An Overview on Micro Hydro Debt Fund - Revision history

Ranisha: /* Further Information */

2019-02-10T12:24:19Z

Further Information

Johanna at 11:32, 29 March 2018

2018-03-29T11:32:11Z

Show changes

Ranisha at 15:53, 13 March 2018

2018-03-13T15:53:19Z

Ranisha: Ranisha moved page An overview on Micro Hydro Debt Fund to An Overview on Micro Hydro Debt Fund without leaving a redirect

2018-03-13T15:47:31Z

Ranisha moved page An overview on Micro Hydro Debt Fund to An Overview on Micro Hydro Debt Fund without leaving a redirect

Ranisha at 15:46, 13 March 2018

2018-03-13T15:46:22Z

Rijan Shrestha at 09:40, 14 February 2018

2018-02-14T09:40:18Z

Rijan Shrestha: /* Framework on MHDF loan disbursement */

2018-02-09T10:55:26Z

Framework on MHDF loan disbursement

Rijan Shrestha at 09:35, 8 February 2018

2018-02-08T09:35:12Z

Rijan Shrestha at 09:33, 8 February 2018

2018-02-08T09:33:18Z

Rijan Shrestha at 09:32, 8 February 2018

2018-02-08T09:32:35Z

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 *[[Portal:Hydro|Portal:Hydro]]
 *[[Portal:Financing_and_Funding|Portal:Financing and Funding]]<br/>
-*[[Revolving_Funds|Revolving Funds]]<br/>
+*[[Revolving_Funds|
 *[[Tariffs|Tariffs]]
 = References<br/> =

@@ Line 1: / Line 1: @@
 = Background =
-Electricity in Nepal was introduced in 1911 with the establishment of Pharping Powerhouse at Pharping, Kathmandu. The powerhouse second in South Asia was established in cooperation with Britain and has been equipped to generate 500 kilowatt of electricity. In spite of the potential to generate 43,000 MW of hydroelectric power, Nepal has till date generated 972.49 MW [1]. With the generated electricity, only 76% of households in the country have access to electricity (including off-grid solutions)[2]. On the other hand, 24% of households still depend on kerosene and other non-clean sources for lighting. Out of Nepal’s 3,915 village development committees (VDCs - now changed to “Gaun Palika” or Rural Municipalities and “Nagar Palika” or Municipalities under the new Federal Constitutional structure), only 2,900 are connected to the national grid. In contrary, urban areas have better access to electricity relative to rural areas (93% versus 49%)[3] due to easy and accessible geography.
+[[Nepal Energy Situation|Electricity in Nepal]] was introduced in 1911 with the establishment of Pharping Powerhouse at Pharping, Kathmandu. The powerhouse second in South Asia was established in cooperation with Britain and has been equipped to generate 500 kilowatt of electricity. In spite of the potential to generate 43,000 MW of hydroelectric power, Nepal has till date generated 972.49 MW [1]. With the generated electricity, only 76% of households in the country have access to electricity (including off-grid solutions)[2]. On the other hand, 24% of households still depend on kerosene and other non-clean sources for lighting. Out of Nepal’s 3,915 village development committees (VDCs - now changed to “Gaun Palika” or Rural Municipalities and “Nagar Palika” or Municipalities under the new Federal Constitutional structure), only 2,900 are connected to the national grid. In contrary, urban areas have better access to electricity relative to rural areas (93% versus 49%)[3] due to easy and accessible geography.
 It is apparent that renewable energy development and decentralized solutions are a critical part of the overall strategy to combat the energy crisis in Nepal. This is further explained by the facts that there are relatively low coverage of the national grid, increasing demand for rural electrification and the available alternative energy sources in the country. Renewable energy development is therefore, a high priority for the government as it provides an appropriate solution to remote, sparsely populated areas unviable for grid extension, while being clean, safe and environment friendly. Development of renewable energy technologies (RETs), both on-grid and off-grid, has become crucial to increase energy access (including electricity) for better overall development, poverty reduction and shared prosperity. Isolated RETs such as micro hydropower, solar photovoltaic (SPV) and biogas can substantially improve the rural economy. Specifically, Micro Hydropower Plants (MHPs) have been serving off-grid rural households in the hilly regions of Nepal since they were introduced in 1960s.
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 <references />
 [[Category:Financing_and_Funding]]

← Older revision		Revision as of 15:46, 13 March 2018
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−
	= Background =		= Background =

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	<references />		<references />
		+
		+	[[Category:Financing_and_Funding]]
		+	[[Category:Nepal]]

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 = Background =
-Electricity in Nepal was introduced in 1911 with the establishment of Pharping Powerhouse at Pharping, Kathmandu. The powerhouse second in South Asia was established in cooperation with Britain and has been equipped to generate 500 kilowatt of electricity. In spite of the potential to generate 43,000 MW of hydroelectric power, Nepal has till date generated 972.49 MW . With the generated electricity, only 76% of households in the country have access to electricity (including off-grid solutions)[2]. On the other hand, 24% of households still depend on kerosene and other non-clean sources for lighting. Out of Nepal’s 3,915 village development committees (VDCs - now changed to “Gaun Palika” or Rural Municipalities and “Nagar Palika” or Municipalities under the new Federal Constitutional structure), only 2,900 are connected to the national grid. In contrary, urban areas have better access to electricity relative to rural areas (93% versus 49%)[3] due to easy and accessible geography.
+Electricity in Nepal was introduced in 1911 with the establishment of Pharping Powerhouse at Pharping, Kathmandu. The powerhouse second in South Asia was established in cooperation with Britain and has been equipped to generate 500 kilowatt of electricity. In spite of the potential to generate 43,000 MW of hydroelectric power, Nepal has till date generated 972.49 MW [1]. With the generated electricity, only 76% of households in the country have access to electricity (including off-grid solutions)[2]. On the other hand, 24% of households still depend on kerosene and other non-clean sources for lighting. Out of Nepal’s 3,915 village development committees (VDCs - now changed to “Gaun Palika” or Rural Municipalities and “Nagar Palika” or Municipalities under the new Federal Constitutional structure), only 2,900 are connected to the national grid. In contrary, urban areas have better access to electricity relative to rural areas (93% versus 49%)[3] due to easy and accessible geography.
 It is apparent that renewable energy development and decentralized solutions are a critical part of the overall strategy to combat the energy crisis in Nepal. This is further explained by the facts that there are relatively low coverage of the national grid, increasing demand for rural electrification and the available alternative energy sources in the country. Renewable energy development is therefore, a high priority for the government as it provides an appropriate solution to remote, sparsely populated areas unviable for grid extension, while being clean, safe and environment friendly. Development of renewable energy technologies (RETs), both on-grid and off-grid, has become crucial to increase energy access (including electricity) for better overall development, poverty reduction and shared prosperity. Isolated RETs such as micro hydropower, solar photovoltaic (SPV) and biogas can substantially improve the rural economy. Specifically, Micro Hydropower Plants (MHPs) have been serving off-grid rural households in the hilly regions of Nepal since they were introduced in 1960s.
@@ Line 40: / Line 40: @@
 Through competitive tendering process and associated guidelines, two partner banks – NMB Bank Limited (before merger it was Clean Energy Development Bank), and Himalayan Bank Limited were selected. On 19th September 2011, AEPC and the Banks entered into agreement for depositing the funds into the bank and its lending criteria to the micro hydro projects. Based on the agreement, the banks paid interest to AEPC for using this fund and lent credit facility to the micro hydro projects at a commercial rate. Under this framework of MHDF, HBL has provided credit support to 8 MHP and NMB Bank has successfully provided credit facility to 18 MHPs. A steering committee that comprises members from AEPC and the partner Banks, GIZ/EnDev was selected to supervise the projects supported under MHDF. GIZ/EnDev provides financing support to AEPC for the establishment of the MHDF fund and carries overall supervision as a part of the steering committee. AEPC provides regular information to the banks about the potential micro hydro sites that require MHDF credit support and also demonstrates sufficient cash flow to cover the interest and principle repayment. AEPC provides capacity development support to the community and partner banks, along with supervision and monitoring of the micro hydro projects under MHDF.
 == Framework on MHDF loan disbursement ==
@@ Line 51: / Line 52: @@
 The partner banks provide credit facility equivalent to the amount that is deposited by AEPC under the MHDF. All the lending by the bank should be in line with the Renewable Energy (RE) Policy[7] 2006, and corresponding Renewable Energy Subsidy Policy and its delivery mechanism of the government. The RE policy provides emphasis on arrangement to provide concessional loan for community owned micro hydro project for its implementation as well as operation and maintenance of the projects. Renewable Energy Subsidy Policy 2013 envisaged linking the subsidy with the credit in view to replace subsidy gradually in long term and states “In order to encourage financial institutions to invest in renewable energy, efforts will be made in creating an institutional credit mechanism through credit-line and credit guarantee scheme under the Central Renewable Energy Fund, which will supervise and disburse the subsidy”. Recently approved Renewable Energy Subsidy Policy 2016 has endorsed its working policy to strengthen and expansion of Central Renewable Energy Fund (CREF) to ensure credit mobilization into the renewable energy sector. The subsidy is now linked to credit facility for deficit funding for the financial closure of a micro hydro projects stating that 20% credit should be mobilized from the banks for accessing the subsidy.
 == Institutional Support for micro hydro development under MHDF ==
@@ Line 150: / Line 152: @@
 = <references /><references /><references />References<br/> =
-<references /><br/>
+#A Year in Review Fiscal Year 2016/17

@@ Line 39: / Line 39: @@
 Through competitive tendering process and associated guidelines, two partner banks – NMB Bank Limited (before merger it was Clean Energy Development Bank), and Himalayan Bank Limited were selected. On 19th September 2011, AEPC and the Banks entered into agreement for depositing the funds into the bank and its lending criteria to the micro hydro projects. Based on the agreement, the banks paid interest to AEPC for using this fund and lent credit facility to the micro hydro projects at a commercial rate. Under this framework of MHDF, HBL has provided credit support to 8 MHP and NMB Bank has successfully provided credit facility to 18 MHPs. A steering committee that comprises members from AEPC and the partner Banks, GIZ/EnDev was selected to supervise the projects supported under MHDF. GIZ/EnDev provides financing support to AEPC for the establishment of the MHDF fund and carries overall supervision as a part of the steering committee. AEPC provides regular information to the banks about the potential micro hydro sites that require MHDF credit support and also demonstrates sufficient cash flow to cover the interest and principle repayment. AEPC provides capacity development support to the community and partner banks, along with supervision and monitoring of the micro hydro projects under MHDF.
 == Framework on MHDF loan disbursement ==
@@ Line 48: / Line 49: @@
 The MHDF loan is disbursed to the micro hydro projects after its appraisal following standard procedures of the respective banks. The terms and condition for lending by banks to the MHPs states that the bank shall not ask for personal guarantee of the developers as a security of the loan. Because this loan facility is envisaged to provide credit facility to community owned micro hydro plants in rural areas that are facing difficulty in accessing credit facility for its implementation. A provision of personal guarantee is not relevant for as most of the MHPs are owned by communities. Such provision may lead to unintended hassles during loan processing. Therefore, MHDF is a unique scheme intended to support such communities without requirement of any collateral. Also micro hydro loan is considered as a deprived sector category loan for the Banks. The deprived sector credit policy is directed credit policy of Nepal Rastra Bank, which is designed to meet the credit demand of poor and rural section of the country[6].
-The partner banks provide credit facility equivalent to the amount that is deposited by AEPC under the MHDF. All the lending by the bank should be in line with the Renewal Energy (RE) Policy[7] 2006, and corresponding Renewable Energy Subsidy Policy and its delivery mechanism of the government. The RE policy provides emphasis on arrangement to provide concessional loan for community owned micro hydro project for its implementation as well as operation and maintenance of the projects. Renewable Energy Subsidy Policy 2013 envisaged linking the subsidy with the credit in view to replace subsidy gradually in long term and states “In order to encourage financial institutions to invest in renewable energy, efforts will be made in creating an institutional credit mechanism through credit-line and credit guarantee scheme under the Central Renewable Energy Fund, which will supervise and disburse the subsidy”. Recently approved Renewable Energy Subsidy Policy 2016 has endorsed its working policy to strengthen and expansion of Central Renewable Energy Fund (CREF) to ensure credit mobilization into the renewable energy sector. The subsidy is now linked to credit facility for deficit funding for the financial closure of a micro hydro projects stating that 20% credit should be mobilized from the banks for accessing the subsidy.
+The partner banks provide credit facility equivalent to the amount that is deposited by AEPC under the MHDF. All the lending by the bank should be in line with the Renewable Energy (RE) Policy[7] 2006, and corresponding Renewable Energy Subsidy Policy and its delivery mechanism of the government. The RE policy provides emphasis on arrangement to provide concessional loan for community owned micro hydro project for its implementation as well as operation and maintenance of the projects. Renewable Energy Subsidy Policy 2013 envisaged linking the subsidy with the credit in view to replace subsidy gradually in long term and states “In order to encourage financial institutions to invest in renewable energy, efforts will be made in creating an institutional credit mechanism through credit-line and credit guarantee scheme under the Central Renewable Energy Fund, which will supervise and disburse the subsidy”. Recently approved Renewable Energy Subsidy Policy 2016 has endorsed its working policy to strengthen and expansion of Central Renewable Energy Fund (CREF) to ensure credit mobilization into the renewable energy sector. The subsidy is now linked to credit facility for deficit funding for the financial closure of a micro hydro projects stating that 20% credit should be mobilized from the banks for accessing the subsidy.
 == Institutional Support for micro hydro development under MHDF ==

← Older revision		Revision as of 09:33, 8 February 2018
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−	= 1.Background =	+	= Background =

	Electricity in Nepal was introduced in 1911 with the establishment of Pharping Powerhouse at Pharping, Kathmandu. The powerhouse second in South Asia was established in cooperation with Britain and has been equipped to generate 500 kilowatt of electricity. In spite of the potential to generate 43,000 MW of hydroelectric power, Nepal has till date generated 972.49 MW <ref name="A Year in Review Fiscal Year 2016/17">A Year in Review Fiscal Year 2016/17</ref>. With the generated electricity, only 76% of households in the country have access to electricity (including off-grid solutions)[2]. On the other hand, 24% of households still depend on kerosene and other non-clean sources for lighting. Out of Nepal’s 3,915 village development committees (VDCs - now changed to “Gaun Palika” or Rural Municipalities and “Nagar Palika” or Municipalities under the new Federal Constitutional structure), only 2,900 are connected to the national grid. In contrary, urban areas have better access to electricity relative to rural areas (93% versus 49%)[3] due to easy and accessible geography.		Electricity in Nepal was introduced in 1911 with the establishment of Pharping Powerhouse at Pharping, Kathmandu. The powerhouse second in South Asia was established in cooperation with Britain and has been equipped to generate 500 kilowatt of electricity. In spite of the potential to generate 43,000 MW of hydroelectric power, Nepal has till date generated 972.49 MW <ref name="A Year in Review Fiscal Year 2016/17">A Year in Review Fiscal Year 2016/17</ref>. With the generated electricity, only 76% of households in the country have access to electricity (including off-grid solutions)[2]. On the other hand, 24% of households still depend on kerosene and other non-clean sources for lighting. Out of Nepal’s 3,915 village development committees (VDCs - now changed to “Gaun Palika” or Rural Municipalities and “Nagar Palika” or Municipalities under the new Federal Constitutional structure), only 2,900 are connected to the national grid. In contrary, urban areas have better access to electricity relative to rural areas (93% versus 49%)[3] due to easy and accessible geography.

@@ Line 28: / Line 28: @@
 The Micro Hydro Debt Fund was envisaged to provide credit facility to the micro hydro projects, which had already received approval for AEPC subsidy and were facing difficulty in accessing credit facility for its implementation. MHDF was established as a <u>revolving fund</u>, which was deposited in two commercial banks selected through competitive bidding.
-= 2.Objectives of MHDF =
+= Objectives of MHDF =
 *The overall objective of MHDF is to improve the access to energy of the rural population by providing credit for rural micro hydro projects. In doing so, the rural population of Nepal will be the beneficiaries, as loans will help them to realize their efforts to receive electricity.
@@ Line 34: / Line 34: @@
 *The fund will increase the pace of electrification in the rural areas and stimulate the development of productive agro-processing and other income generating enterprises – thereby improving job opportunity and livelihood creation for the people.
-= 3.Implementation of MHDF =
+= Implementation of MHDF =
 For the establishment of the fund, AEPC and GIZ signed a Memorandum of Understanding (MOU) on 15th July 2010 and an implementation agreement in 7th June 2011. Initially, goal of this fund was to enable more than 3500 households (more than 19000 people) to the newly connected electricity mini grid based on approximately 416 kW additionally generated by the supported MHPs. To implement this project, GIZ contributed EUR 500,000 for the initial capitalization of the MHDF and an additional fund of EUR 42,000 under technical assistance, and then with its amendment on 2nd October 2012, total financial contribution was amended to EUR 1,150,000 and 92,000 for technical assistance. With this amendment, this fund targets to provide electricity to more than 13,300 households, 45 social institutions, 55 rural businesses newly established though MHP based on 1500 kW, additionally generated by the supported MHP.
@@ Line 60: / Line 60: @@
 At the local level, DDC and VDC provide monitoring and financial support for the implementation of the micro hydro projects. The management of the micro hydro plant at the community is done either through formation of user committee or a cooperative with its beneficiaries as shareholders. The management committee is responsible for operation and management of the plant, and for its tariff setting to cover its expenditures including its Equitable Monthly Instalment (EMI). Selected partner banks receive deposit funds from AEPC to provide credit support to micro hydro projects at the local level and provide interest to this fund at competitive market rates at the time of deposit that is reviewed periodically. The banks carry out the financial appraisal and loan application form from the community as per their norms and standard regulations. The MHDF loan is financed in a way that project financing accepts the project itself as collateral. The business unit is responsible for the disbursement and monitoring whereas, in case of default, the recovery unit is responsible to take necessary action as per the bank regulations including property auction, black-listing the members of the user committee and recovery case filing in Debt Recovery Tribunal (DRT). The banks monitor the projects as a partner of AEPC and provide periodic report to AEPC with progress and issues at the particular time. Banks are providing support to the community for insurance of the micro hydro plant and claim insurance amount in case of damages. The insurance amount is basically against the damages due to natural calamities in order to recover the damages and bring back the project to operational mode. Annual insurance premium is paid by AEPC on behalf of the community.
-= 4.Status of micro hydropower plants under MHDF =
+= Status of micro hydropower plants under MHDF =
 &nbsp;
@@ Line 106: / Line 106: @@
 Three of the MHP sites Khorlabeshi Luget Khola MHP, Thulo Khola MHP and Chari Khola MHP have paid back the total amount of the loan. For the remaining MHPs, payback done by the communities to the banks is 38 and 41 percent for Himalayan Bank and NMB Bank respectively. Previously, due to the low repayment from the community, the banks were reluctant to provide loans to new projects and to provide additional time to the existing projects. Now, with the continuous dialogue between the partner and regular filed visits being conducted, the banks are more familiar to the reality and conditions in rural areas where the MHP plants have been installed. With this increased exposure to the MHP projects, banks are gradually changing their perspective on the micro hydro portfolio.&nbsp; With the combined efforts from all partners, the sites are reviving themselves and the beneficiaries have started to pay back loan. The following graphs in Figure 5 represent the total payment done at by MHPs.
-= 5.MHDF Challenges =
+= MHDF Challenges =
 In general, the major issues and challenges being faced by MHDF are listed below:
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 Most of the micro hydro projects supported through MHDF funds are being managed with the formation of user committee registered under district water resource committee or in some cases with the formation of cooperative of the users. It has been observed that these micro hydro plants do not have sufficient management capacity to run the system properly. It reflects their decision making ability, records on utilization of financial resources and development of strategies for the sustainable operation of the micro hydro plant. These plants were supported during its installation from AEPC, DEECCU/S and its partner NGO working as RSC in that particular area. The main focus of their assistance during its implementation was provided for installation and resource mobilization. However, capacity development on management aspects seems to be ignored. The community lacked support for tariff fixation. It is observed in most of the cases that tariff could not cover incurring expenditures, not even the EMI. The community lacked capacity development support, awareness on tariff fixation to cover MHDF loans, alternative arrangements or strategies on repayment of bank loan and enhancing load factor of the plants with promoting end-use activities to increase the tariff collection mechanism. Operators and managers were included in the regular technical plant operation training and financial accounting training conducted by AEPC. Besides, there was not any particular targeted support involving the management of the MHDF supported projects.
-= 6.Conclusion and Recommendation =
+= Conclusion and Recommendation =
 Micro hydro plants supported with MHDF were intended to provide electricity services to its users in meeting their demand for better lighting facility, electricity to run appliances, reduce drudgery and generate income with various productive end-uses. This framework has been able to provide credit-financing support to 26 MHPs so far. Besides other challenges, the major setback for the MHDF was due to the April 2015 earthquake, disrupting operation of 18 sites. With the collaborative efforts from AEPC, GIZ/EnDev, banks and communities, it has been possible to rehabilitate these sites. After rehabilitation process, the damaged sites are in a better technical condition to provide quality services.