A policy that will allow us to charge our EVs with cheaper electricity at daytime, to use the EV as a powerhouse for our home and export to the grid to help NEA manage peak load will be a game changer. To be able to store the excess generation during daytime and during wet season in battery storage by implementing innovative modality/technology to better manage peak load will help us attain electricity security. To be able to compete in the Indian electricity market we must be innovative, store energy during off peak and be able to use that energy in the peak time for captive load. It will allow us to sell electricity produced from our hydro systems in the Indian electricity market at peak time.
This article will try to address and discuss two market failures. First is natural monopoly. As Nepal Electricity Authority (NEA) is the sole electricity utility in the country it has monopoly in tariff, choice of technology and influences policy formulation and implementation.
Second failure is in terms of energy security. Nepal’s electricity grid is dominated by hydro power and imports from India. Fifty percent of our total electricity demand is met through Indian imports which is even higher during the dry season. As our electricity demand increases, the need to be self-reliant for electricity is critical for the nation’s economic growth and sovereignty.
In the last five years, Nepal’s electricity sector has made significant strides from facing up to 14 hours of load shedding to a reliable electricity supply. To meet demand, Nepal has increased imports from India. As the grid becomes stable, there are more opportunities to inject distributed renewable energy to the energy mix. But the intermittent nature of renewable energy generation has made it difficult to scale it to completely displace imports of dirty electricity. Nepal faces a unique challenge. Hydro dominated generation has reached a point where wet season spillage is inevitable. Wet season export to India is not feasible since India also has excess electricity during the wet season. The competition in the Indian electricity market will outbid Nepal’s electricity prices.
In this context, if we cannot increase our domestic demand so that there is no spillage and be able to store electricity generated from renewable to match our load profile and be able to export, Nepal will not be able to achieve electricity security.
Technology intervention
Two technologies, if backed up by innovative and favorable policies, can resolve the above discussed issues for Nepal. The first is the Electric Vehicle (EV) which not only will help in increasing domestic electricity demand but will displace massive fossil fuel imports. Fossil fuel is a major factor behind Nepal’s trade deficit and air pollution. In the long run, EVs in a country like Nepal, where per capita consumption of electricity is only 267 kWh per year, can play the role of mobile battery storage system which will help decongest peak load and empower consumers.
But inconsistent policy, changing multiple times and not focusing on specialized complementary assets like charging infrastructure, has resulted in loss of trust among private sector and consumers.
The second technology is Battery-Based Storage System (BBSS) combined with Distributed Renewable Energy (DRE). Kulekhani Hydro Power is the only power plant with storage capacity which aids daily peaking and manages dry season load along with Indian imports and other Run of River hydro plants (not mentioned smaller capacity storage). A battery-based storage is the most critical solution to manage peak load, generation/load mismatch management and any hope of exporting excess electricity to neighboring countries. It will also help Nepal in rapidly electrifying the last mile as it will decrease time and investment required to build large central power systems and improve grid quality.
Smart technologies combined with innovative policies can safeguard energy security for Nepal.
The policy to diffuse EVs and BBSS in Nepal not only have to be effectively implemented but also must be very innovative. Nepal’s unique problem gives it immense opportunity to diffuse clean technology without incurring any additional transactional cost. No country in the world can adopt cleaner technology without an economic implication. The feasibility of a transition to these new technologies, the costs associated with it and the distribution of those costs are areas of active debate among climate change policy analysts. The biggest climate change question of cost and economic implications is not at play in Nepal’s context and yet we are unable to achieve optimal solutions and secure energy future. We can adopt these two technologies and profit out of it while aiding to save the planet.
Erratic policies
Nepal implements a heavy tax of up to 250 percent on imports of private vehicles in the country. To promote EVs, the government had implemented a tax break policy on EVs which made EVs cheaper than Internal Combustion (IC) vehicles. But in 2020, the government reversed that decision and implemented taxes on EVs which made EVs more expensive than IC vehicles. Now again in the budget of 2021, the government has waived the tax regime on EV making it cheaper than IC vehicles. But both private sector and consumers are not confident to adopt EV as government policy is erratic.
Apart from inconsistency in the tax subsidy, though the government has announced switching to light electric vehicles by 2031, there is no preparation to diffuse and manage other specialized complementary assets like charging stations, public EV management platforms and battery recycling plants. Government needs to come up with a clear strategy and a ten-year road map backed by consistent policies. This will pave the road for mass adoption of the technology and convert it into a multipurpose technology which will serve both as clean mobility and a mobile storage of energy.
Nepal introduced its renewable energy policy in 2018. Even in comparison to its South Asian counterparts, Nepal has been very slow in adopting new technology, especially in the energy realm. Nepal has been trapped in a hydro based energy system which is semi renewable but bears a lot of risk when it comes to energy security. In recent times, there has been floods and other natural disasters which has shown the risk faced by centralized large hydro plants. But Nepal has also relied on 50 percent of coal (dirty) electricity imports from India. This is the ripple effect of India’s “carbon lock-in” which is expediting melting of our Himalayas. The negative externalities in importing dirty electricity from India is unimaginable for Nepal. Nepal, because of its economic size and lack of geopolitical power, has relied on Indian electricity. Lack of visionary policy actors is another reason for Nepal’s poor energy security.
Even in comparison to its South Asian counterparts, Nepal has been very slow in adopting new technology, especially in the energy realm.
In this context, an innovative and favorable Battery-Based Storage System (BBSS) policy must be formulated and implemented by Nepal urgently. There are two layers of BBSS. First, utility scale central storage (large in size-1 MW and above). The policy should make the technology commercially feasible. The policy should provide instruction on geographical location of such systems, last mile storage will have multiple positive impacts. The policy should provide accepted technology and should not leave any ambiguity. Second layer of BBSS is distributed storage (small in size, below 1 MW). Market should be deregulated through policy, consumers should be empowered, converting them to prosumers. Digitization of transactions through technology should be encouraged. Differential tariffs should be applied so that the consumers can benefit.
Peak time in Nepal and India are similar. The rate differential in the peak time in the Indian electricity market can make our electricity competitive. The two technologies, backed by suggested policy interventions in this article, can solve two energy market failures. It can solve the natural monopoly problem by giving power to individuals and firms to produce/store their own electricity. Enabling them to trade amongst peers through digital technology will take some burden off NEA and help in creating a healthy competition. It can also solve energy security problems by enabling BBSS/DRE and EV.
Then Nepal can achieve energy security by completely eradicating imports in the dry season and managing its peak load itself without having to depend on imports.
Aashish Chalise is the CEO of Saral Urja Nepal Pvt Ltd.
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