1. Small Hydropower Development in
Nepal
Annual International Training course on “Small Hydropower
Development”, Feb 02-13, 2010 at Alternate Hydro Energy
Center, IIT Roorkee, India.
Er.Sanjeev Pokhrel

2. Contents
 Overview of Nepal
 Background
 Overview of the Sector
 Legal and Policy Environment
 Present Scenario
 Rural Electrification
 Challenges of SHP development in Nepal.
 Conclusion

3. Overview of Nepal
 Land Lock Country
surrounded by India on
three side and by China
on one Side.
 Land Area:147,181 sq.km
 Literacy Rate: 48.6%
 Political System: Federal
Democratic Republic.
 Per Capita Income: US
$200

4. Animal dung
Energy Source
Renewable Energy
Electricity 1%
2%
Fossil Fuel
10%
Agricultural & Animal
Residue
9%
Fire wood
78%

5. Background
 Classification of Hydropower Plants in Nepal
 Less than 5 kW : Pico Hydro
 5kw to 100 kW : Micro Hydro
 100 kW to 1000kW : Mini Hydro
 1 MW to 10 MW : Small Hydro
 10 MW to 100 MW : Medium Hydro
 Above 100 MW : Large Hydro

6. Overview of the sector
 Nepal has a huge potential of Hydropower
Development. Technically 83,000 MW is
viable, out of which more than half is economically
feasible.
 Three major river basins:
 Karnali, Gandaki, Koshi.
 Less than 2% potential utilized.
 Access to electricity 40% ( 20% in rural area)
 Per capita energy consumption : 78 kWh
 Power import from India : 80-90 MW
Gov. Target for 10 Years : 10,000 MW

7. Overview of the Sector
 First Hydropower Project: 500kW Pharping in 1911
to feed electricity to Singhadurbar (Royal Rana
Palace).
 Biggest Hydropower Project: Kali Gandaki 144MW
 Installed Capacity :690 MW
 Hydropower : 635 MW
 Thermal Plant : 55 MW
 Total Capacity of NEA SHP : 18 MW
 Total Capacity of Private Sector SHP : 25 MW
 Declared Energy Crisis
 Peak demand 845 MW & Supply 325 MW
 11 hours of Load shedding/day.

8. Legal and Policy Environment
 Government has adopted the Hydropower
Development Policy of 2001 and encourages both
local as well as foreign investment, especially for
the development of SHP
Highlights of the Hydropower Development Policy, Nepal
2001
 Development at an affordable price
 Uplift the living standard of the rural community
 Efforts to reduce the risk of investment
 To open market for sale of electricity both at
national and international level.
 Easy acess for the expatriates to work in the
country in relation to the project implementation

9. Legal and Policy Environment
Government Agencies in the power sector
i. Ministry of Water Resources (MoWR)
ii. Water and Energy Commission Secretariat
(WECS) – planning and policy research.
iii. Department of Electricity Development (DoED) –
licensing, facilitation, promotion, compliance
monitoring and project study (regulating body under
Ministry of Water Resources).
iv. Nepal Electricity Authority (NEA) – public utility
for generation, transmission and distribution of
electricity (Government of Nepal undertaking company under
Ministry of Water Resources, Formed in 1985).
v. Electricity Tariff Fixation Commission (ETFC) –
tariff setting

10. Legal and Policy Environment
Moreover, for the promotiion of hydropower
projects, the DoED has been designated as ’One
Window’ under the MoWR, with following
responsibilities:
 Issuance of survey and Project (generation) licenses.
 Providing concessions and incentives.
 Facilitating the import of the plant, equipments and
goods required for the project.
 Facilitating in the acquisition of government land
required for the project.
 Facilitating in obtaining various permits and
approvals.

11. Legal and Policy Environment
Application Process for SHP
•Survey license.
 To study generation, transmission, distribution survey
To obtain survey license, desk study report should be
submitted.
•Operation lisence.
 Production License (for construction and operation of a
production facility).
 Transmission License (for construction and operation of a
transmission).
 Distribution License (for construction and operation of a
distribution facility).
For operation license, Feasibility Study Report along with Detailed
Financing Plan should be provided. Power Purchase Agreement between
the developer and potential energy purchaser should also be provided

12. Conditions of PPA between SHP developers and
Nepal Electricity Authority(NEA)
 The PPA period is 25 years whereas the license period
is 35 years.
 Delay penalty equivalent to 5% of the yearly revenue
for each year beyond the agreed date.
 If the developer is unable to deliver atleast 80% of
the contract energy, the developer will have to pay
penalty for the deficient unsupplied percentage of
energy below the 80% bench mark.
 If NEA is unable to purchase atleast 80% of the
contract energy, they shall pay for the energy less
than 80% not purchased.

13. Conditions of PPA between SHP
developers and NEA (Contd…..)
 Hydrological risk should be taken by the
developer. However, there is some flexibility in
energy output declaration, which should be done
one month in advance.
 Rates and conditions of PPA are mutually
negotiated by the developers and NEA.

14. Royalty, Fees and Taxes
Royalty for Internal consumption Project
Up to 15 years After 15 years from
the date of
S.No Electrical commercial operation.
Capacity Annual Energy Annual Energy
Capacity royalty per Capacity royalty per
royalty per kWh royalty per kWh
kWh kWh
1 Up to 1 MW - - - -
2 From 1 MW to 10 Rs 100/- 1.75% Rs 1000/- 10%
MW
3 From 10 MW to Rs 150/- 1.85% Rs 1200/- 10%
100 MW
4 Above 100 MW Rs 200/- 2.00% Rs 1500/- 10%

15. Royalty, Fees and Taxes
Royalty for Export Oriented Project
Up to 15 years After 15 years from
the date of
S.No Electrical commercial operation.
Capacity Annual Energy Annual Energy
Capacity royalty per Capacity royalty per
royalty per kWh royalty per kWh
kWh kWh
1 Export Oriented Rs 400/- 7.5% Rs 1800/- 12%
run of-the river
Project
2 Export Oriented Rs 500/- 10.0% Rs 2000/- 15%
storage Project
Income Taxes:
Income tax applicable for hydropower projects is ten percent lower than the normal. One
percent tax is applicable on import of electromechanical equipment and import of steel
for hydro mechanical works.

16. Present Scenario
 It is being realised now that the development of
hydropower is vital for development of the country.
 Many Indian and multinational companies have shown
their interest to invest in hydropower sector in Nepal.
 National and international banks and finance agencies
are willing to invest in hydropower sector in Nepal.
 Grid connection work with India is being expanded and
upgraded.
 Huge crisis of energy in Nepal, India and some SAARC
countries especially during the peak hours.
 Lack of infrastructures such as roads and
transmission lines, the main challenges to the
hydropower development.

17. Present Scenario (contd…..)
 Connecting rural villages with national grid is
very expensive, hence small and mini hydro
development, the only solution.
 Many private parties are holding licenses but
are not able to implement due to financial
problems.
 Most rural communities depend upon forest to
meet their energy demand.
 The price of petroleum products is continuously
increasing and being out of reach of common
people.
 Local companies and contractors have designed
and constructed several successful small and
medium hydropower schemes.

18. Rural Electrification
 Decentralized Energy Concept.
 Alternative Energy Promotion Center(AEPC)-
Promotion of renewable energy technologies.
 Rural Energy Development Program(REDP)-UNDP/World
Bank( Working in 40 hilly district)
 Energy Sector Assistance Program(ESAP)-Norway/ Denmark
 Subsidy Policy(up to 100k W) : $USD 1740/kW for rural
electrification.
 Where as total cost of project/kw =$ USD 4860
 75,000 HH has been electrified using micro hydro as off grid.
 These programs has contributed a lot in achieving Millennium
Development Goal ( MDG’s) at local as well as national level

19. Challenges of SHP development in
Nepal.
• Hydropower Financing
• Lack of project financing
• Financing mismatch
• Lack of Nodal Agency
• Lack of "one-stop shop" for hydropower development
• NEA as a Single Buyer
• Monopoly
• NEA's weak financial position
• "Affected" Communities
• Local disturbance and more demand from locals
• Possible solution: Shares to the local communities

20. Challenges of SHP development in
Nepal.(contd….)
• Poor Road and Transmission Infrastructure
• Road and Transmission Line: Prerequisites for private hydropower
development
• Lack of infrastructure increases cost of projects
• More government investment needed
• Power Purchase Agreement (PPA) Provisions
• NEA not signing new PPAs: Too much run-of river projects
• Standard PPAs have become non-standard
• Electricity pricing not based on value of electricity to NEA
• No wheeling provisions in place yet
 Risks: Hydrological Risks, Geological Risks, Unstable political
situation, Sediment problem

21. Conclusion
 Hydropower development can uplift the living
standard of the rural communities.
 The SHP, which is both environment friendly and easy
to construct, operate and maintain, should be
developed rapidly.
 Hydropower development can help to meet the peak
demand within Nepal and India. Thermal plants are
suitable to meet the base load.
 Nepalese experience shows that the success of any
given project is dependent on the involvement of local
community right from the planning stage.
 Development of hydropower can bring industrial
growth thereby raising the overall economy of the
country.

22. Conclusion (contd…)
 Common public should be made aware of the positive
impact that hydropower can bring to them.
 There are plenty of opportunities to beome available
through the investment in hydropower in Nepal.
 Local manpower and companies already available, who
have enough experience and capability to study, design
and execute the medium and small hydropower
projects.

27. Thank you for your kind attention