Community Rural Electrification Programme (CREP) Nepal

This is part of a condensed report on the Community Rural Electrification Programme (CREP) in Nepal. For an overview on the whole report please refer to following page: CREP - Report.

Background

The idea of community based Rural Electrification (RE) was first developed in the USA in the 1930s. In Asia, Bangladesh was the first country to establish rural electrification whereby small entities manage electricity distribution on community levels. By now, RE programs have been established and are successfully managed in several Asian countries, such as India, Viet Nam, the Philippines and Nepal.
In Nepal the government together with the national utility – Nepal Electricity Authority (NEA) initiated a first pilot area for grid extension, where the community contributed 20% of the total investment cost for the extension. Recognized as a successful vehicle for rural electrification, the Community Rural Electrification Programme (CREP) was officially launched in 2003/04 to increase the grid-connected electrification rate in areas without access to electricity.
NEA, a 100% state-owned commercial entity whose field of operation includes generation, transmission and distribution, is obliged to electrify Nepal. Since grid-extension to remote areas is commercially not viable, a by-law was passed in 2003/04 by the board of directors of NEA, stipulating the modalities for the CREP.
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Rural Electrification via grid-extension

In CREP, 80% of the project costs are carried by the government, whereas the remaining 20% of the costs have to be covered by the communities. To apply for the subsidy the community has to form a legal entity which is registered on a district level. For the application this Community Rural Electrification Entity (CREE) submits the official request. The Community Rural Electrification Department (CRED), a department within NEA which is authorized to manage the programme, then initiates a survey and cost estimate for the grid-extension. The results of the survey are given to the CREE, which then has to deposit the 20% share of the total costs. With a revision of the by-law the in-kind contributions by the community are part of the investment calculation accounted within the 20% community share. Once the money is in the bank account of NEA, the 80% government subsidy is released and the process (tendering, construction, commissioning) starts. Investment costs for the extension cover up to the service then drop. The last meter and metering device is on individual household investment. Household meters are sold by NEA at a standardized price with after sales services applied. The CREEs are audited on an annual base.

 Business model of Community Rural Electrification Entities (CREE)

Once the grid is extended, CREEs acting as ‘community utilities’ buy the electricity in bulk from the NEA at a reduced price (3.5 NRP/kWh plus 0.10 NRP line rent) and sell the electricity on household meter base to its consumers. The bulk meter is situated at the entry point to the village, thus all transmission losses are on account of NEA. Once a month the meter is jointly read by CREE and NEA staff and the bulk consumption (time of day tariffs) invoiced to CREE.
The CREE has some flexibility in setting the tariffs but is not allowed to charge higher prices than applies the regular NEA consumer tariffs which are graduated according to the consumption and utilisation of electricity (industries and small enterprises pay a higher tariff than households). From the gross income (bulk price minus retail price) the CREE has to cover all management, repair and maintenance costs from the point of village distribution.
The basic tariff for households is NRP 4.0/kWh which applies for the first 20 kWh. The minimum monthly charge for electricity is 80.00 NRP. Many communities indeed apply the 80.00 NRP as a minimum tariff but some CREEs adjust this tariff for low-income households who pay a lower ‘social tariff’. The higher tariffs cannot be adjusted. Apart from that, household meters are checked by CREE on a regular basis and bills are issued accordingly.
Depending on the size, a CREE has up to 6 employees: bookkeepers, technicians and the general management. The financial sustainability of a CREE depends on the number of consumers, the electricity load and the existence of industries or small enterprises. As a rule of thumb with a minimum of 200 households the CREE can act financially viable.

Challenges 

One of the most pressing issues of the CREP is that, even though the envisaged time-frame for finalising grid-extension (from the date the community settles the 20% contribution on the bank account) is one year, the actual time for construction sometimes exceeds two or even three years. CRED is closely cooperating with the National Association for Community Electricity Users Nepal (NACEUN), representing villagers on governmental level to accelerate the process.
Since 80% of the investment costs are provided by the government via NEA, the government declares that ownership of the assets belongs to NEA. This sometimes leads to friction when it comes to upkeep or maintenance.
CREE has the obligation to manage the electricity distribution as a small community based utility. In order to be able to fulfill its tasks CRED/NEA offer trainings for the participating communities. These trainings however are not conducted regularly and only cover the basic needs i.e. financial and administrative issues and technical know-how for operation and maintenance of the village grid. It is seen as most crucial by all stakeholders that each CREE employee receives proper training. An additional challenge is that some communities do not nominate the right target person to participate in the training and some participants use the training certificate (especially the technical training) for better access to an employment abroad (which then fosters migration).
Financial viability of a CREE depends upon the number of customers and especially the number (or existence) of small industries and small enterprises, which increase the load factor and also pay a higher tariff for consumption. It is therefore seen as most critical to promote the use of productive end-use applications.
In less frequent cases where the load factor has become very high, the tariff structure can contribute to overload problems. With a monthly minimum charge of 80.00 NPR which has to be paid regardless of the actual consumption, the majority of households who use electricity essentially for lighting purposes and TV, have no incentive to save electricity.
Last, but also most critical is that many villages lack the ability to collect the 20% share the community has to put as a down payment before the grid-extension starts

Achievements 

Two years after the introduction of the CRE Programme the first six communities were connected to the national grid. Since then a total of 129 communities benefited from the 80/20 governmental subsidy schemes for rural electrification. An additional 90 projects are under construction and 20 underway in the pipeline.
One of the main reasons for NEA to engage in the CREP is the extremely high rate of non-technical losses, which usually account for 60% - 70% of NEA’s electricity generation. Selling the electricity in bulk to the communities, handing over the responsibility for tariff collection, administration and accounting, reduces the probability of revenue losses by far. Additionally, it lowers the general administrative burden for NEA. Seeing that the programme is a successful instrument for further grid-extension and thus rural electrification, the government has not terminated the programme’s lifespan. It is expected that CREP will continue for a number of more years.