NAE Case Study: Nepal, Rural Energy Development Programme

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Description

The Rural Energy Development Programme (REDP) aimed to increase energy access from micro-hydro systems, based on a mobilization process which put the community at the centre of planning and implementation. After its launch in 1996 as a small pilot initiative in five remote hill districts, the programme was scaled-up in response to the national Hydropower Development Policy of 2001. Three phases addressed the cycle of pilot operation, expansion, replication, mainstreaming and institutionalization. The programme expanded from 5 to 40 districts in its third phase from 2007-11. Communities were selected based on technical feasibility and requests from residents willing to implement, manage and partly finance each proposed scheme, thereby ensuring ownership and timely execution. The REDP operated at three levels. At the community level, activities focused on planning, implementation, operation, and maintenance of energy systems. This included establishment of Community Energy Funds where revenues - from grants, subsidies, charity, loans and tariff collection - were deposited, and payments made for operations, repairs and maintenance (done entirely by the community).  Tariffs were set at local level, with flat tariffs ranging from RS 0.25-2/W/month applied in most cases,. At the district level, activities focused on building capacity to plan, manage, and monitor the rural energy development process.  At the national level, activities focused on policy support and coordination based on lessons learnt from decentralized local operations.

Context

Nepal has no known major oil, gas, or coal reserves, and its position in the Himalayas makes it hard to reach rural communities, many of which  are extremely remote. Nepal has one of the world’s lowest rates of per capita electricity consumption, with an average in  2007 of 86 kWh/year rising to 139kWh/year by 2014. Between 2005 and 2014 peak demand more than doubled from 557 to 1200 MW. In the same period of time annual electricity production increased from 2642 GWh to 4631 GWh. Out of these, 3558 GWh were produced domestically, while 1072 GWh were imported from India.  88% of the population relies on traditional biomass fuels for cooking and heating; about 45% of the population has access to electricity (only 8% in rural areas).  The National Electricity Authority (NEA) serves only 15 % of the total population with electricity supplied from the main grid and, for these customers, average electricity supply is less than eight hours per day, with load shedding accounting for up to 16 hours during winter.  (This level of intermittency means that even those consumers who are connected to the national grid may receive electricity for only 8 hours per day, which means at most a Tier 3 energy supply).  The remaining 30% of the population with electricity access are served by the thousands of small installations (e.g. diesel gensets, micro-hydro systems, solar home systems, small island mini-grids.) that are mostly installed at the users' premises in Nepal. There are however untapped hydropower resources of about 83,000 MW, with 43,000 MW deemed to be economically viable for development.

Objectives

REDP was launched in 1996 with the aim of expanding energy access to remote rural communities, strengthening capacities of energy institutions and establishing a national rural energy policy framework.  The ultimate objectives were:  i) develop best practices for rural electrification, bringing new models and continuous learning for rural energy access and poverty alleviation in Nepal; ii) build local capacity to increase energy access through a community management model in 40 districts, iii) develop productive and other end uses, including for women and the socially excluded; iv) support the AEPC for energy planning and the preparation of a Rural Energy Policy; and v) pilot innovative approaches for long-term micro-/mini hydro. There were few quantitative targets, though the aim for phase II was to provide 3MW of increased supply (though the outcome fell 20% short of this aim).

Legal Basis

The Renewable Energy Development Programme (REDP) of Nepal was an international co-operation programme supported by the World Bank and United Nations Development Programme, in partnership with the national Government.  The Alternative Energy Promotion Centre (AEPC), the managing agency for REDP, is a Government entity. The Department of Electricity Development (DoED), oversees the issuing of licenses for hydropower projects, though no licensing is required for projects of up to 1,000 kW capacity.

Institutions, Roles and Responsibilities

Many entities – including the government, non-governmental organizations, international organizations, and private institutions – are involved in promoting renewable and rural energy service delivery in Nepal. Overarching authority for electrification efforts is provided by the Nepal Electricity Authority (NEA), established in 1984, whose primary objective is to generate, transmit, and distribute adequate, reliable, and affordable power by planning, constructing, operating, and maintaining all generation, transmission, and distribution facilities in Nepal’s power system. Thus, NEA’s engagement in rural electrification is primarily through the national grid system. Off-grid, decentralized energy service provision is led by the Alternative Energy Promotion Centre (AEPC), established in 1996 as an autonomous agency within the Ministry of Environment (MoEnv). AEPC presides over various rural energy projects, including the Rural Energy Development Programme (REDP). REDP projects received about 45% grant finance through the programme (from the World Bank and UNDP), a 16% subsidy from the Government of Nepal, and about 10% from Village and District Development Committee (VDC/DDC) funds, representing a total subsidy of approximately 70%.  The remainder was paid via the tariffs collected from users.  (The total programme cost for the Phase III was USD 35 million, which consisted of : UNDP – USD 3.4 million; World Bank – USD 16 million; GoN – USD 5 million; and community – USD 10.6 million). Private sector firms such as the Rural Energy Services Centre (RESC) provided technical support services to communities for feasibility studies and installation, operation and maintenance of RE systems.

Interventions

REDP focuses on involving local communities and building institutional capacities and local skills.  It created a Rural Energy Fund at the district level (using the grant funds from the WB, UNDP and the Government) that provided subsidies for mini-grid electrification. Micro- and mini-hydropower systems (up to 1,000 kW) were made exempt from certain taxes, royalties, and licensing requirements.   Key elements of the REDP interventions included: i) community mobilization to encourage and support them in undertaking productive activities resulting in strong social capital, economic growth, and environmental sustainability. Even the poorest families were made capable to own and use the systems, and pay a tariff for the electricity consumed; ii) broad-based participation to ensure transparency and consensus-based decision-making by all households; iii) support for institution building, helping to create District Energy and Environment Sections in the District Development Committees (DDCs); iv) training for local NGOs, community groups, and the private sector to strengthen their technical and managerial skills to deliver and manage micro-hydro systems.

Impacts Achieved

The impressive performance of the REDP is reflected by its outputs, which included the preparation of pragmatic policy and regulation based upon the lessons learned, and the internalization of rural electrification development at country, district and community levels. 317 micro-hydro mini-grids with a cumulative capacity of 5,814 kW were implemented,  benefitting almost 350,000 people living in rural areas unlikely to be grid-connected for at least five years. At the end of the project period, an additional 137 micro hydro systems were at an advanced stage of installation and expected to generate 4,441 kW, providing electricity services to an additional 250,000 people (42,000 households).  By 2014, more than 1,000 micro-hydro plants with total generation capacity of 22 MW had been developed, providing off-grid electricity access to 20% of the population, including power for agro-processing and other productive activities. Local governments have integrated the REDP approach into local development planning (rather than leaving isolated, donor-funded projects) and they have supported the capacity development needed for sustainable impact.

Lessons Learned

REDP’s community-based approach to energy planning and managing rural energy systems has proven to be an effective model for decentralized energy solutions, providing an attractive alternative to what had historically been a weak and centralized government approach to rural energy development.  Key drivers of success were: national ownership and commitment, local engagement, catalytic finance, community mobilization and local partnerships, and capacity development at all levels.  The funding arrangements were particularly significant, including a relatively well-functioning subsidy scheme and the mini-hydro revolving debt fund, with communities financing an increasing proportion of the costs as the programme progressed.

Effectiveness

The micro-hydro power systems constructed with support from REDP, have a cost range of US$1280-1780 per kW.  The investment cost per connected household (cost of micro-hydro infrastructure and  village distribution system) is estimated at about US$ 325 of which approximately US$70 is paid by the customer (for internal wiring and a connection charge).  This is good value for customers, who have reduced their average annual household spending on energy by US$22 (from US$41 to US$19), which represents a payback period of about 3 years for an improved and far more convenient service.  It also reflects well on the government support that has been provided (with input from the United Nations Development Programme), particularly the funding to offset capital costs, which is otherwise a key barrier. The REDP has been recognized as a "best practice" programme, receiving awards in various national and international events for the approach and achievements made. It should however be recognised that REDP is aimed to advance rural households from no electricity supply to the first step on the energy access ladder.  Committed finance of US$325 per household at an average of US$1500/kW equates to energy capacity of less than 200W which is enough to provide a tier 2 level of energy access at best.  The REDP has made very positive process, but represents just a foundation for the increased power supply required to meet the customers' social and economic development needs.

Overview of Other Country Case Studies

Bangladesh, IDCOL Solar Home SystemsBrazil, Luz para Todos (Light for All)NAE Case Study: Cambodia “Light Touch” RegulationCosta Rica, Distribution CooperativesEthiopia, Solar Market DevelopmentKenya, Off-Grid for Vision 2030Mali, Rural Electrification ProgrammeNepal, Rural Energy Development ProgrammePeru, Concession Model for Standalone SystemsPhilippines, Islanded Distribution by CooperativesRwanda, Sector-Wide Approach to PlanningSouth Africa, Integrated National ElectrificationTanzania, Mini-Grids Regulatory FrameworkTunisia, Low Cost Distribution TechnologyVietnam, Rapid Grid ExpansionNAE Case Studies Navigation Table.png]]


References


Authors

Authors: Mary Willcox, Dean Cooper

Acknowledgements

The Review was prepared by Mary Willcox and Dean Cooper of Practical Action Consulting working with Hadley Taylor, Silvia Cabriolu-Poddu and Christina Stuart of the EU Energy Initiative Partnership Dialogue Facility (EUEIPDF) and Michael Koeberlein and Caspar Priesemann of the Energising Development Programme (EnDev). It is based on a literature review, stakeholder consultations. The categorization framework in the review tool is based on the EUEI/PDF / Practical Action publication "Building Energy Access Markets - A Value Chain Analysis of Key Energy Market Systems".

A wider range of stakeholders were consulted during its preparation and we would particularly like to thank the following for their valuable contributions and insights: - Jeff Felten, AfDB - Marcus Wiemann and other members, ARE - Guilherme Collares Pereira, EdP - David Otieno Ochieng, EUEI-PDF - Silvia Luisa Escudero Santos Ascarza, EUEI-PDF - Nico Peterschmidt, Inensus - John Tkacik, REEEP - Khorommbi Bongwe, South Africa: Department of Energy - Rashid Ali Abdallah, African Union Commission - Nicola Bugatti, ECREEE - Getahun Moges Kifle, Ethiopian Energy Authority - Mario Merchan Andres, EUEI-PDF - Tatjana Walter-Breidenstein, EUEI-PDF - Rebecca Symington, Mlinda Foundation - Marcel Raats, RVO.NL - Nico Tyabji, Sunfunder -


NAE Overview Page

Any feedback would be very welcome. If you have any comments or enquires please contact: mary.willcox@practicalaction.org.uk, benjamin.attigah@euei-pdf.org, or caspar.priesemann@giz.de.

Download the Tool as a Power Point: https://energypedia.info/images/a/aa/National_Approaches_to_Electrification_-_Review_of_Options.pptx

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