ENERGY MARKET DEVELOPMENT: A CASE STUDY OF NEPAL Olivia Coldrey | - - PowerPoint PPT Presentation
ENERGY MARKET DEVELOPMENT: A CASE STUDY OF NEPAL Olivia Coldrey | REEEP| 3 March 2017 OUTLINE Understanding the role of law, policy and regulation in the development, financing and use of energy projects Nepal country overview Energy
Olivia Coldrey | REEEP| 3 March 2017
day) in 2010-11, down from 53% in 2003-04
Source: Adrian Cook
Monarchy Fledgling democracy Restoration of monarchy Re- introduction
democratic politics Civil unrest Peace talks Political reform National elections New Constitution 1950s 1960 1991 1991 2006-2007 2008 November 2013 20 September 2015 Nepal ruled as monarchy for most of its modern history Brief experiment with democracy: new Constitution and first ever national elections in 1959 King Mahendra uses emergency powers to dismiss Cabinet and arrest its leaders on the charge that they had failed to provide national leadership and maintain law and order Major political and social upheaval; King Gyanendra assumes executive powers 2002 and 2005; Maoist insurgency results in 12000 dead and 100000 displaced End of King’s direct rule under public pressure; promulgatio n of interim Constitution Abolition of monarchy, national elections, declaration
Elections to Constituent Assembly (legislature) Promulgation
Constitution to replace 2007 Interim Constitution; amended January 2016
improve investment climate, stimulate growth and create private sector jobs
lowest ~33% of countries on every measure with especially poor results in “government effectiveness” and “regulatory quality”
131st of 176 countries
Source: Getty Images
schooling and only 50% of those who do attend secondary school proceeding to completion
1.
Dominant indigenous energy resources, hydro and biomass
2.
Relatively early stage of socio-economic development
3.
Political instability of much of the second half of the 20th century
prioritisation of hydropower development
processes and policy implementation
several decades have not been operationalised through legislation or creation of relevant institutions
mixed; significant time lags can apply; not all policy and legal instruments available in English translation
Nepalis did not have access to power in 2007)
consumption per capita among countries surveyed (Australia: 10,720 kWh)
Households that do not have access to grid-connected electricity mostly rely on thermal or small-scale renewable alternatives
among the population at large, rural dwellers may allocate up to 14% of total household expenditure for electricity
uses (process heating, motive power, boilers and lighting), each representing less than 10% of Nepal’s total energy use. More than half of industrial energy demand is met by coal
~700 MW installed capacity to date
Fire wood 71% Agricultural Residue 4% Cow Dung 5% Coal 4% Petroleum Products 11% Electricity 2% Renewable 3%
Fire wood Agricultural Residue Cow Dung Coal Petroleum Products Electricity Renewable
16
sector currently are scattered in various documents and executive orders. These include policy statements of the government made in periodic development plans, sub- sector policies, government
Commission]
series of five-year plans that set out an overall vision for Nepal’s socio-economic development
period 2007/2008-2009/2010 included:
hydropower resources for both domestic supply and export
population through the national grid and 25% through other sources, (iii) increasing per capita consumption to 400 kWh per annum, and (iv) exporting electricity
Policy (2001) and Rural Energy Policy (2006)), while others indirectly linked (for example those relating to, water resources, industry development, foreign investment and environmental protection)
coordination between agencies
and approves tariff filings and sets out principles to guide the fixing of tariffs and other charges
hydro, 22 MW by NEA thermal, 124.71 MW by IPP hydro and remaining 224.41MW imported from India
585MW load shedding – 7.56% growth in peak demand against the previous year.
respectively.
generation in previous years (~5,000 GWh v Australia 248 TWh). The figures include generation from NEA and IPP-owned assets respectively, as well as power purchase from India
Particulars 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2015*
Peak Demand (MW) 557.53 603.28 648.39 721.73 812.50 885.28 946.10 1,026.65 1,094.62 1,200.98
1291.80
NEA Hydro Generation 1,522.90 1,568.55 1,747.42 1,793.14 1,839.53 2,108.65 2,122.08 2,357.43 2,273.11 2,290.78
2365.64
NEA Thermal Generation 13.67 16.10 13.31 9.17 9.06 13.01 3.40 1.56 18.85 9.56
1.24
NEA Generation Total (GWh) 1,536.57 1,584.65 1,760.73 1,802.31 1,848.59 2,121.66 2,125.48 2,358.99 2,291.96 2,300.34
2,366.88
Power Purchase from India 241.39 266.23 328.83 425.22 356.46 638.68 694.05 746.07 790.14 1,072.23
1,369.89
Power Purchase from IPPs (Hydro) 864.80 930.04 962.26 958.42 925.74 591.43 1,038.84 1,073.57 1,175.98 1,258.94
1,268.93
Power Purchase Total (GWh) 1,106.18 1,196.27 1,291.09 1,383.64 1,282.20 1,230.11 1,732.89 1,819.64 1,966.12 2,331.17
2,638.81
Available Energy (GWh) 2,642.75 2,780.92 3,051.82 3,185.95 3,130.79 3,351.77 3,858.37 4,178.63 4,258.08 4,631.51
5,005.69
* Provisional figures Source: Nepal Electricity Authority, Annual Report Fiscal Year 2014-15, p 105
maximum of 11 hours per day in fiscal year 2014-15
during the dry season, when hydropower generation is relatively constrained, have generally been unsuccessful
including filling reservoirs
generation and import of electricity under power exchange agreements with India
shedding until power system supply capability substantially improves
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Source: NEA
Source: USAID/SARI South East Asia Regional Initiative for Energy Integration
transmission and distribution of electricity and to standardize and safeguard electricity services
economic point of view its main achievement is to legislate the changes outlined in the Hydropower Development Policy 1992, to open Nepal’s electricity sector to independent power production and therefore competition.
government resource for IPPs
1000 kW or above
information required to be furnished in respect of small-scale (100-1000 kW) activities
Authority Community Electricity Distribution Bye-Laws, 2060 (2003) have resulted in greater community participation in rural electrification, outside the traditional NEA business model
introduced into Constituent Assembly Q1 2015. Still to be enacted.
Commission January 2017]
current electricity legislation incomplete; no autonomous regulator; limited coordination among energy-related departments and agencies.
(access, expansion, energy efficiency, renewable energy, hydropower development and capacity development) continues to be essential
and recommend actions to resolve them by reference to proposed electricity and NERC legislation
Regulatory Governance Clarity of roles and objectives Autonomy Capacity Accountability Transparency Predictability Participation Integrity Credibility Legitimacy Regulatory Substance Access Service Quality Tariff (Price) Decisions Subsidies Licensing Accounting and Reporting Efficiency Financial Performance Investment and Maintenance Equity Sustainability Market composition and competition Sector Outcomes Capacity (installed capacity, installed technology) Output and consumption (access levels, demand) Efficiency (employment, productivity, losses) Service quality (quality, service continuity, customer satisfaction) Financial performance (operating results, capital structure) Investment and maintenance (capex, maintenance) Prices (cost reflectivity, prices) Equity (affordability, subsidies) Environment (resource mix, emissions) How can sector outcomes be explained by regulatory governance? How can sector outcomes be explained by regulatory substance? How can sector outcomes be explained by other non- regulatory factors?
Source: Asian Development Bank
CHALLENGE RECOMMENDATION Licensing The draft Electricity Bill lacks a comprehensive and effective licensing regime, and this is reflected in the current practice of more than one entity issuing licenses for development of power projects, with licenses issued on a “first come, first served” basis. Among other key challenges the current licensing regime creates are: (i) sub-
resources, (ii) transmission losses where licenses have been granted for power production long distances from areas of high demand, (iii) inflexibility in the time permitted for licensees to meet conditions set out in power development agreements, and (iv) substantial use of bureaucratic resources. Further, once licenses are issued there is no monitoring or evaluation of license holders by any agency of GON. The Act needs to clearly outline the licensing regime that will apply to all prospective sector participants and the objective criteria that must be fulfilled for any person to obtain a license and, where applicable, to renew such license. Should GON wish to incorporate the flexibility to solicit competitive bids for power project development, then the solicitation process should be clearly
dictate NERC as the best entity to issue licenses, however, if GON does not intend NERC to be entity issuing the licenses, then NERC should have at a minimum an advisory role in the licensing process.
CHALLENGE RECOMMENDATION Integrated water resource planning Nepal has no integrated plan for use of its water resources (IWRM Plan) even though energy policy to date has been centered on hydropower development. The lack of a long- term IWRM Plan has the potential to significantly diminish effective use of the water resource by failing to take sufficient account of environmental impacts, and being economically inefficient in permitting developers to develop small hydro plants rather than more efficient larger plants. Combined with the current licensing regime, this has resulted in no coordinated assessment of project proposals and, in turn, poor prioritization of projects that may be relatively easy to develop, with shorter transmission lines and less cumulative environmental and social impact. The GON needs to develop an IWRM Plan based on a thorough assessment of the water resource, the ecosystem services it provides, and the potential for and most economic size hydropower plants. Legal rights attaching to water use, as set out in the draft legislation, should be informed by a coordinated IWRM Plan and planning framework developed by GON. This would ensure that water resource use in individual projects is consistent with an overarching policy framework, and facilitates more effective
including reform of ETFC to become an independent regulatory body
establish such an agency, to:
balance electricity supply and demand
envisaged to be introduced into Constituent Assembly Q1 2015. Not yet enacted.
CHALLENGE RECOMMENDATION Roles, objectives and responsibilities The current draft NERC Bill lacks a clear and consistent explanation of the roles,
and policy advisory roles, responsibilities and objectives. This is inconsistent with international practice for effective electricity sector regulation, which seeks to separate the policy advisory role and give it to the Ministry, and the regulatory role, and give it to the regulator. For example, the licensing of electricity sector participants is a function typically carried
currently does not envisage NERC performing a licensing function. The NERC Bill should contain a preamble that sets out its statutory objectives. Typical objectives include (but are not limited to): regulating the electricity industry; electricity sector development; promoting competition; increasing access; setting and enforcing safety and service quality standards; promoting efficiency in electricity supply and use; promoting environmental sustainability; and consumer protection. The NERC Act should explicitly state the scope of NERC’s regulatory roles and responsibilities and its policy advisory
significantly with other government departments and agencies.
governments
set out in tabular form below, noting in particular the concurrent or joint
roles and functions at different levels of government.
apply until amended or repealed. In this regard it will be important to understand the status of the proposed Electricity Act, 2065 and proposed NERC Act, 2065. It will also be necessary to understand plans being developed by each level of government to raise revenue to enable it to carry out its functions.
Federal Powers/Jurisdiction (Arts. 57(1) and 109;
Provincial Powers/Jurisdiction (Arts. 57 (2), 162 (4), 197, 231 (3), 232 (7), 274 (4) and 296 (4);
Concurrent (Federal and Provincial) Powers/Jurisdiction (Arts. 57 (2), 162 (4), 197, 231 (3), 232 (7), 274 (4) AND 296 (4);
Local Powers/Jurisdictio n (57 (4), 214 (2), 221 (2) AND 226 (1); Sch. 8) Concurrent (Federal, Provincial and Local) Powers/Jurisdicti
57 (5), 109, 162 (4), 197, 214 (2), 221 (2) AND 226 (1); Sch. 9) International and inter-provincial electricity transmission lines X Central level mega-projects for […] electricity X International trade X International agreements X Land use, environment adaptation X Residual Constitutional powers X Provincial level electricity X Land management X Intra-provincial water resources X Essential services X Border rivers and waterways, environment X Land policy X Local development projects X Local environment conservation X Land distribution X Small electricity projects; alternative energy X Electricity X Environment X
number of international jurisdictions: Australia, Canada, Malaysia, United States and Sri Lanka (all federations except South Asian Association for Regional Cooperation (SAARC) member Sri Lanka)
sectoral objectives
different levels of government, which can in turn lead to duplication of effort and inefficiencies
and environmental standards) has a positive effect on productivity and efficiency of services between jurisdictions
meaningfully with energy market institutions to inform policy design and desired energy market outcomes
effectively carry out their mandates.
especially desirable in light of land use, water resource planning and environmental assessment for multi-jurisdictional projects
domestic policy and international engagement
electricity supply and consumption between rural and urban areas
development
technologies in the rural areas, and to provide opportunity to poor and socially disadvantaged rural households to use renewable energy solutions and minimize regional disparity.
Source: Alternative Energy Promotion Centre (AEPC), Ministry of Science, Technology and Environment, Nepal
systems)
through project implementation, including through information and education campaigns and promotion of community management.
through improved electricity access to rural poor and socially disadvantaged
rates depending on technology, project size and remoteness of host community. AEPC also mandated to create an institutional credit mechanism (lines of credit and credit guarantees) under the Rural Energy Fund to encourage financial institutions to invest in renewable energy
district development committees and municipalities) to formulate, implement, distribute and maintain mini and micro hydropower projects and other energy projects in their respective jurisdictions
the entry of third parties into retail electricity distribution, for example rural electricity cooperatives and community associations
costs
contribute 10%
which sells bulk power to community groups under its Community Rural Electrification Program (CREP): “In the journey of 11 years, CREP has achieved a major success of accessing electricity to more than 45000 households of 55 [administrative] districts through 480 nos. of Different Community entities.”
Strategic Climate Fund within the framework of the Climate Investment Funds
impacts through scaling up energy access using renewable energy technologies, poverty reduction, gender and social inclusiveness and climate change mitigation; and (iii) ensure sustainable operations through technical assistance and capacity building.
Federal Republic of Germany through GIZ. NEEP is an 8-year technical cooperation program whose objective is to “broaden public and policy understanding to use energy efficiently to balance the energy demand and supply and thereby contribute to a sustainable energy management and climate protection.”
conjunction with various bilateral and multilateral partners (Danida, the Norwegian Ministry of Foreign Affairs, DFID, KfW, GIZ, SNV, UNDP and SREP). NRREP aims to provide a single programme modality for development of Nepal’s renewable energy sector, through adoption of best practice and harnessing partners’ financial resources, technical assistance and capacity building.
the NEA grid via grid-connected solar farms and (ii) reduce distribution losses in pilot distribution centres
the Nepali government, part funded by World Bank under Nepal Micro-hydro Promotion project
electricity to about 100 households and the largest - 116 kW - serves 940 households (about 4,023 people), managed by client communities
health, education and economic
carbon credits by displacing diesel fuel with renewable energy – a first for Nepal and South Asia. Credits are on-sold and revenue contributes to O&M costs
Source: World Bank
developing countries, especially in attracting $ required to develop infrastructure at scale
which the legal and regulatory system is responsible for sector outcomes, and help guide reform
the world’s transition to a low carbon economy – in which climate finance will play a key role in developing countries - is a strong additional impetus for reform of Nepal’s energy sector