Whenever we talk about our vast hydropower potential, we always assume that we can get rich by exporting power to India. But very little attention has been paid to replacing the import of liquefied petroleum gas (LPG) with electricity for cooking purposes. Nepals installed electricity generating capacity is 615 MW. The actual production is much less during dry season, resulting in prolonged load shedding. The country needs reservoir type projects of at least 300 MW to take the peak load during the dry period.

During winter, power deficit is 150 MW, and the main end use is household lighting. Since the tariff is exorbitant, electricity is not used for cooking and heating. If the annual demand growth is 8% to 10%, additional installed capacity of 60 MW is required each year. But the only significant project in the pipeline is the 70 MW Middle Marsyangdi. Even after its completion, the deficit will stay at 150 MW.

About 40 projects of up to 5 MW capacities are awaiting Power Purchase Agreement (PPA) with NEA. The rates for these small projects are fixed at Rs 3.90 per unit during wet period (8 months) and Rs 5.53 during dry period (4 months). The weighted average of the purchase rate will be Rs 4.44. On the basis of these rates, NEA agreed to purchase 50 MW of power per year. But it is hard to understand why the NEA is not signing agreements with these Independent Power Producers (IPPs). NEA argues that PPA with IPPs will result in a loss for NEA. But the weighted average purchase rate of Rs. 4.44 is lower than NEAs average selling rate to consumers of Rs. 6.50. Even if NEAs 25% loss is added, the total cost of the energy from IPPs will be Rs. 5.55 and NEA can sell the same at Rs. 6.50. Either NEA should meet the demand or allow other players to produce electricity. The NEA needs to come clean on the issue.

Nepal imported 8,000 tons of LPG per month last year. Assuming that 95% of this was used for cooking, the average yearly consumption of LPG is 91,200 tons for cooking purposes alone. The demand of LPG is also growing every year. The government gives Rs 260 subsidy per 14.2 kg LPG cylinder. This means the actual cost of LPG is Rs 1,160 per cylinder. And the annual subsidy on LPG amounts to Rs 1.76 billion, the amount enough to generate about 15 MW of electricity. Nepal spends almost Rs 8 billion annually to import cooking gas, enough to generate 60 MW hydropower.

According to data, 1 kg of LPG produced by Indian oil refineries generates 11,400 kilocalories of heat (calorie is the unit of heat). At this rate, one cylinder of gas (14.2 kg) can produce 161,880 kcal of heat. One unit (1Kwh) of electricity produces 860 kcal of heat. To produce the same amount of heat as produced by 14.2 kg of LPG cylinder using electricity, one has to consume 188 units. As per the current tariff of electricity (Rs. 6.50 per unit), the cost comes to Rs.1, 224 instead of Rs 900 for the gas cylinder. If all Nepalis with access to electricity want to cook on electricity, additional 150 MW of hydroelectricity is required during peak hours. Similarly, the cost of electricity per unit should be Rs 4.80 to make electricity price at par with LPG.

There will be no filler projects of 30-50 MW to ease load shedding until Upper Tamakoshi comes on line. No Power Purchase Agreement with IPPs is probably due to bottlenecks in transmission from such small and medium plants. However, all the potential sites of hydropower plants will be occupied by the so-called foreign investors and the government as usual will be reluctant to cancel their licence. The industrialisation process of New Nepal will never start because there will be no driving force: electricity to run the machines of the industries.

At this juncture, donors will come to rescue Nepal with unaffordable conditions and the NEA will declare the construction of one of the projects of 100 to 200 MW as no option project. The stories of Kali Gandaki and Middle Marsyangdi will be repeated and Nepals electricity will remain one of the most expensive in the world.

The NEA must sign PPA with all projects of capacity up to 5 MW. This will not only help boost the quality of electricity supply but will also bring in potential investors for larger projects. Controlled licensing and PPA with foreign investors for more than 50 MW projects through competitive bidding can be followed to reduce the costs of electricity.

As stated by Water Resources Act 2001, the foreign developers will engage local consultants and the contractors in all phases of development by 2007. Nepal Electricity Authority can stay as a larger player in the energy game by focusing on larger projects. Nepalis will be able to cook over the electric oven, as it will be cheaper than LPG. If import of LPG is reduced it helps India as well since the Indians can use extra LPG for their own purpose. Nepal should explore exporting to get rich only after meeting its own demand.

Thapa is a hydropower engineer.