Electricity for us firstWill Nepal’s hydro that is translating into billions in export earnings benefit the Nepali people?
“The next billionaire will come from the energy sector,” Nirvana Chaudhary had boldly predicted in a headline interview to business daily Karobar a decade ago. Chaudhary is managing director of the Chaudhary Group and heir to the only Forbes-listed billionaire family of Nepal, and now of its political legacy as well. A glimpse of that potential was on display at Nepal Power Summit 2023, an annual jamboree hosted by the Independent Power Producer Association of Nepal (IPPAN), on April 18 and 19 in Kathmandu. Within the next three years, by 2025-26, Nepal could be exporting approximately $1.2 billion worth of electricity to India annually. If India permits it, exports could be three times higher by end of the decade. Annual energy exports are currently valued at approximately $90 million. For comparative reference, remittance income from Nepali migrant workers abroad amounted to about $8.5 billion in 2022.
The possibility of billions in exports and how to realise that potential is now the singular point in the narrative of Nepal’s power sector. This so intoxicated the large gathering at the power summit that the dialogue almost entirely centred on what was needed to conduct energy exports to India. How to coax the southern neighbour to allow more electricity imports, how to build more cross-border transmission lines, and how to get the private sector into power trading.
Hydropower to the people
At many points during the summit, you just wanted to interrupt and say, “Excuse me please, I just want to remind everyone that 30 million Nepalis also live in Nepal.”
Asking a question about Nepal beyond hydropower exports made you feel like you were asking a question about life after death. Nepalis that live in Nepal have become the discarded casualty of the great potential for hydropower exports. Approximately 2 million household customers of the Nepal Electricity Authority (NEA), representing 42 percent of its entire customer base, received subsidised electricity and accounted for less than 1 percent of the total consumption, the NEA’s annual report for 2021-22 states. This means that approximately 33 percent of all Nepali households that have access to the national grid use approximately 3.5 kWh per month, which is equivalent to using a 15-watt bulb for 8 hours daily. The remaining 67 percent of Nepali households with an electricity connection use 74 kWh per month, or about 30 percent of the household consumption in Delhi and about a tenth of the consumption in the United States.
Electricity consumption is very small in households across Nepal in part because they must rely on traditional biomass fuels and waste to meet the larger share of their energy needs. Data from the International Energy Agency on Nepal reveals that in 2020, biomass fuels and waste accounted for approximately 70 percent of total energy use, coal 8 percent, oil 18 percent and electricity only 4 percent. Almost all the traditional biomass fuel and waste is consumed by households, and only a small fraction is used by industries.
Nepal has the lowest level of electricity use across South Asia. This is the reason why it needs a market, and thus, the emphasis on exports to India. The government had set a goal to increase electricity consumption to 700 kWh per capita by 2022-23. It will miss this target by a wide margin because nothing has been done. And now that the large potential for hydropower exports is being rapidly understood, the remaining oxygen has been sucked out of the room. The focus on hydropower exports means there will be even less effort to increase domestic demand.
Low levels of electricity demand in Nepal point to lack of reforms to allow faster growth. Take the agriculture sector for example. Electricity accounts for only 7 percent of the total energy consumption in agriculture, one of the lowest in the world. There is tremendous scope for electrifying and modernising Nepal’s farm sector. Doubling the electricity intensity in agriculture could lead to a 32 percent rise in demand. Farmers in Nepal will benefit directly. The transmission and distribution infrastructure in rural areas is too weak to handle higher volumes, and not enough investments are flowing to improve it.
Electrification of transport offers a similar example. Completely electrifying all of Nepal’s transportation and use of liquid fuel would triple domestic demand. For that to happen, the grid needs to be strengthened. Efforts to provide a few charging stations coupled with a poorly designed tax incentive scheme for electric vehicles that benefit the rich are not enough.
There hasn’t been sufficient meaningful policy and regulatory reform efforts to spur domestic electricity demand. Proposed revisions to the Electricity Act, for example, were overwhelmed by the debate on whether the private sector should be allowed to export electricity to India. They could have discussed how to encourage private sector investments into transmission and distribution, or how to create a domestic electricity market. These issues were overlooked.
Economic development has always been unequal in Nepal. The power sector now deepens those inequities. The focus on investing for hydropower exports is reducing the investments available to increase domestic demand. Most Nepalis will benefit little from hydropower exports to India. Migrant labourers will collectively send back eight to 10 times what hydropower exports will earn. Those that stand to benefit from hydropower exports to India have little incentive to redirect investments towards strengthening and enhancing the domestic electricity grid. If you want to witness inequity at play, Nepal’s singular focus on exporting hydro power electricity is a good place to look.
It is never wise to doubt a billionaire’s guidance on where money can be made. But in this case, Chaudhary is wrong. The next billionaire in Nepal will not come from the energy sector. The next revolution in Nepal will come from the power sector. Whether that revolution will be green, as the organisers of Nepal Power Summit 2023 argued it could, or whether it will be red, will depend entirely on whether electricity can be made to work for the people of Nepal.