent plannedhouseholdshave is handed over (post veri- to the local community to thiseffect ously), andthesubmissionofareport a successful test operationfor 72hours(continu- another 20percent ofthesubsidyisreleased after against abankguarantee. Following this, upto leased inadvanceto theinstallationcompany 82. Upto 60percent ofthesubsidyamountisre and RSCs). projects by mobilizinglocalbodies(e.g., DEECCS to ensureofunder-construction quality support subsidy. technical The AEPCprovides thenecessary Energytral Renewable Fund (CREF) for approval of mitted documents andrecommends itto theCen- 81. The AEPCthenreviews andevaluates thesub nent oftheNRREP). used by theProductive Energy Uses(PEU;acompo would be strate that atleast10percent electricity installation company. The proposal shoulddemon- Electricity Corporation andotherrelated Corporation develop Electricity of Water oftheMinistry Resources,Electricity Nepal 84. Prior to NEA’s of establishment,theDepartment 2.4. Role through independentconsultants. years two every andusersatisfaction project impact community. Additionally, theAEPCevaluates the the presence ofmembersRSC,DEECCS andthe as power verification consultants)in (also known consultants from independent(andpre-qualified) eration andhouseholdverificationwithsupport 83. For gen- MHPs, electricity theAEPCconducts 2.3.3. Monit Hy dropower of oring

the and Sector NEA in Ev alua

tion the Micro

- - - - Figure 8:Micro hydropower cycleflow project chart ing and maintaining all generation, transmission fordable power by planning, constructing, operat adequate,transmit anddistribute reliable andaf- 85. The oftheNEA isto mainobjective generate, generation,transmissionanddistribution. ity merger institutionsinvolved- ofthevarious inelectric 1984through Act Authority a the NepalElectricity the NEAwasestablishedonAugust 16,1985under to establishan individualorganization. essary Thus, overlapping andduplication ofworks, itbecamenec- organizations due to with fragmented electricity to remedy associated theinherent weakness service nationwide.ity To anda reliable achieve efficiency - of electric generation, transmission and distribution ment boards were responsible for managing the operation, &100%electrification Determine capacity of the project oftheproject Determine capacity O Final approval andpayment of ne year oftest generation, A ppraisal ofFeasibility study 60 %Subsidyasadvance P ayment of100%Subsidy Requisition form for (PQinstaller) Construction and Commissioning (TRC approval) (TRC (RSC andAEPC) (PQInstaller) P (Community) for subsidy otential MHP (AEPC) (AEPC)

Training ofO Sign contract agreement withPQ Submission oftest generation Conditional approval ofSubsidy (PQConsultant &Community) (RSC, DEECCS orPQSurveyor) P reliminary feasibility study reliminary and handover report ( AEPC &Community) P (PQInstaller) Submit detailed project design project ayment of90% (Community) I perator andManager - Subsidy nstaller (AEPC) (AEPC) reach isolated micro hydropower areas. distribution the NEA’s nationalgrid hasreached oris about to of2.7MW.pacity Figure where 1shows 18districts consisting ofover 90MHPs withanaggregate ca- national grid hasalready reached areas distribution NEA. As discussedearlier, itisestimated thatthe will require coordination theAEPCand between hydropower areas, distribution then such interfaces 86. When thenationalgrid reaches isolated micro approval consumption(withprior fromtricity GoN). structure andtoGoN thetariff determine for elec- plansandpoliciesinthepowerterm to sector the sibilities are to recommend andshort- long-term or isolated power system. NEA’s othermajorrespon- facilitiesinNepal’sand distribution interconnected

A Community takeover completely Community registers theusers’ ssure 75%-90%fundsincluding P (PQConsultant &Community) ower outputverification to determine actual Subsidy determine actual and manageontheirown. O Feasibility studyon btain certificates frombtain certificates competitive basis RSC/DDC oversight. (PQ Consultant) P ayment of80% DWR (Community) (Community) Subsidy (AEPC) (AEPC) subsidy group C orDoED

13 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 14 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 02 Framework for Micro Hydropower inN A approval for MHPs to begrid connected. standards andspecifications, theNEAwill provide and/or approval. Basedonthefinal version ofthe to evaluate thisdocumentandprovide feedback 2013.” committee inthe NEAhasagreedThe action Equipment: Standardsnection andSpecification, called connection Hydro Projects“Micro Intercon- has prepared adocumentto standardize MHPgrid of MHPs to issues. solve grid connection The AEPC the NEAandAEPCregardingtween grid connection 90. There have be beenanumberofinteractions 100kWtowith capacitiesbetween 500kW aswell. changes are to expected beapplicableto MHPs problems. face) grid interface The NEApolicy new that areof less than 100 kW capacity facing (or will come into effect, itcouldbenefitanumberofMHPs changes these policy season). If NPR 8.40/kWh (dry up to 25MW, i.e. NPR4.80/kWh(wet season)and same FITastheposted rate for hydropower projects withthe MHPs upto 100kWcapacity ormini-grids Furthermore, provision theNEAisconsidering of fromrization theNEAfor interconnection facilities. use synchronous autho generators andseekprior must aremum criteria ormini-grid thatthemicro- of MHPs lower than100kW. ormini-grids The mini- 89. Currently grid connection theNEAisconsidering tive power needs. toconnected thenationalgrid to balancethereac- erators (ascompared generators) to are induction grid itself, and(c) onlyMHPs withsynchronous gen- anddonotcreatequality safety problems to the liabilities to the NEA, (b) MHPs are of “grid-ready” ofMHPsa grid connection doesnotaddfinancial isolated MHPsnecting to thegrid provided that:(a) 88. The NEAhasrecently shown willingness incon- efit financially. andben- to produceits capacity itsown electricity to develop ofthecommunity away theopportunity grid reached area. itsdistribution takes This practice fore, theMHPwould beshutdown oncetheNEA MHPstant to connect oflessthan100kW. There is cumbersome. Untilrecently, theNEAwasreluc- However, themanagementoflower MHPs capacity reaches themicro hydropower area. distribution compensate thepower plantoncethenationalgrid 87. 1992requires Act, theNEAtoThe Electricity ssessing theP egulatory andRegulatory olicy epal - - - such astheFeed-In-Tariff andtheAlternative Act relatedtant acts to renewable energy development implementation of the policy. Furthermore, impor smoother needto beupdatedthese acts to support Hydropower Policy Development (2001). Therefore, (1992)precedes Act the (1992) andtheElectricity been formulated. Similarly, the Water Resource Act suchastheRuralEnergy hasnotyet Act ing act Policy wasformulated in2006butthecorrespond- corresponding acts. For example, theRuralEnergy policies isnotpossiblewithoutpromulgating the put inplace, full-fledgedimplementationofsuch though many policiesto upscaleRETs have been ofMHPs.energy are theup-scaling hindering Al- regulations91. Incomplete regarding renewable 2.5. Anal Institutional Box 1: are notaware ofeachother’s current plan. master plan,theAEPCandNEA electrification Moreover,of theMoEn. sincethere isnorural es but implements them under thedirectives noted thattheNEAdoesnotformulate polic- shouldbe institutions. thesetwo between It and AEPCcouldensure aclosercoordination NEA between facilitating interactions MoEn requires role anactive from theMoEn. The Coordination theNEAandAEPC between is notitspriority. cial entity, ofisolated MHPs grid connection asacommer consumer baseandfunction NEA’s isto mainobjective cater to awider them isinfrequent. Furthermore, asthe of Energy coordination (MoEn)), between vironment and NEA is under the Ministry ofScience, the Ministry Technology andEn- are underdifferent (AEPC isunder ministries Aseration anddistribution). bothinstitutions manages thenationalgrid (alongwithgen- The AEPCpromotes MHPs whereas theNEA AEPC and Line ministries y sis NEA of Issues Polic y and of

- - ever, notrequiring licenseshasresulted inunclear facilitate simplerimplementationoftheMHP. How- for hydropower to plantsupto 1000kWcapacity IPPs. Currently, agenerationlicenseisnotrequired dicates thatMHPs would alsobetreated similarto to buypower from MHPs atthesameFITasIPPs in- finance (seeBox 1). The recent decision by theNEA system planning and technical distribution, services, suchastransmission, departments, internal various safety standards ofMHPs to NEApersonnelfrom 94. There is aneed for the APEC to demonstrate which includesan “NEA quality” system. distribution MHPs needto meetthegrid’s technical standards, power oftheseplants. quality To begrid connected nors in NEA’s generating stations) deteriorates the load controller (ELC) inMHPs (compared to gover lifehave span.Also, ashorter theuseofelectronic For example, most MHPs use wooden poles, which inherent safety issues that are for a concern the NEA. mainlyfor lightingpurposes.tricity They have many designedoften asisolated systems to supplyelec- before beinggrid connected. However, MHPs are a highlevel ofsafety andtechnological standards dent power producers (IPPs) must demonstrate 93. The generatingstations of NEAandindepen- it to thegrid to safeguard government investment. then abandoningtheMHP, ratherthanconnecting rare casesthatitis enforced, it promotes buying and However, isseldomenforced thisact andeven in encroachif they upontheMHP’s area. distribution tion companiesto compensate theexistingMHP (see Annex3)requires- theNEAandotherdistribu 1992 Act, 29and30oftheElectricity 92. Sections have beenscarce. discussionsonapproving theseacts parliamentary constitution, ofthecountry’s thedrafting prioritized ment (whichisalsotheConstituent Assembly) has proved- Sincethecurrent by parlia theparliament. Energy Promotion Board have Act yet to beap - - start ofsubsidydisbursements. start years’should bebuiltinabouttwo timefrom the on installed capacity.impact This implies that MHPs yearsabout two for a visible the subsidy to make takes It ment andsite construction/installation. of equip in design, manufacturing participation hasalsobeenstrengthened sector private dueto ofMHPs. andmonitoring support construction The mechanisms, suchastechnical design, ous support Furthermore,- theAEPChasalsomadeavailable vari has resulted infundsbeingavailable for subsidy. the promotion ofMHPalongwithdonorsupport sector. Acentralgovernment bodyresponsible for accelerated thegrowth ofthemicro hydropower 96. The establishmentoftheAEPChassignificantly creased theaverage plantsize asmentionedbefore. in2000,2006 and2009,alsoin- each subsidypolicy and theaggregate installedcapacity. Changein an increase inboththenumberofpower plants has resulted in amount per household and per kW) 95. Anincrease inthesubsidyamount(total amount, an existingMHPfor irrigation). to(e.g. conflicts diversionriver of flows upstream of designation andhassometimes led of water rights Figure 9: Cumulative Capacity (kW) 10000 20000 30000 40000 50000 60000 70000 0 P capacity (kW) that addedtill2020 willbe (kW) ofMHPcapacity rediction 2000 2001 Current Trend 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Projection 2012 2013 2014 2015 2016 2017 - 2018 2019 2020 15 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications 03 Scaling Up Potential of Micro Hydropower in Nepal

98. The AEPC currently faces two contrasting prob- 101. This chapter analyzes the merits of pursuing lems in scaling up of MHPs. On the one hand, there is each of the systems by examining their technical, fi- a growing demand for MHPs from more communities; nancial, economic and institutional performance. The and on the other hand there is an increasing threat to objectives of this chapter are presented in Section 16 investors from the grid being extended into existing or 3.1. Section 3.2 discusses the framework for select- even under-construction MHP sites. Thus, even as the ing the pathways for scaling up MHPs. Sections 3.3, AEPC tries to meet the growing demand for MHPs by 3.4 and 3.5 assess various aspects of scaling up MHPs scaling up its initiatives, it has to find means for pro- as a standalone system, MHPs as a mini-grid system, tecting prior investments made in MHPs that are un- and MHPs as a grid connected system, respectively. der threat from grid extension. Connecting such MHPs Based on the findings in these sub-sections, major to the grid is the only alternative to abandoning them. issues are discussed and appropriate suggestions to address these issues are presented in Chapter 4. 99. Until recently, the NEA was reluctant to connect any MHP that was less than 100 kW in capacity. From NEA’s

Mini and Micro Hydropower Applications Mini and Micro Hydropower 3.1. Objectives of the Chapter through up ElectricityNepal: Scaling Access perspective, an MHP with low installed capacity was considered not worth connecting to the grid as the power 102. The objectives of this chapter are to analyze and energy from such plants would be low compared how MHPs can be scaled up sustainably when: to the efforts required in managing them (e.g. meter l they operate as standalone systems; reading, dispatching monthly payment and monitoring l deficit of one or more MHPs can be compensat- quality issues). The AEPC had responded to this issue by ed by other MHPs in the vicinity that have surplus interlinking smaller MHPs (where larger MHPs do not power through a mini-grid system; and exist) to form a mini-grid of at least 100 kW in capacity. l the grid arrives in the vicinity of the plants. Therefore, the Baglung Mini-Grid was formed such that the aggregate installed capacity is 107 kW (6 MHPs were 3.2. Framework for Assessing interlinked). However, as discussed earlier, recent devel- Performance opments indicate that MHPs less than 100 kW are per- mitted to be grid connected, provided that they meet 103. The key research questions that would guide NEA’s technical (and safety) requirements. the analysis are as follows: l Should MHPs be scaled up as standalone, off-grid 100. Thus, the AEPC has three key system configura- solutions to enhance the access of rural commu- tions to address for scaling up MHPs in a sustainable nities to electricity? manner. These are: l Should MHPs be connected to the national grid l MHP as a standalone and off-grid system; either as individual MHPs or as a mini-grid of in- l Mini-grid system of MHPs that could eventually terconnected MHPs? be connected to the grid; l Should MHPs be interconnected to form off-grid l MHP as a grid connected system. mini-grids to better serve the community? communities well in the absence of the national communities well intheabsenceofnational 105. As mentionedearlier, standaloneMHPs serve 3.3 Standalone addressed inthischapter are presented in Table 9. address theresearch questions, questions framework map for moving ahead. More specifically, inorder to willpropose aroad- the challengesandopportunities swer is “yes”, into account taking thenthestudyafter 104. For eachoftheseresearch questions, ifthean- Ta ed MHP Grid-connect Mini-grid MHP Standalone configuration MHP b le 9:|Frameworkle questionsfor analyzingfeasibility ofstandaloneMHP - commercial andproductive loads? Will thisleadto development of MHPs? Will thisimprove thePLFsof ers from thegrid? ornetimport pliers ofelectricity Overall, willtheMHPs benetsup or unreliable? national grid (NEA) more reliable Will itmakeboththeMHPand the national grid? safely beconnected mini-grids) to Can MHPs (asstandaloneoras demand? more commerciallead to serving higheroverallDoes plant capacity better thanasstandaloneplants? thelocaldemand Can theyserve plants? (PLFs)forfactors theconstituent theyleadtoDo better plant load reliable? Are MHP–mini-grids technically demand consistently? Are theycapableofmeetinglocal Are MHPs technically reliable? Technical MHPs - - community atcommunity large? tional Groups andthe NEA, theMHPFunc implications for the What are thefinancial investments? Who shouldmakethe investments? to thegrid justifythe enues from connecting theincrementalDo rev ments? incremental invest adequate to cover interconnecting MHPs commercial loads)from PLF andincreased revenue (increased Is theincremental return to investors? quantum andrate of Is there adequate viable? Are MHPs financially Financial are ableto meettheoperationandmaintenance costs. ties have not beenableto recover capital costs, they technology has become sustainable. While communi- years asperAEPCguidelines),whichindicates thatthe are well beyond theireconomic life functioning (15 ties are ableto afford suchMHPs. ofMHPs The majority ties for MHPs, communi- and (b)withsubsidysupport, ruralcommuni- there is:(a)ademandinnon-electrified MHPs are steadily growing. This aloneindicates that the numbersof isolated by (through the GoN AEPC), grid. provided With thesubsidyandtechnical support - - - the MHPgenerator? to without connecting thegrid just extending welfare delivered by with theeconomic How doesthiscompare the costs? MHP to thegrid justify ered by the connecting economic welfare deliv theincrementalDoes tive? isnotattracviability subsidy ifthefinancial grid warrant ahigher MHPs into amini- to interconnection of economic welfare due theincrementalDoes delivered by them? with economic welfare MHPs commensurate ments (subsidy)in Are societalinvest E s, andMHP mini-grids conomic - - - –grid connection –grid this? together to support and theNEAto work needed for theAEPC mechanisms are What institutional providers? andservice munity needed to thecom- is What support system? tion anddistribution connected, genera- to manageagrid tional forms needed What are theinstitu- institutions? and more formal transition to larger Groups makethe Can MHPFunctional MHPs? adequate to manage ture andcapacity tutional architec Is thecurrent insti- I nstitutional - 17 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

3.3.1. Technical Reliability the dimensions of the basin, which results in silt par- 106. Isolated standalone MHPs were found to be do- ticles not settling down. Eventually, such silt parti- ing well except for a few minor technical problems. cles find their way to the turbine runner blades and The most frequent technical problems discovered damage them by their abrasive action. Therefore, by 18 during the site survey were turbine runner dam- designing appropriately dimensioned settling ba- age due to silt abrasion, bearing rupture, ELC break- sins and following the design during construction, down, and belt damage (Figure 10). two most frequent problems in technical reliability can be avoided. The AEPC has prepared various 107. Silt problems arise from bad design and con- technical guidelines that address such design issues. struction of the settling (desilting) basin. A settling basin must be designed to lower the velocity of 109. Belt and bearings damages occur due to misalign- water by providing a large basin surface area such ment of the turbine-generator set. This problem can that abrasive silt particles can settle. The length and be avoided by aligning the sets precisely and by exclu-

Mini and Micro Hydropower Applications Mini and Micro Hydropower width of the basin must be large enough to trap all sively monitoring this process. Also, using a high qual- through up ElectricityNepal: Scaling Access silt particles greater than a certain size, which varies ity belt and bearings can help prevent these issues. from 0.2 mm to 0.5 mm depending upon the head and type of turbine of the scheme. The dimensions 110. The ELC diverts unused electrical power to ballasts of the basin must be calculated based on the ideal (heaters) so that the frequency of the generator can be settling basin concept to minimize turbulence ef- kept constant. ELC is a home-grown electronic tech- fect. Additionally, the basin should be able to store nology manufactured in Nepal according to interna- the settled silt particles for a certain number of tional design. ELCs are found to be highly susceptible hours because MHPs are not designed for continu- to fault currents caused by lightening or short circuits. ous flushing. The settled silt particles then need to ELC breakdown can be avoided by using high quality be removed from the basin by opening gates or lightening/surge arrestors to protect from fault cur- valves and flushing the sediment using the incom- rents. Further research is being undertaken by various ing flow. To achieve satisfactory flushing, the bed ELC manufacturers to combat his problem. gradient of the basin must be designed to be steep enough to create velocities capable of removing all 111. These minor problems can be avoided to a the sediment during flushing. large measure by taking precautions, building a robust design and its faithful implementation. If these 108. However, due to scarcity of funds (and some- measures are taken, technical reliability of MHPs will times space), communities often tend to decrease be very high.

3.3.2. Ability to Meet Power Needs Figure 10: Technical problems seen during MHP site survey 112. Most of the MHPs met the lighting power needs of households adequately in their service area. How- Deflector ever, most also were found to have a power deficit Electric pole 7% Turbine runner during the peak hours. The subsidy for MHPs is pro- 7% 19% AVR vided on the basis of 100–200 W/household. Due 7% to increase in household demand (500–800 W rice Landslide Belt 8% 19% cookers) and commercial use (7.5 kW agro-process- ELC ing motors) of electricity, this 100–200 W/household 11% Desilting Bearings and filtering ceiling for subsidy is becoming inadequate. This is 11% 11% resulting in load-shedding during peak hours and eventually, most MHPs will suffer from this problem as the demand for electrical energy increases and the installed capacity of MHPs remain constant. A better alternative is to switch to a supply based subsidy and 15 14 13 MHPs.cused onlarger capacity This isbecauseatthe 115. As canbeseenfrom thetable, thesite visitfo plants covered inthesite visits. kW to 100kW. Table 11 shows thedetails ofthe definitionMHPs114. By from rangeincapacity 10 size 3.3.3.1. Plant visits andfrom several publishedreports. were site estimated during basedondatacollected alone MHPs theparameters listed in Table 10below 113. To of stand- financial determine performance 3.3.3.Financial Viabilit to possible. utilize themaximumcapacity hold orenergy-based metered systems withsubsidy have ademandsideceilingof500–1000 W/house *NPR 1=US$0.0104;HHhousehold Ta

Tenor andterms ofloan Depreciation andadministrative cost Salary cost Operations andmaintenance Tariff Plant loadfactor mercial Loads: domesticandcom- Component-wise capitalcost Financing mix,includingdebt Capital cost oftheplant Life oftheplant inyears Plant size inkW P arameter b Source: AEPC mercial loads have beenexpressed askWh/HHratherthankWh/commercial user. Commercial loadsin closedcommunitiesareto thehouseholds inthearea linked Hencecom- whowould be theusersofsuchcommercial services. Calculated from anaverage usageof120 W/HH operating 6hoursaday, 300days inayear outto works 18kWh/HH/month le 10|Financial analysisle assumptionsfor standaloneMHP y Commercial: 4–5kWh/HH/month 14 percent rate ofinterest, 7years term percent ofcapex 7 percent onstraight linebasison73 month 10,000 for MHPmanager. Total NPR22,000/ NPR 12,000for two operators andNPR 2 percent oftotal capex annually commercial andNPR8/kWh- NPR 6/kWh-domestic 24 percent 18kWh/HH/monthDomestic: civil structures, 27percent others. 53 percent 20percent electro-mechanical, percent loans 50 percent subsidy, 40percent equity, 10 kW for 50kW; NPR400,000/kWfor 100kW NPR* 450,000/kWfor 20kW; NPR425,000/ 15 years 20 kW, 50kW, 100kW analysis E stimated value usedinfinancial - - 13 s 14 and 100kWwere considered. analysis of MHPs, standard plants of 20kW, 50 kW cordingly, outafinancialperformance for carrying of the three size of categories MHPs is similar. Ac - 117. Figure ofplants 11shows thattheproportion shown inFigure 11. years) oftwo isto 31,2013(aperiod December the MHPs installedinNepal upto amaximumof125 nect W. Ananalysisof MHP simultaneously, eachhouseholdcancon- when all households are drawing power from the eighthouseholds, whichimplies that serves ity kW of installed capac- 116. On an average every only MHPs to of100kWorlarger itsgrid. capacity ofthisstudy, start theNEAwaswillingto connect Site survey Site survey Site survey Derived from site survey Derived from results site survey 2011 Forpects Long-Term Sustainability”, Alex Arter, September, Based on “Micro-Hydropower Nepal:EnhancingPros In - inkind the community 10 percent ofthecapitalcost isonaverage contributed by Based onanalysis ofMHPfinancingandsite survey. Around ber 31,2013 1,2012to DecemBased onMHPs- January installedduring ber 31,2013 1,2012to DecemBased onMHPs- January installedduring Remarks 15 from January 1,2012 from January 19 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

3.3.3.2. Plant life 120. Overall the local community monetarily con- 118. Although there are several plants that are still tributes nearly 50 percent (40 percent community operational 20–30 years after they were first com- contribution16+10 percent loans), while the rest missioned, the general norm is to consider the life comes from the AEPC and other sources (VDC, 20 span of an MHP to be 15 years and the same has DDC) as capital subsidy. The average installed cost/ been assumed in this financial analysis. Fifteen years kW ranges from NPR 400,000 for a 100 kW MHP would be too short a time for conventional larger to NPR 450,000/kW for a 20 kW MHP. The average sized power plants to be connected to the grid and cost/household is NPR 40,000 of which nearly a operated commercially, but for MHPs this is not pos- half comes from the local community itself, i.e. NPR sible because of the following: 20,000/household. Loans comprise a mere 10 per- l The quality of civil structures is such that they cent of the total finance mix which can be due to may not function well beyond 15 years. lack of access to loans or the ability of the communi- l Due to wear and tear, the turbine runners gener- ties to meet most of the non-subsidized cost of mi-

Mini and Micro Hydropower Applications Mini and Micro Hydropower ally do not last beyond 15 years. cro hydropower project implementation. The data through up ElectricityNepal: Scaling Access l The uncertainty of the arrival of the grid does not from the AEPC on the last 58 plants that were sup- offer any advantages in designing MHPs for an ported with additional financing in 2013–14 (see extended economic life. The main issue is to seek Figure 12) indicate that the communities had lack opportunities to ensure that the MHPs are used of access to credit. until their economic lives are exhausted, such as by connecting to the grid. 121. Thus, the financing mix used in the financial analysis is 50 percent subsidy, 40 percent equity (lo- 3.3.3.3. Capital cost and financing mix of the MHP cal community contribution in cash and kind) and 119. The capital cost of the MHP is dependent main- 10 percent loans. ly on the head, the flow, the type of turbine, the length of the penstock and accessibility (remote- 3.3.3.4. Component-wise Capital Cost ness of location). Table 12 shows the capital cost 122. Capital cost of a typical MHP (see Figure 1317 ) and financing mix of the MHPs in the sites visited: comprises electro-mechanical components (53 per-

Table 11 | MHP sites visited and their plant size Commercial Name of MHP Location District kW HH served kW/HH connections Gottikhel MHP Gottikhel Lalitpur 16 80 5 10 Midim Kholan MHP Ishaneshwor Lamjung 83 NA NA NA Bhujung MHP Bhujung Lamjung 64 365 6 14 Ghandruk I MHP Ghandruk Kaski 50 221 4 14 Ghandruk II/Bhirgyu MHP Ghandruk Kaski 50 289 6 29 Daram Khola I MHP Wamitaxar Gulmi 135 1,400 10 32 Daram Khola II MHP Wamitaxar Gulmi 85 900 11 19 Giringdi Kholan MHP Kharbang Baglung 85 838 10 34 Malekhu I MHP Mahadevsthan Dhading 26 300 12 6 Malekhu II MHP Mahadevsthan Dhading 18 118 7 5 Yafre MHP Yafre Taplejung 112 870 8 5 Total 724 5,461 8 168

HH = household Source: Site Survey 2014

16 This includes sweat equity and cash equity from the community 17 Reproduced from “Micro-Hydropower In Nepal: Enhancing Prospects For Long-Term Sustainability”, Alex Arter, September, 2011 the level of electricity use. the level ofelectricity financial analysisuses18kWh/household/monthas household/month in rural Nepal is 18 kWh. Thus, the consumed/ tions that the average kWh of electricity nism (CDM) projectonMHPs by theAEPCalsomen- (PDD) of the registered clean development mecha- 19 18 Source: Site Survey, 2014. **Since datafrom someinstallationsare missing, andloanwillnotaddupto 100%. thesumofsubsidies, contribution community *NPR 1=US$0.0104. household/month. average consumptionisintherangeof18–22kWh/ for about5–6hoursinaday.electricity Thus, the householduses MHP-connected hold). Atypical eight households (average load of 125 W/house ability. As presented above, 1.0kWcaters to about to resourcesubject (headandflow ofwater) avail- are sized to deliver 100–200 between W/household (lighting)to households. Usually,electricity MHPs 123. MHPs designed are for primarily delivering 3.3.3.5. Loads: Commercial and Domestic year for aplantlife of15years. in thedepreciation ofapproximately 7percent per the life ofthe plant has been considered. This results Astraight-line depreciation overas anassetblock. tion, 73 percent ofthe capital cost will betreated tion. Thus, for ofcalculatingdeprecia thepurposes - - percent), whichincludesoverheads andtransporta cent), a civil component (20 percent) and others (27 Ta

Malekhu IMHP Malekhu MHP Kholan Giringdi IIMHP Daram Khola Malekhu IIMHP Malekhu IMHP Daram Khola Ghandruk II/Bhirgyu MHP Ghandruk IMHP Bhujung MHP Average finance mix** Total Yafre MHP MHP Kholan Midim MHP Gottikhel b An agro-processing unit comprises a rice huller and a flour mill run by a 10 hp (7.5 kW) electric motor. electric An agro-processing hullerandaflourmillrun by a10 hp(7.5kW) arice unitcomprises “Power And People: In Nepal”, EnergyRenewable Of The Benefits SudeshnaBanerjee, Avjeet Singh,HussainSamad, May 2010 Bank World le 12|Capex andfinancingmixofMH P sites visited le Name ofMHP 18 The project design document 218,082,311 100 percent Total Cost Subsidy ( 22,341,000 20,500,000 59,000,000 15,000,000 11,934,623 40,000,000 34,900,000 61,475,000 28 percent 4,414,711 4,314,977 3,400,000 2,277,000 AEPC) - 14,500,000 14,400,000 16,700,000 6,375,000 4,900,000 4,600,000 agro-processing units 125. The most common productive end-uses are end-uses found inthesites thisstudy. visited during Table and numberofproductive 13shows thetypes from placetofrom place. productive end-uses)vary 124. Commercial loads(alsoreferred to asloads eas of tourist interest,eas oftourist suchasGhandrukandBhu- Hotels are the common productive end-uses in ar Cost Structure (NPR*) J Figure ofplants number installedduring 11:Size-wise an 1,2012–Dec31,2013 Subsidy ( NA NA 0 0 0 O 10-19 kW thers) 10,600,000 11,934,623 34,735,623 16 percent 2,166,000 1,100,000 2,100,000 6,450,000 35 385,000 NA NA 0 0 19 Labor contribution followed farms. by poultry 20-49 kW 33 Community 12,100,000 40,500,000 16,000,000 14,315,000 88,115,000 40 percent 4,800,000 400,000 50-100 kW NA NA 31 0 0 20,192,000 1,700,000 5,000,000 4,000,000 4,500,000 2,200,000 1,892,000 9 percent 900,000 L oans NA NA NA 0 - 21 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

Figure 12: Source of total capex in 58 MHPs supported by AEPC 126. The proportion of kWh consumed by domestic and commercial customers is shown in Figure 14.

Deficit/Additional 127. On average, 80 percent of the kWh is consumed GoN support GoN Subsidy 22 21% 35% in an MHP in the domestic sector, mainly for lighting, and 20 percent for productive end-uses. This results

Community Support in about 4–5 kWh of commercial loads/household/ 32% month. The CDM-PDD for MHP by the AEPC presents an estimate of 9 kWh/household/month for commercial applications. However, for the purpose VDC Support of financial analysis in this study, commercial use of 4% energy at 4 kWh/household/month has been used. Other Support PAF Support DDC Support 5% 1% 2%

Mini and Micro Hydropower Applications Mini and Micro Hydropower 3.3.3.6. Plant load factor through up ElectricityNepal: Scaling Access 128. Based on domestic and commercial consump- Figure 13: Component wise capital cost of MHP tions estimated in the preceding chapter, the estimated PLF for the plants surveyed are as presented in Table 15. Civil Component Others 20% 27% 129. However, these plants are well established and located in areas of high commercial transactions, Mechanical Component 13% such as market centers (Daram Khola II and Gir-

Electrical Component ingdi Khola) and tourist areas (Ghandruk I & II and 40% Bhujung). An MHP study22 has pegged the PLF for MHPs at 18 percent while a World Bank study23 has mentioned 33 percent as the average PLF. This study uses a PLF of about 24 percent based on the estimates of domestic and commercial uses discussed in the preceding chapters. jung, which form a part of the Annapurna trekking circuit. On average a single agro-processing unit 3.3.3.7. Tariff exists for every 100–120 households. Furthermore, 130. Both power and kWh based tariffs were found larger plants tend to have a greater number of pro- in the MHPs visited. Table 16 provides details on tar- ductive end-uses. A typical agro-processing unit iffs in the MHP sites surveyed. would have a 10 hp (7.5kW) electric motor that is used for about 2–3 hours/day for approximately 131. On average a power-based tariff of NPR 100/100 20 days in a month serving about 100–120 house- W/month is equivalent to a kWh-based tariff of NPR holds. Similarly, a sawmill has a 5–7.5 kW electric 5.5. Domestic tariff has been taken at NPR 6/kWh for motor that is used for an average of 2–3 hours/ carrying out the financial analysis. Commercial tariff day for 20 days in a month. A typical poultry farm has been estimated at NPR 8/kWh. has a 500–750 W connection that is used for about 8–10 hours/day for 20 days in a month.20 Table 14 3.3.3.8. Operations and maintenance costs presents the quantity of electricity consumed in the 132. The main operations and maintenance costs domestic sector and the commercial sector for the are related to repairs for the ELC, runner blades, in- sites visited during the survey.21 take channels and replacement of wooden electric

20 A minimum time gap is needed between two batches of broilers in the same poultry shed to allow for carrying out appropriate cleaning, disinfection operations and preparing the litter bed for releasing the next batch of Day Old Chicks (DOC). 21 The monthly consumption of kWh of electricity for domestic and commercial use has been estimated based on primary survey data 22 “Micro-Hydropower In Nepal: Enhancing Prospects For Long-Term Sustainability”, Alex Arter, September, 2011. 23 Power And People: The Benefits of Renewable Energy In Nepal, Sudeshna Banerjee, Avjeet Singh, Hussain Samad, World Bank May 2010, Page 13. 24 ally 10–12hoursinduration. is usu- totaling a costofNPR 22,000/month. A shift month each)andamanager (NPR10,000/month) 10 hoursperday employs operators two (NPR6000/ 133. Typically, anMHPthatoperates for more than cost 3.3.3.9. Salary capital costoftheMHPonanannualbasis. poles. These are estimated at2percent ofthetotal Source: Site Survey, 2014 Table 14 Table 13 Total Others

Photocopier/Computer center Irrigation (Lokta/Chowmein/Soap)Small industries Total Name ofMHP Ropeway Agro-processing Yafre MHP IIMHP Malekhu IMHP Malekhu MHP Kholan Giringdi IIMHP Daram Khola IMHP Daram Khola Ghandruk II/Bhirgyu MHP Ghandruk IMHP Bhujung MHP Telecom tower Poultry Crusher Hotels Grill/Welding shop Sawmill Includes otherproductive end-usessuchassawmills,Includes grill works, etc. |P | Domestic and commercial electricity consumptionDomestic andcommercial (kWh) for electricity MHPsites visited roductive end-usesofMHPsites visited

Household 5,301 1,400 870 118 300 838 900 289 221 365 10 4 1 0 0 0 4 0 0 0 0 1 0 Gottikhel P A roductive end-uses gro-processing 0 0 0 0 0 0 0 0 0 0 0 0 0 Midim Khola 38 13 14 2 2 1 8 9 0 0 3 2 0 0 0 3 3 1 2 0 0 0 3 Bhujung 14 13 0 0 0 0 0 0 1 0 0 0 0

the summary oftheresults ispresented in the summary Table 17. of thefinancialanalysiscanbe found inAnnex4and (LUCE).the levelized unitcostofelectricity The details and rateternal of return (IRR), net present value (NPV) it/loss statement, cashflow analysis, estimationofin- MHPs withandwithoutcapitalsubsidycovering prof- outforsis has beencarried 100kW, 50 kWand20 134. Basedontheabove parameters, financialanaly- 3.3.3.10. Financial analysis Ghandruk I 29 18 7 1 0 3 0 0 0 0 0 0 0 P

oultry Ghandruk II 28 10 3 0 4 9 0 0 0 2 32 13 10 0 1 0 2 0 3 1 0 2 0 Daram Khola I 19 0 1 0 3 0 9 0 O 0 0 3 3 0

thers Daram Khola II 102 17 10 29 14 0 3 1 9 9 34 15 24 0 1 0 3 0 8 0 0 3 4 0 Giringdi Khola kWh consumed/month Domestic 95,418 15,660 25,200 15,084 16,200 5,202 3,978 2,124 5,400 6,570 6 0 0 0 0 0 1 0 4 0 0 1 0 Malekhu I 5 0 1 1 0 0 2 0 0 0 0 1 0 Malekhu II Commercial 5 0 0 0 0 0 2 0 3 0 0 0 0 24,433 2,550 6,480 6,840 3,818 2,250 1,325 Yafre 480 300 390 168 13 11 42 34 14 31 6 1 3 5 1 7 Total 23 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

Table 15 | Estimation of PLF of MHP sites visited the costs of major repairs, users are asked to con- kWh con- Name of MHP PLF tribute additional sums. The tariffs are also lower be- sumed / year cause after having contributed in cash and/or kind Bhujung MHP 94,740 17% for the construction of the MHPs, the communities 24 Ghandruk I MHP 129,816 30% are unwilling to pay higher tariffs reflecting the real Ghandruk II/Bhirgyu MHP 140,184 32% costs (see Box 2). Daram Khola I MHP 333,000 28% 140. Thus, MHPs are run to recover operating costs Daram Khola II MHP 221,400 30% only, with capital investments (local community Giringdi Kholan MHP 226,824 30% contribution) being treated as sunk costs. This leaves Malekhu I MHP 69,480 31% them financially vulnerable when they have to meet Malekhu II MHP 29,088 18% the costs of major repairs or even pay better salaries Yafre MHP 193,680 20% to their staff. Since it takes time to mobilize money

Mini and Micro Hydropower Applications Mini and Micro Hydropower Average PLF 26% from users to pay for maintenance and repairs, it through up ElectricityNepal: Scaling Access gets postponed eventually leading to degradation 135. Results of a break-even analysis carried out for a of the assets, and loss of production and revenue. 100 kW MHP is presented in the Table 18. This further compounds the poor financial health of the MHPs. 136. Similarly, a break-even analysis was carried out for a 50 kW and a 20 kW MHP, and the results for all three 141. This mindset of only meeting operating costs capacities considered are presented in Figure 15. and the lack of pressure to deliver a RoE, leads to a dearth of interest in increasing loads during off- 3.3.3.11. Observations on Financial Analysis of peak hours. It also means that such MHPs would not Standalone MHPs be interested in taking loans since it would increase 137. From a conventional financial analysis view- their operating costs and they would be forced to point, the profitability of MHPs is poor, with or withincrease their revenue base by increasing off-peak out subsidy. Smaller plants in the range of 20–50 loads. Such MHPs are therefore not attractive to kW are not able to cover interest on loans and have banks and financial institutions. a negative return on their investment. Plants with capacity of 100 kW are relatively more profitable 142. Given this situation, standalone MHPs seem as they are able to cover all their operation and to be run more as social enterprises that deliver a maintenance costs, salaries and also pay interest on social good than as business enterprises. This orien- loans. However, even in their case the return on in- tation has been further accentuated by changes in vestment (RoI) is less than 1 percent. the subsidy policy that favor community-managed MHPs instead of entrepreneur-managed ones. This 138. The LUCE25 including a 16 percent return on to some extent explains the low load development equity (RoE) is higher for smaller plants and in all in MHPs (especially off-peak loads which are largely cases much higher than the tariff being charged. productive end-uses) and the lack of interest in fi- This implies that tariffs are not taking into account nancial institutions to finance them. the full cost and a reasonable RoE. In fact in the Bhu- jung MHP, the community recently decided to lower 143. Thus, MHPs today are financed by a mix of the tariff from NPR 100/100 W/month to NPR 65/100 capital subsidy and equity (sweat and cash). Com- W/month after the loan portion was paid off. munities that are able to mobilize their share of the capex (NPR 20,000/household) are able to set 139. Tariffs are set to just recover the operating costs up an MHP and those that are less affluent simply and sometimes even just the salary costs. To meet cannot afford to do so. With many sites in the hilly

25 Levelized Unit Cost of Electricity is the ratio of discounted operating cost+ capex to discounted number of kWh generated over the lifetime of an MHP. rate for unskilled laborofNPR318/day.rate for unskilled of NPR500/day isdeflated to theminimum wage of taxes, withoutsubsidies, andthelaborwagerate 31 30 29 28 27 26 lighting, fromto increased electric acknowledge fromdue to ashift traditional(kerosene) lighting include: increased welfare enjoyed by households ered by MHPs have inNepal. been conducted These studies on 146. the Several economic benefits deliv- ofeconomic 3.3.4.2. Estimation benefits 20 kW, 50kWand100MHP. Table 19presents theeconomiccosts for anotional benefits ofanMHPandthuscancelouteachother. also featurenomic costbecause they aseconomic maintenance costs. are Salaries notarelevant eco clude onlythecapitalcostandoperations 145. The costsofsettingupandrunninganMHPin- ofeconomic3.3.4.1. Estimation costs count intheanalysishere. ings from thesestudieshave into ac- beentaken andthe find- efits thataccruefrom electrification, previous studies have estimated the economic ben- nomic costsofgeneratingelectricity. Anumberof case users/customers) would be set off against eco analysis, (inthis thebenefitsthataccrue to society the costsofgeneratingelectricity, inaneconomic wasset offagainst generated from saleofelectricity large. While inthepreceding sections, therevenue oreconomyfrom at ofthesociety theperspective ofMHPs isanalyzedthe economicperformance this section, of the MHP as a business of unit. view In mance ofMHPs hasbeenanalyzed from thepoint the preceding sections, the financial144. perfor In 3.3.4. Ec inroads,grid also making getting slowly saturated withMHPs andwiththe regions of Western andCentral zones ofNepal MHPs inNepal. This isone of themajor challenges of scalingup MHPs far-west. are stricken now more inthepoverty benefits and costs,

UNDP (2011) The dailyminimum wageofNPR318wasestablishedin theGovernment ofNepal’s 27,2070). Gazette (Jeth IEG/World Bank(2008), World Bank(2011),UNDP(2011). The openingofthemid-hillsroad isincreasing thespread ofgrid inthehillsofNepal migrant Steady workers. remittance hasensured greater for prosperity thisarea. These are the relatively more prosperous army andremittances areas andBritish from inruralNepalhillsmainlyonaccount ofemployment intheIndian This istheapproach throughout taken thisstudyfor estimating economiccosts onomic Analy 29 all financial costs are net taken si 28 27 In estimatingeconomic In the potential sites for 30

26 - - -

through MHPs, is notclear thedirection ofcausality higherincomeandaccesstobetween electricity access alone. percent oftheaverage annualincome)to electricity increase inhouseholdincomeofUS$121(about8 ear regression anaverage modelattributed annual tional outcomes. Astudy that usedamultiplelin- increased productivity, improved healthandeduca - cess to television andradio, higherincomes from commercial sectors Figure 14:P Figure 15:Break-even PLFandLUCE for standaloneMHP 100% 120% 20% 40% 60% 80% 100 120 140 0% 20 40 60 80 -

Bhujung MHP roportion ofKWh consumedroportion indomesticand PLF at BEP(%) 20 31

However, while there is a correlation Ghandruk MHP

Ghandruk II/ Bhirgyu MHP Plant Size (kW)

Dharam Khola I MHP Commercial 50 Dharam Khola II MHP LUCE (Rs./kWh) Giringdi Kholan MHP

Malekhi I MHP 100 Domestic Malekhi II MHP

Yafre MHP s - 25 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

Table 16 | Details of tariff in MHP sites visited Tariff/month Name of MHP Domestic Commercial 26 Bhujung MHP NPR* 65/100 W NPR 8.00/kWh Ghandruk I MHP NPR 1.5/W/month NPR 2/W/month Ghandruk II/Bhirgyu MHP NPR 150/100 W NPR 200/100 Watts Daram Khola I MHP NPR 100/20 kWh + NPR 10/ kWh NPR 1,500/190 kWh + NPR 10/kWh NPR 100, 150, 300/20 kWh (0.5, 2, 5 A) + Daram Khola II MHP NPR 1,500/190 kWh + NPR 8/kWh NPR 10/kWh NPR 60, 100, 150/10, 15, 20 kWh/month Giringdi Kholan MHP NPR 800/100 kWh/month (6.0A) + NPR 8/kWh (0.5A, 1.0A, 3.0A) + NPR 7/kWh Malekhu I MHP NPR 80/20 kWh + NPR 7/kWh NPR 7/kWh

Mini and Micro Hydropower Applications Mini and Micro Hydropower Malekhu II MHP NPR 70/ 20 kWh + NPR 5/kWh NPR 7/kWh through up ElectricityNepal: Scaling Access Yafre MHP NPR 100/connection + NPR 8/kWh NPR 100/connection + NPR 10/kWh

*NPR 1 = US$0.0104; A = Ampere

Table 17 | Summary of financial analysis of standalone MHPs Plant size 100 kW 50 kW 20 kW Parameter With subsidy Without With subsidy Without With subsidy Without subsidy subsidy subsidy FIRR Cannot be calculated due to large number of negative net cash flows NPV (NPR* million) -21.62 -46.7 -13.68 -27 -8.02 -13.66 LUCE (NPR/kWh) 32.73 58.9 36.3 64.11 39.15 72.57 Profitability Covers O&M, interest on loans Covers O&M, and salaries but Barely covers salary costs alone and salaries. not able to service the loan.

*NPR 1 = US$0.0104; O&M = operation and maintenance

Table 18 | Results of break-even analysis for 100 kW MHP Parameter With Subsidy Without subsidy

Total fixed cost (NPR*) 1,802,200.00 3,340,400.00

Total variable cost (NPR/kWh) 3.83 3.83

Sale price (NPR/kWh) 6.34 6.34

Break-even Point (kWh) 717,034 1,329,031

Break-even Point (NPR) 4,549,456.10 8,432,473.17

Sales (kWh) 208,800 208,800

Increase in sales needed to reach BEP (kWh) 508,234 1,120,231

PLF at BEP 82% 152%

Current PLF 24% 24%

*NPR 1 = US$0.0104 a household/monthisNPR177. Anotherstudyin- tricity. this scenario, theoverall In cashsavings for NPR 108/month(18kWhx6/kWh)onelec- in expenditures on kerosene, whileitspendsabout householdsavesMHP-connected NPR285/month that are to connected MHPpower supply. Thus, one of the kerosene usage gets replaced in households end-uses). of kerosene(for lighting) anddiesel (for productive sions reductions(CERs) thatstem from replacement in theform emis- ofrevenue from saleofcertified from MHPiscarbon-free, economicbenefitsarise of runningadieselengine. Finally, sinceelectricity are directly related to savings from avoided cost Thus, economicbenefits enjoyed by theseusers from anMHPreplaces useofdieselintheseunits. percent of all units consumed. Typically, electricity tive end-usecustomers accounted for about20 estimate. As seeninthepreceding produc section - for. Thus, theeconomicbenefitsare aconservative other economicbenefitshave notbeenaccounted er bound of economic benefits from an MHP and all access to asthelow better- lightinghasbeentaken 147. Therefore, inthisstudy, from consumersurplus oneconomicoutcomes.impact lighting, andtherefore may nothave asubstantial usedby householdsfor isprimarily MHP electricity 34 33 32 month. One study ral Nepal consumes about 3 liters of kerosene every of keroseneisNPR105.5/liter andahouseholdinru- for lighting, replacing the use of kerosene. The price from MHPs 148. Householdsuseelectricity primarily forhouseholds 3.3.4.3. Lightingbenefits cant. wasnotfoundnon-farm) to bestatisticallysignifi- however,power; the gain in totalplus income (farm throughincome from micro electrification hydro estimates of11percentmetric increase innon-farm in higher income. Another study produced econo results to setup an MHP)orifaccessto electricity significant hasto investments make (community income householdsand VDCs gain access to MHPs ly established. For example, itisnotclearifhigher

UNDP (2011) Ibid. World Bank(2011) 32 that This isconsistent withtheobservation 33 showed 90 percent that nearly - - of rural electrification underestimates thetrueeco of ruralelectrification penditure for lightingasameasure ofthebenefit 149. However, usingthechangein householdex proximately NPR177permonth. wasaboutUS$22perannum, orap electrification dicated thathouseholdsavings inlightingdueto Box 2: are nevertheless operationallyviable. are nevertheless amenable to conventional bank finance, but the needto acceptthatthesemay notbe operation for oftimeindicates alongperiod owned andmanagedMHPs have beenin thatcommunity On thecontrary, thefact deems MHPs asfinanciallyunviable. iff settingandmanagement,therefore fails toin a RoE appreciate this method of tar costsandfactors sis thatincludesnon-cash similar manner. Conventional financialanaly- Communities inNepalmanageMHPs ina roads, temples andschoolsare managed. nity. schemes,This ishow rural irrigation forming inadistributed withthecommu- the depreciation fund, whichhasbeenly- kind. This may betreated asdrawing from in contributes cash and/or the community When facedwithamajorrepair, however, inaRoE. or factor operatingcost) non-cash ciation (atypical They hardly into accountdepre ever take cashcosts. operatingcosts,ering primarily erated assets are usuallysetatonlyrecov - Tariffs owned andop for useofcommunity analy c o onventional financial wned Rele si asse for c v ance of ts ommunit

------27 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

Table 19 | Estimation of economic costs of standalone MHPs Financial Cost Economic Cost Parameter 20 kW 50 kW 100 kW 20 kW 50 kW 100 kW 28 Capital costs/kW (NPR*/kW) 450,000 425,000 400,000 389,802 368,146 346,491 Operation and Maintenance costs/kW (NPR/year) 9,000 8,500 8,000 7,796 7,363 6,930

*NPR 1 = US$0.0104; Note: 53 percent of capex is electro-mechanical, which attracts 13 percent VAT, and 20 percent of capex is labor; 2 percent of financial capex, less VAT, is taken as annual repairs and maintenance costs.

nomic benefit because it only accounts for the fi- household consumer surplus is similar for 50 kW nancial savings delivered, whereas the quantum of and 100 kW MHP because the cost of kerosene is lighting provided by electric lights is far greater than constant and the LUCE only varies slightly). Details

Mini and Micro Hydropower Applications Mini and Micro Hydropower that provided by kerosene for the same amount of of the consumer surplus calculations are provided through up ElectricityNepal: Scaling Access expenditure. Therefore, if MHP households gain by in Annex 5. reduced expenses on lighting (e.g. NPR 31.65 for kerosene plus NPR 108 for electric lighting com- 151. This analysis uses a lumen-based approach to pared to NPR 316.5 for kerosene alone), more signifi- value total household electricity consumption for cantly, they also gain by getting a far better quan- lighting, which may return an overestimate or an tum of lighting measured in kilo-lumen-hours (kLh) underestimate, depending on the Willingness to for a lower price. Table 20 provides details of price/ Pay for electricity for other applications.36 Where kLh and quantity of kLh consumed for kerosene us- data on Willingness to Pay for electricity for other ers and 20 kW MHP users. end-uses, such as radio and television especially, is available, more precise calculations of consumer 150. The MHP consumer clearly gets a source of surplus can be determined by separately calculat- energy that is cheaper and provides better lighting the consumer surplus from television and from ing and yet pays far less than what it would have radio usage according to the appropriate demand cost them, if they used kerosene. Based on the two curves for those end-uses. price points and consumption points for kerosene and electricity-based lighting, a constant elasticity 152. The vast consumer surplus calculated above (log linear) demand curve is derived, and the con- represents the virtual savings that an MHP house- sumer surplus calculated from this functional form hold could accumulate on account of the superior amounts to NPR 1,414/household/month or NPR technical performance (on a kilo-lumen-hours ba- 16,973/household/annum for a 20 kW MHP (the per sis) of MHP electricity compared to kerosene light-

Table 20 | Costs of lighting from kerosene and 20 kW MHP Consumption Price Type of Lighting Remarks (kLh/month) (NPR*/kLh) Use of kerosene lamps producing 37 lumens for 4 hours a day, which Without project 4.4435 71.28 requires 3 litres of kerosene per month, is assumed. Current price of (kerosene) kerosene (unsubsidized) in Nepal is NPR 105.5/litre. Use of incandescent bulbs with 15 lumen output per watt assumed. With project 270 1.63 Each household consumes about 18 kWh/month. Levelized unit cost (electricity from MHP) of 20 kW MHP electricity: NPR 24.43/kWh.

*NPR 1 = US$0.0104

35 Rao (2011) 36 The demand curve derived is an estimate based on just price and consumption points for kerosene and electricity for lighting. A demand curve for shift in lighting preference that is based on a large and systematic sample would probably show a lower consumer surplus for lighting because, beyond a certain point households may prefer to spend money on other uses of electricity rather than on for lighting alone. ity for20kW,ity 50kWand100MHP, NPR21.62/kWh. NPR22.97/kWh, NPR24.32/kWh, respectively: consumption equivalent.Notes: Annual of4,500kWh Levelized unitcost fordieselgeneration: Levelized NPR 38.09/kWh. unitcost ofMHPelectric- *NPR 1=US$0.0104 andoilexpelling. grinding, rice-hulling While some ofexisting activities,suchascerealin productivity from MHPscess to electricity enablesimprovement diesel-based generationto micro hydropower. Ac- andothers)are farming found to switchtry from able, productive end-uses (agro-processing, poul- 154. from MHPsWhen electricity becomesavail- end-use for productive fromreduced onenergy 3.3.4.4. Benefits expenditure for kerosenelighting. household budgetthatwould have beenallocated would significantly exceed theof MHP electricity ing thatconsuming18kWhatthelevelized cost on consumingmore lighting, especiallyconsider of acheaperform oflightingneednotbespent tion, i.e. savings accumulated from theavailability instead consump ofbeingutilized for electricity hold budgetwould bereallocated to otheruses ofthehouse thatsomeportion ishighly likely It isaneconomicconstruct. cost ofMHPelectricity to consume18kWhatthelevelized necessary household couldandwould spendtheamount 153. More importantly, theassumptionthat basic lighting. to Pay for otherapplicationsislower thanthatfor fromof consumersurplus lightingifthe Willingness and therefore would notenjoy theassociated level of lumen-hoursassumedinthecalculationabove, applications, soitwould notconsumethequantity uted to to beusedfor thehouseholdislikely other reality,In someofthe18kWhconsumptionattrib it were to consume lighting.all 18 kWh for electric if ing and the muchlower cost ofMHP electricity Table 21 37 Net savings (NPR/year) Expenditure onMHP(NPR/year) Expenditure onDiesel(NPR*/year) Type ofEnergy

Typically, MHPbasedagro-processing of grain unitscharge processed. NPR1–2less/kg |N et savings for from one7.5kWagro-processing dieselto MHPelectricity unitwhenshifting - - - - electricity from micro hydropower.electricity fromcessing unitonaccountofshifting dieselto 5. Table 21shows detailsofsavings to anagro-pro 50 kWand100MHPs isalsoprovided inAnnex unit costofmicro hydropower for 20kW, electricity presented inAnnex6.Calculation ofthelevelized dieselengine is generated from a10hp(7.5kW) hours =4500kWh). The computationoftheLUCE powerditure (7.5kWx600 onequivalentelectric has beencalculated andcompared to the expen- on diesel of fuel NPR (at 105.5 the liter)current price diture to agro-processing operate thistypical unit 156. Basedontheseparameters, theannualexpen- per year per7.5kWagro-processing unit. 20 days permonth. This yields600operatinghours astheaverage)2–3 hours/day (2.5hourstaken for been assumed. Commercial loads are assumed for agro-processing 100householdshas unitfor every theprevalence ofonesuch findings ofsite surveys, that consumes1.67liters ofdiesel/hour. As perthe dieselengine commercial loadisa10hp(7.5kW) hydropower to allproductive end-uses. The typical used asarepresentation ofthebenefitfrom micro most commonend-use, agro-processing, has been 155. The netsavings onthepurchase offuelfor the gain by saving onthecostoffuel. cessed. them andalsopay ofgrain alower pro perkg price by having agro-processing unitsthatare nearer to er. With theadvent ofelectricity, householdsgain mills candothesametaskmore efficientlyandfast processing oronwater mills, mechanical/electrical households may continueto rely onmanualagro- 61,965 109,426 171,391 20 kW MHP Capacity 37 In turn, entrepreneurs turn, In runningsuchunits 68,044 103,347 171,391 50 kW 74,124 97,268 171,391 100 kW - - - 29 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

Table 22 | CER revenue potential for MHPs of different ery unit of electricity generated from an MHP, an capacities (at 23.8 percent PLF) equivalent amount of diesel is avoided and emis- CER revenue Installed capacity CERs sions of CO2 mitigated. Table 22 presents the CER (NPR*/year) revenue potential for 20 kW, 50 kW and 100 kW 30 20 kW 41.8 28,063 capacity MHPs. 50 kW 104.4 70,157 100 kW 208.8 140,314 159. Emission reduction from MHP amounts to 2.09

tons of CO2/year/kW of installed capacity. As can be *NPR 1 = US$0.0104; 1 CER = 1 ton of CO eq 2 seen above, at a negotiated price of NPR 672/CER,38 the value of CERs for a 100 kW MHP operating at approximately 24 percent PLF is NPR 140,314/year (see 157. This differential represents the net saving per Annex 5). annum on energy expenses for a 7.5 kW agro-processing unit, which has then been extrapolated

Mini and Micro Hydropower Applications Mini and Micro Hydropower 3.3.4.6. Summary of economic benefits and costs through up ElectricityNepal: Scaling Access to average commercial loads of 20 kW, 50 kW and from MHP 100 kW MHPs to arrive at the annual economic 160. Analysts have identified a number of important benefit for productive end-use for MHPs of these benefits that they attribute to accessing electricity. sizes. This includes higher household income, increased production and productivity (from efficiency gains 3.3.4.5. Benefits from sale of CERs through electro-mechanization), time saved (and 158. As per the CDM-PDD on MHPs in Nepal, sub- therefore time available for productive activity or mitted by the AEPC and registered with the Unit- recreation), better education indicators, health ben- ed Nations Framework Convention on Climate efits from improved indoor air quality and better Change (UNFCCC), diesel has been accepted as awareness (particularly with respect to nutrition and the baseline (or business as usual) option for pro- fertility), as well as women’s empowerment. Meth- viding electricity in rural Nepal. The CO emissions 2 odological limitations restrict the scope of this anal- coefficient for diesel is 0.9 kg/kWh. Thus, for ev- ysis to three categories of benefits that can be more Figure 16: Summary of annual economic costs and ben- reliably quantified: (i) the consumer surplus from efits of standalone MHPs the provision of electric lighting to households, (ii) the savings on fuel from switching from diesel to 15,000,000 micro hydropower for agro-processing, and (iii) the 13,000,000 CER revenues from avoided CO emissions.39 11,000,000 2 9,000,000 161. Benefits on account of income increase in 7,000,000 households40 and from new productive end-uses 5,000,000 have not been taken into account since the cause– 3,000,000 effect relationship between the provision of elec- 1,000,000 tricity and the benefits is not very clear. For example, -1,000,000 it is not clear what has caused the increase in house-

Economic cost/benefit (NRP/year) cost/benefit Economic -3,000,000 hold incomes for MHP-connected households com- -5,000,000 20 kW5 0 kW 100 kW pared to non-electrified households. Similarly, the net profit from an end-use such as poultry farming Amortized capital cost* Operation & maintenance From sale of CERs cannot be attributed entirely to the provision of PEU energy savings Consumer surplus from lighting electricity. Even when benefits from electricity provision are estimated for an end-use, such as agro-

38 Price/CER is US$7 (US$1 = NPR 96). This is the rate that has been offered by the World Bank for micro-hydro based emission reduction in Nepal. 39 Since the estimation of economic benefits from lighting apply to the entire domestic load, the benefits from utilization of TV, radio and other household appliances are imputed in this value, albeit imprecisely. Similarly, the calculation of fuel savings for agro-processing is applied to the entire commercial load of an MHP and thus includes an approximation of fuel savings from other productive end-uses as well. 40 UNDP (2011) has estimated an increase in yearly income of US$121/household for MHP connected households over non-electrified households. would be step costs. For example, the cost ofreplac- in reality, someoftherepair andmaintenance costs asscalableinalinear manner.been taken However, plants becausemostofthecosts andbenefitshave 164. The results are similarfor fairly allthree sizes of MHP to more thanNPR91millionfor a100kWMHP. ent value ranges from NPR 17.73 million for a 20 kW healthy economicrates ofreturn, andthenetpres- efits. Allthree sizes ofMHPs considered generate through MHPs returns substantialeconomicben- 163. As canbeseenin Table 23,ruralelectrification 50 kWand20MHPs runningat24percent PLF. ofresults oftheeconomicanalysis100kW,mary parameters from Figure 16, Table 23 provides a sum- atpeakhours.at closeto capacity Basedonthese W/household), andtherefore theMHPisoperating the entire loadthatisavailable to them(upto 125 assumption that households are consuming almost calculationisalsobasedonthe consumer surplus MHPs thathave systems. installedmetering This pliances. to bethecase with likely This isparticularly lization ofadditionalbulbsorotherhouseholdap maintain orexpandconsumptionthrough theuti- consumption,ratherthan their monthlyelectricity cent lamps (CFLs), prompts households to reduce efficient lightingoptions, fluores such as compact - may beoverestimated ifthepenetrationofmore plus, ashasbeendonehere, theconsumersurplus a lumen-based approach to calculate consumer sur end-use, thisisnotsurprising. However, whenusing relatively low level ofconsumptionfor productive domestic consumptionfor lighting, andgiven the the loadfor mostMHPs isheavily weighted towards lighting. fromconsumer surplus Given electric that from micro hydropower in overwhelmingly arise 162. As canbeseenabove, theeconomicbenefits and 100kWMHPs operatingat24percent PLF. the economicbenefits andcostsfrom 20 kW, 50kW fore Figure conservative. of 16displays asummary MHP. The economicbenefitsestimated are there from manualorwater millbasedagro-processing to Such estimates exclude benefitsofashift thelikely duced expenditure on diesel have been estimated. processing inthisstudy, onlythebenefitsfrom re - - - - present accurate picture. afairly are linearandthus, nearly theabove analysisshould ously. from this, allothercostsandbenefits Apart upsimultane all agro-processing unitsdonotstart But for a20kWMHPthis shouldnotbeaproblem, if thestandard agro-processingport motors of7.5kW. rents for loadsandtherefore, inductive cannotsup cur smaller plantscannotprovide sufficientstarting estimated at2percent ofcapitalcosts. Similarly, data onrepair andmaintenance costs, thishasbeen system anda100kWsystem. Dueto lackofspecific ing anELC thesamefor would benearly a20kW Note: to bethesameasforT&D costistaken a20kWMHP. to 20kWMHP = Levelized unitbenefitofelectricity *NPR 1=US$0.0104;LUCE LUBE =Levelized unitcostofelectricity; Table 23 Table 24 Parameter I Plant size NPV (NPR*million) Plant life EIRR tion set(less13% VAT) Capital cost ofdieselgenera- LUCE (NPR/kWh) system (T&D) Transmission anddistribution LUBE (NPR/kWh) Total capitalcost Benefit/Cost ratio diesel Specific fuel consumption of Economic cost ofdiesel Hours ofoperation inayear operations (O&M) 250hoursof for every Operations andmaintenance of operation Annual O&Mcost for 2400hr operations 6000hrof forOverhaul every Escalation nput P arameters Summary ofresults oftheeconomic |Summary analysis |P arameters for dieselgeneration equivalent 20 kW 17.75 33.71% 24.32 68.08 2.80 Units kW Years NPR million NPR million NPR million l/kWh NPR/l hr NPR NPR NPR million % 50 kW 45.00 35.52% 22.97 67.34 2.93 Value 20 15 0.62 2.73 3.35 0.33 105.50 2,400 10,000 96,000 0.15 5% 100 kW 91.16 37.51% 21.62 66.57 3.08 - - - 31 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

Table 25 | Parameters for SPV equivalent to 20kW MHP Input Parameters Unit Value Plant life Years 20 PV Panel capacity kWp 42 32 PV Panel cost NPR* million 4.07 Power electronics (inverter, charge controller) capacity kW 30 Power electronics cost (less 15% customs duty, 13% VAT and 13% tax on inverters) NPR million 2.06 Battery capacity Ah 7000 Battery cost (less 15% customs duty and 13% VAT) NPR million 3.89 Transmission and distribution (T&D) system NPR million 2.73 Labor/transport cost NPR million 1.63 Total capital cost NPR million 14.38 Annual O&M 2% Mini and Micro Hydropower Applications Mini and Micro Hydropower through up ElectricityNepal: Scaling Access Annual O&M cost NPR million 0.29 Escalation % 5% Cost of battery replacement (every 6th year) NPR million 3.89 Cost of power electronics maintenance (every 6th year) NPR million 0.41

*NPR 1 = US$0.0104; T&D cost is taken to be the same as for a 20 kW MHP.

165. Clearly, the economic benefits of an MHP, ir- 167. Table 24 indicates the parameters used to cal- respective of the size, are far greater than the culate LUCE from a 20 kW diesel plant.41 As a com- economic costs. Thus, there is a strong reason to parable diesel plant would be expected to provide support the delivery of electricity through MHPs. the same level of service as an MHP (i.e., about 22 However, it could also be argued that the benefits kWh per household per month), this diesel plant is of rural electrification could probably be delivered assumed to operate for 5 hours in the evenings for through other energy technologies or by extending domestic electricity consumption and for 2.5 hours the grid; and the cost of delivery could be different during the day to serve the commercial load in the offering a different value proposition. The next sec- community. tion explores this issue. 168. Similarly, the same level of service delivered by 3.3.5. Comparison to other Types of Generation a 20 kW MHP could be provided through a SPV sys- 166. The preceding section showed that there are tem, but the system would need to be optimized to considerable benefits to be realized from rural elec- be able to meet the evening lighting load (through trification, primarily from the provision of electric sufficient storage capacity) and should feature an lighting for households. It is worth considering inverter that can deliver the reactive power required whether these benefits can be delivered at a lower for 10 hp motors for productive end-use during cost through other means, such as diesel and solar the day time. The parameters of a SPV solution that photovoltaic (SPV), which represent the most feasible could provide the level of service equivalent to a 20 alternatives in Nepal. Therefore, the cost of delivering kW MHP is given in Table 25.42 Given the difficulties the same quantum of electricity and level of service faced with repairs and replacement in rural areas,

provided by a 20 kW MHP through a SPV system and costing for better quality components was done through a 20 kW diesel plant were examined. (e.g. batteries and inverters that come with 5-year

41 Diesel generation cost data based on interview on August 21, 2014 with Mr. Rajesh Kumar Singh, Manager, MAW Engineering (P.) Ltd., Kathmandu, which represent Escorts, Greaves Cotton and Perkins range of engines. 42 Solar PV parameters and cost data based on consultation on August 22, 2014 with Anjal Niraula, Business Micro-grid Lead, Gham Power Pvt. Ltd. 43 nizational form to manageMHPs. Although ESAP, 2006, MHFGshave emerged asthelargest orga- REDP andfollowing of thechangedsubsidy policy aged MHPs were successfullypioneered the during drawn from the user community. man- Community neurs andrecognized groups (usuallyMHFGs) tives andcompaniesoreven individual entrepre and registered business entities, such as coopera- in themanagementofMHPs. They couldbelegal oforganizational forms are 171. Avariety practiced 3.3.6. Instituional Perform grid communitieswith accessto electricity. represents the least cost option for providing off- margin. Therefore, where technically feasible, MHP nomic costs of MHP are more by attractive alarge from eachoftheoptionsisidentical, buttheeco peting alternatives, the economic benefits derived have beenfixed whencostingthecom- of service Sincethelevelfor andquality ruralelectrification. ered andthusrepresents thebestvaluefor money half of that for the other energy alternatives consid- isless than the levelized unitcostfor MHPelectricity ized unitcostfor are similar, dieselandsolarPV fairly ofservice. same level andquality Whereas thelevel - from system deliveringthe adieselplantorsolarPV from a20kWMHPisconsiderablylessthanthat can be seen from the figure170. It that the LUCE tion are provided inAnnexes 6and7,respectively. - andSPV-basedgenerationdistribu distribution levelized unitcostfor diesel-basedgenerationand for scenarios. dieselandsolarPV The calculationof costinthecalculationoflevelizeddistribution costs cost of a 20 kW MHP is included as transmission and total cost of theMHP. Accordingly, 35percent ofthe costs accountfor approximately 35percent ofthe the assumptionthattransmissionanddistribution The calculationsare basedoneconomiccostsand a 42kWp system at6percent SPV discounted rate. based ona20kWMHP, a20kWdieselplantand energy ispresented below inFigure 17.Analysiswas and Table 25,theLUCE from thedifferent of forms 169. Basedontheparameters stipulated in Table 24 the costrange. whichveeredwarranty), towards theupperendof

gasification) and Village Energy Committees that were setup to managetheenergy systems were largely ineffective. the In difficult ProgrammeVillage tohandlethe found technology (biomass Energy 2007–2010,localcommunity itvery Security randuring thatIndia ance - - soon as possible and make theMHPdebtfree.soon aspossibleandmake iff is to pay offthedebtcomponentofcapex as additionalkWh. 10/kWh for every The highinitialtar being charged NPR300for thefirst10kWhandNPR commissionedMHP, anewly Khola, customers were also covering Siwai atleasttheoperationalcosts. In to ensurebeen taken are thatthey affordable, while andcarein consultationwiththecommunity has of thecommunity’s needs. Tariffs have beenset a great degree of innovation and understanding front,174. Onthetariff managers have displayed performance. closely identifiedthemselves with theMHPandits their ever-increasing needs, mostofthecustomers spite expressing theneedfor more energy to serve of themanagementinaddressing problems. De andthe response ofservice fied with the quality alltheMHPs173. In visited, customers were satis- than 10years oldandare well. stillfunctioning munity. to themanagementcapabilitiesoflocalcom- found to beoperational. This initselfisatestimony underrepairs),porarily therest oftheMHPs were andthe der construction) Yafre MHP(whichistem- MHP(whichisun- 172. Except Kholan for theMidim MHPs thesite visited survey. during 26 shows theorganizational forms managing the promotes managed MHPs. onlycommunity Table ular form of organization, today the AEPC actively - was managed by the AEPC,didnotfavor a partic the otherlarge micro hydropower program that Figure 17:ComparisonLU of CE for various generation sources NPR/kWh 10.0 20.0 30.0 40.0 50.0 60.0 70.0 0.0 43 Moreover, someoftheMHPs are more MHP 24.3 Diesel Solar PV Solar Diesel 60.1 55.0 - -

33 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

Table 26 | Organizational forms of MHP management Name of MHP Location District Organizational Form Gottikhel MHP Gottikhel Lalitpur Private limited company 34 Midim Kholan MHP Ishaneshwor Lamjung Cooperative Sub-committee of Conservation Area Management Committee Bhujung MHP Bhujung Lamjung under the guidance of ACAP Sub-committee of Conservation Area Management Committee Ghandruk I MHP Ghandruk Kaski under the guidance of ACAP Sub-committee of Conservation Area Management Committee Ghandruk II/Bhirgyu MHP Ghandruk Kaski under the guidance of ACAP Daram Khola I MHP Wamitaxar Gulmi Cooperative

Daram Khola II MHP Wamitaxar Gulmi Private entrepreneurs in partnership with a local school Mini and Micro Hydropower Applications Mini and Micro Hydropower through up ElectricityNepal: Scaling Access Giringdi Kholan MHP Kharbang Baglung Cooperative Malekhu I MHP Mahadevsthan Dhading Cooperative Malekhu II MHP Mahadevsthan Dhading MHFG Yafre MHP Yafre Taplejung MHFG

175. Overall, as discussed earlier, the MHPs are being ful model of community mobilization and empow- run as social enterprises and therefore, tariff is not set erment that the AEPC has promoted. A key factor is to maximize profits, but to adequately cover costs. also the substantive contribution of the community However, costs of major repairs are not factored in in setting up the MHP, which ensures that they man- adequately and this often results in the MHFG going age its operations and maintenance well. The AEPC back to the users to collect money to pay for repairs. would do well not to significantly reduce the share of the community in the capex.45 176. The evident success of the MHFG in the face of similar institutions facing failure in India44 is mainly 178. A strong sense of shared ownership and pride on account of the excellent community mobiliza- in the MHP among the community has helped tion and preparation activities undertaken by the enormously in collecting electricity charges from AEPC starting from the REDP in 1996. The six princi- users. This usually has been the bane of rural elec- ples followed by the AEPC to foster a strong sense of tricity distribution businesses elsewhere. During the participation, ownership and thereby management mobilization of the community and formation of among the community are shown in Table 27. MHFGs, the importance of making adequate profits and creating a repair and maintenance fund should 3.3.6.1. Observations on institutional performance be emphasized. The site-visit impression has been of standalone MHPs that the community at large and the MHFG see their 177. Overall, it is concluded that MHPs are being role as one of delivering electricity as social goods. managed well. MHFGs and cooperatives (that MH- The community does not see electricity generation FGs usually evolved into) have shown a high de- as one that leads to business development in the gree of commitment and capacity to manage the area and they certainly do not view the MHP itself as complex task of implementing a micro hydropower an income generation opportunity. project. Indeed, the task involves managing several activities and actors spanning from community 179. If a part of the income from the MHP is channeled management to vendor management, to financial back to the community (shareholders in the MHP) closure, and others. Equally important is the success- in the form of dividends on investments then there

44 India: Biomass for Sustainable Development: Lessons for Decentralized Energy Delivery Village Energy Security Programme, World Bank, 2011 45 AEPC may offer concessional financing to lower entry barriers, but dilution of local contribution should be avoided. 46 Table 27

Empowerment Women’s Management Environment Promotion Technology Enhancement Skill Formation Capital Development Organization principle mobilization Community Community organizations Community are similarto self-helpgroups, butconsists ofbothmenandwomen. |Sixprinciplesfollowed by theAEPCfor management amongthecommunity A l l l l l l l l l l l l l l l l ctivities MHP. well before theprocess ofplanningan handle minorproblems. oftheMHP.local community is given to upfrom operators picked the consumption purposes. mutual lendingfor bothproductive and basis. amount onaweekly organization(s) hasto save acertain areelections heldperiodically. commissioning oftheMHP. funds andrevenues andexpenditure after ontheprogress,periodically utilizationof management oftheMHP. responsible operationsand for day-to-day from thecommunity, VDC, DDC,etc. of theMHP. design, installationandcommissioning to pertaining and managing allactivities organization sendingitsrepresentatives. community organizations andMHFGs.community androle ofwomen in participation protecting theenvironment. oflife.livelihoods andquality interested entrepreneurs. promoted andtrainingisgiven to and community development. and community administration,management bookkeeping, Training isalsogiven in for enhancingskills Local operators are alsowell equippedto Training inoperationsandmaintenance The amountispooledandusedfor Each memberofthecommunity The MHFGhasatenure of3years and They have to thecommunity to report On commissioningoftheMHP, are they withmobilizingfunds isalsotasked It MHFG isgiven thetaskofcoordinating MHFG isformed by eachcommunity organizationsCommunity Special emphasisisgiven to the ofMHPsContribution andRETs in ofenvironment inensuring Importance productiveSeveral end-uses are 46 are formed K l l l l l l l l l l l l l l l l l l l l l l ey results observed development efforts. cooperatives isadirect result oftheexcellent organization and be covered by operationalprofits alone. labor to pay for costsofrepair andmaintenance thatcouldnot MHFG. andtheequally strong amongthe community senseofpurpose have misappropriated ormismanagedfinances. collected money transparency household demonstrates enjoy. theconfidencethatthey confidence. are trulyrepresentative andenjoy their ofthecommunity respect to MHPs ofMHFGwasimpressive. andthefunctioning ofwomen with Nepal is, andknowledge therole, participation members ofMHFGsaswell asMHPcooperatives. and how MHPs to contribute it. promising results. drivers for productive end-usesto emerge. and anotdriver. end-uses have emerged. charges reflecting systematic collected operations. seen inmostoftheMHPs. ofMHPs.successful technical performance the MHP. and results inabetter senseofteam play. as for MHPs. forlessons thatare managing large important investments such indealings;both oftransparency accounting andtheimportance to meetanycommunity challenge. proper businessorganization form. The fact thatmanyThe MHFGshave fact goneonto beregistered as or puttingupsumsofmoney This isreflected inthecommunity result isthestrongKey senseofownership amongthe This istestified thatthere MHFGsthat by thefact arefew very Public presentation ofprogress andotherdetailsensures are thatthey The ableto fact mobilize NPR20,000/ nearly Due to systematic mobilizationofthecommunity, MHFGs In apredominantly maledominatedIn hierarchical society, that thesite visitdiscussionswereDuring heldwithseveral women oftheenvironmentHas created agoodsenseofimportance theapproach ofproductiveNevertheless, end-useshas shown Access localresources to markets, andaccessto financeare real However, onlyanenabler isoften itisto benoted that electricity general, where haveIn specialefforts beenmadeproductive Many oftheMHPs visited were issuingreceipts for electricity arekeeping reflected inthegood account skills Book keeping Technical reason trainingto localoperators behindthe isakey The habitofsavings leadsto better mobilizationoffundsfor together ofsavings andlendingbindsthecommunity The act of Handling savings andcredit theskills teaches thecommunity Having to afundattheirdisposalgives the asenseofsecurity Formation ofthecooperative putstheMHPonpathto a 35 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

would be more interest in running the MHPs as a busi- 3.3.7. Stakeholders’ performance ness. Currently, this does not seem feasible due to low 181. The performances of various stakeholders that PLFs and low tariffs. In fact, the low tariff itself may be help deliver an MHP are analyzed herein. The roles viewed as a way of transferring profits to the commu- of the community and the MHFG have already been 36 nity, but doing it overtly would draw attention to profit discussed in the previous sections. making as an objective of MHP management. 3.3.7.1. Analysis of the Project Cycle for setting up an MHP 180. If the MHP were to be connected to the grid 182. To better understand the roles and perfor- there would be considerable profits and a sound mance of the stakeholders, it is essential to ana- profit sharing mechanism including standard rules lyze the project cycle for setting up an MHP.47 The and practices would need to be devised. Therefore, process begins with the demand creation followed grid-connected MHPs should be viewed as a busi- by the community making a request to the AEPC ness that helps the community to earn an income through the RSC and/or the DDC for setting up an

Mini and Micro Hydropower Applications Mini and Micro Hydropower from a local resource without destroying it. MHP for them. This step usually precedes a process through up ElectricityNepal: Scaling Access of community mobilization that has been described in the preceding section. Figure 18 shows the various steps once the application for helping a community set up an MHP is received by the RSC. 48 Figure 18: Steps, processes and outputs of the MHP project cycle Step process Output

Community becomes interested in MHP Demand Awareness generation through media Creation and village visits by RSC Community mobilization and MHFG formation starts

Observations  This takes 6 months to a year and is essential since the community is the project developer and manager

Step process Output

Community makes an application to the RSC/ AEPC sanctions DFS. Community with RSC Demand DEECCS/AEPC; the RSC conducts a pre-feasibility support selects DFS consultant from a list of Processing analysis and recommends for DFS preparation AEPC pre-qualified consultants.

Observations  This takes about 1-2 months. Community pays 50 percent of its share as an advance to consultant

Step process Output

DFS DFS is prepared by the consultant and report Preparation submitted to RSC. AEPC releases 40 percent of DFS is revised and/or accepted. Conditional and subsidy for DFS preparation. RSC verifies DFS approval for subsidy release is made by Approval and submits to AEPC which verifies it and either AEPC to CREF. asks for revisions or accepts it

Community releases 50 percent of its share of DFS cost. Observations  This process may take up to 6-9 months depending on AEPC workload and quality of DFS. This is a bottleneck currently, mainly on account of quality of the DFS.

47 The project cycle for setting up an MHP has been presented in Section 2.3, Figure 8. 48 The current practice is for the District Environment, Energy & Climate change Office (DEECCS) to only process applications up to 10 kW and for the rest the RSC is the agency on the ground. p Step p Step p Step p Step Observations Observations Observations Observations test (PO P Mobilization Verification I of installer ower output nstallation Selection Selection of Funds of MHP T) and T)

    installation responsible forofMHP allaspects mechanical by installer. is Installer Civil works by MHFGandelectro MHFG Chairman ation Committee which includes the qualified installers, a Bid forms Evalu- RSC callsfor onlinebiddingfrom pre- November-May (leanflow season) usually during inspector 3rd party is conducted by a verification (POV) plant is commissioned. Power output of MHFG,installerandAEPC,the POT isdoneby RSCinthepresence RSC provides handholdingsupport and banks. from thecommunity, VDC, DDC,otherdonors MHFG begins mobilization ofbalance offunds much given that theyruntheMHPasasocialenterprise. loanswould soft helpspeeduptheprocess,Some inhard butequity cashshouldnotbediluted too takecommunity strong ownership andreadies oftheproject themfor implementation theproject stage. This takes about1-3years. communities Some may fallaway at thisstep. However, thisstep makes the This isamake orbreak step. complete thetaskontimeandmisusefundsgiven to duringthisstage. them.MHFGisat theirmercy This takes about1-2years depending ontheterrain andfundsflow. donot Some installers reportedly before signing thecontract withthe MHFG on theDFSconsultant to verify to doasoundjobandalsoprovides theDFS theinstalleranopportunity especially verify abnormalbids. The process ofthejoint site visitbefore putsgreat installation starts, onus outananalysis ofallbidsreceivedthan theestimated amount intheDFS.AEPCshouldcarry inayear and ofthelowest resulted bidderhasreportedly Selection inseveral newinstallersquoting50percent lower This takes about2-3months. This process iswell laidoutandisunderstood well by allstakeholders. the quality of electromechanical equipment. ofelectromechanical the quality sites withtheirmanpower. Thus, QA isaweak linkintheMHPinstallation andcommissioning process; especially deputes atechnical persononlyfor providing andlevel. marking RSCcannotphysically many installation serve control oftheinstallerisverified only after commissioning.Oversight ofcivil works isnotstringent asinstaller chanical components that 50-60percent attract oftotal costs. ofthe effect, thequality work underthedirect In power output and is at the end of commissioning. There is no material and in-process verification of electrome POT takes 2-3months. POVisdone usually withintheyear ofcommissioning. Largely, theQA onlyverifies the rocess O rocess O rocess O rocess O - installer satisfactory,If balance 10percent subsidyisreleased to installer. At theendof1year another checkisconducted. subsidy isreduced andexcess payment recovered from is determined POT after and POV. generation If is less, percent isreleased. Quantumoffinal subsidy amount release of20percent to installer. After POV, another10 Successful POT results and inacommissioning report balance 10percent isreleased to them visit by theinstaller, RSCandDFSconsultant, the as advance againstbankguarantee. After ajoint site share asadvance; AEPCgives 60percent ofsubsidy sioning ofMHP. MHFGreleases 50percent ofits enters into acontract for installation andcommis- Lowest astheinstallerandMHFG bidderisselected RSC/DEECCS provides verification Community pays itsshare simultaneously. equipment at site. ofelectro-mechanical delivery and commissioning. Bankguarantee isreleased on MHP installation iscomplete andready for testing munity managedaccount.munity percent ofitincashadesignated com- MHFG mobilizes thefundsanddeposits80 utput utput utput utput - 37 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

Table 28 | Status of pipeline of MHP projects during the NRREP period Under Conditionally Detailed Particulars Demand Collection Total Construction Approved Feasibility Study Identified demand numbers of MHP 167 263 219 185 834 38 Total (kW) 5,418 8,071 5,839 6,401 27,397

183. Observations on key stakeholders’ performance provide a solid standard for pre-qualification of are presented herein. installers and manufacturers rather than just depending on documented evidence of capability, 3.3.7.2. Alternate Energy Promotion Centre as is being done now. 184. The AEPC is the main institution that designs, l On the lines of the biogas program, the AEPC drives and manages the micro hydropower pro- should put in place a comprehensive post-in-

Mini and Micro Hydropower Applications Mini and Micro Hydropower gram in Nepal. It is driven by its mandate to provide stallation survey of MHPs and monitor a sample through up ElectricityNepal: Scaling Access energy access to rural Nepalese through renewable of projects. A sampling plan may be drawn such energy sources in a cost effective manner. Micro hy- that MHPs installed in a particular year are moni- dropower is one of the key RETs that it promotes for tored for a maximum period of five years after achieving this objective. commissioning. The sample drawn could be relatively higher during the first year and gradually 185. After the lull in the early 2000s due to po- tapered off to zero by the fifth year. Thus, a new litical conflict in Nepal, the AEPC has successfully set of samples would be added every year from brought the micro hydropower programs back on new MHPs installed while the few that have been track. However, as discussed earlier (see Figure 9), at monitored for five years would be dropped out the current growth rate it will be difficult to actu- of the sampling plan. ally implement a 25 MW aggregate capacity on the l The above two measures would provide a proper ground by 2017. Table 2849 shows the status of the basis to pre-qualify DFS consultants and install- pipeline of micro hydropower projects during the ers, and also monitor the performance of the first NRREP period. RSCs.

186. As mentioned in the previous section on the 187. A consistent feedback by the installers on the project cycle, the AEPC should take steps to im- project cycle is that it takes too long for decisions to prove the quality of DFS being prepared, and make emerge from the AEPC. This is understandable since the quality monitoring process (especially during the AEPC is highly centralized in its decision making installation) more stringent and concurrent. And, it process. Of late, it has completely decentralized the should definitely institute the following steps. decision-making process for pico hydropower to the DEECCS, but it is yet to do so for micro hydro- l Given that electromechanical components are power. However, reportedly there are moves afoot nearly 50 percent of the total cost of an MHP and to set up regional centers of AEPC with powers to a major part of the installer’s off-site cost, AEPC sanction MHPs as well. This is a step in the right should carry out a 3-stage inspection process direction, however, given the vast sums of money covering the materials stage, in-process stage involved and the large number of projects being and pre-shipment inspection. executed, the AEPC should progress cautiously. The l A 3-stage inspection will ensure that the qual- present system of approvals is well thought out with ity of the components delivered at the site is as adequate checks and balances, but AEPC’s decision- per design and material specifications;50 and will making is not the only bottleneck. 51

49 Based on “Micro Hydro Power Development in Nepal”, Madhusudhan Adhikari, National Adviser, Community Electrification, AEPC/NRREP 50 Use of mild steel in place of stainless steel for making jet nozzles, using copper coated aluminium plates for earthing were some of the quality issues mentioned during our discussions with RSC and manufacturers 51 Indeed, a major cause for delay after the installer has been chosen is the time taken by the community to mobilize its share, which may take from 6 months to 2 years. 52 hydropower projects inthepipelineistestimony to theirroles. performing The steady stream ofmicro the RSCsare found to becompetent andcapableof islarge andvaried. Overall, the RSChasto perform needed forThus, therange of tasksthat theskills-set of productive end-usesinMHPs, botholdandnew. dition, italsohasatarget for enablingthesettingup of MHPs year. thatithasto helpsetupevery ad- In 191. EachRSChasatarget for total installedcapacity theproject cycle. the AEPCduring to support fiers ofprogress andprovide supervisory in setting up an MHP.particular They are local veri- ingeneralandtheMHFG thecommunity toring stage.involved inevery They play therole ofmen- lation andcommissioningoftheMHP, are they forcycle anMHP. From demandcreation to instal- 190. RSCshave acrucialrole to play intheproject organization development. for mobilizationand ground community support while3–4fieldcoordinators providecal support, on these2–3engineering staff thatprovide Of techni- and hasabout 8–10 personnel for promoting MHPs. ing MHPs in Nepal. Each RSC covers 5–10 districts alltherecommunities. are In nineRSCsfor promot the responsibility of promoting RETs among rural 189. RSCs are usually NGOs that are entrusted with Centres 3.3.7.3. Regional Service from contribution ruralNepal.community successfully mobilized NPR5,000millionby way of installing25MWofMHP,In theAEPCwould have ing well inpromoting andsetting upMHPs inNepal. - itisconcludedthattheAEPCperform 188. Overall activities listed above.activities 25 MWtarget control by 2017alongwiththequality engagement from to sector theprivate achieve the crease technical humanresources alongwithmore has beenplannedwell), theAEPCalsoneedsto in- (which from thesubsidyandotherfinancialsupport Furthermore, ment, installationandservice. apart ofequip fundmobilizationandquality community ever, challengeinscaling up MHPs a key would be to theDDCfor settingup smallhydropower projects. aims to mobilize localgovernments andlocalinstitutionsasinvestors inthehydropower sector. isproposing to provide It 75percent asubsidyofnearly Interestingly, DoED, for NEAhasproposed the parent aPeoples’ ministry Hydro Power power new generationinitiatives. asaprogramme It to kickstart 52 How - - - quently. be usefulfor theAEPCand theRSCsto fre interact inthefieldit of theAEPCandtheirextension would partners andpractices. Asexchange key knowledge trainings,riodic exposure to visitsandworkshops be builtup, especiallyintechnical matters, by pe comingup, theircapabilities should connectivity andgrid initiativesdition, withthenew ofmini-grid scaling up of the micro hydropower program. ad- In capabilities would comeunderhugestress during 192. The role oftheRSCwould becrucialandtheir measurements. actual to make mainly visualanddoesnotinvolve any equipment lation. Furthermore, oversight provided by RSCsis and instal- of equipment, civil construction aspects stretched to provide adequate oversight onquality However,this fact. itisto benoted are thatthey too planning events that it may organize from time to and ofthesharing trainingandareperiodic part into theDDCreceiveeven theirabsorption after careThe AEPCshouldtake to ensure thatDEECCSs for wateror for rights mobilizing funds for MHPs. clearances DEECCS, whichisusefulwhileseeking thestaffofRSCand cooperation between by theDDC. cess ofbeingabsorbed There isgood have no assistance and are themselves in the pro to anofficer, usually anengineer. Theofficers now mobilizersform inaddition ofsocialandcommunity dling MHPs aswell, hadassistantstaffinthe they 194. Untilrecently, whentheDEECCSs were han- in technical matters related to RETs. to installationandexpected assisttheDDC during are alsoresponsible for providing oversight to MHPs hydropower projects andotherRETs. However, they program. Currently, DEECCSs are to restricted pico RSC for implementation ofthemicro hydropower AEPC haspreferred to withandthrough work the that oftheRSCs. ButsincetheREDPended, the 193. UndertheREDP, DEECCS’s role wasequalto Section Change Environment,3.3.7.4. District Climate Energy and - - - 39 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

time. DEECCSs are RET specialists that the AEPC has manufactured components. Quotations are based helped place in the DDC and should continue to on thumb-rules rather than on any engineering- nurture them. based costing. Furthermore, most manufacturers custom-make components for each site rather than 40 3.3.7.5. DFS Consultants, Installers and Manufacturers use standardized components to fit a site. While this 195. Currently, there are 61 pre-qualified DFS con- delivers the best efficiency in energy generation, it sultants and 78 pre-qualified installers for various ca- makes the equipment costly.54 Therefore, the AEPC pacities of MHPs. Thus, on an average each DFS con- should help the micro hydropower industry stan- sultant is preparing 3–4 DFSs every year while each dardize its components. A review of the manufac- installer is installing 2–3 MHPs. Taking an average turing, benchmarking of costs, and standardization, size of 30 kW, this is approximately NPR 15,000,000 will together help reduce costs. to 18,000,000 of turnover/installer/year. At a net profit margin of 10 percent this is approximately 199. Use of “pumps as turbine” is a time-tested ap-

Mini and Micro Hydropower Applications Mini and Micro Hydropower NPR 1,500,000 to 1,800,000 turnover/installer/year. proach in India and other countries especially for through up ElectricityNepal: Scaling Access medium heads. Typically, pumps cost only 30–40 196. For manufacturers with large manufacturing percent of the cost of a custom-made turbine and investments who are also installers, this is not very could help reduce costs significantly. attractive and hence the feedback from larger manufacturers is that the industry has got very crowded. 200. Given the low volumes of business, large On the other hand, for installers who outsource ev- manufacturers are losing interest in the micro hy- ery component and play the role of system integra- dropower sector. The AEPC should take steps along tors, this is attractive. with the NMHDA to build the capacity of the industry to manufacture and install mini hydropower 197. This could be one reason why newer install- plants. Apart from providing training and exposure ers are able to offer competitive bids while larger to manufacturers, the AEPC should also start sup- manufacturers are not able to match them. Indeed, porting more mini hydropower plants. Further, it appears that some of the installers are import- it should also identify appropriate technology to ing components when it is cheaper to do so rather harness the hydropower potential of low heads than procure from local manufacturers. Overall, and large flows that are prevalent in the lower hills while this will help bring down costs, there is a and the Terai belt of Nepal. Currently, in India, with need for caution with respect to quality. The abnor- technology received from Japan an “ultra low head mally low quotes from a few installers should be MHP”55 is being utilized on a quasi-commercial ba- investigated.53 Quality of manufactured compo- sis with support from the United Nations Industrial nents, the cost of equipment, capacity, and interest Development Organization (UNIDO). This would in MHP manufacturing would be crucial to any MHP help open up a whole new area of business to the scale-up program in Nepal. micro hydropower industry.

198. Given the ever-increasing installation cost of 201. Currently, manufacturers and installers are clus- MHPs, the AEPC should in collaboration with the tered around the Kathmandu valley and Butwal. If NMHDA institute a thorough engineering review the micro hydropower industry specialists and in- of the manufacturing process and establish bench- stallers are largely system integrators, then there is mark costs for the various MHP components. Inter- no need for them to be based in Kathmandu or But- actions with manufacturers and installers during the wal. Being closer to the area where future growth is field survey revealed a lack of systematic costing of expected would bring down costs of delivery signif-

53 One reason could be the need for having completed at least one MHP installation for a conditionally qualified installer to be treated as fully qualified. Therefore, new installers try to secure an order even by offering services below cost. 54 Given the low utilization of the plant it is a moot point if efficiency should be maximized or optimized with cost. 55 Works with 1–3 m heads. 56 hours. Furthermore, in caseoneor withmini-grids, isolated MHPs, off-peakandpeak especiallyduring by communitiesserved can bebalancedbetween theseMHPsnecting to formthepower amini-grid, power andothersapowerBy con- insurplus deficit. form somestandaloneMHPs amini-grid, musthave available option. grid couldbecome the next To to meetthegrowing suchcases, demand. amini- In nity’s power needsgrow, isolated MHPs are unable as a commu- Often, cal grid is a termed mini-grid. ofstandaloneMHPs205. Interconnection into alo 3.4. MHP Mini-Grid by themshouldform thebasisfor pre-qualification. oftheinstallersandMHPs installed performance hensive approach to consistently trackandrate the coming onboard inthepastfew years. Acompre especially with alarge installers numberofnew tain thehighoperationalrate ofMHPs inthefield inspection. (c) pre-shipment This iscrucialto main- (b)in-process and inspection, inspection, material components shouldbedoneinthree stages:(a) 204. Finally, ofmanufactured inspection quality abling onsite repairs. izing repair andmaintenance, andespeciallyen- by decentral- priority should give after-sales service 203. With MHPs, alarge baseoffunctional theAEPC is rendered helpless. closed down for andthecommunity alongperiod suchsituations, plantremains amal-functioning In day’s to reach journey thesite for after-sales service. setsupanMHP,Kathmandu more ittakes thana aninstallerfrom If ratnagar asanoptionfor service. have onlyonemanufacturerinBi- athum, andIllam example, areas suchas Taplejung, Panchthar, Ter der theguidanceofinstaller/manufacturer. For up repair 100MHPs andmaintenance for un- every 2–3 entrepreneurs as repair“local centers” to take 202. As afirststep, shouldencourageatleast they upthistask. oftheNepalhillsto take in otherparts icantly. The AEPCshouldencourageentrepreneurs any more. Given thelatest decisionofNEA’s board to allow any size to ofMHPto thegrid, connect thisreasoning for may notbetenable forming amini-grid - - - sible. implemented insomesituations iffinancially fea- has significantly decreased. Therefore, couldbe they for the relevance of the gridmini-grid connection, oftheNEAremovingcontext the100kWthreshold grids are notfullyconfirmed. in the Furthermore, andeconomicbenefitsofmini- financial viability in Baglungdistrict. Therefore, technical reliability, nearKushmishera ational since2012atRangkhani, isalreadyas pilotprojects. oper Onesuchmini-grid have Nepal, onlybeenattempted mini-grids 207. In to thegrid.connect reluctance to letanMHPoflessthan100kWsize to least 100kWormore insize that are to form at mini-grids AEPC hasbeentrying ofanMHP. inthevicinity grid whenitarrives The planned asoneofthestrategies to to the connect 206. However have inNepal, been mini-grids reliability compared withisolated MHPs. area)small distribution thereby increasing system to supply power althoughin limited loads(or to a MHPstwo are shutdown, theotherscancontinue age accordingly. Frequency ofagenerator fluctuates generated voltage andregulates theexcitation volt which constantlymeasures inthe thefluctuations achieved by anautomatic voltage regulator (AVR), duces themagnetic fieldinthealternator. This is by regulating the excitation DC voltage, which pro 209. Generated voltage ofanalternator iscontrolled three phasesoftheotheralternator. with the the three phases of one alternator line-up tomust beconnected eachotheratthe moment the samevoltage andfrequency. Additionally, they (alternators) of the interconnected MHPs must have synchronous generatorsnization, thethree-phase them. between load sharing To achieve synchro to interconnecting MHPs are synchronization and technically reliable. The mainchallengesrelated is project inBaglungindicates thatamini-grid 208. The successfullyimplemented pilotmini-grid 3.4.1. Technic al Reliabilit y 56 inresponse to NEA’s - - - -

41 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

with fluctuations in load. Therefore, the load of the 214. When a few MHPs with surplus power during MHP must be kept constant to generate electricity peak times, a few MHPs with peak deficit, a few at a constant frequency. To achieve this, MHPs use MHPs with high loads during non-peak hours and a ELCs that divert the difference between the gener- few MHPs with no loads/low loads during non-peak 42 ated power and consumed power to dummy loads hours are interconnected and operated as a single (ballasts). A synchronoscope measures the phase distribution system, the overall PLF of the intercon- voltages of the alternators and makes the interconnected system is expected to be higher than the nection at the time the phases are lined up. weighted average PLF of the individual MHPs taken together. 210. Even though ELCs can be found in international markets, these are very costly in terms of low-cost 215. The reason for the higher system PLF is for bet- MHP installation. In Nepal, locally made low-cost alter utilization of surplus capacities and is the primary ternatives are available but these tend to be less re- basis for forming a mini-grid of MHPs. It is pertinent

Mini and Micro Hydropower Applications Mini and Micro Hydropower liable and prone to breakdowns and malfunctions. to note that if there is no surplus during peak time in through up ElectricityNepal: Scaling Access Moreover, inadequate protection systems make a few of the MHPs in the mini-grid, then there would these more susceptible to damage by fault currents. be no improvement in quality and quantity of electricity delivered to households. Similarly, if there are 3.4.2. Ability to Meet Power Needs no significant productive end-uses coming up dur- 211. Mini-grids become pertinent where some of the ing non-peak hours, then the PLF of the mini-grid nearby standalone MHPs have a power surplus while does not improve significantly. More importantly, the others have a power deficit. The MHPs with power since productive end-use tariffs are usually higher deficit can be upgraded to deliver more power; how- than household tariffs, not having sufficient pro- ever, upgrading entails large quantities of civil and ductive end-use loads will lead to little increase in electrical works. At the same time, the MHPs with revenue for the mini-grid. power surplus are wasting power when nearby MHPs with power deficit have an immediate need for more 216. Major costs incurred in forming a mini-grid of electrical power. By connecting these individual MHPs, MHPs are in drawing of 11 kV high tension lines to loads can be shared between them to balance the sur- evacuate power from each MHP and inject it into plus in some MHPs with the deficit in some others. the distribution grid, installing appropriate ELCs with synchronoscopes which will automatically 212. The problem of load sharing is handled by con- sense the mini-grid parameters (voltage, current, ducting a load flow study. This study simulates the phase and frequency), and in matching the MHPs power delivered to probable loads and the losses in own parameters to synchronize the generating interconnection links (transmission lines) of a mini- MHP with the mini-grid. In addition, microproces- grid. If one of the MHP’s is shut down, the load flow sor-based controllers sense the size of the load from study also indicates the loads that have to be dis- the load centers and dispatch power from different connected from the mini-grid for proper operation. MHPs in proportion to their installed capacity.

3.4.3. Financial Viability 217. Finally, appropriate and adequate protection 213. Usually, MHPs in standalone mode suffer not systems are needed to ensure there is no backflow only from low PLFs but also peak deficit during eve- of current when an MHP is shut down for repairs and ning hours (17:00–22:00 hours) when most house- maintenance. Usually, the largest MHP is treated as holds are drawing power from it. During the rest the master and it sets the mini-grid parameters for of the period, they have very low loads and many other MHPs to match. In addition, it is used to pro- hours when there is no load at all and the power vide the necessary reactive power and active power generated is either dumped into the ballast or the to charge the HT lines and transformers. MHP is simply shut down. 59 58 57 on financialanalysisofMHPas standalone). from NPR400,000to NPR450,000(see sub-section 135,000; while, thecost/kWfor MHPranges anew incurred ascapexisNPR capacity kW ofmini-grid capex. Table 29shows thatonanaverage thecost/ theMHPsthe distancebetween the alsodetermines for a 10 kW MHP and for a 100 kW MHP. Furthermore, of plantsize thecostofinterconnection isthesame connected. becauseirrespective This isself-evident, with alarger numberofplantsthatare beinginter 220. The capexisgenerallyhigher for amini-grid studies commissionedby theAEPCandACAP. drawn fromfew several mini-grids detailedfeasibility formance ofmini-grids. Table 29shows detailsfor a tal analysishasbeenusedto assessthefinancialper whole, dueto reasons mentionedabove, incremen- to pected result asa inahigherPLFfor themini-grid isex 219. Given thattheformation ofamini-grid thecapexofamini-grid. determine transformers. However,two factors greatly thefirst which would theneedfor determine distribution of load development expected line and the extent ing interconnected, thelengthofhightension dependsonthe number ofMHPsmini-grid be 218. Thus, thecapitalcostincurred insettingupa *NPR 1=US$0.0104 Table 29

Study carried outbyStudy carried Basis for calculating PLF Incremental PLF (NPR) Incremental capex/kW Incremental capex (NPR*) Households (kW) capacity Mini-grid No. ofMHPs inmini-grid P arameter Report on Feasibility Study of Local Micro-Grid Connection inACAP Connection onFeasibility Cluster Areas, StudyofLocalReport OshinPower Pvt.Ltd., Micro-Grid November, Services 2013. Shine MHPSinBaglung District, DPR for Of Technocrats Interconnection Pvt.Ltd, October, 2013. February, BhupendraShakya, in Nepal —ChallengesandOpportunities, 2013atBerlin. Grid Hydro Connected Micro Mini Managed A Community |Details offeasibility studiesofmini-grids RERL, AEPC Bhupendra Shakya, Presentation by referred to below presentation Based on 17 percent 140,463 15,029,500 1,200 107 6 R Baglung/ angkhani 57 Kathmandu forKathmandu AEPC Shine Technocrats Ltd., Pvt. years forming after mini-grid to beachievedExpected 5 after 13 percent 166,170 44,367,311 1,994 267 8 Khola cluster Giringdi - - - - presented inthepreceding paragraphs. basedondetails ofmini-grids nancial performance operationitself.mini-grid Table 31presents the fi- incremental PLF is reached in the first year of the for ofanalysis, simplicity ithasbeenassumedthat grids, respectively. However, inthepresent study mini- Khola andGaudi kW for Khola theGiringdi loads culminatinginapeakloadof189kWand105 sumed agradual increase in productive end-use 222. out by Shine The study carried Technocrats as- tive end-uses. ofeighthours(09:00-17:00hours)by producperiod - wouldpercent beusedfor capacity ofallsurplus a study intheACAP MHPclusters hasassumedthat75 off-peak hours. For example, the above-mentioned productive end-useloadsthatcouldcomeupduring firstorder estimatesby allthesestudiesbyof making the ACAP MHP clusters. PLF is estimated Incremental outin feasibility studycarried inthemini-grid surplus off-peak hours.during Table 30 shows the estimated a peakloaddeficit(17:00–22:00hours)andsurplus general, used. most MHPsmuch of itisactually In have how andmore importantly available inthemini-grid is is largely capacity dependent onhow muchsurplus 221. The incremental PLFresulting from themini-grid 25 percent 216,686 22,535,295 870 104 6 Urja Valley Khola Gaudi 58 ACAP Oshin Power Ltd., Pvt. for Butwal Services productive end-useonly available off-peakhours during for Taken at 75percent capacity ofsurplus 12 percent 71,961 5,756,878 225 80 2 Tikhedhunga 59 9 percent 95,328 15,347,815 607 161 4 Ghandruk 8 percent 119,676 8,018,264 91 67 3 Chomrong 43 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

Table 30 | Estimated surplus in the mini-grid’s feasibility study carried out in ACAP MHP clusters Plant Surplus power (kW) Surplus power (kW) Cluster MHPs Capacity Peak time Off-peak time (kW) (17:00-22:00) (09:00-17:00) Sabed 40 0 25 44 1 Ulleri MHP 40 1 18 Siwai Kholan MHP 26 7 21 Chane Kholan MHP 35 5 25 2 Bhirgyu Kholan MHP 50 1 15 Ghandruk-I Ph. MHP 50 0 15 Ghatte Khola-I MHP 30 0 12 3 Ghatte Khola-II 12 0 5 Ghatte Khola-III 25 0 9

Mini and Micro Hydropower Applications Mini and Micro Hydropower Total 308 14 145 through up ElectricityNepal: Scaling Access

Source: Report on Feasibility Study of Local Micro-Grid Connection in ACAP Cluster Areas, Oshin Power Services Pvt. Ltd., November, 2013.

3.4.3.1. Observations on financial analysis of mini-grids access to markets, and roads are more important in 223. From the above analysis it is clear that while developing such productive end-uses. some mini-grids make operating profits (income is able to cover operations and maintenance, and 226. Finally, from a technical, financial and manage- salaries, but not depreciation and servicing of loans), rial perspective, it is easier to operate and manage a all of them fail to make net profits. Furthermore, an single plant of 100 kW serving 1,000–1,200 house- analysis of the Baglung mini-grid shows that smaller holds spread over a large area than to deliver the plants are generating more power than before, but same service through a mini-grid of several smaller are making losses overall due to increased opera- MHPs. Mini-grids should be viewed as a “retrofit- tions and maintenance, and salaries. ting” approach to help smaller MHPs serve their load centers better by cooperating with other MHPs that 224. Given that the investment needed for every may have surplus capacity. kilowatt of a mini-grid is between 30–50 percent of the capex of a new MHP, the returns do not seem 227. From a policy point of view, mini-grids should be to be commensurate with the investments. It is not taken up only after a thorough case-by-case examina- clear how the productive end-use loads would in- tion of their technical and financial feasibility is done crease in such a substantial way once the mini-grid based on realistic projections of load development. is formed, when evidence from existing standalone Indeed, it is better to promote larger plants and draw MHPs of 100 kW shows otherwise. transmission and distribution lines to link up several communities rather than base the planning on the 225. It can be argued that a mini-grid of 100 kW ca- needs of a few wards in a VDC. The experience from pacity is not very different from a 100 kW MHP as Baglung and few more mini-grids that the AEPC is sup- standalone in load development. Therefore, sub- porting will provide more (realistic) data, which will then stantial efforts would be needed to step up load de- shed light on whether mini-grids are worth pursuing. velopment in mini-grids to reach the PLFs projected above. Thus far the experience of developing pro- 3.4.4. Economic Analysis ductive end-use loads, especially during off-peak 228. Where generation assets already exist, such as hours has shown that while electricity is an enabler, in the case of existing MHPs, the capital costs and it does not drive the development of such loads. the operation and maintenance costs associated The underlying business drivers such as demand, with the construction and operation of the constitu- to a higher PLF. The economic value of this additional more efficientallocationof availableelectricity, leading isthatitpermits 229. benefitofamini-grid The primary tems isalsoexcluded from theeconomicanalysis. to a standalone MHP. Thus, sys- thecost of metering andwould providemini-grid thesamebenefits as are butthey feature notan intrinsic mini-grid), of a Baglung (aswasthecaseinRangkhani, norm where power-basedmini-grid tariffs used to bethe ofa consumption andmay beintroduced aspart ing systems promote theoptimizationofelectricity fore bedisregarded intheeconomicanalysis. Meter to anotherandcanthereone setofbeneficiaries constitutes atransferditional costofsalaries from linesandelectronicequipment. distribution The ad- to includingthe operate themini-grid, necessary sociated withtheinterconnection infrastructure therefore, onlyaccountfor theincremental costas- economic analysisofthemini-grid. The analysiswill, sunk costandexcluded from considerationinthe ent MHPs canbeconsidered thatform a amini-grid l l l l Notes: *NPR 1=US$0.0104 Ta

Profit before taxes. NPR/year 20@ ofcapex. NPR/year Interest onloan@14percent on Depreciation @7percent NPR/year NPR/year Incremental operating profits Incremental expenses NPR/year Incremental NPR/year salaries Incremental O&M(NPR/year) Incremental income (NPR/year) Incremental Tariff (NPR*/kWh) Incremental kWh Incremental PLF (kW) capacity Mini-grid No. ofMHPs inmini-grid Name ofcluster Interest ratio onloanistaken at14percent. equity is20:80. Debt costs toindividualMHPs.increase insalary Incremental salaries are operator, salaries incurred by the mini-grid staff and 1 manager. which includes 3 support sake,For simplicity it is assumed that there is no Incremental O&Mistaken at2percent ofcapex. andthesellingprice totheconsumer (NPR9.5/kWh). mini-grid) Incremental tariffisthedifference theprice between atwhich operatorpower ispurchased (NPR4.5/kWh), from theMHPs bythemini-grid (operating asIPPs inthe b le 31 le | Financial ofmini-grids performance -1,334,661 420,826 1,001,967 88,132 708,590 408,000 300,590 796,722 5 159,344 17 percent 107 6 R Baglung/ angkhani cluster Khola Giringdi -4,099,221 1,242,285 2,957,821 100,885 1,391,346 504,000 887,346 1,492,231 5 298,446 13 percent 267 8 - - off-peak hours for productive end-use. entirely attributed to increased consumptionduring peak hoursisminimalandthatincremental PLFcanbe assumed that the incremental consumption during off-peakhours, during ithasbeen hours) andsurplus MHPs have typically apeakloaddeficit(17:00–22:00 consumption istiedto productive end-use. Since derived from theavoided emissions”. toattributed the mini-grid” and the “CER revenue ated reduced expenditure onenergy thatcan be been calculated asthesumof “savings-associ- 231. has The economicbenefitsofanMHPmini-grid ofeconomic3.4.4.2. Estimation benefits are asshown in nomic costsofmini-grids Table 32. economic analysis of MHPs asstandalone. The eco deflated to on real costs asexplainedinthesection taxes, subsidiesandduties. Further, laborcosts are isderived from financialcosts netof all a mini-grid 230. The economiccostofsettingupandoperating ofeconomic3.4.4.1. Estimation costs Urja Valley Khola Gaudi -1,871,923 630,988 1,502,353 261,418 858,706 408,000 450,706 1,120,124 5 224,025 25 percent 104 6 Tikhedhunga -455,642 161,193 383,792 89,342 331,138 216,000 115,138 420,480 5 84,096 12 percent 80 2 Ghandruk -1,437,221 429,739 1,023,188 15,706 618,956 312,000 306,956 634,662 5 126,932 9 percent 161 4 Chomrong -948,660 224,511 534,551 -189,597 424,365 264,000 160,365 234,768 5 46,954 8 percent 67 3 - 45 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

Table 32 | Estimation of economic costs of mini-grids angkhani) 46 arameter P U nit Baglung ( R Giringdi K hola cluster Gaudi K hola U rja Valley Tikhedhunga Ghandruk Chomrong Incremental Economic Capex NPR* 13,646,254 40,283,948 20,461,250 5,227,041 13,935,273 7,280,300 Incremental Capex per kW NPR 127,535 150,876 196,743 65,338 86,554 108,661 NPR/ Incremental O&M - Economic 266,009 785,262 398,855 101,892 271,643 141,916 year

*NPR 1 = US$0.0104

Notes: For Giringdi Khola and Gauda Khola mini-grids, the applicable VAT indicated in the feasibility study is deducted to calculate incremental economic capex. For Ranghanki, Tikhedhunga, Ghandruk and Chomrong mini-grids, 13 percent VAT is deducted from 80 percent of capex (assumed to be the share of electromechanical equipment) to arrive at the economic cost. Economic cost of O&M is taken as 2 percent of capex, less VAT. Mini and Micro Hydropower Applications Mini and Micro Hydropower through up ElectricityNepal: Scaling Access

3.4.4.3. Benefits from reduced expenditure on energy mini-grid consisting of three MHPs with a combined for productive end-use capacity of 67 kW. 232. The productive end-uses that are made possible by the availability of mini-grid electric- 235. As seen in the financial analysis of mini-grids, ity would have otherwise had to rely on isolated costs vary with the number of MHPs being intercon- diesel motors. The levelized unit cost of genera- nected and the distance between the MHPs, while tion from a typical 10 hp (7.5 kW) diesel engine interconnection costs are the same irrespective of therefore constitutes the expense that is avoided the size of the MHPs being interconnected. Benefits by utilizing electricity from micro hydropower are directly proportional to increase in PLF. Thus costs instead. Accordingly, the economic benefit from and benefits are unique to each mini-grid and there- the increased PLF is calculated as net savings on fore, any decision to embark on a mini-grid project energy for productive end-use from a shift from should be informed by careful consideration of site- diesel to electricity, where the electricity cost is specific costs. taken to be the unique levelized total unit cost of generation and distribution for each mini-grid. 236. As shown in Table 35, the net present value is Table 33 presents the net savings on energy per positive and the benefit–cost ratio is above one for year for each mini-grid. all the mini-grids except the Chomrong mini-grid, where the incremental benefits of the mini-grids 3.4.4.4. Benefits from sale of CERs do not justify the incremental costs. As indicated in 233. Increased electricity consumption for produc- Table 33 above, the Chomrong mini-grid features a tive end-use displaces the consumption of diesel low combined capacity of 67 kW and is only pro- in such enterprises. These avoided emissions result jected to achieve a modest increase of 8 percent in in CERs that could fetch additional revenue to the PLF. On the other hand, the Giringdi Khola cluster mini-grid. Table 34 displays the annual revenue that mini-grid boasts the highest installed capacity of could accrue to a mini-grid from the sale of CERs. the mini-grids examined, but it also comes with onerous costs attached, diminishing its economic 3.4.4.5. Summary of economic benefits and costs viability to some extent. 234. Figure 19 displays a summary of the economic benefits and costs for each of the six mini-grids ana- 237. Given that increase in PLF (especially through lyzed. Economic benefits exceed economic costs, sale of off-peak power) is key to the economic per- often by a considerable margin, for each of the mini- formance of a mini-grid, it is clear that significant in- grids, except for Chomrong, which is the smallest vestment other than merely in mini-grid infrastruc- 60 reasonable assumption,and hasalsobeenvalidated Data from publishedliterature suggest thatthisisa already operatingatorclose to peak loadcapacity. lighting would berare, ifatall, due to most MHPs sumption thatincreases inpeakloadfor domestic dueto theas- absent intheanalysisofmini-grids lightingto households. of electrical This benefitis associatedvast consumer surplus with the delivery sis ofastandaloneMHPisfavorable is dueto the 239. The mainreason thatthe economicanaly- benefits are notincluded inthisanalysis. to methodological such limitationsandconcerns the additionalconsumptionofelectricity, butdue that somesuchbroad from benefits may alsoarise ysis ofstandaloneMHPs, anditmightbeexpected intheeconomicanal- asdescribed of electrification empowerment, etc.) thatcancomeaboutasaresult come, healthandeducationaloutcomes, women’s broad benefits (in of increasedterms household in- sale ofCERs. Various analystshave pointed to the for productive end-useandtherevenue from the it only counts as benefits the net savings on energy limitation of this analysis is that 238. An important continue inthisdirection (seeBox 3). are required to to concludewhetheritisworthwhile PLF. to achieve theincrementalture willbenecessary consumptionNote: Diesel of0.22literstogenerate theequivalent equivalent of1kWh inmechanical energy isassumed. Table 33

Net savings Expenditure onelectricity LUCEMini-grid Avoided dieselexpenditure Diesel LUCE consumption Incremental electricity Incremental PLF capacity Mini-grid P arameter Rangkhani by theGovernment andby other development partners. Rangkhani ecosystemSubstantial investment for hasbeenmadein oftimeandresources additionalproductive activity andthenecessary inbuilding localcapacity 60 Thus, a few more pilot projects in mini-grid

| N et savings onenergy year per for eachmini-grid NPR millions NPR millions NPR/kWh NPR millions NPR/kWh MWh % kW Unit 3.31 2.76 17.3 6.07 38.09 159.3 17% 107 ing from aunitfor domesticconsumption. grid development isnotablylower- thanthosearis consumeddueto mini- additional unitofelectricity cordingly, from theeconomicbenefitsarising an ofthisstudy. aspart conducted Ac- by fieldsurveys mini-grids Figure oftheeconomic and benefits 19:Summary costs for six Baglung *For a15-year plant life at a6percent discount rate. Economic Cost/Benefit (NPR/year) CER revenue capitalcost* Amortized -6,000,000 -4,000,000 -2,000,000 Net economic benefit

2,000,000 4,000,000 6,000,000 8,000,000 (Rangkhani) 0

Baglung Rangkhani 5.33 6.04 20.3 11.37 38.09 298.4 13% 267 Giringdi Khola cluster

Giringdi Khola Cluster 4.79 3.74 16.7 8.53 38.09 224.0 25% 104 Gaudi Khola Urja Valley Gaudi Khola Urja Valley Operation &maintenance Net savings onenergy 1.76 1.44 17.2 3.20 38.09 84.1 12% 80 Tikhedhunga Tikhedhunga

2.34 2.50 19.7 4.83 38.09 126.9 9% 161 Ghandruk Ghandruk

0.79 1.00 21.3 1.79 38.09 46.9 8% 67 Chomrong Chomrong 47 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

Table 34 | Projected annual benefits of mini-grid from sale of CERs at US$7/tCO2

48 angkhani) arameter P U nit Baglung ( R Giringdi khola cluster Gaudi K hola U rja Valley Tikhedhunga Ghandruk Chomrong

Avoided emissions tCO2eq/year 159.3 298.4 224.0 84.1 126.9 47.0 CER revenue NPR*/year 107,079 200,556 150,545 56,513 85,299 31,553

*NPR 1 = US$0.0104

Notes: Default emission factor of 0.9 kg CO2eq/kWh utilized. Average technical distribution losses = 10 percent. CER price at US$7/tCO2eq, which amounts to NPR 672 at the current exchange rate of US$1 = NPR 96.

Table 35 | Summary of economic benefits of mini-grids Parameter Mini and Micro Hydropower Applications Mini and Micro Hydropower through up ElectricityNepal: Scaling Access cluster angkhani) Baglung Ghandruk Chomrong U rja Valley Gaudi K hola ( R Tikhedhunga Giringdi khola

NPV (NPR* millions) 15.92 2.62 22.05 11.03 5.89 -1.26 EIRR (%) 21.35 7.01 20.30 31.92 12.12 3.11 LUCE (NPR/kWh) 17.32 20.27 16.73 17.15 19.68 21.33 LUBE (NPR/kWh) 21.44 18.49 22.03 21.61 19.08 17.43 Benefit/Cost Ratio 1.92 1.05 1.85 2.67 1.33 0.86

*NPR 1 = US$0.0104; LUBE = levelized unit benefit of electricity. LUCE = levelized unit cost of electricity.

3.4.5. Institutional performance accountable to the customers in their distribu- 240. Although, currently there is only one mini-grid tion area (before the mini-grid was formed) both in operation in Nepal there is considerable agree- for operating the MHP as well delivering power at ment within the AEPC and other stakeholders on affordable tariffs now view maximizing profits as the institutional set-up needed to manage the mini- their main objective. Thus, the differing objectives grid. Briefly, individual MHPs are operated and man- of the MHPs as IPPs and the cooperative being re- aged as IPPs, while the distribution network is man- sponsible for delivering affordable power to the aged by the mini-grid operatorcooperative formed community can often lead to conflicts.61 This is fur- with the membership of all electricity users in the ther exacerbated when smaller MHPs make lower distribution area. This arrangement provides clarity profits or even losses due to higher operating costs in the operations and is therefore preferred. with growth in revenue not being commensurate with increased costs. 241. However, it often leads to lack of clarity on the roles of the MHFGs and the cooperative as institu- 242. Currently in the Baglung mini-grid system, FITs tions. One question that can arise is whether the are set at the same level for all MHPs in a mini-grid. individual MHPs are expected to maximize their This however, does not take into account that op- profits or should the cooperative’s interest over- erational cost/kWh for MHPs differ from one an- ride. Once an MHP begins working as an IPP, it other. Usually, larger plants have a lower operational tends to seek a higher price for sale of power to cost/kWh since salary costs are a step cost (increas- the cooperative to maximize its profit. Customers ing with every shift worked) and do not vary sig- on the other hand put pressure on the coopera- nificantly across the sizes of MHPs. Therefore, when tive to keep tariffs low. MHFGs which hitherto were tariffs are set for purchasing power from MHPs, care

61 At the time of this study, the Baglung mini-grid is the only operational mini-grid. However, it is reasonable to expect this behavior in future mini-grids as the roles of generation and distribution are separated and each entity acts to make itself viable. national grid in various configurations national grid invarious tion area oftheMHP, withthe itcanbeinterfaced 245. - inthedistribu When thenationalgrid arrives MHPs.modifications (seeBox 4)of grid-connected the NEA require high technical reliability and certain and requirements for enforced grid connection by the received energy (seeAnnex3).Such standards transmission lossshouldnotexceed 4.5percent of Additionally,(+2.5 percent of50Hz). themaximum 48.75and51.25Hz must bemaintainedbetween ofthe powermental frequency supplied by the MHP percent ofthenominalvalue. Similarly, thefunda- pointsshouldnotdeviate by more nection than+10 example, thesupplyvoltage oftheMHPatmajorcon- well asmeetallofthegrid safety requirements. For levelstain voltage (among others) as andfrequency NEA’s criteria. grid connection The MHPs mustmain- MHPs are to begrid connected, needto they meet of standaloneMHPs isrelatively good. When such 244. As discussedearlier, thetechnical performance 3.5.1. Technic 3.5. MHP Grid changes are integrated intheinstitutionalmodel. pilot projectswillhelpdraw better lessonsbefore manageriscurrentlywork beingtested. Afew more patch net center andalsodoublingasadistribution asa local loaddis- operator acting with the mini-grid pilot aninstitutionalmodelwhere asIPPs MHPs serve 243. Overall, itcanbeconcludedthatintheBaglung generated by them. tional costsare beingfullymetwiththerevenue MHP’s to ensureshould betaken thatevery opera- (for detailsonOptions1,2and3,refer to Section have the customers switch over to the national grid 3: Shutdown the MHP generator andlocalgrid and shedding oroutagesonthenational grid. (3)Option load gridgenerator during andthelocaldistribution power through to the local community the MHP to the national grid with provisions for providing the MHP generator grid and the local distribution (2)Option2:Connect services. the localdistribution tional grid andallow over thenationalgrid to take theMHP generator(1) Option1:Connect to thena- 62 enbach. Lawrence Berkeley National Laboratory & Schatz Energy & Schatz Research Center 2013 April National Laboratory enbach. Lawrence Berkeley “A Power and IslandedOperationofMini-Grid Systems Up to Interconnection 200kW”, Guidebook onGrid Greacen, Chris RichardEngel, Thomas Quetch- al Reliabilit C onnection y 62 asfollows: - and anIRRof27percent (seeAnnex8). of NPR 55 million NPR 57 million with an NPV will cost to theAEPC,proposed mini-grid 190,368,258.00 (US$1,983,002.68).According for thisintegrated power system isNPR peak power. The total estimated budget 660 kW of off-peak power and 492 kWof MHPs capableofsupplying into amini-grid 400 kW, andinterconnecting eightnearby to Phawa generate Khola called Middle minihydropower anew constructing plant MHP to of125 kW, generate atfullcapacity upgrading Kholan theexistingSobuwa the following three measures side by side: haveplan, they considered implementing demand ofPhungling Bazaar. Underthis integrated approach to fulfilltheelectricity The AEPCandRERLhave considered an and otherenterprises. small-scaleindustries, offices,various banks the 250KVA large generator) owned by isolated mode, i.e. notsynchronized with by dieselgenerator distributed sets(in and above. ofthedemandissupplied Rest kWh–25 kWhandNPR25/kWhfor 25kWh 175 for thefirst10kWh, NPR22/kWh for 10 charged to theconsumers issetatNPR recover theseoperatingcosts. The tariff tariffs resultingto inincrease inelectricity high of thedieselgenerator setare very operatingexpenses market, international With inthe theescalationindieselprices liters ofdiesel to operate for eighthours. The dieselgenerator setconsumes320 thedailyeight-hourkW during peakperiod. diesel generator setwhichgenerates 160 generates 80kWfor 24hoursanda250kVA MHPwhichonly Kholan a 125kWSobuwa Phungling Bazaariscentrallypowered by Box 3: Phunglin A promising , Taplejung mini-grid in 49 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

246. In terms of the benefit provided to the com- Box 4: Modifications required for munity as well as the MHFG, it is advisable to pursue 63 grid connection of MHP Option 2. If this option is pursued, there are four specific benefits. First, the MHP’s PLF will improve 50 An isolated MHP with its own local distribu- and the MHFG can generate additional revenue tion grid must be modified in the following from selling electricity to the grid. Second, the in- ways to operate in grid connected mode vested resources of the community and the GoN in in addition to providing power to the local building the MHP are prevented from being wasted. community during load shedding: Third, the local community gets unlimited power from the national grid and limited power from the l Disable the frequency control by the ELC MHP during load shedding on the national grid. and enable power factor control by AVR Fourth, the national grid adds a consumer base while grid connected. Conversely, enable (previously the MHP’s consumer base) with mar-

Mini and Micro Hydropower Applications Mini and Micro Hydropower ginal investment. However, this option is the most

through up ElectricityNepal: Scaling Access frequency control by ELC and enable voltage control by AVR while serving the challenging to pursue and includes the problem of community during load shedding on the islanding as discussed in Annex 9. national grid (i.e. during islanding mode). l Connect safely to the national grid by en- 3.5.2. Ability to Meet Power Needs suring appropriate frequency and phase 247. The ability of grid-connected MHPs to meet sequence. the power needs depend on the modality of such l Provide quality power to the national grid a grid connection. If the MHPs are connected to the with appropriate power factor, as well as grid only and not to the distribution area, then the voltage and low harmonic distortion. ability to meet the power needs of the distribution l Disconnect safely and quickly from the na- area will depend on the power available in the NEA’s tional grid during disturbances and load nearest sub-station, the length and voltage level of shedding and reconnect after such events. the incoming transmission line as well as the technical parameters of the line. A single line diagram of an MHP with required modifications for grid connection with provi- 248. On the other hand, if the MHPs are connected sions for islanding is given in Annex 9. to the grid but are also designed to supply power to the local distribution area, then they will be able to function (within their distribution area and up to their capacity limit) when the NEA resorts to load 3.5.5. Institutional Performance). (4) Option 4: Buy shedding. The advantage here will be that the dis- bulk power from the national grid to provide addi- tribution area will have electricity supply during tional power to the local community through the load shedding hours and the MHP’s PLF will also MHP’s local distribution grid. Meanwhile, the local improve. Another option in such a system is for the MHPs can continue to operate in their distribution MHP to supply electricity to the distribution area areas and not supply to the grid. (5) Option 5: Use and sell surplus power/energy to the grid. the MHP generator and distribution grid only as a backup during load shedding or outages on the na- 3.5.3. Financial Viability tional grid. In this option, the MHP generator will not 249. With the NEA grid being extended into many be connected to the national grid but will supply parts of the mid-hills of Nepal, there is strong ap- the local distribution grid in isolated mode during prehension among the community (local investors) load shedding hours on the national grid. and the AEPC about the future of the MHPs installed

63 Curiously, discussions with NEA revealed that they are interested in Option 1, where MHP becomes an IPP and sells power exclusively to the grid, while NEA takes over the distribution network and treats the community as its normal customer. *NPR 1=US$0.0104 Ta 66 65 64 of 100kWcapacity 250. Overall, theNEAhasagreed MHPs to permit problems. compromise andresult grid quality inseveral safety issues, thatitwould andespeciallytheconcern lated MHPs to to thegrid citingtechnical connect suchiso onpermitting keen the NEAwasnotvery themto thegrid.connect However, untilrecently arements couldgetstrandedifefforts notmade to in thearea. There thattheseinvest isaconcern standalone, aPLFof23.84percent asthe istaken inthepreceding onMHPas a described sections the needsoflocalcommunity. Accordingly, as it would supplypower meeting after thatissurplus kW MHPispresented assumingthat inthissection as anIPP. Financial 100 analysisofagrid-connected to thegrid andsupplying powerconnecting to it MHPwasbuiltspecifically for (100kW) Khola Midim grid. Amongthesites visited underthisstudy, the 9 S. N 10 1 11 2 12 3 4 5 6 7 8

b (wet season-8months)/kWh. As per therecent board decision oftheNEA,current rates applicableto IPPs would beoffered to MHPs, season-4months)andNPR4.80 viz.,NPR8.40 (dry lossesof10 percentDistribution are into accountbefore taken calculatingsurplus. Hencethetotal isonly90percent PLF. an 11kVlinedrawn from to theMHPandconnected thegrid. NEA hasnow agreed any to permit size to ofMHPto thegrid. connect Therefore, theanalysiscovers 20kW, 50kWand100over distancesof various le 36|Detailsofparameters usedfor financialanalysisle ofgrid connection o. P cost Operations andmaintenance Salary andadministrative cost Salary Plant size inkW Depreciation Life oftheplant inyears Tenor andterms ofloan Capital cost oftheplant Financing mix,includingdebt Component-wise capitalcost cial Loads: domesticandcommer Plant loadfactor Tariff arameter 64 andabove to to the connect - be higher the plant willberun24x7once itisgrid andwear connected and tear to isexpected 3 percent oftotal capex annually. This is higherthanfor standaloneoperations since E MHP manager. Total NPR36,000/month NPR 18,000for three operators, NPR 8,000for anaccountant and NPR10,000for 100 kW, 50kWand20 7 percent onstraight linebasison76percent ofcapex 15 years 14 percent rate ofinterest, 7years term 5, 10,20km. 11 kVlinedrawn from to theMHPto thegrid. connect Distances assumedare 0,1,2, of NPR 4,900,000for to thegrid. km connecting addition,NPR1,000,000for In every NPR* 40,000,000for 100kW, NPR21,250,000for 50kW, NPR9,000,000 for 20kWplus 50 percent subsidy, 40percent equity, 10 percent loans 58 percent 18percent electro-mechanical, civilstructures, 24percent others. Commercial: 4–5kWh/household/month 18kWh/household/monthDomestic: 23.84 percent (localsupply),66percent (grid). Overall, 90percent PLF NPR* 6/kWh-domestic, NPR8/kWh-commercial,NPR* 6/kWh-domestic, andNPR6.0/kWh soldto grid stimated value usedinfinancialanalysis - - out thefinancialanalysis. details of thevaluesfor parameters usedto carry key operated as astandalonesystem. Table 36shows 90 percent from 23.84percent when theMHPwas plied to the localcommunity, theoverall to PLFrises account thepower soldto the NEAandpower sup l l 251. The analysisispresented here levels: attwo MHPs connected ofgrid- analysis 3.5.3.1. Results offinancial percent percent would besoldto theNEAgiving aPLFof66 local requirement. therest, itisassumedthat90 Of

cost of making the grid connection. thegrid connection. cost ofmaking This analysis into accountbothMHPcapexandthe ble, taking the MHP financially via- to the grid make necting To iftheincreased revenues from ascertain con- incremental analysis, and returns yieldsattractive through an connectivity To iftheincremental investment ascertain ingrid 65 from sellingpower to thegrid. Taking into 66 - 51 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

is important because the incremental analysis 255. The above charts show that a 50 kW MHP con- may provide positive results but if the MHP as nected to the grid is barely profitable operationally a whole does not make profits, or worse, makes at 100 percent grid availability; it makes profits be- greater losses then, the incremental investment fore taxes only up to a grid distance of 5 km when 52 is not worthwhile. grid availability is 100 percent. If grid availability is only 50 percent, the MHP makes no profits before 252. Figure 20 shows the results of the incremental taxes, beyond a grid distance of 2 km. financial analysis of various sizes of MHPs connected to the grid over various distances and at 100 percent 256. On the other hand a 20 kW MHP connected to and 50 percent availability of the grid for evacuation the grid is clearly financially unviable since the in- of power from the MHP to the grid. cremental revenue does not cover the incremental expenses at all distances from the grid. This means 253. Clearly, the incremental investment in con- that such plants may need capital subsidy to be able

Mini and Micro Hydropower Applications Mini and Micro Hydropower necting a 100 kW MHP to the grid is fully justified to connect to the grid, while a 100 kW plant may not through up ElectricityNepal: Scaling Access by the substantial returns that it gets from sale of need a capital subsidy. surplus electricity to the grid. Even without subsidy, the investment is profitable. However, while incre- 3.5.3.2. Financial analysis of grid connected MHPs on mental operations profits and incremental profits full cost basis before taxes are positive at both 100 percent and 50 257. However, a more important analysis is whether percent grid availability at all distances, incremental this investment and the increased revenue from profits before taxes are negative for 50 percent grid it would make investment in the MHP as a whole availability beyond 5 km of grid extension. This indi- profitable. The analysis of standalone MHPs (in the cates the importance of having an assurance of grid preceding section) showed that they are not profit- availability to evacuate power from the MHP. 67 able and barely cover operational costs even with capital subsidy. Financial analysis for 100 kW, 50 kW 254. Similar analyses are presented for a 50 kW and a and 20 kW MHPs connected to the grid at various 20 kW plant connected to the grid over various dis- distances from it has been carried out.68 The results tances from the grid at 100 percent and 50 percent covering, financial internal rate of return (FIRR), NPV, grid availability in Figure 21 and Figure 22. LUCE and break-even point (BEP) are presented in the subsequent figures.

Figure 20: Incremental financial analysis of connecting 100 kW 258. Figure 23 shows that FIRR is positive only with MHP to the grid subsidy, but is well below the interest rate of 14 percent and expected RoE of 16 percent, and thus 4.00 Incremental operating profits (100% is likely to be unattractive to bankers and private 3.00 grid availability) investors. However, compared to the standalone Incremental Profit MHP, the FIRR for a grid-connected 100 kW MHP is before taxes (100% 2.00 grid availability) substantially higher.69 The FIRR for 50 kW and 20 kW 1.00 Incremental operating MHPs could not be calculated due to negative cash profits (50% grid

NPR Million flows across all distances. 0.00 availability) 0 1 2 5 10 20 -1.00 Incremental Profit 259. Figure 24 shows that the NPV for a 100 kW MHP before taxes (50% grid that is grid connected is positive only with subsidy availability) -2.00 and up to a 5 km distance from the grid. In all the Distance of grid extension (km) other cases including 50 kW and 20 kW (see Figure

67 In India, there is a constant demand from mini/micro hydropower plants connected to the grid to provide them deemed generation status when the grid is not available for evacuating power. 68 Analysis has been carried out with and without capital subsidy. The financing mix is 50 percent subsidy, 40 percent equity and 10 percent loan. 69 line (transmissionline)from thenearest substation cally, it includes an11kV whenthegrid isextended intheruralhillsofNepal. to deliver electricity Typi - thenational gridestimate thecostofextending to262. Anattempt hasbeenmadeinthissection rural Nepalthrough grid thenational in thecost3.5.3.4. Estimating ofdelivering electricity ing section. MHP villageandhasbeenestimated inthefollow - delivering power thegrid to by extending atypical the costthatwould beincurred by theNEAif itwere by theNEAare agross underestimate incontrastto inaruralsetting.ity The current rates beingoffered - of thefullcostbasisdelivering 1kWhofelectric rural setting. The unsubsidized LUCE isareflection a subsidized MHP’s ina costofdelivering electricity that includesa16percent isatruereflection of RoE, proposition.ents afinanciallyattractive The LUCE subsidized MHPshootsupto 22percent andpres- However, attheLUCE ofNPR8.90theIRRfor the itsloan(10percent ofcapexisdebt). cannot service current tariffs, withoutsubsidyoncapex,theMHP der both subsidized and non-subsidized capex. At are atcurrent notfinanciallyattractive tariffs un- MHPs even at90percent261. Grid-connected PLF grid connection ofMHP analysis onfinancial 3.5.3.3. Observations do notbreak-even despite acapitalsubsidy. distanceallothersizes ofplants at lessthan20km cept for to a100kWMHPthatisconnected thegrid lower.the BEP would shift Figure 28 shows that ex this scenario. However, ifthetariffs were increased, the plantisalready operatingat90percent PLFin The scopefor increasing salesinkWhislimited since that theMHPwillnotbreak-even withoutsubsidy. the BEP is well above the current sales indicating from thegrid.a distanceof10km Without subsidy, with100percentconnected grid availability, upto rent salesfor asubsidized 100kWMHPthatisgrid sales required to break-even iswell below thecur 260. Figure 27shows thatthenumberofkWh figures. break-even analysisare presented insubsequent 25 andFigure 26)MHPs, itisnegative. ofthe Results

FIRR for astandalone100kWMHPcouldnot becalculated dueto negative cashflows throughout thelifetime oftheproject. - - provided by a100kWMHP. 1,000 households, whichisequivalentto theservice for serving and75households/km2 holds/km2 results oftheestimationfor of50house adensity was estimated (seeAnnex4).Figure 29shows the and for supplyingto 200,500,and1,000households and75/km2 and for of50/km2 householddensity and20km 10km, 5km, 2km, 1km, tension of0km, powerering inthehillsofruralNepalwithagrid ex 263. Basedontheabove inputs, the LUCE for deliv- used to derivetheestimated costofgrid extension. formers would vary. Table 37 presents the inputs andnumberoftrans- thecapacity on theload(kW), of householdsinanarea. Furthermore, depending line)dependingonthedensity V line(distribution to lengthsofthe400 theloadcenter andvarious to the grid MHP to thegrid Figure 22:I MHP to thegrid Figure 21:I NPR Million NPR Million -3.00 -2.50 -2.00 -1.50 -1.00 -0.50 0.00 0.50 1.00 1.50 2.00 -3.50 -3.00 -2.50 -2.00 -1.50 -1.00 -0.50

0.00 0.50 1.00 ncremental financial analysis of connecting 20 kW ncremental financialanalysis 20kW of connecting ncremental financialanalysis 50kW of connecting 0 0 Distance ofgridextension (km) Distance ofgridextension (km) 1 1 2 2 5 5 10 10 20 20 taxes (50%gridavailability) Incremental Profit before (50% gridavailability) Incremental operating profits taxes (100%gridavailability) Incremental Profit before availability) profits (100%grid Incremental operating taxes (50%gridavailability) Incremental Profit before its (50%gridavailability) Incremental operating prof ability) taxes (100%gridavail- Incremental Profit before its (100%gridavailability) Incremental operating prof - - - - 53 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

Figure 23: IFIRR for grid-connected 100 kW MHP 264. The levelized cost of delivering 1 kWh of elec- 12.00% tricity by extending the grid to serve 1,000 house- 10.00% holds with a density of 75 households/km2 ranged 8.00% from NPR 17 to NPR 25 depending on the length of 54 6.00% the grid extension. In comparison, Figure 30 shows 4.00% FIRR with subsidy that the levelized cost of 1 kWh of electricity from 2.00% F IRR % 0.00% FIRR without susbidy a grid-connected 100 kW MHP without subsidy 0 1 2 5 10 20 -2.00% ranged from NPR 11 to NPR 13. -4.00% -6.00% 265. Figure 31 compares the LUCE of subsidized -8.00% grid-connected MHPs, and the current NEA tariff for -10.00% IPPs and NEA’s cost of delivery. Clearly, the NEA’s cost Distance of Grid Extension (km) of delivery is higher than the LUCE for even a 20 kW

Mini and Micro Hydropower Applications Mini and Micro Hydropower grid-connected MHP. Further, the current IPP tariff

through up ElectricityNepal: Scaling Access Figure 24: NPV for grid connected 100 kW MHP being offered to the MHPs for connecting to the 20 grid is well below the NEA’s own cost of delivering 10 power to a remote community. Thus, it is cost-effec- 0 0 1 2 5 10 20 tive for the NEA to let MHPs supply power to local -10 communities rather than extend the grid and force -20 NPV with subsidy the MHP to shut down. For every kWh supplied by -30 NPV without subsidy

V( NPR Million) the MHP to the local community, the NEA would

NP -40 save NPR 6.0 (NPR 17 less NPR 11). -50 -60 266. If the NEA purchases power from the MHP to Distance of Grid Extension (km) supply to areas around the MHP by extending the Figure 25: NPV for grid connected 50 kW MHP grid, it saves on operational costs even if it purchas- 0 0 1 2 5 10 20 es at NPR 11/kWh which is the full cost LUCE for a -10 grid-connected MHP operating at 90 percent PLF. -20 267. On the other hand, if the NEA buys electricity -30 NPV with subsidy from an MHP at the subsidized LUCE of NPR 9.00 it -40

V( NPR Million) NPV without subsidy makes substantial savings over its cost of delivery,

NP -50 which is NPR 17/kWh in the rural Nepal hills. There- -60 fore, there is considerable scope for NEA to offer Distance of Grid Extension (km) higher PPA rates to grid-connected MHPs than is being offered now. These comparisons have been Figure 26: NPV for grid connected 20 kW MHP made for 0 km grid extension. As the distance in- 0 0 1 2 5 10 20 creases, the difference in LUCE for an MHP and the -10 NEA cost of distribution (CoD) increases. -20 268. The MHP also benefits by increasing its profit- -30 NPV with subsidy ability if the PPA price is revised to reflect the true s. Million V R s. -40 NPV without subsidy cost of delivery (including 16 percent RoE) for grid- NP -50 connected MHPs. Thus, while the LUCE of NPR 9.0 -60 represents a realistic cost plus return on equity Distance of Grid Extension (km) structure for a 100 kW MHP after accounting for then thetotal power evacuated would be581,688 ate othercustomers thispower oftheNEA, to serve MHP andthesame11kVline wasusedto- evacu On theotherhandifitwere to connected a100kW then itwould deliver about264,000 kWh annually. itwere intoIf aremote justextended community 22,250,000 excluding thecostofhouseholdwiring. thecapitalcostto theNEAisNPR holds/km2, of75house ing 1,000householdswithadensity 273. For- serv example, for of5km agrid extension more attractive. theinvestmentcost willmake ingrid extension ofavoided perkWhinterms that theNEAmakes erated by thecommunity, theincremental savings community, butalsoto evacuate power beinggen - not onlydeliver power (whichislow) to thelocal 272. However, andusedto ifthegrid isextended worsen thissituation. inaccessibility ruralcustomers. Remoteness and ested inserving isnotinter companies inmostcountries) tribution reason why high;andisakey theNEA(anddis- very is significantly thecost of service low whichmakes ed line. A22kWh/household/monthconsumption - by theextend household ortotal loadbeing served of population,butequallyimportantly, theload/ length ofthegrid beingextended, thedensity lations presented isdirectly related earlier to the whichasseeninthecalcu- costofservice certain 271. Finally, from the NEA’s perspective, it incurs a plants. ing investments asisthecasefor larger hydropower nies andcooperatives would beinterested inmak supplied to thegrid, many compa- sector private to cover kWh costsandguarantee return for every 270. Thus, ifthePPA issigned atareasonable rate rent tariffs, itisnotprofitable. operating costs, andoffers RoE. At cur reasonable the PPA issigned atarate thatcovers capitaland to thegrid round theclock isprofitable, provided MHPthatisableto powernected evacuate surplus - 269. Overall, itcanbeconcludedthatagrid-con avoided cost. subsidy, thelevelized CoD for NEArepresents the - - - - nected MHPat variousnected plant capacities Figure 28:PLFat break-even point withsubsidyfor gridcon- Figure 27:Break-even point forP gridconnected100kWMH associated transaction costs,associated transaction it may be better for it NEA’s ofmanagement and interms pointofview ated andpurchased by the NEA.However from the leads topower surplus from- the MHP being evacu both the MHP and the NEA if the grid extension 274. Overall, itwould beawin–win situationfor customersnearby oftheNEA. other from thelocalMHPandevacuate itto serve advantage usingthesamelineto purchase power ruralNepal, theNEAwouldto bemore serve atan As instead isevident, ofmerely thegrid extending from theMHPto NEAannuallyisNPR4,653,500. 8.00. Thus, the savings from total power evacuated from isNPR theMHPvis-à-vis itsown costofdelivery MHP withnosubsidy, thesavings/kWh purchased the NEAandLUCE for power produced from the kWh/year. Taking for into accountthecostofservice Plant Load Factor % BEP (Million kWh) 100% 150% 200% 250% 300% 350% 400% 450% 500% 50% 0%

0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 - xtension (km) (km) Distance Extension ofGrid xtension (km) (km) Distance Extension ofGrid 0 0 1 1 2 2 5 10 5 20 10 Current salesinkWh Subsidy Break-even Point without Subsidy Break-even Point with 20 100 kWMHP 50 kWMHP 20 kWMHP 55 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

to retire a plant by compensating the community 3.5.4. Economic Analysis for their investments rather than buying power from 275. In the preceding section, the financial viability it over a period of time. The basis for compensation of a grid-connected MHP was explored. In this sec- could be the book value of the asset plus a 16 per- tion, the economic viability of connecting a stand- 56 cent RoE for the period that the MHP was in use. As alone MHP and MHP mini-grids to the national grid against this it would have to set off the NPV of cost are assessed separately. As in the financial analysis, of power purchased from the MHP and the NPV of both incremental and total economic analyses are savings from using power from the local MHP to presented in this section. serve local customers. Table 38 provides an example of a financial analysis for a five-year-old 100 kW MHP 3.5.4.1. Economic costs that gets connected to the grid. 276. Economic costs are estimated by taking financial costs net of taxes, duties and subsidies. Labor Mini and Micro Hydropower Applications Mini and Micro Hydropower

through up ElectricityNepal: Scaling Access Table 37 | Input parameters for estimation of grid extension costs Parameter Amount Remarks Average domestic load demand (kWh/month/HH) 22 NEA Report 2012/13 Interconnection Cost Interconnection equipment including control pan- 4,300,000 Fixed cost irrespective of MHP capacity els, switchgear and protection (NPR*) 11 kV Distribution Line (incl. all accessories but excl. Transformer)

Type of conductor depends on power to be evacu- Overhead ACSR (NPR/km) 1,000,000 ated and the distance

400 V Distribution Line (incl. all accessories but excl. Transformer) Overhead ACSR (NPR/km) 300,000 “Squirrel” conductor Average cost for a rural HH (actual cost depends on Service wire connection and house wiring (NPR/HH) 6,000 number of connections/outlets in a HH – NPR 10,000 to 15,000 for urban HH) Taken from “Sustainability of rural energy access Distribution line length km per sq. km load area 4 in developing countries”, Doctoral thesis of Brijesh Mainali, 2014 Transformers for Grid Connection 50 kVA 0.4/11 Transformer (NPR) 350,000 Nepali make 100 kVA 0.4/11 Transformer (NPR) 600,000 Nepali make 200 kVA 0.4/11 Transformer (NPR) 900,000 Nepali make Other Parameters Cost of electricity generation (NPR) 6.00 NEA system losses 23% NEA Report 2012/13 Effective rate at distribution point (NPR) 7.79 Life of system (Years) 40 O&M annual cost as percent of capex 3% Load escalation factor 5% Discount factor 6% Debt : Equity 70: 30 Interest rate and tenor 14%, 7 years Depreciation straight line method 2.5%

*NPR 1 = US$0.0104; HH = household by the Rangkhani, Baglung mini-grid is taken to be is taken Baglung mini-grid by the Rangkhani, Note thatthe17percent incremental PLFachieved distances of grid extension. at various mini-grid achieved from ofa100kW thegrid connection 280. Figure 33 presents the economic benefits tion occurs. isevacuated to thegrid oncethegrid connec- tricity standalone MHP, 90percent oftheremaining elec- from a24percent PLFforis assumedthatstarting a alone MHPs It distancesofgrid extension. atvarious sizesing from ofvarious ofstand- grid connection 279. Figure 32presents- theeconomicbenefitsaris a standaloneMHP. islower for thanthatforgrid connection amini-grid andthusthe incremental PLFfromof themini-grid would have already beenachieved intheformation because someincrease inPLF MHP andamini-grid astandalone between from vary grid connection emissions from fuelswitching. Economic benefits tion), andthesaleofCERsbasedonavoided CO unit, i.e. theavoided costofdiesel-basedgenera- tive end-use(asrepresented by anagro-processing from for switching from produc dieselto- electricity totributed the following fuel savings interventions: to originate entirely from theincrease inPLFat 278. As before, economicbenefitsare considered 3.5.4.2. Incremental economic benefits linerequired.the costof11kVdistribution mainly bydetermined thedistanceto thegrid, i.e. by is quired modest,thecostofgrid connection isfairly in size), andthecostoftransformers where re is constant(andremains sofor systems upto 500kW 39. Where thecostofinterconnection equipment are presentedtances (0,1,2,5,10,and20km) in Table dis- atvarious the economiccostsofgrid extension 277. Basedontheparameters specifiedin Table 37, thatare operatingat11kV.mini-grids grids, itisassumedthattheNEAwould onlypermit to thegrid anda100kVtransformer.nect For mini- line toment distance ofthe con- 11 kVextension to thegrid dependsontheinterconnection equip MHPs. an MHP capital costs of connecting The key oneconomicanalysisofstandalone in thesection costs are deflated to reflect realcostsasexplained - - - 2

MHP vs NEAgridextension Figure 30:Cost ofgridconnected100kW ofdelivery Figure 29:NEAcost to ofdelivery remote communities cost of delivery NEA cost ofdelivery Figure 31:LUCE ofsubsidized MH P NPR/kWh Levellized Unit Cost of Delivery NPR/kWh 10.00 15.00 20.00 25.00 30.00 10.00 15.00 20.00 25.00 30.00 (NPR/kWh) 10.00 15.00 20.00 25.00 30.00 0.00 5.00

0.00 5.00 0.00 5.00 0 0 0 Distance ofgridextension (km) Distance ofgridextension (km) 1 1 1 Distance from thegrid(km) 2 2 2 tariff and s vs NEAtariffand 5 5 5 10 10 10 20 20 20 =75hh/sq.km Cost ofDelivery Connected kW MHPGrid LUCE from 100 50hh/sq.km Cost ofDelivery- 75hh/Sq.km Cost ofDelivery- NEA Levellized NEA COD NEA Tariff connected LUCE-100kW grid connected LUCE-50kW grid connected LUCE-20kW grid 57 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

Table 38 | Financial analysis for a five-year-old 100 kW MHP connected to the grid NPV of power purchased from MHP 40.28 Book value of MHP as at end of 5 years 14.08 NPV of saving for NEA by using local power to supply RoE at 16 percent for 5 years that the MHP has 9.62 14.37 to local community been operational 58 Net payout by NEA if MHP is connected to the grid 30.66 Total payout as compensation 28.45

NPR 1 = US$0.0104; All figures in NPR million. Source: Based on grid connected 100 kW MHP with 0 km grid extension.

representative of the increase in PLF achieved from 282. As can be seen from these figures, there are mini-grid formation. Thus, the incremental PLF for substantial economic benefits to be realized from a grid connection is deducted accordingly for the grid connection because mini-grids, and especially mini-grid. Due to the lower incremental PLF asso- standalone MHPs, feature relatively low capacity uti- Mini and Micro Hydropower Applications Mini and Micro Hydropower

through up ElectricityNepal: Scaling Access ciated with grid connection of mini-grids, the net lization, leaving a relatively large fraction of the gen- economic benefits are relatively lower compared to eration potential available for export to the grid. Un- standalone MHPs of similar total capacity, but the der prevailing conditions of scarcity, the evacuated net economic benefits are seen to be negative for a electricity will displace distributed diesel generation 20 kW mini-grid even at a grid connection distance elsewhere (perhaps in nearby market towns). There- of 10 km. fore, to the extent that this low cost additional generation displaces reliance on more expensive diesel 281. The PLF for both the standalone MHP and mini- generation elsewhere, the economic benefits from grid are adjusted to account for the technical disconnecting a 100 kW system where the grid has tribution losses (of 10 percent) within their service arrived in the vicinity (0 km grid extension) ranges areas when calculating the incremental quantum of from about NPR 13.5 million to over NPR 18 million electricity generated and available for consumption per annum for mini-grid and standalone MHPs, re- upon grid connection. spectively. Revenue from the sale of CERs based on avoided emissions account for a relatively modest share of total economic benefits.

Figure 32: Economic costs and benefits of grid connection

20 Amortized capital cost Operation & maintenance 15 CER revenue Net savings on energy 10 Net economic benefits

Millions/year NPR Millions/year 0

-5 0km 1km 2km 5km 0km 1km 2km 5km 0km 1km 2km 5km 10km 20km 10km 20km 10km 20km

100kW 50kW 20kW the actualcost according mayvary tothesize ofthetransformer required. Notes: O&Mcosts are given onanannualbasisand assumedtobe3percent ofcapex perannum;indicative transformer cost isfora100kVA 0.4/11transformer and *NPR 1=US$0.0104 - forof theNPV isnotsurpris almostallthescenarios thevastmagnitude modest cost of grid connection, realized through andtherelatively grid connection, ings ontheavoided costofgeneration(from diesel) theimmensesav Considering ment opportunity. - MHPs represent nor20kWmini-grids agoodinvest neither20kWstandalone grid extension, At 20-km except for of10km, the20kWmini-grids. extension positive for considered allthescenarios upto grid life ata6percent discountrate). The returns are standalone MHPs (for a15-year andmini-grid plant grid interconnection for 20kW, 50kWand100 kW 283. Figure for 34displays theNPV investments in costsand ofincremental economic benefits 3.5.4.3. Summary Table 39 Figure 33:E Breakdown ofCosts Capex withtransformer O&M withtransformer Capex withouttransformer O&M withouttransformer NPR Millions/year 10 12 14 16 -4 -2 0 2 4 6 8 |E

0km conomic costs ofmini-grid ofgrid andbenefits connection conomic costs ofgridextension at various distances

1km 100kW

2km

5km 0 Distance ofgridextension (km) 4,449,027 E 133,471 3,904,248 117,127

conomic costs (NPR*) 10km

20km

0km 1 5,356,991 160,710 4,812,212 144,366

1km -

50kW 20kW 2km at up to 10 km grid extension. For grid extension. at upto 10km 20kWsystems, represent50 kWoptionsclearly agoodproposition whereas both interconnection distanceof 20 km, even upto agrid kW standaloneMHPandmini-grid rateinternal ofreturn for (EIRR)isattractive a100 284. Similarly, Figure 35shows thattheeconomic requires adistanceof20km. ofNPR127millioneven where NPV grid connection ofa100kWstandalone MHP yieldsan connection andtheinter ing to thegrid atadistanceof5km, of morean NPV thanNPR 14 million when connect this analysis, even a20kWstandaloneMHPdelivers dieselgeneration,asisthecasein on distributed ing. When theavoided costofgenerationisbased 2 6,264,956 187,949 5,720,177 171,605 5km

10km 5 8,988,850 269,665 8,444,071 253,322 20km

0km Net economic benefits Net savings onenergy CER revenue Operation &maintenance capitalcost Amortized 10 13,528,673 405,860 12,983,894 389,517 1km

2km

5km 20 22,608,319 678,250 22,063,540 661,906

10km

20km - - 59 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

connection to the grid should be appealing at a cost (and thus returns high economic benefits distance of up to 2 km. This suggests that there are from MHP generation) also ensures that much of good grounds for preserving an MHP (irrespective the electricity that could be theoretically exported of its size) through grid connection once the grid to the grid cannot be evacuated in practice due 60 has reached within a few kilometers from the MHP. to the prevalence of load shedding. Since electricity cannot be evacuated to the grid during load- 285. One reason why the grid connection appears shedding hours, much of the economic benefits to be so evidently preferable is the enormous eco- from MHP generation cannot be realized. Figure 37 nomic benefits obtained by exporting electricity presents the NPV for each scenario when only 50 to the grid when 90 percent of surplus capacity is percent of the electricity available to be exported assumed to be utilized for export-oriented genera- to the grid is evacuated (50 percent here approxi- tion, which displaces relatively expensive reliance mates the weighted average of load-shedding on diesel elsewhere. As illustrated in Figure 36, all hours over the course of a year).

Mini and Micro Hydropower Applications Mini and Micro Hydropower MHPs generate economic benefits well in excess of through up ElectricityNepal: Scaling Access NPR 20/kWh when connected to the grid at a dis- 287. As the economic benefit from evacuation to tance of 5 km. the grid constitutes the most significant component or total economic benefit, it is to be expected 286. However, the same energy scarcity that justifies that the NPV for all the scenarios would suffer. In- the assumption of diesel generation as the avoided deed, when 50 percent of the electricity cannot be evacuated, grid connection of 20 kW MHP ceases Figure 34: NPV for different scenarios of grid connection to be an appealing option at any distance of grid extension. However, grid connection of a 100 kW

200 MHP remains economically viable, as does grid 100 kW Stand- connection of a 50 kW MHP at a distance of less alone MHP 150 than 10 km. 100kW

Mini-grid

100 50 kW Stand- 288. The financial analysis of grid connection in the alone MHP previous section indicates that grid connection NPR millions 50 50kW Mini-grid is not a financially viable endeavor at current FIT.

20 kW Stand- Communities and entrepreneurs are therefore un- 0 alone MHP likely to undertake such a venture, in which case 0 1 2 5 10 20 the substantial economic benefits from grid con- -50 20kW Mini-grid nection would be foregone. This presents a com- Grid extension (km) pelling argument for the application of subsidies in an efficient manner to render grid connection fi- Figure 35: EIRR for different scenarios of grid connection nancially viable, and to enable significant economic benefits from grid connection to be realized. 450% 400% 100 kW Stand- 289. However, two caveats must be taken into con- 350% alone MHP sideration. The economic benefits as calculated in 300% 100kW Mini-grid this analysis are based on a CER price of US$7 per 250% 50 kW Stand- ton of CO2 eq. While there is a precedent for this

EIRR 200% alone MHP negotiated price in the ongoing MHP CDM proj- 150% ect in Nepal, it may reasonably be posed whether 100% 50kW Mini-grid 50% 20 kW Stand- even a fraction of this price would be available 0% alone MHP under current market conditions, and in any case, -50% 0 1 2 5 10 20 20kW Mini-grid even if the CER price should recover, CER revenue will always be subject to the vagaries of the carbon Grid extension (km) market. Since CER revenue accounts for a mere 2 expected, NEA incurs a higher cost to serve smaller,expected, NEA incursa higher cost to serve infrastructure requirement).distribution As canbe area (whichaffects the oftheservice tion density accordingly), and the popula- infrastructure willvary (expenditure ontransmission deliver theelectricity delivered), thedistancethathasto becovered to being ofelectricity the loadcenter (on thequantity 293. The unitcostto NEAdependsonthesize of areas characteristics. ofvarious service anddelivering itto micro hydropowerelectricity the NEA’s avoided costofgenerating (or buying) going energy isresolved. crisis Figure 38presents MHPs willstillbeeconomicallyviableoncetheon- of whethergrid connection asking isworth 292. It to diminishdrasticallyoncethathappens. canbeexpected kW standaloneMHPormini-grid economic benefitsfrom ofa100 connection grid hydropowerthen be run-of-river generation. The baselineforevant theavoided costcalculationwill analysis, the wet at least during season – the rel- life of15years assumedfor thecalculationsinthis that thisshouldhappenwell withintheeconomic –andprojections state peak demandinthecountry insufficient volumes tomeet generating electricity if large hydropower projects inthepipelinebegin tricity suppliedacross Nepal.tricity alone; thisaccountsfor almost 8percent oftheelec- erating 340GWhperannuminKathmandu Valley gen- dieselinstalledcapacity 200 MWofdistributed 291. Arecent World Bankstudyestimates closeto least partly, satisfiedthrough dieselgenerators. is being, at that unmet demand across thecountry corroboratesAnecdotal evidence theproposition generation asthebasisfor avoided costcalculation. ple justification diesel ofdistributed for theselection inthecountry, there isam- pling generationshortage Undercurrent conditionsofcrip closer inspection. the economicbenefitsfrom merits connection grid of cost ofgenerationaccountsfor thevastmajority 290. On the other hand, that the avoided the fact in any case. issue thismay notbesuchacritical grid connection, percent or so of the total economic benefit from 70

World Bank (2014): “Diesel Power EmissionsinKathmandu Inventories andBlackCarbon Generation: Valley, Nepal” 70 However, whenand - and more denselypopulated. alargerlower loadcenter thatiscloser costto serve away and a more dispersed communities further Figure 37:NP Figure 36:LUBE for different scenarios ofgrid connection MHPs to the grid are much reduced, as shown in ternative, the economic benefits from connecting 295. OnceNEA’s avoided to betheal- costistaken presented inFigure 39. wereous MHPscenarios calculated. The results are for isassumed),theNPV - thevari households/km2, of75 a 100kWloadcenter withpopulationdensity option,i.e. thecostofserving (theleast-cost factual 294. Usingtheavoided costto NEAasthecounter as baseline 3.5.4.4. Economic usingavoided analysis cost to NEA NPR millions NPR/kWh -60 -40 -20 10 15 20 35 30 35 20 40 60 80 0 5 0

0 V for 50percent evacuation gridconnection to thegridafter 0 1 1

Grid extensionGrid (km) Grid extensionGrid (km) 2 2 5 5 10 10

20 20 - 20kW Mini-grid alone MHP 20 kWStand- 50kW Mini-grid alone MHP 50 kWStand- alone MHP 100 kWStand- Mini-grid 100kW 20 kW 50 kW 100 kW 61 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

Figure 38: NEA’s avoided cost Figure 40. The EIRRs are negative at all distances of grid extension for a 20 kW MHP (so EIRRs for 20 kW 45 standalone MHP and mini-grid are not plotted in the 40 20kW load center, 50hh/km2 figure), and thus, from a societal point of view, there 35 62 20kW load center, is no longer a case to be made for interconnection 30 75hh/km2 of 20 kW MHPs. Even 50 kW MHPs only make sense 50kW load center, 25 50hh/km2 at close distances for grid connection. While 100 20 kW MHPs remain the best option for grid connec- 50kW load center, 15 tion, they no longer promise the impressive level of NPR/kWh 75hh/km2 10 100kW load center, benefits as seen in the figure. It confirms that the 50hh/km2 EIRR for grid connection of MHPs is far more mod- 5 100kW load center, est once sufficient grid electricity can be supplied 0 75hh/km2 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 by the utility.

Mini and Micro Hydropower Applications Mini and Micro Hydropower Grid extension (km) through up ElectricityNepal: Scaling Access Notes: 160 households served at an average load of 125 W per household = 20 kW load center; 3.5.4.5. Full-cost economic analysis of grid- 400 households = 50 kW; 800 households = 100 kW. Avoided cost includes IPP rate for genera- connected community MHPs tion, system losses and transmission and distribution cost. 296. The incremental economic analysis of grid connection of existing MHPs and mini-grids presented in the preceding section shows that grid connec- Figure 39: NPV for NEA’s avoided cost scenario tion represents an attractive social investment opportunity, at least for larger MHPs that are relatively 30 100 kW Stand- close to the grid. alone MHP 20 100kW Mini-grid 297. It should be noted that the incremental cost 10 50 kW Stand- of grid connection is relatively modest only because alone MHP the initial investment in the MHP itself had already 0 50kW Mini-grid been made. Older MHPs were built to serve the

NPR millions 20 kW Stand- nearby community, and thus grid connection con- -10 alone MHP stitutes an attempt to retrofit an existing asset to -20 20kW Mini-grid increase its productivity or to rescue an investment 0 1 2 5 10 20 from impending obsolescence. Mini-grids are a step

-30 in that direction, and grid connection is the logical Grid extension (km) end to such an effort.

298. Today MHPs are being planned or under construction specifically with grid connection in mind, Figure 40: EIRR based on NEA’s avoided cost scenario such as the Midim Khola. These MHPs tend to be larger – at least of 100 kW installed capacity. What 80% 100 kW Stand- is the economic viability of a new community MHP alone MHP 60% 100kW that will enjoy the benefits of grid connectivity from Mini-grid its inception? For the purpose of economic analy- 40% 50 kW Stand- sis, such an MHP will capture the economic ben- alone MHP

EIRR 20% efits associated with the consumer surplus arising 50kW Mini-grid from households in its distribution area switching to 0% 0 1 2 5 10 20 20 kW Stand- electric lighting from kerosene lighting (its domes- alone MHP -20% tic load), from electricity displacing diesel genera- Grid extension (km) tion for productive end-use in its distribution area

diesel, butitwillbepossibleto evacuate allofthe ratherthan avoided cost willbeinhydro-electricity sincethe tobe expected besubstantiallycurtailed grid electricity, the economic benefit per unit can 301. Oncethere iswidespread ofNEA availability generate. This represents scenario. thenearterm powercan onlyevacuate halfofthesurplus could they MHPs EIRR respectively that grid-connected ofnew sections. Figure 41andFigure and 42 illustrate theNPV lence ofloadshedding, asdiscussedinthepreceding asitmay wishto dueto thepreva- as muchelectricity 300. However, MHP willnot be able to a new evacuate ofeconomic viability. onthedetermination impact of total economicbenefitsandthushasanegligible in preceding revenue sections,carbon isamodestpart MHPare thereforegrid-connected vast. As discussed these streams. The economicbenefitsfrom anew tonected thegrid realizes thebenefitsfrom both ofsuchanMHP,connection MHPthatiscon- anew the operationofastandaloneMHPandfrom thegrid 299. As substantialeconomicbenefitsaccruefrom to evacuate itsentire power surplus to thegrid. costs andbenefitsofa100kWMHPwhenitisable to beincluded. Table 40displays thefulleconomic willhaveand maintenance costofgrid connection asset itselfaswell asthecapitalcostandoperations operations andmaintenance cost ofthegeneration its existence. ofcosts, terms thecapitalcostand In revenue basedonavoided to emissionsattributed to thegrid, for andfrom export tricity thecarbon (the commercial load),from thegenerationofelec- *For a15-year plantlife ata6percent discountrate. NPR 1=US$0.0104;Allfigures inNPRmillion. Table 40 Total costs capitalcost* Amortized Operation &maintenance Total benefits CER revenue Net savings onenergy Consumer from surplus lighting Parameter |E conomic costs ofanew andbenefits grid 100kWMHP connected 5.23 4.05 1.18 32.16 0.49 18.50 13.17 0 distances (km) connection Grid 5.36 4.15 1.21 32.06 0.49 18.41 13.17 1 ensure thatthesebenefitsare realized. Government and micro hydropower communities to MHPs callsforgrid-connected bothfrom action the of theeconomicbenefitsthatcanbecaptured from costs) at current tariffs,nection but the magnitude costs, i.e. for thegenerationassetplusintercon- ly viable(even witha50percent subsidyonallcapital MHPsindicates are thatgrid-connected notfinancial- 303. sub-section The financialanalysisinthe earlier distanceof5km. grid extension investment from upto thesocietalpointofview a However,extent. 20kWMHPs onlyrepresent agood asareand longterm, 50kWMHPs, albeitto alesser bothin the near distancesupto 20km extension MHPs are found to investments beattractive atgrid 302. Onafullcostbasis, 100kWgrid-connected is alsoillustrated inthesefigures. units. This represents thelonger-term and scenario benefits canbe realized from a greater numberof powersurplus generated by theMHPsoeconomic l configurationsas in various follows: an MHP, withthenationalgrid itcanbeinterfaced area inthedistribution of the nationalgrid arrives ofMHPs inthisregard.tutional performance When and therefore,nected there ofinsti- isnoexperience 304. Currently, there are noMHPs thatare grid con- 3.5.5. Instituional Perform over services. thelocaldistribution national grid andallow thenationalgrid to take the MHPgenerator 1:Connect toOption the 5.48 4.24 1.24 31.97 0.49 18.31 13.17 2 5.84 4.52 1.32 31.68 0.49 18.02 13.17 5 6.44 4.99 1.45 31.20 0.49 17.54 13.17 10 ance 7.65 5.92 1.73 30.24 0.49 16.58 13.17 20 63 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

Figure 41: Net present value for new grid-connected MHP the MHP from the revenues earned by the MHP by selling power to the grid.71 160 100kW 50% 140 evacuation 120 100kW NEA avoided 307. From an NEA point of view, if an MHP is treated 64 100 cost scenario as an IPP, it would have to permit even private MHPs 80 50kW NEA avoided to be set up exclusively for grid connection. Since 60 cost scenario

NPR millions 40 the policy for allowing MHPs to connect to the grid 50kW Mini-grid 20 is being proposed to avoid community investments 20kW 50% evacu- 0 ation from being stranded rather than to help the NEA -20 20kW NEA avoided tide over the peak deficit crisis, it does not make -40 cost scenario sense for the NEA to buy power from MHPs being 0 1 2 5 10 20 set up as IPPs. Therefore, the policy should clearly di- Grid extension (km) rect the NEA to allow grid connection of MHPs only Mini and Micro Hydropower Applications Mini and Micro Hydropower

through up ElectricityNepal: Scaling Access Figure 42: EIRR for new grid-connected MHP if they are community owned and set up in the first place to serve them. 60% 100kW 50% evacuation 50% l Option 2: Connect the MHP generator and the lo- 100kW NEA avoided 40% cost scenario cal distribution grid to the national grid with provi- 30% 50kW NEA avoided sions for providing power to the local community cost scenario through the MHP generator and the local distribu- 20% 50kW Mini-grid tion grid during load shedding or outages on the 10% 20kW 50% evacu- national grid. 0% ation -10% 20kW NEA avoided 308. This is the preferred option by the AEPC and cost scenario

-20% the authors of this report. MHP sells all its power to 0 1 2 5 10 20 the NEA at PPA rates as an IPP and buys at bulk NEA Grid extension (km) rates for communities as for CBRE. This would allow the community to access electricity at NEA rates, 305. This is the model being preferred by the NEA. which is highly subsidized. NEA gains by not hav- MHP is treated as an IPP and all power supplied by ing to manage the distribution network. The MHFG the MHP is fed into the grid. Local customers get being still responsible to the community has to con- electricity from the NEA at normal tariffs. However, tinue managing the distribution system and coordi- in the event of load shedding, customers do not nate with the NEA. In addition, the NEA gets access get served by the MHP. As an IPP the MHFG would to locally generated power that is cheaper than its seek to maximize profits by selling only to the grid. cost of delivery as described in the preceding sec- Furthermore, with the MHFG not serving the com- tion. The MHP as an IPP gets access to a higher PLF munity, the MHP could be taken over by private in- through connecting to the grid and can maximize vestors. The NEA also does not benefit since it would its output and thereby lower its LUCE substantially. also be responsible for local distribution and collection of electricity bills in a remote location. 309. However, the NEA has indicated that it is not in favor of this option since it does not want to treat 306. From an AEPC point of view, the capital subsidy MHP customers on par with CBRE customers. The given to the MHP is not helping to serve the local NEA is apparently mulling over charging a commer- community, even during events of load shedding cial bulk tariff rate that is slightly higher than its IPP- by the grid. Therefore, it would have to put in place PPA rate if power is supplied to the local community a mechanism to recover the capital subsidy given to through the MHFG. This thinking runs counter to

71 In the Ramgarh MHP in Uttarakhand, India, which is a 100 kW MHP connected to the grid since 2005, 75 percent of revenue from sale to the grid goes to Uttarakhand Renewable Energy Development Agency (UREDA) since it had provided a 75 percent subsidy in setting up the MHP. Further, the MHP supplies power to the local community during load shedding by the grid. The MHP management is responsible for both supply of power to the grid, as well as acting as a franchise for the grid in managing the distribution network. as aclauseinthePPA. referred to as orpay”“take statusshouldbeincluded tion ofpower to thegrid, “deemed generation” also to availability grid evacua- for financial performance addition,given oftheMHP’s314. In thesensitivity organization. business like tonected the grid and moves on to become a more governance are in place while the MHP gets con- processes thataidtransparency, andgood equity ment oftheMHFGisadequate andproper business to ensure thatthelevel oforganizational develop 313. The AEPC would need to put in place a process level development oracombinationofboth. works upcommunity member householdorfor taking eitherby waythe community ofdividendsto each propriate mechanismto channeltheprofits into owners, i.e. thecommunity. There shouldbeanap ofrepresentinging legallyandinterms theactual tion managing theMHPshouldbeonasoundfoot for the MHP. Therefore, institutionally, the organiza- the sameasLUCE) then itwould beprofitable cover theMHPs costswithareasonable (thisis RoE thePPA312. If FITwere setatalevel adequate to the localcommunity. owned MHPscommunity thatare currently serving for of the formulation grid connection of a policy to avoid are by ensuring that all stakeholders trying 311. For reasons discussedearlier, thisisanoption national grid. cal grid andhave thecustomers switch over to the l remote are community considerablyreduced. will ensure thatitslossesinsupplyingpower to a NEAtariff. normal but charge thecommunity This as muchpower aspossibleto thelocalcommunity, MHP, itisbetter for theNEAto lettheMHP supply NEA iscostlierthanpower purchased from thelocal 310. Furthermore, sincepower delivered by the NEA reduces itscostsofservice. them responsible for managing the the distribution, logic. supplyingthrough By theMHFGandmaking

Option 3: Option Shut down theMHPgenerator andlo - - - - Figure 44:Configuration ofO Figure 45:Configuration ofO Figure 43:Configuration ofO priate FIT.priate (NPR/kWh)to settheappro retail ofelectricity price best alternative andeven compare withconsumer on thebasisofLUCE (NPR/kWh)canhelpchosethe Box 5). differentComparing options electrification that ensure standardization (see of grid connection RETs ingeneralbenefitfrom promulgation ofacts indicate thatMHPs practices 315. International and ofMHP 3.5.5.1. International practices ingridconnection to community NEA distributes

NEA distributes

to community community to MHP distributes distributes MHP ption 2 ption 3 ption 1 NEA Grid MHP NEA Grid ’s ’s bulk rate fixed MHP sellsat MHP buysat MHP sellsat PPA rate for CBRE PPA rate

Shut downShut MHP - as IPP MHP MHP NEA Grid ’s 65 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Scaling Up Potential of 03 Micro Hydropower in Nepal

316. Passing laws that ensure discounted lending study presents a clear methodology for determining for grid connection of previously isolated systems FIT for grid-connected MHPs. Therefore, NEA, AEPC can help expedite the process considerably. Integra- and MHFGs can use this methodology as a guide to tion of technical standardizations, FITs, open access determine FIT for grid-connected MHPs and incor- 66 to grid and financial incentives for grid connection porate them into the standardized documents. under “One Window Services” can help simplify the process for RETs interested in grid connection. This 317. Furthermore, a framework for creation and trading of Renewable Energy Certificates can ensure fair promotion of RETs including MHPs by requiring Box 5: Lessons from RET grid con- large hydropower projects to meet renewable en- nection practices around the ergy purchase obligations. It must be noted that world hydropower projects with capacity more than 20 MW are not considered renewable energy projects.

Mini and Micro Hydropower Applications Mini and Micro Hydropower Germany: Renewable Energy Sources Act If these international best practices are internalized through up ElectricityNepal: Scaling Access (2004) prioritizes as well as outlines proce- under a “One Window Service” by the AEPC, grid dures for connecting RETs to the national connection of MHPs can be streamlined into a quick grid. It sets standards for purchase, transmis- and hassle-free procedure. sion, and payment for such electricity. 318. Although, there are examples from other China: Renewable Energy Law (2006) guaran- countries that are ahead in grid-connected MHPs tees financial incentives, such as discounted and RETs, in Asia and specifically in the Himalayan lending and tax preferences for RETs. region, Nepal is the forerunner in community managed off-grid micro hydropower systems. It has the Denmark: Feed-In-Tariff for RETs set at 70–85 largest number of off-grid MHPs installed and suc- percent of consumer retail price of electricity cessfully operated by rural communities. A central and open access to utility grid guaranteed government body coordinating the micro hydro- under “One Window Service”. power sector and administrating subsidy along with private sector involvement in design, manufac- Australia: Renewable Energy Act (2000) turing and installation, and the communities’ ability includes a framework to create Renewable to mobilize themselves and manage the plants post Energy Certificates by RETs and then sell installation has become an unique and successful to electric utilities to meet their renewable model. energy purchase obligations. 319. Other countries from South Asian Associa- Tanzania: Framework being developed tion for Regional Cooperation (SAARC) interested under the Electricity Act (2008) includes stan- in implementing national level micro hydropower dard documents, such as “Standardized Power programs have been drawing upon Nepal’s experi- Purchase Agreement” and “Standard Tariff ence in this sector. In order to formalize such ex- Methodology” applicable between renewable change of experience, in 2010 the AEPC in collabo- energy projects with capacity between 100 ration with USAID South Asia Regional Initiative for kW to 10 MW and buyers such as the national Energy (USAID/SARI Energy) established a Regional grid or local isolated grids. Centre of Excellence for Micro Hydro (RCEMH). The Centre showcases and transfers know-how gained See Annex 10 for more details on interna- by the AEPC and its supporting organizations and tional practices in grid connection. partners. 04 Findings, Recommendations and the Way Forward

4.1 Standalone MHP 4.1.1.3 Build grid-compatible MHPs 322. Once the national grid arrives in an MHP’s ser- 4.1.1. Technical Findings and Recommendations vice area, grid connection is unequivocally the next 4.1.1.1. Scale-up MHPs to reach more off-grid communities step forward. Therefore, while implementing new 320. MHPs are technically robust and help off-grid standalone MHPs, especially MHPs larger than 50 kW,72 67 rural communities in Nepal gain access to elec- they should be designed to be grid compatible. This tricity. Local communities have demonstrated ad- requires all new MHPs to have a distribution network equate capabilities to operate and maintain MHPs that meets NEA standards. This would ensure that the in remote locations. Furthermore, where there are MHP’s distribution network gets grid connected in the steep perennial streams in the vicinity, an MHP is future. Furthermore, mandatory metering of MHPs en- the least-cost option for rural community electrifi- ables their existing customers to make the transition to cation. Therefore, on the basis of technological per- NEA’s energy-based tariff system smoothly. The NEA is formance, MHPs should be scaled up to reach out also able to accept these customers without having to to more communities that are currently not being introduce a metering system. Applications and Micro Hydropower served by the national grid. 4.1.1.4. Strengthen quality assurance during design, Nepal: Scaling up Electricity Access through Mini through up ElectricityNepal: Scaling Access 4.1.1.2 Make metering mandatory to improve energy manufacturing and installation efficiency 323. The robust technical performance of MHPs is a 321. MHPs are currently being built to cater to peak testament to the excellent technical capabilities of load, which mostly comprises lighting. Often, these the MHP industry in Nepal. However, as mentioned MHPs are unable to cater to increase in peak demand earlier with new manufacturers and installers com- arising from increase in the number of households ing in and experienced ones leaving the industry, the and/or increase in demand within each household. quality of manufactured components and execution Use of advanced lighting technologies such as CFLs of civil works has deteriorated. Therefore, the qual- and light emitting diodes (LEDs) will bring down ity assurance system during design, manufacturing household lighting loads without compromising on and installation should be strengthened. During the lighting quality. However, since most micro hydropow- design phase, the focus should be on improving the er supplied households are not metered, extensive use quality of the feasibility study reports such that they of power-based tariff is discouraging energy conserva- truly reflect site conditions. The AEPC should carry tion. Therefore, energy-based tariff should be enforced out a three-stage inspection process during mate- through metering which will provide adequate incen- rial, in-process and pre-shipment stages to ensure tives to users to make more efficient use of electricity. that the quality of the components delivered at site is This would in turn help lower the peak demand and as per design and material specifications.73 Similarly, allow the same MHP to serve more households. supervision and quality assurance of civil structures, which is usually executed by the community, should

72 MHPs of 50 kW and above should be built for grid connectivity. For smaller MHPs, an intermediate step for the formation of a mini-grid has to be carefully examined. 73 Use of mild steel in place of stainless steel for making jet nozzles and using copper coated aluminium plates for earthing were some of the quality issues mentioned during our discussions with RSC and manufacturers Findings, Recommendations 04 and the Way Forward

be strengthened to help curb problems such as un- with subsidy. Most of them make modest profits dersized settling basins leading to frequent damage operationally but have no savings to pay for ma- of turbine runner blades. Quality assurance will pre- jor repairs. The main reasons for poor finances are vent unwarranted downtime as well as unexpected very low PLF and tariffs that are designed to just 68 future costs of repairs for the MHP. recover funds for salaries and routine repair and maintenance.75 When large repairs are necessary, 4.1.1.5. Create a network of local repair service providers MHFGs mobilize funds from the community, which 324. Remoteness of MHPs from manufacturers and becomes possible due to the strong leadership of installers who also provide after-sales services often the MHFGs and the active participation of the com- leads to prolonged downtimes and high costs of re- munity. These are key contributing factors for oper- pairs. Given the large installed base of MHPs especially ating MHPs over a long period of time despite being in central and eastern Nepal, the AEPC should identify, financially unviable. However, MHPs will not be at- encourage and nurture local workshops74 to provide tractive to private investors who look for attractive last mile after-sales services. In collaboration with the RoIs. Therefore, MHPs need to be viewed as social Mini and Micro Hydropower Applications Mini and Micro Hydropower

through up ElectricityNepal: Scaling Access NMHDA, the AEPC should train local entrepreneurs to enterprises similar to rural roads or schools and not cultivate skills and expertise in repairing MHPs. from a conventional financial analysis perspective, especially when formulating or updating policies. 4.1.2. Financial and Economic Findings and Recommendations 4.1.2.4. Build capacity of MHFGs in tariff setting 4.1.2.1. Continue subsidy support to ensure delivery 328. The capacity of MHFGs and the user commu- of economic benefits nity should be built to adopt energy-based metered 325. Economic benefits that can be attributed to tariff rather than power-based non-metered tariff. MHPs especially due to consumer surplus from In addition, they should be trained in setting tariffs electric lighting are immense. Rural electrification such that revenues are adequate to cover operat- through MHP returns economic benefits approxi- ing costs including salaries, loan payments, as well mately three times larger than the investment and as repair and maintenance. operating costs. Although the economic benefits of an MHP are far greater than the economic costs, 4.1.2.5. Increase access to finance and educate MHPs are not financially viable in the conventional lenders on operational sustainability of MHPs sense. Therefore, subsidy should be continued to 329. Typically, the community mobilizes 50 percent support the delivery of electricity through MHPs. of the total project cost to set up an MHP and the remaining is provided through the AEPC as sub- 4.1.2.2. Prioritize MHP as the preferred RET to deliver sidy. Mobilization of funds from the community to off-grid electricity achieve financial closure is a major bottleneck in 326. Other than MHPs, SPVs are the most extensively MHP implementation. Access to finance could sig- used technology to deliver access to electricity to nificantly shorten this time but banks and financial off-grid locations in Nepal. Diesel generators are an- institutions (BFIs) are usually reluctant to lend to other alternative but rarely used for electrification these projects citing reasons of low profitability and because of high operating costs. Analysis shows uncertainty of institutional arrangements.76 On the that for delivering the same level of service as of other hand, communities are reluctant to borrow a typical MHP in rural Nepal, diesel and SPV-based from BFIs due to cumbersome procedures and high solutions remain more than twice as expensive. interest rates. Therefore, the AEPC needs to educate Therefore, from a policy point of view, MHPs should BFIs on the operational sustainability and good be the first choice to deliver off-grid electrification track record of MHFGs. The AEPC can help reduce where they are technically feasible. interest costs for these communities by parking a portion of its funds with selected banks. With higher 4.1.2.3. View MHPs as social enterprises loan amounts, MHFGs will also be compelled to in- 327. MHPs are run as social enterprises and are not crease consumer tariff to be able to payback such financially viable in the conventional sense, even loans and the interest.

74 Especially, units such as grill works, electricians, etc. 75 Where there is a loan, tariffs are set higher initially to pay off the loan and then reduced after that. 76 MHFGs are not legal entities. 78 77 scalingupofMHPs.on board to support Addition- escalated. Therefore, more RSCsshouldbe brought grid connectivity, the RSC’s will be further workload AEPC supports. and With theadvent ofmini-grids ing MHPs, butalsothe entire rangeofRETs thatthe foreach covering several notonlypromot districts process.making Currently, there are only nine RSCs, aprocedure ofdevolving thedecision- tion andstart areas- growth ofexpected electrifica incommunity the AEPCshouldsetupregional officesespecially in that needmore attention from theAEPC. Therefore, areas are and regular key post-installation surveys formance ofinstallersandRSCsthrough concurrent oftheper assuranceandmonitoring 332. Quality ofAEPC theinstitutionalfootprint 4.1.3.2. Increase approach.business-like of “social enterprise” move asthey towards amore to ensure that the MHFGs retain portant the spirit books of accounts. At the same time, it is equally im- enter into agreements with the NEA and maintain will becomecapableto prepare businessplans, adopting amore approach, business-like theMHFG registered (company, entity cooperative orNGO).By stallation to helpMHFGstransitioninto aformally repairs. However, mustbe made post-in - efforts funds from for andmajor thecommunity equity isableto well. raisesignificant the community It adequately andrepresentsinstitution isperforming robustMHPs andwell tested. isvery MHFGasan 331. The institutionalarchitecture to implement MHFGs to become legal entities 4.1.3.1. Support 4.1.3. Instituional Findings technologies suchas “pumps asturbines” business amongstmanufacturersandalternative to the volumeshould be encouraged subject of will helpreduce costs. Moreover, specialization today for manufactured items. These measures two as opposedto thetotal customization thatprevails followed by standardization ofMHPcomponents should be tablish cost benchmarks. Benchmarking process andcostingofMHPto es- manufacturing tute athorough engineering-based review ofthe AEPC incollaborationwithNMHDA shouldinsti- 330. To theever-increasing tackle costofMHPs, the standardization 4.1.2.6. Reduce costs and by benchmarking be tried out for further costreduction. outforbe tried further Rec

AEPC couldorganize where exposure to PAT India trips hasbeenin usefor more thanadecade. Currently, project RSCs execution.only provide during technical oversight based on visual observation They have no tools to provide any diagnostic support. ommend a tions

and

77 should - - for service providers well.for thatare performing service aswell asincrease businessvolume delivery service standards ofperformance. This willhelpimprove providers whodonotmeetaccepted qualify service MHP can serve thecombinedloadbetter.MHP canserve andifasinglelarge inthevicinity that are notserved ously explore whetherthere are more loadcenters to site determine capacity, shouldsimultane they outby theRSC/DEECCSstudy ofanMHPiscarried optimizing site potential. When thepre-feasibility current power requirements to ofthecommunity MHPs shouldbechangedfrom merely meetingthe tial ofthesite. Therefore, thefocus ofplanningfor leads to underutilizationofthehydropower poten- Furthermore, thecurrent process ofMHPplanning ally andalsocostmore to setupthanlarger plants. smaller plantsare usuallylessviableeven operation- proposingcommunity theMHP. Analysisshows that that itisadequate to meetthedemandsof ing adjacentcommunities. Eachplantisbuiltsuch ment of several small MHPs- in the same area serv a VDC/Ward, leadsto often develop thispractice Because thecurrent unitofplanningfor anMHPis arequestmakes to theRSCto helpitsetupanMHP. whenacommunity starts that theproject cycle 333. AEPC’s MHPprogram isdemanddrivensuch optimizesite and potential demand 4.1.3.3. Reorient to MHPplanning aggregate equipment. planningofstrategies,collective anduseofbetter through andexperiences, exchange ofknowledge sight to projectexecution shouldbeenhanced ally, of RSCs to the technical provide capacity over higher during the first higher commissioningduring and year after sample ofprojects. The samplecould be relatively of MHPssive post-installation andmonitor survey a program, AEPCshould putinplaceacomprehen- assurancemechanismsforlar to quality thebiogas oftimeandthenranksuchcompanies.period Simi- over adopted to anextended monitor performance shouldbe assuranceandpost-installation survey ity measures, amore systematic andconcurrent qual- premises. additiontoto these themanufacturing In ers andmanufacturersaswell asverificationvisits statements ofDFS consultants,on capability install- 334. process isbased The current pre-qualification providers service process of 4.1.3.4. Strengthenthepre-qualification 78 Furthermore, theAEPCshoulddis- - - - 69 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Findings, Recommendations 04 and the Way Forward

then gradually tapered off to zero by the 5th year. local demand better (at least in the deficit areas) Thus, a new set of samples would be added from than standalone plants. However, higher surplus dur- MHPs installed every year while a few that have ing peak hours is very unlikely since most MHPs are been monitored for five years would be dropped overloaded in this period, and therefore the increase 70 out of the sampling plan. in PLF is heavily dependent on greater utilization of off-peak power. The number of productive end-uses 4.1.3.5. Formulate and update relevant Acts in RET in the area is not likely to increase simply because of promotion the establishment of the mini-grid. Additionally, in- 335. Although many policies to upscale RETs have crease in commercial demand is also dependent on been put in place, full-fledged implementation of the local economy and market conditions, such as such policies is not possible without promulgating availability of raw materials, entrepreneurs, and infra- the corresponding acts. Therefore, these acts (Rural structure (e.g. roads). Nevertheless, the Baglung mini- Energy Act, Water Resources Act and Electricity Act) grid experience indicates that with mini-grid systems, need to be either formulated or updated to support commercial demand can increase as the overall ca- Mini and Micro Hydropower Applications Mini and Micro Hydropower

through up ElectricityNepal: Scaling Access smoother implementation of the policy. Further- pacity of the system will be higher than the individual more, important acts related to renewable energy plants, enabling higher capacity end-uses that were development (Feed-In-Tariff Act and Alternative En- not possible before. ergy Promotion Board Act) should be approved by the Parliament. 4.2.2. Financial and Economic Findings and Recommendations 4.1.3.6. Support the micro hydropower industry to expand 4.2.2.1. Analyze site conditions to determine business into mini hydropower and low-head MHPs financial and economic viability 336. Due to the low volume of business, large and 338. Financially, mini-grids are not attractive since the experienced manufacturers are losing interest in the cost of interconnection among MHPs is very high and micro hydropower sector. Furthermore, analysis shows analysis shows that even for an optimistic scenario of that smaller MHPs are unsustainable even operation- PLF doubling after the formation of the mini-grid does ally. Therefore, the AEPC should collaborate with the not make it viable. Furthermore, the capital expendi- NMHDA to build the capacity of the industry to manu- ture of a mini-grid is entirely site specific and requires facture and install mini hydropower plants. Addition- a careful consideration of such issues when the invest- ally, it should also identify appropriate technology to ment decision is made. Similarly, the economic viabil- harness the hydropower potential of low-head and ity of a mini-grid depends largely on the increase in high-flow rivers that are prevalent in the lower hills PLF, amount of peak or off-peak electricity available, and the Terai belt of Nepal. Currently, entrepreneurs in and utilization of such electricity to replace diesel used India are demonstrating an “ultra low-head MHP” 79 on for commercial purposes. Although unlikely, if there a quasi-commercial basis with support from UNIDO is any surplus during peak hours, then the economic and technology from Japan. If this technology can be benefits are substantially higher compared to off-peak introduced in Nepal, it may open up a whole new area power. Therefore, mini-grids should be assessed on a of business for the micro hydropower sector. site-by-site basis for economic viability.

4.2. MHP Mini-Grid 4.2.2.2. Promote a larger capacity MHP rather than a new mini-grid 4.2.1. Technical Findings and Recommendations 339. Since the cost of interconnecting MHPs is large 4.2.1.1. Promote higher capacity end-uses to ensure and unrelated to their capacities,80 it would be more increase in PLF efficient to deliver power to a larger set of consum- 337. The experience from the Baglung mini-grid ers from a single large micro/mini/small hydropow- clearly demonstrates that mini-grid systems are tech- er plant rather than putting up several smaller MHPs nically viable as well as reliable. In a mini-grid cluster, and trying to interconnect them later to form a when there are some MHPs with a power deficit and mini-grid. For now, all decisions pertaining to invest- others with surplus power, the PLF can increase sig- ments in mini-grids should be made centrally by nificantly, and the mini-grid should be able to serve the AEPC. Furthermore, for new standalone MHPs,

79 Works with 1–3 m heads hope anddirection in thisregard. UsersAssociation) offers and LamjungElectricity (e.g. Cooperative LalitpurRuralElectrification South grids spanningoveraged distribution several VDCs VDCs is not easy. - The success of community-man thatisspreadorganizing acommunity across several later.to arise However, theprocess ofmobilizingand andownership arethese issuesofidentity lesslikely spread acrosstion network several wards/VDCs, then hydropower- plantwithatransmissionanddistribu offasalarger were micro/mini/small munity to start 81 80 system andthatend-users compatible distribution AEPC should ensure MHPs that all new have a grid- cro hydropower sites inthemid-hillsofNepal, the 342. Given thatthegrid willsoonreach mostmi- thecommunity4.3.1.1. Prepare forgridconnection 4.3.1. Technic 4.3. MHP Grid from anMHPthroughout theyear. there are guaranteed consumersfor off-peakpower more. Therefore, shouldbeconsidered if amini-grid rationale for isnotrelevant any forming amini-grid MHPspermit of any size to to the grid, connect this ter therecent decisionofNEA’s Board ofDirectors to toer than100kWto thegrid. connect However, af- from NEA’s preference MHPs ofonlypermitting larg- 341. stemmed to The form necessity a mini-grid for mini-grid 4.2.3.2 Ensuremarketpower availability foroff-peak ship of the mini-grid. andputahugestrainontheleader lead to conflicts lar mannerto alarger mini-grid. can This dualidentity MHPcannotrelate inasimi- their community-owned displaying astrong andownership in senseofpride may arise. thatpreviously hadbeen The community grid, andownership problems ofidentity interms is later interconnected to otherMHPs to form amini- 340. initiates asingleMHPthat When acommunity multipleacross communities mini-grids than 4.2.3.1. Give preference spread to plants larger 4.2.3. Instituional Findings later to form amini-grid. eral smallerplants, whichwould beinterconnected - sev larger area distribution ratherthansupporting a explore possibilitiesofalarger plantthatserves processthe pre-feasibility shouldbemodified to

The first mini-grid at Rangkhani is grappling withthis situation Rangkhani at The firstmini-grid The interconnection costisthesamefor a10kWor100 MHP. al Findings C onnection 81 On the otherhandifcom- and and Rec Rec ommend ommend a tions a tions

and alsoaddresses safety concerns. done atthe11kVlevel, whichistechnically feasible back into thegrid. Thus, shouldbe grid connection losses andalsogives to safety rise issues, suchasfeed - should beavoided asthisresults inhightransmission Moreover, at400 anationalgrid connection V level when there isloadsheddingonthe nationalgrid. MHP to consumers of the grid-connected service tentional islandingshouldbeusedto provide reliable With appropriate safety andcontrol mechanisms, in- voltage phasejump, andreverse reactive power flow. over-/under-voltage, rate ofchangefrequency, over-/under-frequency,be detected by measuring the process isnotproperly coordinated. Islandingcan customer equipmentatthetimeofreconnectionif control over or power andcandamageutility quality ing afailure alsodeniescentral ofthecentralgrid. It might assumethatthelinesare notenergized dur presents ahazard who turbance. It to lineworkers MHP failsto properly agrid dis- shut down during ous conditionthatoccurswhenthegrid-connected 343. Unintentional islanding is a potentially hazard- against unintentional islanding protect measuresto 4.3.1.2. Install safety appropriate “grid ready” through appropriate trainingprograms. capabilities be improvedmanagerial to get them recommended thatthecommunity’s technical and is It ofanationalgrid connection. inthecontext arise uninformed aboutoperationalandsafety issuesthat enough technical training, andtherefore, are often are metered. Operators ofMHPs donotreceive NEA hasagreed to offer weighted average FITofNPR 9–15/kWh for a100kWMHPto deliver thatenergy. The Ontheotherhand,of grid extension. it costsjustNPR ral hillsisNPR17–25/kWhdepending onthedistance through NEA’sample, thecostofdelivery grid intheru- sold intheruralhills, NEAincurs alower cost.For ex cal energy purchased by the NEA from an MHP and through NEA’s grid. Therefore,- unitofelectri for every through anMHPischeaperthandeliveringelectricity ally, economicanalysisshows thatdeliveringelectricity same power thenationalgrid. by extending Addition - the ruralhillsofNepalischeaperthandelivering from anMHPissoldto thegrid, theLUCE ofanMHPin 344. At 90percent power PLFandassumingallsurplus 4.3.2.1 NEAshouldgive preference to power fromMHPs 4.3.2. Financial and Rec ommend a tions

Ec onomic Findings and

- - 71 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Findings, Recommendations 04 and the Way Forward

6/kWh82 for MHPs; the same PPA rates that it offers to MHFGs would expect the AEPC to provide a capi- SHPs with capacities up to 25 MW. Therefore, it makes tal subsidy to finance a grid connection. However, financial sense for NEA to buy power from MHPs. The given the financial viability of larger MHPs on an AEPC should continue to determine FIT for hydropow- incremental basis, the AEPC should support MH- 72 er projects separately, since the current FIT is consider- FGs by providing credit facilities, where its funds are ably lower than NEA’s cost of delivery and unlike MHPs, “on-lent” by BFIs with a minimal interest spread (as SHPs enjoy substantial scales of economy.83 well as risk guarantees) for grid connection of MHPs. Availability of low interest loans would make grid 4.3.2.2. Base grid connection of MHPs on distance to connection of MHPs even more attractive. grid and plant size 345. Based on incremental analysis, the financial and 4.3.2.5. Ensure availability of grid for power economic performance of a grid-connected MHP is evacuation or give deemed generation status attractive. However, as the plant capacity decreases 348. Financial performance of grid connection of and distance to the grid increases, incremental vi- MHPs is critically dependent on the percentage of Mini and Micro Hydropower Applications Mini and Micro Hydropower

through up ElectricityNepal: Scaling Access ability reduces. Furthermore, if only 50 percent of surplus power that is evacuated to the grid. There- the surplus power from an MHP can be evacuated fore, it is crucial that either national grid availability to the grid due to non-availability84 of the grid, the is ensured or “deemed generation” status (take or PLF of the MHP falls drastically making grid con- pay85 ) is given to grid-connected MHPs by including nectivity unviable. In general, grid connection of an this in the PPA. In the absence of such a provision in MHP with capacity less than 20 kW was not found to place in addition to NEA’s unwillingness to finance be viable based on incremental analysis. Therefore, the cost of a grid connection, the MHP community it is necessary to undertake incremental financial would end up bearing the entire risk of the invest- analysis before connecting an MHP to the grid. On ment. Moreover, the primary investment in the MHP an economic basis too, when surplus power from an would also be rendered risky due to encroachment MHP is used to replace NEA’s grid power rather than of the national grid. diesel-based generation, then smaller plants tend to become unviable. 4.3.3. Institutional Findings and Recommendations 4.3.3.1. Effective coordination between NEA and 4.3.2.3. Encourage banks and financial institutions to AEPC to harmonize rural electrification programs finance grid connection of MHPs 349. MHPs are supported by the AEPC, whereas the 346. Loans financing for grid connection of larger NEA manages the national grid (along with genera- MHPs could be a potential opportunity for BFIs. tion and distribution). As MHPs start interfacing with Even at the current FIT rates announced by the NEA, the grid, greater and more effective coordination be- incremental analysis shows that larger plants are vi- tween the two institutions is necessary. However, the able. Furthermore, given that an MHP would have two institutions are under different ministries (AEPC is been in operation for a while before the grid arrives, under MoSTE and NEA is under MoEn) and coordina- lenders can assess the institutional stability and risks tion between them is infrequent and unproductive. better to arrive at an informed decision on lend- Therefore, coordination between the NEA and AEPC ing. The NEA as a buyer of power is a government- requires an active role from the MoEn to facilitate backed institution and therefore the revenue risk is information sharing and collaboration for planning further reduced from the perspective of the BFIs. and implementation. A unit/division within the NEA Therefore, the AEPC should facilitate the process by should be given the responsibility to oversee the rural creating greater awareness about financing the grid electrification program through grid extension. The connection of MHPs among BFIs. Small Hydro and Rural Electrification Division within the NEA, which was shut down in 2006, could be rees- 4.3.2.4. Facilitate access to low-cost loans rather tablished (or a similar unit established). The GoN has than providing capital subsidy been subsidizing the CBRE program, which extends 347. High interest rates deter MHPs from approach- the national electricity grid to rural areas, through the ing banks for financing; therefore, it is likely that NEA. Since the GoN provides subsidy support both

82 Weighted average of NPR 8.40/kWh (dry season) and NPR 4.80/kWh (wet season) 83 On a conservative estimate, typical installed cost/MW for SHP is NPR 170-200 million as opposed to NPR 400-450 million for MHP. 84 Since MHPs are proposed to be connected at 11 kV, when there is load-shedding on the national grid, they would not be able to evacuate power to the grid. the RSCbefore MHPs. scalingupgrid-connected Given tion willhave to bepiloted andtested by theAEPCand thetransitionto aformaling itmake businessorganiza- AEPC. theMHFGandhelp The processes for nurturing by the 2) shouldbetheinstitutionalmodel supported (Option tinued responsibilityto thelocalcommunity financial attractive). Therefore, MHPasanIPP withcon- substantialprofitswould make (provided thePPA rate is 86 85 purchaseor even outright level, suchMHPs over couldbetaken through alease would not be justified.nection) On a more operational at all, therationalefor to grid AEPC subsidy(prior con- thelocalcommunity to thegrid anddoesnotserve beingconnected asanIPPafter anMHPacts 351. If grid inthenational shedding to thecommunity duringload to electricity supply responsible MHPs shouldbe 4.3.3.3. Grid-connected chased asageneralpolicy. to powerconnected the grid and their surplus pur cially viablefor MHPs thecommunity shouldbe the localeconomy. Therefore, aslongitisfinan- intosums ofmoney ruralNepalandhelp improve would transform as well the sector as redirect large of theMHP. power ispurchased If from anMHP, it of purchase ofpower ratherthanabandonment recommended should pursue a policy that the GoN MHP andthenabandoningtheasset.Instead, itis ever, promotes theAct compensatingtheexisting judicially reinforcedand perhaps if necessary. How- 1992,itneedsto Act, beenforcedof theElectricity the enablinglaw 29and30 already existsinSections cal community’s investments andassets. Although should betheGoN’s obligationto safeguard the lo the grid eventually enters areas, MHP distribution it butalsoBFIs.only thecommunity Therefore, when render suchinvestments not strandedandimpact the nationalgrid areas into MHPdistribution could to thatarea. However,electricity encroachment of thenational is gridunable to toGoN extend provide invests350. Alocalcommunity inanMHPonlyifthe MHPagainstgridencroachment 4.3.3.2. GoNshouldprotect master plan. national ruralelectrification the NEA andAEPCshould collaborate to prepare a sues are resolved inaplannedway. importantly, Most is- are utilized optimallyandtheMHP-grid interface programstwo beharmonized sothatthesubsidies to CBREand MHPprograms, itiscrucialthatthese

By paying ofthe capex. thedepreciatedBy costfor portion thecommunity but isunableto dosodueto grid non-availability. Alternatively, theNEAcanguarantee aminimumpayment equivalentto atleast50percent ofpower off-take thattheMHPiswilling to supply to the grid, 86 by private investors who by investors private who - - - fore, withrelevant theAEPCshouldwork institutions donotreflect they real costs to theeconomy. There rently, theoffered PPA rates are agoodbeginning, but CurNEA, butisformulated oftheGoN. into apolicy theAEPCand between arrangement a working andsellpowernected to theNEAdoesnotremain NEA Board of Directors to allow MHPs to be grid con- level toGoN ensure thattherecent decisionofthe tion withtheNEAandrelevant atthe ministries 354. The inclosecoordina AEPC shouldalsowork - communities intheruralhillsofNepal. MHPs by should scale-up reaching outto off-grid are well testeddelivery androbust. Therefore, AEPC institutions, thetechnology andthemechanismof lives inruralNepal. Furthermore, thestrategy, the This pathway hasthegreatest potential to transform communitiesaspossible.out to asmany off-grid pathway ofMHPs asstandalonevigorously to reach rural hillsofNepal, theAEPCshouldpursue in the scale up access to electricity study to further MHPs optionto Nepal. indoingsoastheleast-cost eas ofNepal. of theimportance This studyunderlines to remotein deliveringaccessto ruralar electricity growing oftheAEPC recognition oftheimportance AEPC are themaindriversofthiseffort. Therea is of the country. to all parts electricity The NEA and ever, iscommitted theGoN accessto to extending How- into darkness. has literally plungedthecountry andgovernance deficit account ofpoliticalinstability tial inthecountry, inadequate investments mainlyon of hydropowerAlthough, there is no dearth poten- 352. The power situation in Nepal is in a state ofcrisis. 4.4 W is signed withtheNEA. gal entitiesbefore isenabledandaPPA grid connection MHFGsshouldbeupgraded tonection. formal andle step totalto financial analysisasapreparatory con- grid munity, to appreciate andunderstandincremental and ofRSCsandthrough themthecom- build thecapacity of MHPs should be shared. Moreover, the AEPC should to bedeveloped onhow theprofits from theoperation local government inmostMHPs, consensus would have that there isinvestment fromand theAEPC,community 353. Amongthethree pathways 4.4.1. AEP a y Forwardy C 87 analyzed inthis - - - - 73 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Findings, Recommendations 04 and the Way Forward

(e.g. Electricity Tariff Fixation Commission) to create a robust and fully justify development investments in policy basis for determining PPA tariffs for MHPs con- it in the form of capital subsidies. Therefore, scale- nected to the grid. Furthermore, unless there is guar- up and roll-out of MHPs in Nepal to enable off-grid anteed evacuation of all or at least the surplus power communities gain access to electricity continues to 74 generated by the MHP, a policy on grid connectivity is offer an attractive avenue for donors. ineffective. Therefore, the AEPC should work with the NEA on modifying the current PPA to include either 358. Donors could support the AEPC to build ca- a “deemed generation” status to MHPs or a guaran- pacity to steer a comprehensive policy in the area teed minimum payment on grid outages hindering of grid connectivity of MHPs. Similarly, financing of evacuation of power from the MHP to the grid. grid connectivity offers a new area for donors to channelize funds through the banking sector rather 355. Given the reality of grid extension into rural than offering capital subsidies. Nepal, the AEPC should modify its current micro hydropower schemes to include the cost of metering 4.4.4. NEA Mini and Micro Hydropower Applications Mini and Micro Hydropower

through up ElectricityNepal: Scaling Access and building an NEA standard distribution network 359. Grid connectivity of MHPs is a radically new in micro hydropower service areas so as to enable step for the NEA. It will help the NEA gain well-or- them to become grid ready. Furthermore, it should ganized and tariff-paying rural customers. In many work in close coordination with donors and finan- cases where the distribution network is up to NEA cial institutions to roll out a line of credit for grid standards, it would also not have to invest in creat- connectivity of existing MHPs at low interest rates. ing an entirely new distribution network. The NEA would also gain access to power close to load cen- 4.4.2. NMHDA and the MHP Industry ters and thereby save on transmission losses. 356. The NMHDA should work in close cooperation with the AEPC in scaling up the reach of MHPs to off- 360. To enable the first grid-connected MHP under a grid communities. More specifically, it should work PPA, the NEA should work with the AEPC to identify with its members on the twin objectives of cost re- a suitable site. Using the experience gained during duction and quality assurance. It should also seek the operationalization of the grid connection of that help and support of the AEPC, technical agencies and site, suitable guidelines for grid connection of MHPs donors to help streamline the MHP manufacturing could be drawn up by both the AEPC and NEA. process. The AEPC should support the MHP industry in expanding business potential by helping them 361. Overall, the study concludes that the AEPC gain access to mini hydropower and ultra low-head should vigorously pursue scaling up MHPs as stand- technology by enabling technology transfer. alone installations. Simultaneously, it should work closely with the NEA to gain experience by op- 4.4.3. Donors and Development Agencies erationalizing the grid connection of a few MHPs. 357. In the area of off-grid rural electrification, this Based on the experience gained it should also work study unequivocally shows that among the various on creating an enabling policy and procedure for RETs, where technically feasible, MHPs represent the grid connection of MHPs. As for mini-grids, the AEPC least-cost option to the community as well as the should support them on a case-by-case basis after economy as a whole. Furthermore, the study shows carefully assessing the actual demand for off-peak that economic benefits that flow from an MHP are power as well as financial and economic benefits.

87 Scaling up MHPs as standalone, mini-grids and grid connected. See section 3.2 Annex 1: Institutions involved in the micro hydropower sector of Nepal

This annexure briefly introduces various govern- new clean energy enterprises, promoting clean mental and non-governmental agencies, which energy and improving economic opportunities to support the micro hydropower sector of Nepal. relieve South Asian countries, such as Nepal from rising energy costs. In addition, RCHMH organizes ALTERNATIVE ENERGY PROMOTION knowledge on completed micro hydropower proj- 75 CENTRE (AEPC) ects and supplements it with regional best practic- The AEPC was established on November 3, 1996 as a es to make it available to community stakeholders, semi-autonomous government agency governed by clean energy project developers and financial insti- a Board of Directors. It is a line agency of the Minis- tutions across South Asia. try of Science, Technology and Environment (MoSTE) and works as a national focal institution for alterna- National Rural and Renewable Energy tive and renewable energy promotion. AEPC’s man- Programme (NRREP) dates are policy and planning, resource mobilization, The AEPC started the NRREP on 16 July 2012 with technical support, monitoring and evaluation, stan- support from the GoN and various international de- Mini and Micro Hydropower Applications Mini and Micro Hydropower

dardization, quality assurance and coordination with velopment partners such as the World Bank (WB), through up ElectricityNepal: Scaling Access stakeholders in the renewable energy sector. Asian Development Bank (ADB), United Nations De- velopment Project (UNDP), United States Agency for The AEPC has succeeded in private sector develop- International Development (USAID), Department for ment by involving over 400 private companies and International Development (DFID), German Society more than 350 local enterprises in the renewable for International Cooperation (GIZ), Danish Interna- energy sector while creating 30,000 jobs at the lo- tional Development Agency (DANIDA), German De- cal level and providing 1.5 million households with velopment Bank (KfW), Netherlands Development some form of renewable energy technology (RET). It Organization (SNV), Norwegian Ministry of Foreign has had positive impacts on rural education, health, Affairs (NMoFA) and the European Union (EU). and information and communications technology (ICT) sectors by providing electricity to 14 percent The NRREP is mainly focused on improving the living of the rural population. Various programs within the standard of the rural population by increasing their AEPC are briefly discussed herein. productivity and employment rates, reducing their de- pendency on traditional energy, and integrating alter- Regional Centre for Excellence in Micro native energy with socioeconomic activities to attain Hydropower (RCEMH) sustainable development. The program will continue The AEPC in partnership with USAID launched the for five years with a total budget of US$184 million. RCEMH project in 2010 for the development and promotion of micro hydropower projects. RCEMH Breaking up foreign aid to support rural areas and facilitates access to clean energy technologies the renewable energy sector has proven to be in- throughout the South Asia region by stimulating effective and has failed to deliver expected results Annexes

in the past. Therefore, the NRREP organized itself as NEPAL ELECTRICITY AUTHORITY (NEA) a single program modality such that all of AEPC’s The NEA was established on August 16, 1985 under renewable energy programs supported by devel- the Nepal Electricity Authority Act 1984, through the opment partners are funded within the NRREP. This merger of the Department of Electricity of the Minis- 76 has helped to minimize inefficiencies, duplication, try of Water Resources, Nepal Electricity Corporation, non-coordination and fragmentation of aid for rural and other related development boards. An individual areas and the renewable energy sector. organization was necessary to achieve efficiency and reliable service to remedy the inherent weakness as- Renewable Energy for Rural Livelihood (RERL) sociated with overlapping and duplication of works Between 1996 and March 2011, the UNDP-support- through fragmented electricity organizations. ed Rural Energy Development Programme (REDP) enabled more than 50,000 households to light their The main objective of the NEA is to generate, trans- homes, cook their meals and power their enterpris- mit and distribute adequate, reliable and affordable es from sources of clean energy. The REDP helped power by planning, constructing, operating and Mini and Micro Hydropower Applications Mini and Micro Hydropower

through up ElectricityNepal: Scaling Access formulate policies and the institutional framework maintaining all generation, transmission and distri- for decentralized development and management bution facilities in Nepal’s interconnected or isolated of rural energy supplies. By its end, the project had power systems. NEA’s other responsibilities are to rec- helped establish district energy and environment ommend long- as well as short-term plans and poli- units (DEEUs)88 in 72 district development commit- cies in the power sector to the GoN, to determine the tees (DDCs) for local energy development. It had tariff structure for electricity consumption with prior also trained these communities to run and maintain approval of the GoN, and to manage training and their micro hydropower schemes. study to produce skilled human resources in generation, transmission, distribution and other sectors. Such success led to the REDP model being adopted by the Government in its landmark Rural Energy Pol- NEA’s Load Dispatch Centre (LDC) located in Kath- icy (2006) and as the basis for its nationwide Micro- mandu is at the heart of the national grid (also called hydro Village Electrification Programme (MHVEP) the Integrated Nepal Power System (INPS)). Through funded by the World Bank. the LDC, the NEA supervises and maintains the quality of electrical power supplied to the consumers, works RERL is an extension of the successful partnership be- towards maintaining balance between demand and tween the GoN and UNDP in the renewable energy sec- supply, and tries to minimize power interruption. Su- tor with an aim to consolidate the best practices from pervision and monitoring is done through the com- REDP and continue scaling up access to energy. This puter-based Supervisory Control and Data Acquisition new program is being implemented by the AEPC and (SCADA) system that collects real time data from pow- has begun work on reducing barriers that hinder wider er stations and substations spread around the country. use of renewable energy resources in rural Nepal. These barriers include policy and regulatory barriers, inad- DEPARTMENT OF ELECTRICITY equate institutional capacity, the high cost of installing DEVELOPMENT (DOED) rural energy schemes, and limited technical expertise. Electricity Development Center (EDC) was established on July 16, 1993 under the Ministry of Wa- The RERL program will be a transition program ter Resources (MoWR). It was later renamed as the before the full-fledged Global Environment Facil- Department of Electricity Development (DoED) on ity’s (GEF) UNDP funded RERL program is finalized February 7, 2000. Its main objective is to develop and brought into implementation in 2014 for the and promote the electricity sector to improve its fi- next five years. The program plans to link with the nancial effectiveness at the national level by attract- NRREP. The current RERL program aims to complete ing private sector investment. The DoED is respon- the joint commitments of the AEPC and the World sible for assisting the Ministry in implementation of Bank for achieving the target of 4.25 MW electricity overall government policies related to the electricity generation through implementation of MHVEP. The sector. The major functions of the DoED include en- program further supports the AEPC to consolidate suring transparency of the regulatory framework, as the best experiences/practices of the REDP. well as promoting and facilitating private sector par-

88 Now known as District Environment, Energy and Climate Change Sections (DEECCSs) nities, market information, and business development information,nities, andbusinessdevelopment market technical training, investmentport, subsidy to commu- by providing information and social mobilizationsup to boththedemandandsupply sides offers support It by thenationalgrid for atleastfivenot beserved years. grid micro hydropower for villages, market whichwill The Offset Carbon Project aims to develop aviableoff- Hydro ProgramMicro (NVMHP)wasestablished. to AEPC’sadditional financialsupport Nepal Village Offset Carbon Project to providecomplementary in meeting its powerthe GoN objectives. sector A AssociationDevelopment (IDA) credit to assist 2003 consistingofaUS$75.6millionInternational The WB approved a Power Project Development in the development ofthemicro hydropower sector. donoragencies, various companiesfor andprivate GoN, tor. the asaliaisonbetween NMHDA hasbeenworking foractivities promotion, training and research in thissec- on MHPstechnical to support its members, and conduct promotion ofmicro hydropower technology, provide aims to influence the hydropowerIt ofNepal for policy ofMHPs.commissioning, andafter-sales services equipment,aswell asinstalling, (MHPs) andnecessary ofmicroing, hydropower andmanufacturing plants design- insurveying, andexpertise spread knowledge hydropower isto majorobjective inNepal. sector Its in the micro nization for companies private working NMHDA wasestablishedin1992asanumbrella orga - inthewater andenergyects resources sector. agencies in formulating policies and planning proj- relatedistries to water resources andotherrelated WECS isto aswell assisttheGoN, asthedifferent min- responsibilityofthe The primary (WECS). Secretariat was given thename, Water andEnergy Commission secretariat ofthe WEC wasestablishedin1981and and accelerated manner. Consequently, apermanent veloping water andenergy resources inanintegrated ofde lished byin1975withtheobjective theGoN The wasestab Water andEnergy Commission (WEC) to projects. allhydroelectricity and related services ticipation inthe power by sector providing licenses THE WORLD BANK (WB) DEVELOPMENT ASSOCIATION (NMHDA) NEPAL MICRO H SECRETARIAT (WECS) WATER AND ENERGY Y DROPOWER COMMISSION - - - performing credit delivery andmanagementroles. credit delivery performing dutiesto theAEPC,ithasbeen of thesubsidydelivery mobilized GoN’s subsidy. However, thetransfer after thebeginning, In ADBLprovided and credit support access to alternative energy for theruralpopulation. role inpromotingplayed and creating animportant ments inthemicro hydropower ofNepal. sector It ADBL was the pioneer institution that made invest tually, financingisolated MHPs. theADBL started providing credit ofthesemills. for Even electrification - When thesemillsproved successful, itlater started firstprovidedtion ofNepal. credit It mills. for turbine of providing institutionalcredit to theruralpopula- The ADBLwasestablishedin1968withtheobjective inruralareas. services electricity velopment isthushelpingimprove Project. It accessto hydropower componentofthe World BankPower De through themicro supported activities electrification together also brings rural and supply companies. It to micro-hydropower services construction support gy includingfinancing site installationsofpilotprojects. involvedITDG wasactively in promoting MHPtechnolo ate Technology Group Development (ITDG). The then - the 1990s, asIntermedi PracticalIn wasknown Action sustainable livelihood ofpoorhouseholds. productivecess; and ensuring end-use of energy for energyducing minimum standards forenergy ac- inmarginalizedenergy communities; intro services mobilizingdemandforthe energy accessmarket; in access; increasing participation sector private mentation ofadvancedclimate resilient energy Practical isinvolved Action in planningandimple by 2030. energy accessto achieve universal accessto energy minimumenergyon achieving standards and total focusa decentralized energy system withparticular and financing. The program hopes to demonstrate tor inproviding energy accessto modern resources, to engageandincrease therole sec- oftheprivate well asdeveloping andtesting innovative new ideas focuses onproviding anenablingenvironment as green energy inlightingandcooking. The program benefit ruralpopulations by increasing access to Practical Action’s Energy program inNepalplansto LIMITED (ADBL) AGRICULTURAL DEVELOPMENT BANK PRACTICAL ACTION PRACTICAL - - - - - 77 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annex 2 Details on plants visited and plant performance

This annex provides a brief description of site visits Tables A2.1 and A2.2 list the various MHP sites, CBRE undertaken in the month of May, 2014 for the World sites and other service providers in the sector that Bank Technical Assistance titled “Nepal: Scaling up were visited. In addition, consultations were also Electricity Access through Mini and Micro Hydropower undertaken with Nepal Micro Hydropower Devel- Applications: A strategic stock-taking and developing opment Association, and other consulting firms 78 a future roadmap (TA #P144683)”. Sites visits included such as MEH, Sustainable Energy and Technology MHPs, community managed electrical distribution Management. systems, RSCs and a number of MHP manufacturers and installers in Butwal.

Table A2.1 | List of MHP sites visited S. No. Date of Visit Name of MHP Location 1 11 May, 2014 Gottikhel MHP Gottikhel, Lalitpur 2 12 May, 2014 Midim Kholan MHP Ishaneshwor, Lamjung Mini and Micro Hydropower Applications Mini and Micro Hydropower

through up ElectricityNepal: Scaling Access 3 13 May, 2014 Bhujung MHP Bhujung, Lamjung 4 17 May, 2014 Ghandruk I MHP Ghandruk, Kaski 5 18 May, 2014 Ghandruk II MHP Ghandruk, Kaski 6 18 May, 2014 Malekhu I MHP Mahadevsthan, Dhading 7 18 May, 2014 Malekhu II MHP Mahadevsthan, Dhading 8 19 May, 2014 Daram Khola I MHP Wamitaxar, Gulmi 9 19 May, 2014 Daram Khola II MHP Wamitaxar, Gulmi 10 20 May, 2014 Giringdi Kholan MHP Kharbang, Baglung 11 25 May, 2014 Yafre MHP Taplejung

Table A2.2 | List of stakeholders visited S. No. Date of Visit Name of Stakeholder Location 1 8 May, 2014 South Lalitpur Rural Electric Cooperative Lalitpur 2 14 May, 2014 Lamjung Electricity Users Association Beshi Sahar, Lamjung 3 27 May, 2014 North Engineering Company Pvt. Ltd Butwal, Rupandehi 4 27 May, 2014 Nepal Hydro & Electric Limited Butwal, Rupandehi 5 27 May, 2014 Oshin Power Service Pvt. Ltd Butwal, Rupandehi to begrid connected. AEPC andGiZ. This isthefirstisolated MHPinNepal from the project for with support grid connection unit was installed as a pilot 24 kW turbine-generator to consumersinanisolated mode.tricity The new unitsupplieselec- The old16kWturbine-generator system system. andanewer 24kWgrid connected differentruns two systems: anolder16kWisolated MHPlocated Lalitpur district inSouth The Gottikhel 2014areMay summarized herein. featuresKey ofthesites thatwere visited during I Key Features . Go panel for 24kWsystem MHP oftheGottikhel Figure ikhel MH P tt A2.1 (a) 18 kW system (b) 24 kW system (c) Control panel for 18 kW system (d) Control and synchronizing of Sites (c) (a)

visited Bahuuddeshiya Utpadan SamuhPvt.LtdBahuuddeshiya Utpadan inGot Ghimire,Keshab theheadandowner ofMahankal lines,of thedistribution were notdecidedupon. other conditions, such as maintenance responsibility supplied by the microity hydropower as well sector as - system wastowhich thedistribution buytheelectric outany FITagreement,had notworked i.e. therate at However, REC). MHP and SLREC(or NEA) the Gottikhel Cooperative (SL aged byLalitpurRuralElectric South the NEAgrid. The NEAgrid system in this area isman- not receive any supplied to payment for the electricity the MHPowner (thisisanentrepreneur runMHP)did grid for four because months and then disconnected The 24kWsystem to wassuccessfullyconnected NEA’s (d) (b) - - 79 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annexes

tikhel mentioned that the 20 kW MHP was set up expanded over large parts of Ghimire’s distribution in 1995 with support from SNV (NPR 385,000), ADBL area, several agro-processing units got established, (NPR 900,000 @ 10 percent rate of interest) and which have cut into his end-use business. The end- Kathmandu Metal Industries (NPR 1 million). The user is greatly benefited by this development as 80 loan from Kathmandu Metal Industries was interest households get served closer to their doorstep. free and was repaid by Ghimire over a period of 12 years. II. Midim Kholan MHP The 100 kW Midim Kholan MHP located in Ishanesh- Drawing from his earlier experience of running a 6 wor, Lamjung district has signed a PPA with the NEA. kW plant, Ghimire opted for a HDPE-based head- The PPA rate (NPR 3.27/unit for the wet season and race even though it was costlier than a simple ma- NPR 5.73/unit for the dry months) was set by the sonry structure. This, he claims has helped him run NEA on the basis of the total cost of the MHP ex- the plant 24-hours a day all seven days of the week cluding the subsidy amount provided by the AEPC.

Mini and Micro Hydropower Applications Mini and Micro Hydropower for the past 19 years even though several landslides However, the actual power generated by the MHP through up ElectricityNepal: Scaling Access occurred in the area during this period. during test runs has been only 83 kW. Due to the undersized head-race canal and partially completed Until the grid was extended into the distribution tail-race canal it has not been possible to divert the area of this MHP, it supplied power to 152 house- entire design discharge; and thus the reason for the holds @100 W/household for NPR 100/month. In inability to generate 100 kW of power output. This addition, it also powered a rice huller, oil press, weld- power plant is near completion and work on grid ing unit, masala grinder, maize huller and a sawmill, synchronization was ongoing during the site visit all operated by Ghimire’s company at the MHP site. period.

The total monthly revenue from sale of electricity The plant is run by Shree Deurali Bahuuddeshiya and services rendered by the end-uses listed above Sahakari Sanstha — a cooperative that was started amounted to approximately NPR 85,000. Of this only about 14 years ago with GTZ support for promot- about NPR 16,000 came from households, indicating dairying in the area. Currently, it has 1,500 mem- ing the importance of end-uses to this company’s bers who are all expecting to receive dividends top line and bottom line. Since the arrival of the grid, from profits accrued from sale of excess power to revenue plummeted down to NPR 30,000–40,000/ the NEA. Interestingly, the Paschim Lamjung Com- month, primarily on account of end-use applica- munity Electricity Users Association distributes NEA tions. Ghimire continues to supply electricity to 80 power in the local area. However, at the time of our households, and claims that he no longer collects visit there had been no power supply from the grid payments from them. for the past few months, due to technical reasons.

With the advent of the grid two new end-uses have Ironically, the local MHP (which is owned by the Co- come up such as a Xerox center and a computer operative) was also not in operation because of pend- center. Both these need regular electricity supply ing electrical works and some significant civil structure which the grid is unable to ensure. Therefore, these modifications. Thus, the people of this area were re- units have also subscribed to Ghimire’s power sup- ceiving power from neither the MHP nor the grid. ply for which they pay NPR 500/month (as per Ghi- mire’s statement). Om Raj Ghimire, the president of the Cooperative said that the Cooperative took over an existing 40 Upon the arrival of the grid, consumers from the five kW system by repaying the previous owner’s loans. wards that Ghimire supplied power to and some The Cooperative, making a clear departure from from other wards travelled to his plant site to have its existing activities, decided to get into electricity their grains processed. Once the grid coverage area generation and distribution because it felt that it could have doneitfor halfthecost. itself hadexecuted theplant’s they construction, plant. Onhindsight,hefelt thatiftheCooperative ofthe charged for portion theelectro-mechanical area were andthatthey wasnotsatisfactory, over provided byandtheRSCin thecontractor andadvice Ghimire felt ofservice thatthequality ofwater.adequate quantity forplant wasnotableto runatfullcapacity wantof water needed for inthearea andthus, irrigation the into account the didnottake that thecontractor kW by increasing thehead. However, Ghimire claims modified to produce 100 built whichwasfurther 80kWplantwas MHP wasdemolishedandanew ing significantly to itsbottom line. The old40kW better whilstalsoadd- thecommunity could serve Consultants meetingwiththeCooperative P Figure A2.2(a) Turbine andgenerator set(b) Cooperative office (c) P (c) (a) resident KholanMHP ofMidim - completed to andconnected thegrid. beganonthe100kWMHPanditisyetwork to be NPR 2.2million/year. However, itisthree years since plant downtime andgrid downtime) andaprofit of percent plantloadfactor, atallorder considering units/year to thegrid (thismeansoperatingat91 million/year from is expected the saleof800,000 by theinstallerandAEPC,arevenue ofNPR3.3 As perthePPA andtheprojectiongiven to them persuade theNEAto offer aPPA ata reasonable rate. for amonthto nearly had to camp inKathmandu andmoney to materialize andthathe a lotofeffort As for thePPA withtheNEA,Ghimire saidthatittook ower transformer for (d) gridconnection (d) (b) 81 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annexes

III. Bhujung MHP Bhujung MHP is serving various end-uses, such as The Bhujung MHP located in Bhujung, Lamjung dis- agro-processing units, sawmills and ropeway lines trict consists of two cascaded MHPs: an upstream (that are used to transport harvest from the lower MHP of 80 kW and a downstream MHP of 20 kW. fields as well as to supply construction materials from 82 The 80 kW MHP is running well; however, it is only the riverbank to the village). Apart from household generating 64 kW (this power plant has never gen- lighting, the community has also started using elec- erated the full 80 kW rated capacity). The 20 kW MHP tric appliances, such as rice cookers and televisions. was not operational during the site visit. The community plans to synchronize these two MHPs and This MHP supplies power to Bhujung, Kamigaon, work on the synchronization is ongoing. The MHPs and an adjoining village situated across the valley. are under the supervision of the MHP Management Kamigaon is a Dalit-dominated village, while Bhu- Sub-committee, which is a part of the Conservation jung is a Gurung village and is part of the Anna- Area Management Committee. Technical, financial purna conservation area and has been preserved to

Mini and Micro Hydropower Applications Mini and Micro Hydropower and management support is provided by the Anna- showcase Gurung culture and way of life. Access is through up ElectricityNepal: Scaling Access purna Conservation Area Project (ACAP). by a winding steep climb from Besishahar that takes about three hours on a 4-wheeler. The road ends The tariff has now been reduced from NPR 100 per abruptly from where one descends into Bhujung month per 100 Watts to NPR 65 per month per 100 by way of a set of steep stone-hewn steps. All nine Watts. This is because once all loans were paid back wards of the VDC are set into the steep hillside over- the community decided to lower the tariff. looking a deep but narrow valley that houses the power plant as well all village farms.

Figure A2.3 (a) Operational 80 kW system (b) Not operational 20 kW system (c) Sawmill (d) Agro-processing mill served by the Bhujung MHP

(a) (b)

(c) (d) is almost56kWofthe64produced, ismainly 08:00-17:00hours. load,during Domestic which All productive end-usesare allowed only to function area canalsooperate withoutoverloading theplant. onalternatehe works days sothatotherhullersinthe current needed for running the huller,high starting there wasgrain to behulledinthevillage. Given the he ranhishullerfor about sixmonthsinayear when Prasad Ram hullersaidthat Gurungwhorunsarice 7.5 kWmotor for about134hoursinayear. 1000 kWh/year, whichisequivalentto runninghis that hepaidaboutNPR8,000/year thatamountsto entele to cater to beyond Bhujung. Hementioned poor accessto thevillage, hedoesnothave any cli- in ayear dependingonlocaldemand. Given the mill, saidthatheranhisplantfor onlyafew months NPR 8/kWh.Pitraman Gurung, theowner of asaw- Each plantusesa7.5kWmotor of andpays atariff sawmills in thevillagethatusepower from theMHP. There are three agro-processing unitsandthree Ghandruk IMHPinfront ofthepowerhouse Figure A2.4(a) Turbine andgenerator set(b) Signboard andoperator oftheMH P (c)Manager ofthe (c) (a) Committee needto travel for almosthalfaday. sonnel from Hydropower Micro Sub- Management necessary. For per cleaningoftheintake, aweekly structure is maintenance andcleaningoftheintake and floating vegetation (leavestwigs), andregular of the site is situatedtake far away. Due to landslides of ACAP. and support under the supervision The in- isalsobeingrun cascaded GhandrukMHPsystem. It isthefirstphaseandupstream plantofthe trict, Ghandruk I MHP, dis- a 50 kW plant located in Kaski usage (365households)hashighlyincreased. structure (NPR65/100W/month),domestic flat tariff (almost80percent ofhouseholdshave it)anda TV ing. However, withincrease inuseoflightingand forests by reducing theuseoffirewood for cook aswell conserve to encourage useofelectricity whentheMHPwassetup, cookers rice distributed equate voltage, itisnotconvenient. The ACAP had cookers, intheabsenceofad- households userice for lightingandtelevision. Althoughsomeofthe IV. Ghandruk I MHP (b) - - 83 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annexes

As this was one of the first MHPs installed (1992) Apart from supplying electricity to the hotels and in the Annapurna region, the community received households, Ghandruk I MHP also provides electric- substantial support from various organizations and ity to a Nepal Telecom Corporation (NTC) tower. As donor agencies such as the ACAP, Canadian Interna- this power plant was not able to meet the peak load 84 tional Development Association (CIDA), Intermedi- demand of the area (and increase end uses), the ate Technology Development Group (ITDG – now community decided to build a cascade MHP down- renamed as Practical Actions), British Embassy, and stream of Ghandruk I MHP. World Wildlife Fund (WWF–US). V. Ghandruk II/ Bhirgyu MHP As Ghandruk is along a popular trekking route in Ghandruk II MHP is the second phase and the the Annapurna region, it receives a high influx of downstream plant of the cascaded Ghandruk MHP tourists most of the year. There are over 30 hotels system. This power plant (commissioned in 2012) is that cater to trekkers and tourists. All these hotels also being run under ACAP’s supervision and sup-

Mini and Micro Hydropower Applications Mini and Micro Hydropower are supplied with electricity generated from Ghan- port. This MHP utilizes tail-water from the upstream through up ElectricityNepal: Scaling Access druk I (13 hotels) and Ghandruk II (18 hotels) MHPs. Ghandruk I MHP.

Figure A2.5 (a) Powerhouse and the penstock alignment of Ghandruk II (b) Turbine and generator set (c) Interview with consumer (d) Rice cooker in use

(a) (b)

(c) (d) sion are kept on throughout the waking hours.sion areonthroughout She kept thewaking 30 minutes each. The water heater andthetelevi- aday for twice about cooker that sheusedherrice wasbeingused. mentioned cooker Sundevi the rice CFLs andonebulb. ourvisitintheevening, During television, six water heater (350 (300 W), cooker W), All these deals for more power were to run a rice load to herhousehold. 100 atotal of500 W each,making W ofsanctioned use another 200 W from their quota of an additional she managedto convince otherneighborsto lether the additionalallotmentfrom GhandrukII.Finally, NPR 10,000from herneighborwhodidnotwant to 100 she boughttherights forW ofconnection to immediately.which shesubscribed addition, In sioned she was offered another 100 W connection, to NPR65/month. When Ghandruk IIwascommis- which she paid NPR 100/month, which was reduced She had four bulbsof 25 W each totaling 100 W for 15 years ago when Ghandruk I began operations. outwitha100 the village. Shestarted W connection tural shows to raisefundsfor development in works the Ward 7 Women’s Group. Hergroup putsupcul- of GurungofGhandrukistheChairperson Sundevi these two. formed from thelocalcommunity, alsomanages Area Committee Management of theConservation whichispart Sub-committee, MHP Management a monastery.all ACAP-supported MHPs,Like an two 18hotels system, and bakeries, purification asLokta)(Nepali paperknown enterprise, awater apaper making End-uses of thisMHPcomprise rice cooker isaspirational. cooker rice itappearsthatforIndeed, many households usinga dueto poorvoltage. cooker cannotusearice they (both Dalits)have to 200 subscribed W butfindthat II. Similarly, Parihar AithaKumari Parihar andSunsari of Ghandruk 400/man day)the construction during about30daysfamily contributed oflabor(atNPR W andispaying afee ofNPR600/month. Heandhis 15years agoandhassince movednection upto 400 Sunar, witha100 Mankaji aDalit,started W ofcon- even GhandrukIIhasbeencommissioned. after revealed thatthere is an unmet demand for 147kW outinGhandruk carried He mentionedthatasurvey to another800-1000 W ifitwould becomeavailable. which heneedsmore power. Heis ready to subscribe wantsto offer hotel whileKisam for more services but wantmore wantsto Sundevi setupa power; are happy andKisam withtheservice Both Sundevi ofNPR2/W/month. he ispaying aflattariff not useitfor anything otherthanlighting. Currently, find the additional 100 could W useful since they ditional 100 W from other households that did not stream andfrom purchases to usethead- ofrights 100 onceGhandrukIIcameon W to eachsubscriber to theadditionalallotmentof nation ofsubscribing has increased to 1200 W acquired through a combi- witha100 started forW connection hishotel that Similarly, Gurung, owner Kisam GurungCottage ing. fuel wood butprovides great convenience incook does not save cooker much reckons that the rice - 85 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annexes

VI. Malekhu I MHP Apart from household lighting, other end-uses Malekhu I MHP is a 26 kW capacity plant located in from this MHP comprise four small poultry farms, Mahadevsthan VDC, Dhading district. The distribu- one sawmill and one rice mill. Furthermore, many tion area of this MHP is about one hour’s drive on households within the distribution system of this 86 the gravel road from Malekhu town along the East– MHP use televisions. West highway. The NEA grid has arrived close to the MHP distribution area. Mahadevsthan is a developing town and the power plant is currently unable to meet the peak hour demand.

Figure A2.6 (a) Turbine and generator set (b) Agro-processing mill (c) Satellite dish antenna (d) Woodworking shop served

Mini and Micro Hydropower Applications Mini and Micro Hydropower by Malekhu I MHP through up ElectricityNepal: Scaling Access

(a) (b)

(c) (d) Figure A2.7(a) Turbine andgenerator set(b) ControlI panel(c) 4:00 pm. This MHPalsohasexcess power thanthe from 10:00 be am minimal todemand for electricity the dayis shut down as during also there seems to season,thepower plant theirrigation tion. During this power plantisalsoextensively usedfor- irriga IMHP. ofMalekhu erhouse The headracecanalof upstream fromof thisMHPisabout4km thepow - hadevsthan VDC, Dhading district. The powerhouse - IIMHPisa18kWplantlocated inMa Malekhu VII . Malekhu II MHP (a) (c) rrigation IIMHP pumpingdoneat Malekhu head-race canal)). system (to supplywater to (from uphillterraces the incense er (to make “Sinkedhup”), irrigation andalift this MHPare: asawmill, sheller(huller),agrind- arice from householdlighting, otherend-usesfromApart mini-grid). is atalower level compared to the11kVBaglung MHPs. system willbeat400 The mini-grid V (which IandII Malekhu connecting tablishing a mini-grid existing demand. Thus, es- theAEPCisconsidering (b) 87 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annexes

VIII. Daram Khola I MHP This MHP is run by Paropkari Sahakari Sanstha, The Daram Khola I MHP is the upstream MHP of the which is headed by Dharmendra Kr. Malla. This plant cascaded Daram Kholan MHP system. It is located in caters mainly to rural areas surrounding the Wami- Wamitaxar, Gulmi district and is run by the Paropkari taxar bazaar. The cooperative has a total member- 88 Co-operative. Although designed for 116 kW, this ship of 1,685, each of whom has contributed NPR MHP is generating 135 kW. Major problems include 5,000 as share capital. The cooperative started its maintaining the head-race canal and the short lifes- activities about 20 years ago focusing mainly on pan of wooden distribution poles. savings and credit. It ventured into the business of electricity generation and distribution based on the The site is running well and commercial customers experience of its Executive Committee members are paying NPR 1,500 for the first 190 units. Produc- who were already running Daram Khola II as private tive end-uses from this MHP include 13 agro-pro- entrepreneurs. The cooperative is planning to set up cessing units, two sawmills, 10 poultry farms, an NTC a 1 MW mini hydropower plant on a PPP mode.

Mini and Micro Hydropower Applications Mini and Micro Hydropower tower, an Ncell tower and a computer center. The through up ElectricityNepal: Scaling Access MHP is planning to add a 100 kW aggregate crusher This 135 kW MHP has surplus power even during during the off-peak hours. peak hours and supplies power across the stream to Kharbang in Baglung district.

Figure A2.8 (a) Powerhouse (b) Two coupled turbines and the generator set of the Daram Khola I MHP

(a) (b)

IX. Daram Khola II MHP Two entrepreneurs (Dharmendra Kr. Malla and Ag- Daram Khola II MHP is the downstream MHP of the nidhar Ariyal) from Wamitaxar who invested initially cascaded Daram Kholan MHP system. It is located in about eight years ago, sold out 50 percent of their Wamitaxar, Gulmi district and is run by a private en- stake to a local school which made the investment trepreneur. Although designed for 70 kW, the MHP to earn returns. The entrepreneurs started out with is generating 85 kW. A major problem is the short a 10 kW watermill in the area before attempting the lifespan of wooden distribution poles. 85 kW Daram Khola II plant.

The site is running well and commercial customers The plant caters to 900 customers now, but when it are paying NPR 1,500 for the first 190 units. Produc- began operations it was serving a mere 400. Today, tive end-uses include agro-processing units, three the plant is overloaded, especially during evenings sawmills, three welding shops, a noodles factory, when the load of all households comes online. The and a computer center. plant serves Wamitaxar bazaar, which means a number of shops and establishments. bulbs (60 W), 14 CFLs (3 x 15 W and 11 x 7 W), a 14CFLs(3x15 W and11x7 bulbs (60 W), W), includes herhouseholduse as well. Sheusestwo age sheuses about 65kWh/month. However, this 200 isfor 25units@NPR8/unit). Thus, onan aver NPR 300isfor thefirst40kWhand remaining NPR Hermonthlybillisaroundnection. NPR500(of this to but soon shifted a 5A con- with a 2A connection, for intouch. theirfamiliesto keep Yamuna started calls are a cheap way outside work Nepal and Skype its surrounding areas have alarge populationwho callsat NPR50/hour.offering Skype Wamitaxar and Butthemainbusinessis services. email, e-ticketing in 2006andoffers printing, scanning, photocopying, II. from DaramKhola Yamuna café thecyber started of the Paropkari Cooperative) and receives power na Ghimire (also an executive committee member is a shop run by CyberSrijana and Stationery Yamu - the Daram KholaIIMHP(c)A Figure A2.9Figure A2.9(a)P (a) (c) arki Grill Udyoggro-processing Grill unit(d)Karki owerhouse alignment withpenstock (b) Coupled turbines andthegenerator setof - ground. hisoutlet openfrom Narayan keeps 07:00- ofreducedin terms charges for gettingtheir grain Thus, thefinalcustomer hasgainedsubstantially 7.5 kWhofenergy. Hecharges NPR2.5/paathinow. inanhourconsuming to grind 240paathis(960kg) he is able motor (7.5 kW) 5/paathi. Using an electric ofgrain inanhour.(1 paathi=4kg) Hecharged NPR sumed 1liter ofdiesel/hourandground 100paathis same purpose. Typically, thedieselengine con- engine for the running adiesel(8hp=5.96kW) motor.huller usinga7.5kWelectric hewas Earlier Narayan Prasad runsaflourmill-cum-rice Shakya a scanner, andaphotocopying aprinter machine. a ceilingfan. This isinadditionto three desktops, low voltage), apressingvery iron, a tablefanand (notableto useitdueto cooker television, arice (b) (d) 89 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annexes

10:00 hours and 15:00-18:00 hours every day for 20 ing, etc. He says that his income has doubled due to days in a month for all 12 months of the year. On an availability of electricity. Today, he employs seven to average his monthly bill is NPR 2,200, which trans- eight people. His monthly bill is around NPR 2,500. lates into 280 kWh/month (NPR 1,500 for 190 kWh However, this includes his domestic use as well, 90 and rest at NPR 8/kWh). Narayan also runs a photo which comprises a rice cooker. Since the voltage is studio, which has a separate electrical connection. very low during the day, he carries out all welding work at night long after the households have gone Basant Bahadur Karki runs a grill and welding shop to sleep. under the name Karki Grill Udyog. He used to work in India, but decided to return to his village 15 years Raju Parihar is a Dalit who runs Ranu Tailoring in ago when he heard that a road was being laid Wamitaxar. He started with a 2A connection but through Wamitaxar. The road opened new avenues soon shifted to a 5A connection since he could not of income for the area. Karki found that a number use the pressing iron with a 2A connection. Even

Mini and Micro Hydropower Applications Mini and Micro Hydropower of vehicles were moving through Wamitaxar and now he cannot use the iron during 18:00-21:00 through up ElectricityNepal: Scaling Access started offering puncture repair and air-filling ser- hours, but manages by scheduling it for other times vices which were both done manually. When power of the day when the voltage is better. He also uses supply began in the area with Daram Khola II he electricity to run his tailoring machines and claims decided to expand his services to include welding that he would not have been able to handle the vol- and slowly graduated to grill making, vehicle wash- ume of business but for electricity.

Figure A2.10 (a) Digital photo studio (b) Jeweler working at night (c) Popular brand of rice cooker (d) Pradhan’s electric shop

(a) (b)

(c) (d) Figure (chowmein) A2.12(a)Drona noodles van (b) making Students usingmini-laptops (c)FM radio station Figure A2.11(a)P tions are upto 1A. The total monthlyrevenue isNPR largely households. 75percent Nearly ofconnec- (each with6Aconnections). dustrial The rest are ofwhich23areThe MHPhas868connections in- andoneradiostation. one noodlefactory, studios, farms, providers, cable two 15 poultry TV mills, seven agro-processing mills, four digital photo one X-ray machine, three welding shops, four saw- of theMHPincludesfour fresh houses, five schools, from lightinguses, theproductiveApart end-uses system. of thedistribution to 9:00pm);dailyloadsheddingalsooccursinparts peakhours(fromgets overloaded during 6:00pm Designed for 75kWitnow generates 85kWbutit plant andtheirconfidenceinrunningit. inthe pride that managesthisMHPistheirevident feature ofitsexecutivedent, onestriking committee BahadurPun,Headed by Mitra aformer VDC Presi- erative thatwassetupexclusively for thepurpose. LaghuJal Sanstha—acoop Khola Vidyut Sahakari entrepreneur, isowned andoperated by Giringdi glung district. This MHP, initiallyoperated by an Ba- MHPislocated inKharbang, Kholan Giringdi X . Giringdi Kholan MHP owerhouse (b) Turbine andgenerator set(c)Control panelandtheMHPsystem KholanMHP ofGiringdi (a) (a) - (b) (b) mein Udyog. Before returning to hisvillage, hehad Drona Van Chow- owns andoperates Kharbang at hiscostifitbreaks down. 5,000 for gettingameter, whichhadto bereplaced charges andNPR has paidNPR1,000asconnection since theNEAgrid hasalotofloadshedding. He as well this connection but plans to keep nection, for repairs. Heisinterested aNEAgrid con- intaking when theMHPisshutdown for anumberofdays satisfied withtheMHPpower supply, butisaffected that amounts to about 250–300 kWh/month. He is charged at NPR 800 and the rest is at NPR 8/kWh) billisNPR2,000–2,500(thefirst100kWh tricity items. monthlyelec- grills andotherstructural His here andexperience inproducing that knowledge designer garden lights and fixtures. He has put ataplantthatproduced sia where hewasworking Chandra whoreturned from- Vishwakarma, Malay Engineering WorkshopKalika isowned andrunby bazaararea. shop intheKharbang The Baglung toThe MHPhasenabledseveral setup enterprises meters are purchased by theend-usersthemselves. household loads. Allcustomers are metered and customers,trial the dominance of thus underlining 110,000 ofwhichNPR35,000isfrom the23indus- (c) (c) 91 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annexes

worked in India and Dubai. His last visit to Dubai was MHP serving the Phungling bazaar is facing heavy through a broker on a false work permit that caused electricity shortage, the local population in the ba- him to lose NPR 150,000. This is when he decided zaar area is currently using a diesel generator set to set up a business in his own village. With support synchronized with a NEA mini hydropower to serve 92 from the REDP and encouragement from his parents, the demand during peak hours. There is a potential he hit upon the idea of producing chowmein, which to connect and synchronize Yafre MHP instead with he found was being consumed by many restaurants the NEA mini hydropower to power Phungling ba- and households in Kharbang bazaar. He uses two zaar. The AEPC has initiated a study on establishing motors of 2.25 kW and 1.5 kW each for making the a mini-grid system to serve Phungling bazaar and dough and for producing chowmein from dough. its outskirts. His monthly bill is NPR 1,300–1,800, which amounts to 160–230 kWh/month. Although the mixer and The diesel generator had broken down during the the chowmein maker can produce 400 kg of chow- site visit. When it was operational, the electricity

Mini and Micro Hydropower Applications Mini and Micro Hydropower mein in a day (eight hours), he makes only 100 kg sold from diesel generation was making a loss, due through up ElectricityNepal: Scaling Access since the chowmein has to be cooked before it is to increase in price of diesel. Apart from lighting either sold fresh or after drying (mainly sun drying). uses, the productive end-uses included two agro- On an average he makes a net profit of NPR 7/kg of processing mills and three poultry farms. chowmein sold. The Yafre MHP is a year old and provides power to Shree Tribhuvan Uccha Madhyamik Vidyalay, Khar- 870 households. It was built at a cost of NPR 40 mil- bang is a government-run school. It has a full- lion of which the community cash contribution was fledged computer lab that has access to the Inter- NPR 10.4 million and community labor contribution net and other teaching aids in the form of CDs. It was about NPR 3.5 million which also included labor has 50 mini laptops that have preloaded textbooks for making a 3 km road to facilitate transportation for students of classes 2–7 and covers subjects such of MHP-related equipment. The MHFG was formed as mathematics, science, English and Nepali. The in 2008 and the contract for building the plant was school also runs basic computer literacy classes for given in 2011. The plant was commissioned in 2013 its students for which it charges NPR 1,000/student/ as the community took nearly three years to mobi- course. Teachers find the computer lab very useful lize their contribution. The plant is providing power since it gives them access to a large pool of subject to two agro-processing units, and three poultry matter as well as learning and teaching materials. units. A papermaking factory and a computer center are being set up now. Radio Saarathi is a community FM radio that is managed by Bishnu Bhusal. It was set up with assistance The agro-processing units were earlier run by diesel from the REDP and has a 100 W transmitter in addi- engines and charged NPR 3/kg for hulling and NPR tion to a mixer, computer, and other items. It runs 4/kg for grinding. Now they charge NPR 2/kg for on revenues from local and government advertise- hulling and NPR 3/kg for grinding. On an average, ments. The radio station consumes 250–300 kWh/ each unit pays NPR 5,000/month towards electricity month and broadcasts from 05:00 to 23:00 every charges. day. XII. Lamjung Electricity Users Association, XI. Yafre MHP Besishahar, Lamjung District Yafre MHP is located in Taplejung district and run by The LEUA began operations in 1997 with full fund- the Micro Hydropower Functional Group (MHFG). It ing support from NORDIC. Currently, it covers 34 was designed for 95 kW output but generates 112 VDCs in Lamjung and three in Tanahun districts cov- kW and its peak load is only 75 kW; therefore, it has ering 24,000 customers. The total connected load excess power than its peak demand. As a nearby is 8 MVA. There are 161 distribution transformers. power have they asetof dedicated staffthatinclude and micro hydropower. For promoting micro hydro nologies, suchasSPV, biogas, improved cookstoves years withthemaintaskto promote allAEPCtech- for 10 whohave nearly beenworking (NCDC) Illam and The team metwithRSCsatBaglung (DCRDC) through MHPs. beingserved (110–130 W) for theavailable capacity usebytwice households translates to about220 W/household thatisatleast suming aloadingof70percent ofthecapacity, this a 25 kVA transformer for about 65 households. As- area oftheirdistribution would have rural portion be largely domesticandatalow density. Atypical tevadar, andSundarbazaars, theloadwould Khimti areathe distribution intheform ofBesishahar, Bho nance costs. Butfor thepresence ofalarge bazaarin are barely ableto meettheiroperationsandmainte says thatthey theOverseer ChandraAcharya, Harish that are usuallywooden. poles,of replacing especiallytheolderones electric inruralareasing islow loaddensity andhighcost year from theNEA. The mainproblem are they fac- to thenationalgrid. LEUA purchases 10millionkWh/ river thatsupplypowerstations builtonMarsyagdi to thepresence to oftwo three large hydropower due There isnoloadshedding inLamjungdistrict XIII Figure A2.13(a) Turbine andgenerator set(b) Control panelof . Mee ting

with RSCs (a) - - - below: issueshighlighted byThe bothRSCsare key listed Nepal. ineastern inthreewhile theNCDCworks districts ofNepal, incentral and western parts in 10districts engineers andfieldcoordinators. The DCRDC works l l l l l

Y afre MHP mild steel instead ofthespecifiedstainlesssteel. wasmade of that thejetnozzle intheturbines used iron plates thatwere or coated with copper; instead ofusingacopperplate for they earthing, of equipment haveity been noticed. For example, the lowest bidder, several instancesofpoorqual- andthe decision qualified contractors to go for With the advent of open bidding among pre- oftheMHP. parts cal andhydro-electrical - ofelectro-mechani ments to assessthequality RSCs are notequippedwithappropriate instru- standards. isbelow ofwork acceptable thequality Often, executesstaller whilethelocalcommunity it. toUsually, thein- isleft supervision civilworks of work. ited staff, avastarea to cover andahugescope isnotpossiblebecausetheRSChaslim- works controlQuality atfield level, especially for civil ies, subsidyrelease, etc. alongtime. takes stud- outpre-feasibility applications for carrying Since AEPCiscentralized, to process timetaken (b) 93 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annexes

l DCRDC felt that the proportion of subsidy cur- potential but the people of the area were very rently (40 percent) was low and needed to be in- poor and had very little exposure to the outside creased, especially in areas where people do not world and their aspirations were very low. have the means to bring in the rest of it. l Moreover, those areas had very poor or even no 94 l However, in places of relative prosperity, they felt access and therefore, the cost of an MHP would that the current norm of 200 W/household is not be very high on account of transportation costs. sufficient and should be raised to at least 400 W/ Even repairs would cost a lot since a technician household. would have to take a flight from Kathmandu or l They felt that in areas of lower prosperity such Butwal to reach the place. as the far west, a 200 W norm was acceptable, l Although, EEOs are also responsible for monitor- but not in areas such as Kaski, Baglung, Lamjung, ing the quality and progress of MHPs, they do not Gulmi. have the time or the reach to do so effectively. l Overall, the DCRDC felt that the areas surround- l Overall, it seems that EEOs (qualified engineers)

Mini and Micro Hydropower Applications Mini and Micro Hydropower ing the Kathmandu Valley, and central and west- are not being used well for promoting MHPs and through up ElectricityNepal: Scaling Access ern Nepal, were gradually being saturated by the AEPC seems to be relying more on RSCs. MHPs. MHPs are successful here as these rural areas are relatively more prosperous as many are XV. Meeting with Manufacturers at Butwal employed in the Indian, Singaporean and British The team met with Tanka Kandel of North Engineer- armies and have regular salaries and pensions af- ing Company (P) Ltd and Madhav Poudel of Oshin ter retirement. Many others are working as skilled Power service (P) Ltd. The following issues emerged and unskilled laborers in Dubai and other Arab from the meeting: countries and send in regular remittances. l North Engineering Company is in the business l In addition to prosperity, exposure to the outside of MHPs since the past 20 years. In the past five world has stimulated their aspirations and they years they have manufactured 100 MHPs, in- are willing to spend money on acquiring facilities stalled 80 MHPs and provided survey and design that provide them convenience and sometimes services for 50 MHPs. also a source of income. l Today due to a large number of pre-qualified companies, competition is severe and unhealthy. XIV. Meeting with District Environment and With relative saturation in the central region Energy Officers (Kaski, Gorkha, Dhading, Baglung, Gulmi, etc.) The team met with Dinesh Kr. Singh and Pritam the only source of business is cascade plants and Wangdi Lama, District Environment and Energy Offi- mini hydropower (>100 kW, <1000 kW). cers of Panchthar and Taplejung districts. Following l There is no year round business for all companies are the key issues that were highlighted: in the micro hydropower sector. l Earlier the EEOs were responsible for both pico l Quality assurance is very poor in the micro hy- (<10 kW) and micro hydropower plants. They dropower sector with only the output being had supporting staff in the form of community tested, and the quality and dimensions of the and social mobilizers. equipment are being inspected. There are cases l Now, EEOs are only responsible for pico hydro- where the lowest bidder has offered to execute power and therefore do not have community the project for an amount equal to the value of and social mobilizers for support. All MHPs are the subsidy, usually around 50–60 percent. now implemented with RSC support. l Tanka Kandel advocated that the AEPC should l Pico hydropower plants are identified during constitute a team that would carry out random DDC planning meets and implemented by the checks of manufactures at various stage of man- local community with support from EEOs. ufacturing, such as material inspections, as well l Dinesh Kr. Singh who had earlier worked in Jum- as in process and final pre-shipment checks for la in the mid-west region of Nepal, said that the a sample of the system that each manufacturer mid-west and far-west had great hydropower produces in a year. l l

decentralized MHPs in Nepal that would connect dropower sector. dream wasto His have alotof inthemicro experience hyter- theNorwegian was to model Nepal af- missionary Norwegian a Hofton, He mentionedthatthevisionofOdd for year/period. thenext into account forshould be taken qualifying them should rate eachmanufacturer. These ratings Based ontheseregular inspections,theAEPC sector inNepal.sector dream inthemicro ofpractitioners hydropower industries. them to start This, in many ways is the becomingavailable to develop withelectricity citieswould to turn, cities. In the saleofelectricity generate, thatthey butalsofrom the electricity would improve theireconomy by notonlyusing ensure that rural areas with hydropower capacity to the grid andsell power to cities. This would 95 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annex 3 Details on policies and grid codes relevant to MHP

Excerpt from Electricity Act, 1992

96 Mini and Micro Hydropower Applications Mini and Micro Hydropower through up ElectricityNepal: Scaling Access Ex cerpt from NEA ’ s Grid Code 97 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annexes

98 Mini and Micro Hydropower Applications Mini and Micro Hydropower through up ElectricityNepal: Scaling Access Annex 4: Details on financial analysis

Table 4.1 | Inputs Parameters for a 100 kW MHP - Standalone Parameter Unit Without subsidy With Subsidy Plant size kW 100 100 Plant life Years 15 15 Technical losses kW 0% 0% 99 No. of connections No. 800 800 Load/connection W 120 120 Operating load domestic kW 96 96 Operating load commercial kW 60 60 Operations/day (domestic) hr 6 6 Operations/day (commercial) hr 2.5 2.5 Operations/year days 300 300

Operations/year (commercial) days 240 240 Applications Mini and Micro Hydropower through up ElectricityNepal: Scaling Access Capacity Utilization Factor % 23.8% 23.8% Capital cost NPR million 40.00 40.00 Subsidy 50% - 20.00 Debt 20% 8.00 4.00 Equity 80% 32.00 16.00 Interest 14% 1.12 0.56 O&M NPR 0.80 0.80 Operators salary NPR 22,000 22,000 Tariff domestic NPR /month 0 0 Tariff domestic NPR /kWh 6.00 6.00 Tariff commercial NPR /month 0.00 0.00 Tariff commercial NPR /kWh 8.00 8.00 Escalation % 5% 5% Annexes

15 15 2.62 1.58 0.52 0.98 3.08 2.11 2.11 2.62 0.52 -0.46 -0.46 -0.04 36,000 172,800

14 2.01 2.01 2.50 0.49 2.50 1.51 0.50 0.98 2.98 -0.49 -0.49 -0.04 36,000

172,800 13 1.91 1.91 2.38 0.47

13 2.38 1.44 0.47 0.98 2.89

-0.51 -0.51 -0.04 12 36,000 172,800 1.82 1.82 2.27 100 0.45

2.27 1.37 0.45 0.98 2.80 11 -0.53 -0.53 -0.04 1.73 1.73 2.16 0.42 36,000 172,800

11 10 2.16 1.30 1.65 0.43 1.65 0.98 2.06 2.71 0.40 -0.55 -0.55 -0.05 36,000 172,800

- 1.57 1.57 1.96 0.39 10 2.06 1.24 0.41 0.98 2.63 -0.57 -0.57 -0.05 36,000

8 172,800 1.50 1.50 1.86 0.37

9 - Mini and Micro Hydropower Applications Mini and Micro Hydropower through up ElectricityNepal: Scaling Access 1.96 1.18 0.39 0.98 2.55 ears

7 -0.59 -0.59 -0.05 Y 36,000 172,800 1.51 0.57 2.08 1.78 -0.30

6 1.86 1.13 0.37 0.98 2.48 -0.61 -0.61 -0.05 1.52 0.57 2.09 1.69 36,000 -0.40 172,800 ears

5 7 Y 1.53 0.57 2.10 1.61 1.78 1.07 0.35 0.08 0.98 2.48 -0.49 -0.63 -0.71 -0.06 36,000 172,800

6 1.55 0.57 2.12 1.53 -0.59 1.69 1.02 0.34 0.16 0.98 2.50 -0.65 -0.81 -0.07 1,2,800 36,000

3 1.57 0.57 2.14 1.46 -0.68

5 1.61 0.97 0.32 0.24 0.98 2.51 2 -0.66 -0.90 -0.08 36,000 172,800 1.60 0.57 2.17 1.39 -0.78

1 1.53 0.93 0.31 0.32 0.98 2.53 -0.68 -1.00 -0.08 1.62 0.57 2.20 1.32 36,000 -0.87 172,800

- 0

3 1.46 0.88 0.29 0.40 0.98 2.55 20.00 -0.69 -1.09 20.00 -0.09 -20.00 36,000 172,800

2 1.39 0.84 0.28 0.48 0.98 2.58 -0.70 -1.18 -0.10 36,000 172,800

1 1.32 0.80 0.26 0.56 0.98 2.60 -0.72 -1.28 -0.11 36,000 172,800 NPR million NPR million NPR million NPR million NPR million NPR million -21.62 0

U nits kWh kWh NPR million NPR million NPR million NPR million NPR million NPR million NPR million NPR million NPR million NPR million Standalone - with Subsidy 100 kW MH P Standalone P / L for verview | O as Standalone - with Subsidy 100 kW MH P as Standalone for Flow | Cash 4.2 4.3 A b le Ta Cash outflow outflow Cash R evenue Sales domestic Investment Investment Total expenses less depreciation less depreciation expenses Total - Sales com mercial Principal Principal Sales Total cash outflow cash outflow Total E xpenses Cash inflow inflow Cash Sales O&M Net flow Net flow Operator salary Operator FIRR NPV NPR million Interest on Interest capital loan Depreciation Depreciation Total expenses expenses Total

PBIT Profit before Tax Profit before PBT/ month month PBT/ le A b le Ta Table A4.4 | Levelized Unit Cost of Electricity @16 percent RoE for 100 kW MHP as Standalone - with Subsidy Years Discount 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 rate 6% Total capex and expenses over life time NPR million 20.00 5.16 5.14 5.11 5.09 5.07 5.06 5.04 5.04 5.11 5.19 5.27 5.36 5.45 5.54 5.64 NPV of total capex and life time expenses NPR mil- 70.36 lion NPV of total unit generated in life time million kWh 2.15 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 LUCE at 16% RoE NPR /kWh 2.73

Table A4.5 | P/L for 100 kW MHP as Standalone - without Subsidy Years Revenue Units 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Sales domestic kWh 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 Sales commercial kWh 36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 36,000 Sales NPR million 1.32 1.39 1.46 1.53 1.61 1.69 1.78 1.86 1.96 2.06 2.16 2.27 2.38 2.50 2.62

Expenses O&M NPR million 0.80 0.84 0.88 0.93 0.97 1.02 1.07 1.13 1.18 1.24 1.30 1.37 1.44 1.51 1.58 Operator salary NPR million 0.26 0.28 0.29 0.31 0.32 0.34 0.35 0.37 0.39 0.41 0.43 0.45 0.47 0.50 0.52

Interest on capital loan NPR million 1.12 0.96 0.80 0.64 0.48 0.32 0.16 - - Depreciation NPR million 1.96 1.96 1.96 1.96 1.96 1.96 1.96 1.96 1.96 1.96 1.96 1.96 1.96 1.96 1.96 Total expenses NPR million 4.14 4.03 3.93 3.83 3.73 3.63 3.54 3.45 3.53 3.61 3.69 3.78 3.87 3.96 4.06

PBIT NPR million -1.70 -1.68 -1.67 -1.65 -1.64 -1.62 -1.61 -1.59 -1.57 -1.55 -1.53 -1.51 -1.49 -1.46 -1.44 Profit before tax NPR million -2.82 -2.64 -2.47 -2.29 -2.12 -1.94 -1.77 -1.59 -1.57 -1.55 -1.53 -1.51 -1.49 -1.46 -1.44 PBT/month NPR million -0.23 -0.22 -0.21 -0.19 -0.18 -0.16 -0.15 -0.13 -0.13 -0.13 -0.13 -0.13 -0.12 -0.12 -0.12 101 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annexes

15 15 9.18 0.21 2.62 0.52 2.11 2.11

14 2.50 0.49 2.01 2.01

9.08 0.21

13 2.38 0.47 1.91 1.91

13 8.99 0.21

12 2.27 0.45 1.82 1.82

102

8.90 0.21 11 2.16 0.42 1.73 1.73

11 10 8.81 0.21 2.06 0.40 1.65 1.65

10 1.96 0.39 1.57 1.57 8.73 0.21

9 1.86 0.37 1.50 1.50 Mini and Micro Hydropower Applications Mini and Micro Hydropower

8.65 0.21 through up ElectricityNepal: Scaling Access

7 ears 1.78 2.73 1.59 1.14 -0.95

8 Y

8.57 0.21

6 1.69 2.82 1.68 1.14 -1.13 ears

Y 8.66 0.21

5 1.61 2.92 1.77 1.14 -1.31

4 8.75 0.21 1.53 3.01 1.87 1.14 -1.48

3 8.85 0.21 1.46 3.12 1.97 1.14 -1.66

2 8.95 0.21 1.39 3.22 2.08 1.14 -1.83

1 3 1.32 3.33 2.18 1.14 9.05 0.21 -2.00

- 0

2 9.15 0.21 40.00 40.00 -40.00

1 9.26 0.21 0 -46.70 - NPR million NPR million NPR million NPR million NPR million NPR million 2.15 as Standalone - without Subsidy P as Standalone 100 kW MH R o E for lectricity @16 percent 40.00 58.90 126.61 - V of total capex capex V of total V of total unit V of total nit Cost of E U nit Cost evelized Total capex and capex Total life over expenses time NPR million penses NPR million NP time ex and life NP in life generated time million. kWh at 16% R o E C E at LU NPR /kWh | L as Standalone - without Subsidy for 100 kW MH P as Standalone analysis flow | Cash 4.7 4.6 V NPR million et flow et flow rincipal nvestment nvestment Discount Discount rate 6%

NP N F IRR

Cash inflow inflow Cash Sales P Total cash outflow cash outflow Total Total expenses less depreciation less depreciation expenses Total Cash outflow outflow Cash I le A b le Ta A b le Ta Table A Current PLF PLF at BEP I (kWh)Sales Break-even point (NPR) Break-even point (kWh) priceSale NPR/kWh Total variable cost NPR/kWh Total fixed cost NPR 100 50 20 Plant size million/km million/km Cost to thegrid ofconnecting through 11kVlineNPR million Additional capitalcost for to grid connecting NPR Capital cost/kW NPRmillion Subsidy from allsources Technical losses Monthly units/households-Domestic Monthly units/households-commercial Monthly Operating loadcommercial kW/100households W connection Load/household No. ofhouseholdconnections/kW Grid tariff Grid Ta TableA ncrease insalesneededto reach BEP(kWh) b le A le 4.9 Basis for4.10 | Basis I 4.8 | ResultsofBreak-even A | Break-even A nput P nalysis for 100kWMHPStandalone arameters for Financial A nalysis andLUCE for Standalone MHP nalysis Connected ofGrid MHP 50% 10% 1.00 6.00 120 4.9 0.4 7.5 LUCE 18 4 8 33 36 39 Taken from grid MHP connected quotation for Khola Midim site survey Based onanalysis ofMHPcosts for 31,2013& Jan1,2012-Dec ASCR, Dog conductor ASCR, Dog Based onanalysis ofMHPfinancing&site survey Based onsite survey Based onanalysis ofproductive end-usesfrom fieldsurvey Based onsite survey Allowed lossesinMHP Based onsite survey Based onsite survey of year 8.4/kWh for 5months ofyear andNPR4.8/kWh for 7months Based onrates agreed by NEAinitsrecent board meetingNPR s -withSubsidy 4,549,456.10 1,802,200.00 Subsidy 508,234 208,800 717,034 6.34 3.83 24% 82% s PLF at BEP 109 122 82 Without subsidy 8,432,473.17 3,340,400.00 1,120,231 1,329,031 208,800 152% 24% 6.34 3.83 103 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annexes 20 4.90 6.00 3.49 0.75 2.74 1.74 0.70 0.30 66% 1.75 1.00 33% -1.44 20.00 24.90 581,688 290,844 10 4.90 6.00 3.49 0.45 3.04 1.04 0.42 1.58 66% 10.00 14.90 1.75 1.30 33% -0.16 581,688 290,844

104 5 4.90 5.00 9.90 6.00 3.49 0.30 3.19 0.69 0.28 2.22 66% 581,688 1.75 1.45 0.48 33% 290,844 2 4.90 2.00 6.90 6.00 3.49 0.21 3.28 0.48 0.19 2.61 66% 581,688 1.75 1.54 0.86 33% 290,844 1 4.90 1.00 5.90 6.00 3.49 0.18 3.31 0.41 0.17 2.73 66% Mini and Micro Hydropower Applications Mini and Micro Hydropower through up ElectricityNepal: Scaling Access 581,688 1.75 1.57 0.99 33% 0 290,844 4.90 0.00 4.90 6.00 3.49 0.15 3.34 0.34 0.14 2.86 66% 581,688 1.75 1.60 1.12 33% 290,844 km NPR million NPR million NPR million % kWh/year NPR /kWh NPR million NPR million NPR million NPR million NPR million NPR million % million kWh/year NPR million NPR million NPR million to the Grid (100 percent grid availability for evacuating power to the grid) to power evacuating for grid availability the Grid (100 percent 100 kW MH P to of Connecting nalysis the grid) to power evacuating for grid availability the Grid (50 percent 100 kW MH P to of Connecting nalysis ncremental A ncremental A ncremental 4.11 | I 4.12 | I le A le A b b F (with 50% grid availability for evacuation of evacuation for PL F (with 50% grid availability ncremental ncremental units ncremental ncremental income ncremental ncremental operating profits (50% grid availability) (50% grid profits operating ncremental ncremental profit before taxes (50% grid availability) (50% grid taxes before profit ncremental ncremental capex for grid connection for capex ncremental F (with 100% grid availability for evacuation of power of power evacuation for PL F (with 100% grid availability ncremental ncremental units ncremental ncremental tariff ncremental ncremental income ncremental ncremental O &M @3% of capex ncremental ncremental operating profits (100% grid availability) (100% grid profits operating ncremental nterest on loan @14% 20% of capex nterest ncremental profit before taxes (100% grid availability) (100% grid taxes before profit ncremental Ta Ta Distance of grid extension Distance I grid) to power Cost of interconnection equipment including transformer equipment of interconnection Cost I I I Cost of 11kV distribution line Cost I I I grid) to I I I I I Depreciation @7% Depreciation I I Table A4.13 | P/L for 100 kW Grid Connected MHP - with Subsidy (0 km Grid Extension) Years Revenue Units 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Sales domestic kWh 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 172,800 Sales commercial kWh 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 Sales grid kWh 581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 581,688 Sales NPR million 4.89 5.06 5.24 5.44 5.64 5.85 6.07 6.31 6.55 6.81 7.08 7.37 7.66 7.98 8.31

Expenses O&M NPR million 1.35 1.41 1.49 1.56 1.64 1.72 1.81 1.90 1.99 2.09 2.19 2.30 2.42 2.54 2.67 Operator salary NPR million 0.43 0.45 0.48 0.50 0.53 0.55 0.58 0.61 0.64 0.67 0.70 0.74 0.78 0.81 0.86

Interest on capital loan NPR million 0.63 0.54 0.45 0.36 0.27 0.18 0.09 - - Depreciation NPR million 1.41 1.41 1.41 1.41 1.41 1.41 1.41 1.41 1.41 1.41 1.41 1.41 1.41 1.41 1.41 Total expenses NPR million 3.82 3.81 3.82 3.83 3.84 3.86 3.88 3.91 4.04 4.17 4.31 4.45 4.60 4.76 4.93

PBIT NPR million 1.70 1.79 1.88 1.97 2.07 2.17 2.28 2.40 2.52 2.64 2.78 2.92 3.06 3.22 3.38 Profit before tax NPR million 1.07 1.25 1.43 1.61 1.80 1.99 2.19 2.40 2.52 2.64 2.78 2.92 3.06 3.22 3.38 PBT/month NPR million 0.09 0.10 0.12 0.13 0.15 0.17 0.18 0.20 0.21 0.22 0.23 0.24 0.26 0.27 0.28

Table A4.14 | Cash Flow for 100 kW Grid Connected MHP - with Subsidy (0 km Grid Extension) Years Cash outflow 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Investment NPR million 22.45

Total expenses less depreciation NPR million 2.41 2.41 2.41 2.42 2.43 2.45 2.47 2.50 2.63 2.76 2.90 3.04 3.19 3.35 3.52 Principal NPR million 0.64 0.64 0.64 0.64 0.64 0.64 0.64 Total cash outflow NPR million 22.45 3.05 3.05 3.05 3.06 3.07 3.09 3.12 2.50 2.63 2.76 2.90 3.04 3.19 3.35 3.52

Cash inflow Sales NPR million - 4.89 5.06 5.24 5.44 5.64 5.85 6.07 6.31 6.55 6.81 7.08 7.37 7.66 7.98 8.31 Net flow NPR million -22.45 1.84 2.01 2.19 2.38 2.57 2.76 2.96 3.80 3.92 4.05 4.18 4.32 4.47 4.62 4.78 FIRR 10.2% NPV NPR million 8.09 105 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annexes

15 15 8.31 2.67 0.86 2.35 5.87 2.44 2.44 0.20 7.80 0.80 45,000 172,800 581,688

14 14 7.98 2.54 0.81 2.35 5.70 2.28 2.28 0.19 7.64 0.80 45,000 172,800 581,688

13 13 7.66 2.42 0.78 2.35 5.54 2.12 2.12 0.18 7.48 0.80 45,000 172,800 581,688

106 12 12 7.32 0.80 7.37 2.30 0.74 2.35 5.39 1.98 1.98 0.16 45,000 172,800 581,688

11 11 7.18 0.80 7.08 2.19 0.70 2.35 5.24 1.84 1.84 0.15 45,000 172,800 581,688

- 10 10 7.04 0.80 6.81 2.09 0.67 2.35 5.11 1.70 1.70 0.14 45,000 172,800 581,688

- 9 6.91 0.80 Mini and Micro Hydropower Applications Mini and Micro Hydropower 6.55 1.99 0.64 2.35 4.97 1.58 1.58 0.13 through up ElectricityNepal: Scaling Access 45,000 172,800 581,688

8 6.78 0.80 6.31 1.90 0.61 2.35 4.85 1.46 1.46 0.12 45,000 172,800 581,688 ears

7 Y

7 6.76 0.80 6.07 1.81 0.58 0.18 2.35 4.91 1.34 1.16 0.10 45,000 172,800 581,688

6 6.73 0.80 5.85 1.72 0.55 0.36 2.35 4.98 1.23 0.88 0.07 45,000 172,800 581,688

5 6.71 0.80 5.64 1.64 0.53 0.54 2.35 5.05 1.13 0.59 0.05 45,000 172,800 581,688

4 6.70 0.80

4 5.44 1.56 0.50 0.72 2.35 5.12 1.03 0.31 0.03 45,000

172,800 581,688 3 6.69 0.80

3 5.24 1.49 0.48 0.90 2.35 5.21 0.94 0.04 0.00 45,000

2 172,800 581,688 6.69 0.80

2 5.06 1.41 0.45 1.08 2.35 5.29 0.85 -0.23 -0.02 45,000

1 72,800 581,688 6.69 0.80

1 4.89 1.35 0.43 1.26 2.35 5.38 0.76 -0.50 -0.04 45,000 0 581,688 172,800 8.23 for 100 kW Grid Connected MH P - with Subsidy (0 km 100 kW Grid Connected Grid E xtension) R o E for lectricity @16 percent 8.99 73.97 22.45 ears Y 0

- U nits kWh kWh kWh kWh kWh kWh NPR million

NPR million NPR million NPR million NPR million NPR million

NPR million NPR million NPR million V of total capex capex V of total V of total unit V of total nit Cost of E U nit Cost evelized Total capex and capex Total life over expenses time NPR million NP time ex and life penses NPR million NP in life generated time million kWh ROE 16% C E at LU NPR /kWh 4.15 | L MH P - without Subsidy (0 km 100 kW Grid Connected Grid E xtension)4.16 | P / L for le A le A b b perator salary perator rofit before before rofit nterest on nterest Ta Ta Discount Discount rate evenue R evenue Sales domestic 6% - Sales com mercial

Sales grid

Sales

E xpenses O &M O I capital loan Depreciation Depreciation Total expenses Total

P B I T P Tax BT/month P BT/month Table A4.17 | Cash Flow for 100 kW Grid Connected MHP - without Subsidy (0 km Grid Extension) Years Cash outflow 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Investment NPR million 44.90

Total expenses less depreciation NPR million 3.04 2.95 2.86 2.78 2.70 2.63 2.56 2.50 2.63 2.76 2.90 3.04 3.19 3.35 3.52 Principal NPR million 1.28 1.28 1.28 1.28 1.28 1.28 1.28 Total cash outflow NPR million 44.90 4.32 4.23 4.14 4.06 3.98 3.91 3.85 2.50 2.63 2.76 2.90 3.04 3.19 3.35 3.52

Cash inflow Sales NPR million - 4.89 5.06 5.24 5.44 5.64 5.85 6.07 6.31 6.55 6.81 7.08 7.37 7.66 7.98 8.31 Net flow NPR million -44.90 0.57 0.83 1.10 1.38 1.66 1.94 2.23 3.80 3.92 4.05 4.18 4.32 4.47 4.62 4.78 FIRR -0.2% NPV NPR million -20.06

Table A4.18 | Levelized Unit Cost of Electricity @16 percent RoE for 100 kW Grid Connected MHP - without Subsidy (0 km Grid Extension) Years Discount rate 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total capex and expenses over life 6% time NPR million 44.90 8.26 8.17 8.08 8.00 7.92 7.85 7.78 7.72 7.85 7.98 8.12 8.26 8.41 8.57 8.74 NPV of total capex and life time expenses NPR million 86.78 NPV of total Unit generated in life time million kWh 8.23 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 LUCE at 16% RoE NPR /kWh 10.54 107 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annexes

0.80 2.44 6.11

8.74 15 91% 0.80 5.64 9.38 1.53 0.73 175.1% subsidy Without Without 20 km 20

0.80

8.57 14 105% 205% 2.44 6.11 91% 0.80 3.38 5.61 0.92 0.12 104.8% Not Applicable Subsidy

0.80

8.41 108 13 2.06 6.11 91% 0.80 4.84 7.30 1.19 0.39 136.3% subsidy Without Without

0.80

8.26 12 10 km 10 82% 132% 462% 2.06 6.11 91% 0.80 2.92 4.41 0.72

0.80

8.12 11 -0.08 82.3% Subsidy

0.80

7.98 10 1.87 6.11 91% 0.80 4.44 6.40 1.05 0.247 119.5% subsidy Without Without Mini and Micro Hydropower Applications Mini and Micro Hydropower 5 km through up ElectricityNepal: Scaling Access

0.80

7.85 9 5 73% 106% 258% 1.87 6.11 91% 0.80 2.70 3.89 0.64 -0.16 72.6% Subsidy

0.80

7.72 8 ears Y 1.76 6.11 91% 0.16 0.80 4.20 5.89 0.96 110.1% subsidy Without Without

0.80

7.78 7 2 km 2 Distance of Grid E xtensionDistance (km) 67% 92% 191% 1.76 6.11 91%

0.80

7.85 6 0.80 2.56 3.59 0.59 -0.21 67.1% Subsidy

0.80

7.92 5 1.72 6.11 91% 0.14 0.80 4.12 5.73 0.94 107.0% subsidy Without Without 1 km 1 65% 88%

0.80

8.00 4 173% 1.72 6.11 91% 0.80 2.51 3.50 0.57 -0.23 65.4% Subsidy

0.80

8.08 3 6 1.68 6.11 91% 4.04 0.11 0.80 0.91 104.0%

0.80

8.17 2 subsidy Without Without 0 0 km 64% 84% 157%

0.80

8.26 1 1.68 91% 0.80 2.47 6.11 3.41 0.56 -0.24 63.6% Subsidy nalysis for Grid Connected MH P - with Subsidy Grid Connected for nalysis for 100 kW Grid Connected MH P - without Subsidy (0 km 100 kW Grid Connected Grid E xtension) R o E for lectricity @16 percent 10.54 8.23 86.78 44.90 0 nalysis for 100 kW MH P Grid Connected for nalysis -

nit Cost of E U nit Cost evelized V of total U nit V of total V of total capex capex V of total R o E 16% C E at LU NPR /kWh NP in life generated time million kWh NP time ex and life penses NPR million Total capex and capex Total life over expenses time NPR million Break-even A 4.19 | Break-even A 4.20 | R esults of Break-even 4.18 | L le A le A le A b b b

Ta Ta 6% 100 50 20 Discount Discount rate lant size (kW) size P lant U nits shortfall Total variable cost/unit variable Total U nits sold Total fixed cost fixed Total Sale price/unit B EP NPR million B EP million kWh F at B EP PL F at Current PL F Current Ta generation at anaverageNote: 200households(HH)served loadof100 W perHH=20kW; 500HHs=50kW; 1000HHs=100kW; CoG =cost of 20

0 (km.) extension Grid Ta Ta Grid extensionGrid b b le A le le A le (km) 4.22 | Cost -100kWMHPvs ofDelivery NEA Grid 4.21 | NEACost to ofDelivery Remote Communities 10 20 0 1 2 5 75 50

75 50

75 50 sq. km) (HH/ 49.4 52.5

30.2 33.2

20.6 23.6

14.8 17.9

12.9 15.9

11.3 13.9 200 Households served (NPR ) CoD Distribution density density Distribution (hh/sq.km) 50 50 75 50 75 50 75 50 75 50 75 75 7.8 7.8

7.8 7.8

7.8 7.8 (NPR ) CoG 57.2 60.3

38.0 41.0

28.3 31.4

22.6 25.7

20.7 23.7

19.1 21.7 Total NEA L kW L evelized Cost to ofDelivery 100 oad Center (NPR/kWh) 25.5 28.5

17.8 20.9

13.9 17.0

11.6 14.7

10.9 13.9

10.2 13.3 (NPR ) CoD 500 20.33 20.64 17.26 21.03 17.57 22.18 17.95 24.10 19.11 27.95 21.03 24.87 7.8 7.8

7.8 7.8

7.8 7.8 (NPR ) CoG 33.3 36.3

25.6 28.6

21.7 24.8

19.4 22.5

18.7 21.7

18.0 21.1 Total LUCE from Connect 100kWMHPGrid - ed - Without Subsidy(NPR/kWh) 17.1 20.2

13.2 16.3

11.3 14.4

10.2 13.2

9.8 12.9

9.5 12.5 (NPR ) CoD 1000 10.54 10.68 10.81 11.22 11.89 13.24 7.8 7.8

7.8 7.8

7.8 7.8 (NPR ) CoG

24.9 27.9

21.0 24.1

19.1 22.2

18.0 21.0

17.6 20.6

17.3 20.3 Total 109 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annex 5 Details on economic analysis

Methodology for Calculating The prevailing kerosene price of NPR 105.5/liter and Consumer Surplus from Shift to the LUCE from the relevant MHP (20 kW, 50 kW or Electric Lighting 100 kW MHP) are used in the calculation.

110 Following IEG (2008) and UNDP (2011), a log linear Kilo-lumen-hour consumption per household per functional form for demand for electricity is as- month for electricity based on the average house- sumed to estimate consumer surplus from a switch hold electricity consumption of 18 kWh/month (as to electric lighting from kerosene lighting. found in the site surveys) and a luminous efficacy of 15 lumens per watt on the assumption that the Consumer's surplus= majority of micro hydropower fed households are still using incandescent lamps.

Kilo-lumen-hour consumption per household for With = ln(Pt)-ln(Pe) and K=P/Q Mini and Micro Hydropower Applications Mini and Micro Hydropower

through up ElectricityNepal: Scaling Access kerosene (from Rao (2011)) describes consumption ln(Qt)-ln(Qe) η η of 3 liters of kerosene/month in India to use kerosene lamps producing 37 lumens for 4 hours a day. Pe = Price in NPR per kilo-lumen-hour for electricity = 1.63 Based on the above, consumer surplus is calculated Qe = Kilo-lumen-hours consumed per month with to be NPR 1,416/household/month or NPR 16,993/ electricity = 270 household/annum for households that are served Pt = Price in Rupees per kilo-lumen-hour for kero- by a 20 kW MHP. sene = 71.28 Qt = Kilo-lumen-hours consumed per month with kerosene = 4.44 Table A5.1 | Input parameters for a 10 hp (7.5 kW) Diesel Engine Input Parameters Units Value Plant size kW 7.5 Plant life Years 15 Capital cost of diesel generator set less 13% VAT NPR million 0.186 Specific fuel consumption of diesel l/hr 1.67 Economic cost of diesel NPR /l 105.5 Hours of operation in a year hr 600 O&M for every 250 hrs of operations NPR 2,000 Annual O&M cost for 600 hrs of operation NPR 4,800 Overhaul for every 6,000 hrs of operations (approx. once in every 10 years) NPR million 0.03 Escalation % 5% Conversion Factors Diesel Electric Energy content/unit (MJ/liter and MJ/kWh) 37 3.6 Efficiency 35% 80% Effective energy/unit (MJ/liter and MJ/kWh) 12.95 2.88 Liter of diesel per kWh 0.22 Liters of diesel to produce 7.5kWh 1.67

Table A5.2 | Levelized Unit Cost of Electricity for 7.5 kW Diesel Engine Years Units 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Investment NPR million 0.19 Expenses NPR million 0.11 0.12 0.12 0.13 0.13 0.14 0.15 0.16 0.16 0.17 0.21 0.19 0.20 0.21 0.22 Units generated kWh 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500

Discount rate 6% NPV investment + costs 1.66 NPR million Lifetime units generated (discounted) 43,705 kWh Levelized Unit Cost of Electricity (LUCE) 38.09 NPR /kWh 111 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annexes

15 15 2.72 0.10 0.03 2.85 0.32 0.32 0.32 0.32 2.85 2.53 7,200 41.76 Years Years 34,560

14 14 2.72 0.10 0.03 2.85 0.30 0.30 0.30 0.30 2.85 2.54 7,200 41.76 34,560

13 13 2.72 0.10 0.03 2.85 0.29 0.29 0.29 0.29 2.85 2.56 7,200 41.76 34,560

12 12 2.72 0.10 0.03 2.85 0.27 0.27 0.27 0.27 2.85 2.57 7,200 41.76 112 34,560

11 11 2.72 0.10 0.03 2.85 0.26 0.26 0.26 0.26 2.85 2.59 7,200 41.76 34,560

10 10 2.72 0.10 0.03 2.85 0.25 0.25 0.25 0.25 2.85 2.60 7,200 41.76 34,560

9 9 2.72 0.10 0.03 2.85 0.24 0.24 0.24 0.24 2.85 2.61 7,200 41.76 34,560 Mini and Micro Hydropower Applications Mini and Micro Hydropower through up ElectricityNepal: Scaling Access

8 8 2.72 0.10 0.03 2.85 0.22 0.22 0.22 0.22 2.85 2.62 7,200 41.76 34,560 ears Y

7 7 2.72 0.10 0.03 2.85 0.21 0.21 0.21 0.21 2.85 2.63 MWh 7,200 41.76 34,560 NPR /kWh NPR /kWh NPR /kWh NPR million NPR million NPR million

6 6 2.72 0.10 0.03 2.85 0.20 0.20 0.20 0.20 2.85 2.64 7,200 41.76 34,560

5 5 2.72 0.10 0.03 2.85 0.19 0.19 0.19 0.19 2.85 2.65 7,200 41.76 34,560

4 4 6% 9.91 2.79 2.72 0.10 0.03 2.85 0.18 0.18 0.18 0.18 2.85 2.66 24.43 68.14 7,200 41.76 27.63 17.73 34,560 405.58 33.69%

3 3 2.72 0.10 0.03 2.85 0.18 0.18 0.18 0.18 2.85 2.67 7,200 41.76 34,560

2 2 2.72 0.10 0.03 2.85 0.17 0.17 0.17 0.17 2.85 2.68 7,200 41.76 34,560

1 1 2.72 0.10 0.03 2.85 0.16 0.16 0.16 0.16 2.85 2.69 7,200 41.76 34,560

- 7.80 7.80 -7.80 B E ) lectricity ( LU nalysis for 20 kW MH P for nalysis

U nits kWh kWh kWh kWh MWh NPR million NPR million NPR million NPR million NPR million NPR million NPR million U nits NPR million NPR million NPR million NPR million C E ) lectricity ( LU conomic A conomic | E 5.3 V investment + costs + costs V investment V benefits V et savings on en - et savings et flow et flow evelized U nit Benefit of E evelized nit Cost of E U nit Cost evelized nvestment nvestment L U nits of electricity generated Domestic Commercial Commercial Total Benefits Consumer surplus on Consumer lighting N PEU for cost ergy C ER sales benefits Total E xpenses outflow Cash I ifetime units generated (discounted) (discounted) units generated L ifetime L O &M expenses Total analysis flow Cash expenses Total cash outflow Total inflow Cash NP NP Benefits/cost NP Benefits N EIRR rate Discount A b le Ta Table A5.4 | Economic Analysis for 50 kW MHP Years Units - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Units of electricity generated Domestic kWh 86,400 86,400 86,400 86,400 86,400 86,400 86,400 86,400 86,400 86,400 86,400 86,400 86,400 86,400 86,400 Commercial kWh 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 Total MWh 104.4 104.4 104.4 104.4 104.4 104.4 104.4 104.4 104.4 104.4 104.4 104.4 104.4 104.4 104.4 Benefits Consumer surplus on lighting NPR million 6.70 6.70 6.70 6.70 6.70 6.70 6.70 6.70 6.70 6.70 6.70 6.70 6.70 6.70 6.70 Net savings on energy cost for PEU NPR million 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27 CER sales NPR million 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 Total benefits NPR million 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 Expenses O&M NPR million 0.38 0.39 0.41 0.44 0.46 0.48 0.50 0.53 0.56 0.58 0.61 0.64 0.68 0.71 0.74 Total expenses NPR million 0.38 0.39 0.41 0.44 0.46 0.48 0.50 0.53 0.56 0.58 0.61 0.64 0.68 0.71 0.74

Cash flow analysis Years Cash outflow 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Investment NPR million 18.41 Total expenses NPR million 0.38 0.39 0.41 0.44 0.46 0.48 0.50 0.53 0.56 0.58 0.61 0.64 0.68 0.71 0.74 Total cash outflow NPR million 18.41 0.38 0.39 0.41 0.44 0.46 0.48 0.50 0.53 0.56 0.58 0.61 0.64 0.68 0.71 0.74 Cash inflow Benefits NPR million 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 7.04 Net flow NPR million -18.41 6.66 6.64 6.62 6.60 6.58 6.56 6.53 6.51 6.48 6.45 6.42 6.39 6.36 6.33 6.29

EIRR 35.50% Discount rate 6% NPV 44.95 NPV investment + costs 23.39 NPR million NPV benefits 68.34 NPR million Benefits/cost 2.92 Lifetime units generated (discounted) 1,013.96 MWh Levelized Unit Cost of Electricity (LUCE) 23.07 NPR /kWh Levelized Unit Benefit of Electricity (LUBE) 67.40 NPR /kWh 113 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annexes

15 15 36.0 0.59 0.14 1.40 1.40 1.40 1.40 172.8 208.8 13.18 13.91 12.51 13.91

14 14 36.0 0.59 0.14 1.33 1.33 1.33 1.33 172.8 208.8 13.18 13.91 12.58 13.91

13 13 36.0 0.59 0.14 1.27 1.27 1.27 1.27 172.8 208.8 13.18 13.91 12.64 13.91

12 12 36.0 0.59 0.14 1.21 1.21 1.21 1.21 172.8 208.8 13.18 13.91 12.70 114 13.91

11 11 36.0 0.59 3.18 0.14 1.15 1.15 1.15 1.15 172.8 208.8 13.91 12.76 13.91

10 10 36.0 0.59 0.14 1.10 1.10 1.10 1.10 172.8 208.8 13.18 13.91 12.81 13.91

9 9 36.0 0.59 0.14 1.05 1.05 1.05 1.05 172.8 208.8 13.18 13.91 12.87 13.91

8 8 36.0 0.59 3.18 0.14 1.00 1.00 1.00 1.00 172.8 208.8 13.91 12.92 13.91 Mini and Micro Hydropower Applications Mini and Micro Hydropower

7 7 through up ElectricityNepal: Scaling Access ears ears 36.0 Y Y 0.59 0.14 3.18 0.95 0.95 0.95 0.95 172.8 208.8 13.91 12.96 13.91

6 6 36.0 0.59 0.14 0.90 0.90 0.90 0.90 172.8 208.8 13.18 13.91 13.01 13.91

5 5 36.0 0.59 0.14 0.86 0.86 0.86 0.86 172.8 208.8 13.18 13.91 13.05 13.91

4 4 36.0 0.59 0.14 3.18 3.91 0.82 0.82 0.82 0.82 172.8 208.8 13.09 13.91

3 3 36.0 0.59 0.14 0.78 0.78 0.78 0.78 172.8 208.8 13.18 13.91 13.13 13.91

2 2 36.0 0.59 0.14 0.74 0.74 0.74 0.74 NPR million NPR million NPR million MWh NPR/kWh NPR/kWh 172.8 208.8 13.18 13.91 13.17 13.91

1 1 36.0 0.59 0.14 0.71 0.71 0.71 0.71 172.8 208.8 13.18 13.91 13.20 13.91 37.49% 6% 91.08 44.03 135.11 3.07 2,027.92 21.71 66.63

0 4.65 4.65 -34.65 0

U nits MWh MWh MWh

NPR million NPR million NPR million NPR million NPR million NPR million NPR million

NPR million NPR million

NPR million NPR million B E ) lectricity ( LU nalysis for 100 kW MH P for nalysis C E ) lectricity ( LU conomic A conomic | E 5.5 V + costs V investment V benefits et savings on energy cost for PEU for cost on energy et savings et flow et flow nit Cost of E U nit Cost evelized U nit Benefit of E evelized nvestment nvestment nits of electricity generated U nits of electricity generated Domestic Commercial Commercial Total Benefits N C ER sales E xpenses Consumer surplus on lighting surplus on lighting Consumer benefits Total O &M Total expenses Total I Cash flow analysis analysis flow Cash outflow Cash Total expenses Total Total cash outflow cash outflow Total Cash inflow inflow Cash EIRR rate Discount NP NP NP Benefits/cost (discounted) units generated L ifetime L L Benefits N A b le Ta Avoided CO Economic benefit= Avoided CO project (intons ofCO Following theNepalMHPCDMProject theavoided Design Document, emissionsfrom anmicro hydropower CO Average losses=10% technical distribution xPlantAnnual energy Capacity Load generation(inkWhperyear) =Installed Factor x24hours365days CO CER price =US$7perton ofCOCER price Estimation Sale 2 2 eq/kWh) x(1/1000) emissioncoefficient kg fordisplacedfuel=0.9 CO of CERs 2 emissions = of A 2 voided /year) andthevalueofassociated CERsare calculated asfollows:

Annual energy generation/(1–Average losses))x(0.9kg technical distribution 2 CO 2 emissionsxCERprice 2 Emissions and 2 eq/kWh Economic Benefit from

115 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annexes

15 3.10 7,200 34,560 41,760

14 2.95 7,200 34,560 41,760

13 2.81 7,200 34,560 116 41,760

12 2.83 7,200 34,560 41,760

11 2.55 7,200 34,560 41,760

10 2.43 7,200 34,560 41,760

9 Mini and Micro Hydropower Applications Mini and Micro Hydropower 2.31 through up ElectricityNepal: Scaling Access 7,200 34,560 41,760

8 2.35 7,200 34,560 41,760 ears

7 Y 2.10 7,200 34,560 41,760

6 2.00 7,200 34,560 41,760

5 1.90 7,200 34,560 41,760

4 1.96 7,200 34,560 41,760 NPR million kWh NPR/kWh

3 1.72 7,200 34,560 41,760

2 1.64 7,200 34,560 41,760 6% 24.37 405,584 60.09

1 1.56 7,200 34,560 41,760 0 3.35

U nits NPR million NPR million kWh kWh kWh V investment + costs + costs V investment C E ) of electricity unit cost ( LU evelized nvestment nvestment E xpenses I O &M U nits generated Domestic Commercial Commercial Total NP (discounted) units generated L ifetime L Discount rate Discount Annex 6 Annex Calculation of levelized unit cost for 20 kW diesel unit cost for Calculation of levelized based generation and distribution Annex 7 Calculation of levelized unit cost for 42 kWp (20 kW) SPV based generation and distribution

Years

Units 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Expenses NPR Investment million 14.38 NPR O&M million 0.29 0.30 0.32 0.33 0.35 4.67 0.39 0.40 0.43 0.45 4.77 0.49 0.52 0.54 0.57 4.90 0.63 0.66 0.69 0.73 Units generated

Domestic kWh 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560 34,560

Commercial kWh 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200

Total kWh 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760 41,760

Discount 6% rate

NPV investment + costs 26.34 NPR million Lifetime units gener- 478,984 ated (discounted) kWh Levelized 54.99 Unit Cost of Electricity (LUCE) NPR/kWh 117 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annex 8 A promising mini-grid site in Phungling Bazaar, Taplejung

The AEPC has undertaken a study to implement a generates 80 kW for 24 hours and another 250 kVA mini-grid project in Phungling, the district head- diesel generator set which generates 160 kW dur- quarters and the central market place of the Taple- ing the 8-hour peak period is the central source of 118 jung district located in the north-east remote corner power for Phungling Bazaar. These two plants are of Nepal. This would be the second pilot project after synchronized and run by Taplejung Electricity Us- the Baglung mini-grid and would provide additional ers Committee (TEUC), a not-for-profit organization information on the financial and economic viability established by the local residents and registered at of mini-grid systems. A brief description of the elec- the District Administration Office. The hourly power trification possibilities in Phungling Bazaar including consumption and generation of Phungling Bazaar is the Taplejung mini-grid system is provided herein. shown in Figure A8.1.

CURRENT STATUS OF ELECTRIFICATION IN The AEPC study found that the diesel generator set TAPLEJUNG consumes 320 liters of diesel to operate for eight Mini and Micro Hydropower Applications Mini and Micro Hydropower

through up ElectricityNepal: Scaling Access hours. With the escalation in diesel prices in the in- According to the AEPC, Phungling Bazaar has a sup- ternational market, operating expenses of the die- pressed peak hour demand of 700 kW and off-peak sel generator set are very high. Therefore, the TEUC hour demand of 400 kW. However, these demands charges a very high electricity tariff to recover these are not met because Phungling Bazaar is not yet operating costs. The tariff charged to the consumers receiving power from the national grid. A 125 kW is set at NPR 175 for the first 10 kWh, NPR 22/kWh “Sobuwa Khola” MHP (established in 2041 B.S.) that from 10 kWh to 25 kWh and NPR 25/kWh from 25 kWh and above. Rest of the demand is supplied by Figure A8.1: Hourly power consumption and generation for distributed diesel generator sets (in isolated mode, Phungling Bazaar i.e. not synchronized with the 250 kVA large genera- 600 tor) owned by various small-scale industries, offices, 500 banks and other companies. 400 ELECTRIFICATION BY NATIONAL GRID 300 EXTENSION 200 Load in kW Load 100 As the national grid has not reached most parts of 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Taplejung, the district is currently electrified by iso- Hour of the day lated MHPs with a total generating power of 1056 kW. Due to the remote location and hilly terrain, it Load Generation is quite challenging to extend the national grid to munity incollaborationwiththeDDCinitiated the munity Phawa Khola”“Middle to generate 400kW: The com- minihydropower anew 2. Constructing plantcalled of125kW. cangenerate itscapacity Khola Sobuwa concluded for anestimated costofNPR20million, to operate at fullcapacity. After these repairs are structure fied thattheintake requires some repairs generation. for electricity The AEPChasalsoidenti- has considerablyreduced thedischarge available head-race canaldamagedby alandslide, which ofthe HDPE pipewasusedto fixa160msection the past, ofan 125 kW:generate at full capacity In 1. Upgrading the existing Khola”“Sobuwa MHP to menting thefollowing three measures sideby side: Bazaar. have Under this plan, they considered imple demandof Phungling proach to fulfilltheelectricity The AEPCandRERLhave considered anintegrated ap Phungling Bazaar.to electrify to analyze other available options it was necessary Bazaar for anotherfew years. Therefore, theAEPCfelt tothat the national grid will be Phunglingextended fromity thenationalgrid. Hence, itseemsunlikely (except for- landallocation)to theelectric distribute a33/11SubstationatPhunglingto Bazaar construct to ageand degrade. Moreover, there isnoclearplan have installed polesandconductors already started Due to lack ofregular maintenance andcare, the gling Bazaar). awayonly upto from Bhaluchowk (40km Phun- wereBazaar) buttheoverhead conductors installed awayto Nangkholang fromVDC (10km Phungling Phungling Bazaar. poleswere up Electric extended its 33 kV line from Phidim, Terathum towards district Phungling Bazaar. of theextension The NEAstarted METHODS ELECTRIFICATION B Y ALTERNATIVE - - an IRRof27percent. be more feasible of NPR 55 million and with an NPV 57 million. The projectto AEPCfound thismini-grid power and492kWofpeakpower for acostofNPR willprovideproposed 660 kW ofoff-peak mini-grid low pinsshow thelocationof eight MHPs. The al 11kVlinethatneedsto beconstructed. The yel- and thegreen longaddition- lineshows the16.5km longexisting11kVline,red lineshows the26.6km eight MHPs (seeFigure into amini-grid A8.2). The RERL conceptualized design a new to interconnect Based onstudiesdoneby theDDC,AEPCand of power with an investment of NPR 15 million. into amini-grid. couldsupply170kW This mini-grid three MHPs withtheexistingminihydropower plant power, theDDCagainconsidered interconnecting by theAEPC.But,dueto theurgent needfor more capacity, theprojectwasnotfound to befeasible large capitalrequired for suchasmalladditionin project costofNPR130million.However, dueto the MHPs off-peak hours and 400 kW during for a total areasing thedemandsofdistribution ofindividual meet peakhoursafter could supply229kWduring the Phungling Bazaarinto amini-grid. The mini-grid considered interconnecting 12 MHPs located near and 492kWofpeakpower: The DDCof Taplejung grid capableofsupplying660kWoff-peakpower MHPs eightnearby 3. Interconnecting into amini- escalating power demand. cided to ofthe develop the400kWplantinview NPR 112million. Therefore, hasde thecommunity the potential to generate 400kWfor atotal costof tion theAEPCfound thatthehydropower site has 20 percent asloans. However, examina- further after has formed acooperative to borrow theremaining andthecommunity pledged 80percent ofsupport ment and Agricultural (DoLIDAR) Roads has already ofLocal Develop Infrastructure the Department mini hydropower plant.For itsimplementation, development of a244kW Phawa Khola”“Middle - - - 119 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annexes

ESTIMATED BUDGET FOR THE The AEPC has determined that after the implemen- INTEGRATED APPROACH tation of the integrated approach Phungling Bazaar will have 1,185 kW power available during the off- If the integrated approach is undertaken by imple- peak time and at least 1,017 kW of power during the 120 menting all three possibilities, it is possible to in- peak period. According to the AEPC study, this pow- crease the electricity supply in Phungling Bazaar by er should be enough to supply both the off-peak 1,105 kW within two years. The breakdown of capac- and peak demands of Phungling Bazaar after two ity addition and estimated budget is as follows. years. Moreover, by replacing the use of diesel gen- l Upgrading “Sobuwa Khola” (45 kW): erators with RETs, the AEPC plans to avoid NPR 1.8 NPR 20,000,000.00 million each month in diesel costs alone and reduce

l “Middle Phawa Khola” (400 kW): monthly carbon emissions by 48 TCO2 equivalent. NPR 112,668,258.00 l Mini-grid comprising eight MHPs (660 kW): A 90 kW “Chimal” MHP that is due to be commis-

Mini and Micro Hydropower Applications Mini and Micro Hydropower NPR 57,700,000.00 sioned in 2014 will supply power to Phungling Ba- through up ElectricityNepal: Scaling Access zaar. This MHP can also be synchronized and inter- The total estimated budget for integrated power connected to the “Sobuwa Khola” MHP. system development at Phungling Bazaar is NPR 190,368,258.00 (US$1,983,002.68).

Figure A8.2: Proposed Phungling mini-grid comprising 8 MHPs Annex 9 Technical discussion on grid connection of MHPs

ISLANDING the MHP to continue operating autonomously and provide uninterrupted service to local customers as Islanding is the condition when a part of the grid (in well as uninterrupted revenue to the MHFG during this case, the MHP’s local distribution grid now con- load shedding on the national grid. This configura- nected to the national grid) becomes temporarily iso- tion is known as intentional islanding. Intentional 121 lated from the national grid but remains energized by islanding requires the following steps to be per- power from the MHP. Islanding can be unintentional formed in the correct sequence and with appropri- or intentional. Unintentional islanding is a potentially ate timing: hazardous condition, which occurs when the MHP l The MHP must intercept abnormal conditions fails to properly shut down during a grid disturbance. on the national grid and disconnect the circuit It presents a hazard to line workers who might as- breaker to separate its generator and islanded lo- sume that the lines are not energized during a failure cal distribution grid from the national grid. of the central grid. It also denies central control over l Upon disconnecting, the MHP must immediately Mini and Micro Hydropower Applications Mini and Micro Hydropower

power quality and can damage utility or customer switch from “synchronized mode” to “isolated through up ElectricityNepal: Scaling Access equipment at the time of reconnection, if not prop- mode” enabling the ELC to regulate the frequen- erly coordinated. Islanding can be detected by de- cy. Additionally, AVR needs to switch over from tecting over-/under-frequency, over-/under-voltage, power factor control mode to voltage control rate of change of frequency, voltage phase jump, and mode. reverse reactive power flow. Details on common re- l The settings of various protective relays need to lays used for detection in MHP-grid connection have be different in the islanded mode, since small been discussed later in this Annex. generators produce lesser magnitude of fault current than large generators on the national On the other hand, with appropriate safety and con- grid. Additionally, voltage and frequency toler- trol mechanisms, intentional islanding89 can be used ances need to be broader in the island mode. to provide reliable service to consumers of grid- l The MHP must continue to sense line voltage on connected MHPs when there is load shedding on the national grid. When the national grid power the national grid. In the case of an MHP connected returns, it must initiate reconnection only after to the national grid with regular load shedding, the ensuring that the MHP generator is synchronized MHP-grid interconnection can be designed to allow with the main grid.

89 “A Guidebook on Grid Interconnection and Islanded Operation of Mini-Grid Power Systems Up to 200 kW”, Chris Greacen, Richard Engel, Thomas Quetch- enbach. Lawrence Berkeley National Laboratory & Schatz Energy Research Center April 2013 Annexes

FREQUENCY AND VOLTAGE CONTROL IN FREQUENCY AND VOLTAGE CONTROL IN ISOLATED MODE GRID CONNECTED MODE

For a synchronous generator used in MHP, the fre- A small micro hydropower generator connected to 122 quency is determined by the rotational speed of the the national grid does not have to regulate its own generator shaft connected to the turbine. Faster rota- frequency. The small micro hydropower generation generates a higher frequency and slower rota- tor becomes a small part of a much larger system tion generates a lower frequency. A generator’s fre- consisting of large generators all spinning in lock- quency depends on the balance between the flow step. As long as it is connected to the grid, it will rate of water through the turbine and the amount of generate power at the grid frequency, which is set electrical load served by the generator. With no load, by very large generators operating on the grid. The the generator freewheels and runs at a very high grid-connected small generator makes no attempt speed. If the load is excessive, the generator slows to regulate the frequency. It just injects current in

Mini and Micro Hydropower Applications Mini and Micro Hydropower down and the frequency drops below the standard. step with the grid’s frequency. Therefore, the ELC through up ElectricityNepal: Scaling Access must be disabled when the MHP is grid connected. Large and sudden changes in load or generation resources can result in frequency deviation. Therefore, Regulation of voltage by a grid-connected micro in the case of an isolated MHP, the generator must hydropower generator often depends on the pref- control the frequency. One method of frequency erence of the NEA. Frequency is subject to control control uses an electro-mechanical controller throughout the system by a few large generators, known as a governor, which opens the water sup- whereas, voltage varies from node to node through- ply valve in small increments to increase the water out the system depending on the distribution of flow at the moment it detects a drop in frequency. loads, generation, and the power factor correcting Conversely, the governor closes the valve in small capacitor banks. In some locations, the NEA may decrements when it detects excessive frequency. prefer that an MHP operate its AVR to keep a con- This negative feedback loop keeps the frequency stant power factor, which is known as “operating in within the specified limits under most conditions. power factor control mode”. This helps ensure that However, governors tend to be expensive (and their NEA’s efforts at regulating voltage through capaci- responses are slow for the isolated system) for use in tor banks, load tap changers, and voltage regulators small micro hydropower systems. are not complicated by the MHP simultaneously adjusting its AVR to also regulate voltage. In other In isolated MHPs, control of frequency is commonly cases, particularly in parts of the distribution system accomplished by an ELC, which manages the load where the NEA does not have good voltage regu- on the generator. By adding progressively higher lation, the NEA may ask the MHP to regulate volt- loads, the generator can be slowed down until it age, which is known as operating the AVR in voltage reaches the required rotational speed for the prop- control mode. NEA often determines this on the ba- er AC frequency. As long as the ELC maintains this sis of a power flow study, in which the system volt- constant load, also known as the design load, the ages, currents and power flows are modeled under frequency can be kept within the specified limits. To minimum and maximum load conditions with the maintain the design load, ELC diverts excess power addition of the proposed distributed generators. to resistive heating ballasts. However, frequency control by the ELC is not adequate when the load MODIFICATIONS REQUIRED FOR GRID exceeds the generating capacity of the source. If the CONNECTION OF MHPs load exceeds the generating capacity, the generator slows down, the frequency drops, and the voltage An isolated MHP with its own local distribution grid will sag. More advanced hydropower systems em- must be modified in the following ways to operate ploy automatic relays, which drop a section of the in grid-connected mode in addition to providing load when the frequency begins to sag. power to the local community during load shedding: Figure A9.1:Singlelinediagram withislanding ofMHPgridconnection l l l l

reconnect after suchevents.reconnect after andloadshedding, disturbances grid and during from safely thenational Disconnect andquickly monic distortion. appropriate power factor, voltage andlow har Provide power quality to thenationalgrid with appropriate andphasesequence. frequency safelyConnect to thenationalgrid by ensuring tional grid (i.e., islandingmode). during load shedding on the na- during the community and enable voltage control by AVR while serving ed. Conversely, control enablefrequency by ELC power control factor by AVR whilegrid connect controlDisable frequency by the ELC and enable - - islanding isshown inFigure A9.1. fications andwithprovisionsfor connection grid for A singlelinediagram ofanMHPwithrequired modi - possible. Synchronization requires measurement of MHPs withoneanotheraswell asthenationalgrid synchronizationthe maintechnology thatmakes of in Nepal. Amicrocontroller-based control panelis trol system, included in MHPs which is not normally complex procedure andrequires anadvancedcon- The ormore paralleloperationoftwo generators isa CONTROL 123 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annexes

electrical parameters, control with load sharing op- trips immediately if the current exceeds a set value; tions, synchronization and protection systems. this functionality provides fast clearing of high magnitude faults. However, since motors and some oth- The microcontroller-based ELC has incorporated er electrical loads draw a brief spike of high current 124 droop setting facility that shares the load in the when starting, relying on instantaneous overcurrent system proportional to the capacities of the genera- alone may result in undesired tripping when these tors. The AVR provides the required excitation volt- types of loads are in use. To address this issue, the age and current to the generator to regulate the time overcurrent relay (51) allows a higher threshold output voltage of the generator. In the microcon- for shorter periods of overcurrent. (Usually, the cur- troller system, the AVR is equipped with droop volt- rent threshold is inversely proportional to the event age characteristics that allow parallel operation of duration.) the generators. The ELC regulates the active power whereas the AVR regulates the reactive power in the Another function of the time overcurrent relay (51)

Mini and Micro Hydropower Applications Mini and Micro Hydropower system. is to facilitate relay coordination. Faults close to the through up ElectricityNepal: Scaling Access generator trip the overcurrent relay quickly, prevent- PROTECTION ing equipment damage. More distant faults gener- ally result in less fault current at the generator, so For the protection of power system equipment the time overcurrent relay trips after a delay, allow- (such as fuse, circuit breakers, contactor, relays and ing protective relays closer to the fault to trip first. emergency switches) and personnel working on them, these are included in the control panel. One Small generators can supply less fault current than of the special features of the control panel is the use large generators. If the difference between the fault of relays which sense any abnormal condition in the current and the maximum current under normal circuit and send tripping signals to the contactors conditions is small, detection of faults can be diffi- for quick and precise protection. Comprehensive cult. metering is used to indicate power, voltage, current, power factor and ballast load. The meter displays Synchronizing check (25) different system parameters and status of the fault The synchronizing check relay (also referred to as trips and system status. a synchronism check, synchrocheck, sync-check, or paralleling relay) is a key interconnection com- COMMON RELAYS USED IN GRID ponent for synchronous generators. Before a syn- CONNECTION OF MHPs chronous generator is connected to the grid, the generator voltage must be synchronized with the The functions of protective relays, circuit breakers, grid voltage, both in frequency and in phase. If the and other devices are indicated using device num- generator and the national grid are not synchro- bers, defined in the ANSI/IEEE C37.2 standard. These nized, large currents can flow at the time of connec- numbers are given in parentheses in this annexure. tion and damage the generator. The synchronizing check relay prevents the connection to the grid Instantaneous/time overcurrent (50/51) from being made when the generator is not syn- Excessive current (overcurrent) can be caused by a chronized with the grid. fault or by excessive demand. Overcurrent relays are widely used by utilities in electrical distribution sys- If automatic synchronization is used, the synchro- tems, for loads as well as for small generators. There nizing check relay may be part of the automatic are two closely related types of overcurrent relays, synchronization system. If manual synchronization often combined into a single package: the instanta- is used, the synchronizing check relay prevents the neous overcurrent relay (50) and the time overcur- breaker from being accidentally closed when the rent relay (51). The instantaneous overcurrent relay generator is not synchronized. A peakorinstantaneousover-voltage relay (59I)is generation andassociated capacitors are islanded. system orwhendistributed phase ofathree-phase conditions,tain abnormal suchasalinebreak inone formers canhave undercer nonlinearinductance Ferro-resonance trans- occursbecausedistribution generatora distributed becomessuddenlyisolated. asferro-resonance,known whichcanoccurwhen voltage canalsobecausedbyOver aphenomenon into asingleunit(27/59). voltage and over-voltage relays are combined often exceeds the local demand. of under-The functions indicate anislandedconditionifthegeneration system, over-voltageOn agrid-connected canalso and result in major damage to system components. voltage canbecausedbyOver asuddenloss ofload linesthatcausethevoltagedistribution to drop. faultscommononlong circuits andline-to-ground limits. The under voltage relay short can also detect remain withintherequired voltage andfrequency and frequency, generator thedistributed may not tion, withnonationalgrid to regulate thevoltage since thenationalgrid addi- isnotoperating. In personnel who may assume that lines areity dead to produce voltage, itcouldposeahazard to util- loses power. generator thedistributed continues If thegeneratoris to ifthenationalgrid disconnect too low. of the under voltage relay function One key The undervoltage relay ifthegrid voltage trips is Ov Under v er v er ol ol t a t g a e (59) e e (27)ge - given number81R.) thedevice is sometimes functionality lowable threshold. (This persecondisastandard al- 2.5Hz infrequency; drift account to avoid dueto anormal nuisancetripping into may alsobetaken ofchangefrequency Rate above thenominalsystemHz frequency. belowscale grids inNepalare and0.5 about0.5Hz over-/under-frequency protection settingsfor large- increase ordecrease infrequency. Recommended either speeduporslow down, withacorresponding to thegenerator power output,thegenerator will the grid, equal unlesstheremaining loadisexactly fromtional islanding;ifthegenerator disconnects acceptable range. This relay helpsprevent uninten- isoutofthe thegenerator ifthefrequency nects The over-/under-frequency (81O/U)relay discon- form resulting from ferro-resonance. required to thenon-sinusoidalvoltage detect wave tem voltage. relay at a lower trips sys- current than at the normal to depend on voltage, so that at lower voltages the allows thecurrent threshold over-current relay (51V) ate. orvoltage-controlled The voltage-restrained relay (50/51)before thatrelay hasachanceto oper it may drop below thethreshold oftheover-current as thevoltage drops. thecurrent decays too If quickly, phase to ground, decays theinitialhighcurrent spike circuit phasesorfrom between thecaseofashort In Over/under frequenc Vol t a d ge-restraine o ver current y (81 O / U) (51V) - - 125 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annex 10 International practices in grid connection of RETs

INDIA Uttarakhand provides technical support to UREDA to roll out MHPs in the state. Specifically, the AHEC India holds the RETs responsible for performing an provides support in preparation of DFS, technical interconnection study to determine the required supervision and equipment testing. Currently, there 126 equipment, impacts on neighboring customers, are five MHP manufacturers in India that are active interconnection capacity, and measures to ensure in supplying MHP equipment. safety of personnel and equipment. Additionally, there are no grid connection standards for RETs During the late 1990s and early 2000s, UNDP-GEF connecting to the grid at the distribution level. The supported the MNRE to roll out the hilly hydro- Central Electricity Authority Technical Standards for power program that aimed to help remote hill com- Connectivity to the Grid (2007) mentions connec- munities access electricity through the systematic tivity conditions at the distribution level. However, development of micro/mini and small hydropower these standards do not specify equipment ratings potential in selected hilly states in the country. A

Mini and Micro Hydropower Applications Mini and Micro Hydropower terminal evaluation90 found that although the proj-

through up ElectricityNepal: Scaling Access and give the electric utility a great deal of discretion in deciding the design of the interconnected facil- ect aimed to set up several standalone hydropower ity, which has created a barrier to grid connection projects, most of the projects ended up as grid con- for RETs. nected SHPs with several projects having commercial investors. However, the project did give a huge Micro hydropower generation in India is largely in fillip to the small hydropower sector in the country the hills of the Himalayas and parts of Western and and helped develop an active small hydropower Eastern Ghats. The Ministry of New and Renewable manufacturing, installation and development in- Energy Resources (MNRE) provides capital subsidy, dustry. which is channelized through state nodal agencies (SNAs). Among these currently, the Uttarakhand Unlike SHPs, micro hydropower projects did not Renewable Energy Development Agency (UREDA) attract the attention of commercial investors since is active in the area of micro hydropower develop- they were not very attractive financially and were ment. often plagued by low PLFs and low revenues. Even- tually, micro hydropower projects got limited to be- The Alternate Hydro Energy Centre (AHEC) that is lo- ing implemented by NGOs and local communities cated in the Indian Institute of Technology, Roorkee, with generous capital subsidy from the MNRE and

90 Terminal Evaluation and Impact Assessment of The UNDP/GEF Project – Ind/91/G-31 – Optimizing Development Of Small Hydel Resources In The Hilly Regions Of India, Indian Institute of Public Administration, New Delhi bines from Nepal. having purchased reported tur installers in India ing. Interestingly, some ofthemicro hydropower ership/ operationsofMHPs orinMHPmanufactur significant commercialtract interest in either own- is tiny and hasnot been able to inIndia at sector 92 91 biomass gasifiers ordieselgenerating sets runon access through local generation using of electricity grid villages. This includednot only theprovision of the programme to was total off- energy security about 200locationsinthecountry. featureThe key ed the in ProgrammeVillage Energy Security (VESP) thefirstdecadeofthiscentury, MNREpilot During offered. grid for power evacuating tariffs andunattractive faced by themrelate and reliability ofthe to quality plants thatare to problems connected thegrid. Key Today, there are several micro/mini hydropower from thesaleofpower to thegrid. enue while UREDA gets 75 percent of the revenue Urja Samiti gets 25 percent ofthe revthe Ramgad - PPA Power with the Uttarakhand Ltd.,Corporation Underatripartite nance thecostofgrid connection. fi- to partly family putinINR10,000ascontribution was managing to theMHPto thegrid. connect Each area. UrjaSamitithat UREDA helpedtheRamgad toconnections, when the grid wasextended Until 2004power supplywasthrough unmetered UREDA provided bulkofthefundsfor settingitup. supplywitha100kWMHPin1995. got electricity that isavillageinUttarakhand er project. Ramgad area ofthemicro hydropowgrid enters theservice - encouragement given oncethe to grid connectivity er program andthe hasbeentheuseofmetering However, feature akey ofUREDA’s micro hydropow- ects. communities insettingupmicro hydropower proj- onlylocal 80 percent capitalsubsidyandsupports the SNA.UREDA, for example offers 70percent to Villa

India: Biomassfor LessonsIndia: SustainableDevelopment: for Decentralized Energy Delivery Programme,Village Energy Security 2011 World Bank, hydropower plants with SHPs (usually up to 5 MW) while determining tariff on a cost+RoE basis. on acost+RoE tariff whiledetermining hydropower plants withSHPsThis thetariffs alittlelessattractivetends toMHPs.to make (usuallyupto 5MW) Cost with the size of generation varies of the plant. Larger plants enjoy considerable scales of economy. But energy regulators routinely club micro/mini ge Ener 91 However, overall, themicro hydropower gy Securit ymme Progra - - - - they had virtually paid nothing. A had virtually they World Bank study washandedanassetforthe localcommunity which MNRE andtherest from often state governments, VESP, with 90 percent coming as subsidy from the in the micro hydropower in Nepal, sector but in the (sweat hasasignificant andcash) equity community role thatanRSCplays. difference But akey isthatthe many issimilarto the aspects, thisarrangement In ofthese help intheformation andnurturing VECs. wasto task for theNGO(implementingpartner) resented Akey by Village Energy Committees (VEC). owned andoperated rep by thelocalcommunity envisaged thatthebiomassgasifiers would be through theSNAs. More significantly, theprogram ratherthanwork NGOs asimplementingpartners MNRE decidedto inclosecollaborationwith work applications.for Alsofor cooking thefirsttime, the butalsobiogasandimproved cookstovesbio-oil Figure A10.1:P intheseprojects. problemthe typical cycle gasifier manufacturers. Figure A10.1below depicts from distantlylocated salesservice with poorafter for theremote communitiesto handle, especially a biomassgasifier)andthe technology wasnoteasy intheasset(usually hadlittlestake the community found that VECs were unsuccessfullargely because L N in operations ack ofinterest I nadequate on-payment training of dues roblem cycleofbiomassgasifiers for rural electrification P oor after sales after oor breakdown confidence Frequent L service ack of biomass supply N operations o interest in I mproper uptime 92 ow Low -

127 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annexes

It is interesting to note that the micro hydropower Board (CEB), addressed this issue in one instance program has successfully used the very same VEC in by subsidizing half the cost of grid upgrades for a the form of MHFGs to manage MHPs in remote lo- group of MHPs willing to connect to the national cations. A key enabler for this is the demand driven grid. 128 process of micro hydropower with the community having a very significant financial stake in setting up Recent regulatory changes and the publication of a the MHP. project approval guidebook for grid connection of new and existing renewable energy projects have Biomass Energy for Rural India: UNDP-GEF and streamlined the process for bringing new renew- Government of Karnataka able generation online. Sri Lanka’s Sustainable En- Biomass Energy for Rural India (BERI), a project im- ergy Authority prepares the guidebook, which lays plemented in the Government of Karnataka, a state out a process in which an applicant first registers in south India with support from UNDP-GEF was a project and performs a pre-feasibility study. The

Mini and Micro Hydropower Applications Mini and Micro Hydropower based on mobilizing local communities to build a concise guidebook provides detailed instructions through up ElectricityNepal: Scaling Access supply chain for biomass fuel to be used in commu- for the entire process, application forms, and appli- nity owned and operated biomass gasifier power cation process flowcharts in a single document. Ad- plants that are connected to the electricity grid at ditionally, checklists specific to the energy resource distribution voltages (11 kV). For the first time in type (biomass, hydro or wind) list the information India, a community owned and managed biomass required in the pre-feasibility study. gasifier power plant (3 x 100 kW + 1 x 200 kW) was connected to the grid at 11 kV. Subsequently, a TANZANIA PPA was also signed with the distribution company (Bangalore Electricity Supply Company) for pur- The Government of Tanzania through the Ministry chase of power from the power plant. Although, the of Energy and Minerals is establishing a framework plant was originally designed for supplying power for developing small power projects in collaboration to the nearby villages, it was soon realized that with with various international development partners. large irrigation pumping loads in the area, the plant The framework aims to accelerate electricity access would not be able to meet the demand. Therefore, by promoting development of small power projects a decision was taken to connect it to the grid and among local and foreign private investors. It includes operate it as an IPP. However, due to the instability “Standardized Power Purchase Agreement” and of the 11 kV rural feeder line and also several techni- “Standard Tariff Methodology” applicable between cal issues with the biomass power plant, synchro- the developer of renewable energy projects with nization of the plant with the grid proved elusive capacity ranging from 100 kW to 10 MW and buyers for long periods of time. Therefore, in the context of such as the national grid or local isolated grids. The MHPs being grid connected in Nepal, a significant framework, which is being developed pursuant to lesson is quality of power from both the generating Tanzania’s Electricity Act (2008), opens the possibil- plant and the grid is important to ensure evacuation ity of implementing rural electrification projects and of power to the grid. aims to reduce negotiation time and cost.

SRI LANKA THAILAND

Sri Lanka was an early leader in grid-connected In Thailand, 1,200 MW of renewable electricity gen- MHPs, majority of which were originally built as iso- eration projects are online and an additional 3,700 lated systems to power tea plantations. However, MW of projects have signed PPAs. However, Thailand grid capacity constraints have recently limited the recently made the process of national grid connec- ability of existing MHPs to connect to the grid. Sri tion more cumbersome by introducing subjective Lanka’s national electricity utility, Ceylon Electricity approval steps and requiring applicants to demon- purchase obligations. production costs)to meettheirrenewable energy utilities(thatmay havetric highrenewable energy renewable energy generators andtradedto elec- allows renewable energy credits to be created by (RECs). EnergyRenewable Certificates This scheme schemeto create, trade, andsurrender get (MRET) Energy Renewable titledtheMandatory work Tar energynewable per year. The includes Act a frame with atarget to add9,500 Giga-watt-hours ofre Australia Energy in2000 passedtheRenewable Act plants. operation,andlicensingofgenerating construction, site approvals, environmental assessments, impact Window” for renewable energy services tenders, RETs, theDanishEnergy provides Authority “One To streamline procedure thegrid connection of 0.013/kWh ofadditionalincomefor RETs. all forms ofenergy, whichaddsapproximately EUR RETs. Additionally, on taxislevied ageneralcarbon er, infrastructure for transmissionanddistribution interconnect, andoperateconstruct, thetransform- such thatthenationalgrid isrequired to finance, open andguaranteed accessto thenationalgrid inthegiven area.ity distribution RETs are provided - 85 percent oftheconsumerretail ofelectric price buy allpower produced from RETs at70percent to utilitiesto hassetaFITrequiring electricity Denmark previously dynamicrenewable energy market. deposits. These changeshave slowed down the strate financial soundness by posting refundable AUSTRALIA DENMARK - - - responsibility of various interconnection costs.responsibility ofvarious national grid. The alsoincludesFITs Act andascribes by the transmission, andpayment for such electricity the nationalgrid, andsetsstandards for purchase, well asoutlinesprocedures for RETs connecting to 2010 and20percent by 2020. as The prioritizes Act sources inpower supplyto atleast12.5percent by in 2004to increase theshare ofrenewable energy Energy passed the Renewable SourcesGermany Act al level andisspread outamongconsumers. andReformDevelopment Commission atthenation- The tariff for energyrenewable is set by the National and taxpreferences for renewable energy projects. offers financialincentives suchasdiscounted lending to purchase power from addition,it thesefacilities. In companies to provide to RETs grid connection and to 10percent by 2020. The law requires transmission the aimofincreasing theuseofrenewable energy up Energy China passedtheRenewable Law in2006with from thenationalgrid’s perspective. ofany potential problemsthe RET withtheproject opinion ontheproposed andalert grid connection Power’s ofKenya document would inform theRET toto the national grid. connect A simple one-page respond to aninitialExpression ofInterest from RETs procedures. Underthisscheme, Power Kenya would utility,electric to introduce interconnection new areforts underway for Power, Kenya thenational has beenlittleprojectdevelopment inresponse.- Ef energy development in2008.However, sofarthere beganofferingKenya FITs to encourage renewable GERMAN CHINA KEN Y A Y 129 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications Annexes

130 Mini and Micro Hydropower Applications Mini and Micro Hydropower through up ElectricityNepal: Scaling Access 131 Nepal: Scaling up Electricity Access through Mini and Micro Hydropower Applications The World Bank Group Nepal Office P.O. Box 798 Yak and Yeti Hotel Complex Durbar Marg, Kathmandu, Nepal Tel.: 4236000 Fax: 4225112 Email: [email protected] www.worldbank.org/np www.facebook.com/WorldBankNepal