Lessons for Energy Policy from the Sindhupalchowk Landslide

The unfortunate Sindhupalchowk landslide in the wee morning hours of August 2, 2014, which led to a tremendous loss of lives and property has also negatively impacted our economy.  The only major trade route to China has been disrupted and this can only mean higher prices on some Chinese originated goods leading to the festive season.  One of the most important negative impact has been in the energy sector.  The landslide has led to a temporary loss in excess of 67 MW of electricity capacity to the grid.   As a result, the Nation will be facing additional electricity stoppages of 20 hours per week.  What if we had another natural disaster which say blocked the output of one of the Marsyangdi projects?  While I would not like to imagine such a prospect, these fat tail events can happen and we need to start thinking of an electricity continuity plan similar to a business continuity plan that large businesses and banks make it part of their corporate strategy.  However one might also question the usefulness of an electricity continuity plan in a nation that on average spends in excess of 10 hours a day without electricity throughout the year.

An electricity continuity plan from a supply perspective means diversifying the sources of electricity both from a locational and fuel source perspective.  From a hydropower perspective, this means ensuring non-concentration of hydropower capacity on a given river basin.  Had we ample hydropower capacity around the nation, then from a supply perspective, the impact of the shutdown of power stations as a result of the Sindhupalchowk landslide would have been minor. Unfortunately this is not the case and until we develop our hydropower potential fully, it might be necessary for the government to think of diversifying the generation fuel source of electricity.

In the recent budget, it was mentioned that 25 MW of capacity would be added to the grid from a solar plant.  While I do believe solar power has a role to play in Nepal, I do not believe investing resources on a 25 MW solar plant is the right thing to do in the current context.  I certainly urge the government to encourage households and if possible subsidize them to put up solar panels on their roofs to reduce their demand on the electricity grid. The government can do even more by outright banning the import of incandescent bulbs for lighting use and making CFL and LED bulbs more affordable to the average citizen.

From an effective use perspective of our limited resources, would it be better to build a 25 MW solar plant, which would require a lot of ground cover, does not guarantee a continuous source of power throughout the day, would be ineffective during the evening hours when demand surges,  and produces power that cannot be stored without the costly use of batteries; or to build a 25 MW thermal plant, which would require less land, can produce a continuous supply of electricity when in operation, can be turned on and off on demand to generate electricity during times of crisis and peak hours and does not require the use of batteries for power storage since power is stored in the fuel itself.

For me this is a no brainer. In fact, I would urge the government to let the private sector build five thermal plants one in each of the five development zones close to the demand centers with a combined total capacity of 500 MW and allow these plants to supply electricity directly to Industrial sites and city grids.  To avoid fuel supply issues, these power plants should be allowed to source their required fuel directly rather than go through Nepal Oil Corporation.  This would go a long way in removing our load shedding problems quickly and more effectively.  When our hydro power potential is fully developed, these plants would work as a back-up to meet demand during times of crisis and during peak hours.  500 MW thermal capacity plants could easily be installed in the next two years.  It might comprise in excess of two thirds of our total installed capacity initially but in the future as our hydro power potential is tapped, the shares of these thermal plants in the generation mix would slowly decline becoming less than 5% once we have installed hydropower capacity in excess of 10,000 MW.

Whenever the talk of thermal plants come up it has been the tendency for the press and certain segment of our intellectual society to come out against it.  Some common arguments are that it will be a financial burden to Nepal, we do not produce and therefore have to import the fuel, the generation costs are high and they generate significant pollution.   These arguments are equally applicable to all fuel importing countries and yet fossil fuels play an important role in electricity production in most countries.  In 2011, International Energy Association’s data shows that 68% of global electricity production was from natural gas, oil and coal.   In India and China, these three account for almost 80% of total electricity production with coal being the predominant source (67% for India and 78% for China). While coal is produced in both countries both are large net importers of the commodity. Cumulative annual growth rate in seaborne coal imports have averaged 21% for India since 2006 and 24% for China since 2009 when it switched roles from being a net exporter to a net importer.

The arguments against thermal plants completely overlook the reality on the ground. They also completely ignore the cost to the economy by not having adequate power.  People and businesses need electricity to function and they will do whatever that is in their capacity to ensure that they have adequate supply if it is not supplied by the central grid.  The same Karobar daily op-ed of June 7^th 2014 which opined that thermal plants were not viable for Nepal also mentioned that there was an installed capacity of almost 650 MW of thermal plants (or diesel generators) in the country.  Wouldn’t the nation have been far better off, if it had installed 3 large 200 MW thermal plants with connection to the national grid?  Economies of scale would have meant a much lower cost of construction, lower cost of generation and pollution would have been concentrated and better managed compared to the current distributive nature as a result of the proliferation of small generators across the country.  As I am writing this, I am being bombarded by the noise pollution and air pollution of the nearby large generators of Hotel Yak and Yeti.  I would have much preferred if the electricity had been supplied by a central thermal plant.

Whether we like it or not, electricity generation by fossil fuels (diesel) is already part of our electricity generation portfolio.  When you factor in the cost of charging inverters, and operating diesel generators, users in Nepal are already paying steep prices per unit of electricity.  It would be far better to internalize this reality and make properly managed thermal plants a part of our electricity generation portfolio.  The Nation’s economic growth and people’s economic welfare cannot be put hostage to the extreme politicization of the development of our hydro power potential.