Nepal - Energy assessment status report

Joint UNDP/World Bank Energy Sector Management Assistance Program Activity Completion Report No. 028/84 Country: NEPAL Activity: EERGY ASSESSMENT SRATUS, REPORT JANUARY 1985 Report of the Joint UNDP/Wrd Bank Energy Sector Management Assistance Program This document has a restricted distribution. Its contents may not be disclosed without authorization from the Government, the UNDP or the World Bank.  MUM" SECTOR ASSISTANCE PROGAM The Joint UNDP/World Baak Energy Sector Management Assistance Program (ESMAP), started in April 1983, assists countries in implementing the main investment a.1d policy recommendations -f the Energy Sector Assessment Reports produced under another Joint UNDP/World Bank Program. ESMAP provides staff and consiltant assistance in formulating and justifying priority pre-investment and investment projects and in providing management,, institutional and policy support. The reports produced under this Program provide governments, donors and potential investors with the information needed to speed up project preparation and implementation. ESMAP activities can be clasoified broadly into three groups: Energy Assessment Status Reports: thEse evaluate achieve- ments in the year following issuance of the original astessment report and point out where urgent action is still needed; - Project Formulation and Justification: wo-k deslgned to accelerate the preparation and implementation of investment projects; and - Institutional add Policy Support: this work also frequently leads to the identification of technical assistance packages. The Program aims to supplement, advance and strengthen the impact of bilateral and multilateral resources already available for technical assistance in the energy sector. Funding of the Program The Program is a major international effort and, while the core finance has been provided by the UNDP and the World Bank, important financial contributions to the Program have also been made by a number of bilateral agencies. Countries which have now made or pledged initial contributions to the programs through the TINDP Energy Account, or through other cost-sharing arrangements with UNDP, are the Netherlands, Sweden, Australia, Switzerland, Finland, United Kingdom, Denmark, Norway, and New Zealand. Further Information For further information on the Program or to obtain copies of completed ESMAP reports, which are listed at the end of this document, please contact: Division for Global and OR Energy Assessments Division Interregional Projects Energy Department United Nations Development World Bank Program 1818 H Street, N.W. One United Nations Plaza Washington, D.C. 20433 Ne4 York, N.Y. 10017  I NEPAL ENERGY ASSESSMENT STATUS REPORT JANtUARY 1985 : 3  ADB Asian Development Bank ADB/N Agricultural Development Bank of Nepal BYS galajo Yantra Shala (manufacturer of multipurpose power units) CFDP Community Forestry Development Project CIDA Canadian International Development Agency ED Electricity Department ESMAP Energy Sector Management Assistance Program FAO Food and Agriculture Organization HMG His Majesty's Government of Nenal IDA International Development Association IFAD International Fund for Agricultural Development NEA Nepal Electricity Authority NEC Nepal Electricity Corporation NRECA National Rurdl Electrification Cooperative Association (United States) ODA Over -s Development Agency (United Kingdom) RCUP Resource Conservation and Uti1ization Project RECAST Research Center for Applied Science and Technology SATA Swiss Agency for Technical Assistance SFDP Small Farm Development Program SHDB Small Hydro Development Board SFP Second Forestry Project UNDP United Nations Development Program UNICEF United Nations International Children's Educational Fund USAID United States Agency for International Development wEC Water and Energy Commission WECS Water and Energy Commission Secretariat WERDP Water and Energy Resources Development Project ABBREVIATIONS ha hectare ICS improved cooking stove km kilometer kw kilowatt kWh kilowatt hour MPPU multipurpose power unit MW megawatt NR Nepalese rupee toe tonne of oil equivalent CURRENCY EQUIVALENTS l US dollar = 15 Nepalese rupees  TABLE OF CONTMNTS Page I. SUMMARY AND RECOMMENDATIONS. ................ 1 II. EVERGY SUPPLIES AND RESOURCE DEVELOPMENT.................. 5 F ul wo 5 H y d r o p o w e r 8 Large and Medium Scale Hydro y d ro..................... 8 Micro-Hydro ........ . 10 Biogals.. ....... ........ .................. ......*0s** 11 . III. ENERGY DEhAND MANAGEMENT AND EFFICIENCY........ 13 Overview ..... * ^ , ~~~~~~~13 Improved Cooking Stoves 13 Power System Losses and Tariffs....................... 14 Transport Sector ............................. i. 1S IV. INSTITUTIONAL DEVELOPMENT ....... 16 Water and Energy Commission............................. 16 Electric Power Sector 17 Forestry Sector... V. SUMMARY OF MAJOR ONGOI1'G TECHNICAL ASSISTANCE............. 19 { } v e r v i e w ~~~~~~~~~~~~19 Fuelwood Supply and Conservation..................... 19 Hydropower Developav 19 Power System Operatioonsno........ . ............ . .*... 20 VI. PRIORITIES FOR FURTHER TECHNICAL ASSISTANCE............... 21 Overview ..... , , ~~~~~~~21 Energy Savings in Road Transport ........................ 21 * Background and Objective.................... .......... 21 Scope of Work and Costs............................... 21 Small-Hydro Development ........................ ...... 22 Background and O ....... 22 Scope of Work and Costs............................... 22 ANNEXES 1. List of Recent WECS Publications 2. Ongoing Forestry Projects 3. Potential Hydro Project Sites  I. SMOEY ANDS 1.1 The Kingdom of Nepal, with a population of 16 million (93% rural) is landlocked and has an economy based largely on traditional rainfed agriculture. The land area (147,181 square kilometers) has a difficult terrain which includes high mountains (44%) and a central region of mountains and terraced hills (41%) which support 60% of the population. The remaining 15% of the lend area is an e-tension of the Indo-Cangeatic Plain (Terai) which houses 40% of the population and is the breadbasket of the country. Over 90% of the population rely on agri- culture and their chief sources of energy are fuelwood, crop/animal wastes, and small amounts of charcoal. Total eairgy consumption is estimated to be about 3.5 million tonnes of oil equivalent (toe). Fuel- wood accounts for 92%, and other traditional energy sources for 2%. The traditional practice of cutting down trees without replanting them has denuded the country's large forest resource base. This has created a serious imbalance between the supply and demand for fuelwood. Commercial energy consumption, mostly imported petroleum products, is small (6% of total energy) but costly to the economy. The estimated oil import bill of NR 57 million in 1983/84 amounted to 12% of foreign exchange earnings from goods and services in that year. 1.2 This report is based on the findings of a mission under the Energy Sector Management Assistance Program (ESMAP) which visited Kathmandu during July, 1984 1I/ to (a) report on the status of the action program recommended by the joint UNDP/World Bank Energy Assessment Report, Nepal: Issues and Options in the Energy Sector (August 1983), including assistance from donors to implement the recommendations, and (b) assess the need for further technical assistance in the energy sector, especially assistance which could be financed under ESMAP. The mission was impressed by the effort that the Water and Energy Commission Secretariat (WECS) had made to implement the recommendations of the Energy Assessment, assisted by a resident team of consultants financed by the Canadian International Development Agency (CIDA). The recommenda- tions covered three main areas: (a) the development of energy supplies and resources (mainly fuelwood and hydropower); (b) improvements in energy demand management and efficiency; and (c) the development of energy institutions. The major recommendations are summarized in TabLe 1 which references paragraphs in this report where the status of their implementation is discussed. 1.3 HMG has begun a program to improve knowledge of its two major energy resources -- fuelwood and hydropower -- and form late long-term plans for their development. At the same time, HMG is looking at the potential contribution of biogas as a substitute for fuelwood in meeting household energy demand. HMG also is involved in a petroteum exploration 1/ Messrs. Zia Mian and Matthew Mitchell.  2 promotion project with IDA assistance. Seismic survey work was completed in July 1984 with gratifying re~ults, and HMG and IDA exchanged views on a model production contract in October 1984. SUMMARY MAJOR ENERGY ASSESSMENT RECOMMENDATIONS Status (paragraph refernce} SNERGY SUPPLIES AND RESOURCE OEVELOPMENT Fuelwood 1. Accelerate afforestation efforts 2.5, 2.8 2. Simplify and accelerate transfer of public forests to panchayats 2.5, 2.8 3. Prepare a national forestry development plan 4.10, 4.11 4. Survey plots of land available for forestry 2.5, 2.8 Hydropower 1. Prepare hydrological studles of major basins 2.11 - 2.13 2. Prepare feasibility studies of 4-5 hydro sites 2.11 - 2.14 3. Increase existing electricity trade with India and agree on a pricing formula 2.11, 2,13 4. Select consultants to review mini-hydro development needs 2.16, 2.17 5. Waive licensing requirements for private entrepreneurs to generate and sell electricity to the Hills 2.19, 2.20 6. Prepare a long-term power investment plan 4.8 7. Formulate a long-term strategy for replacing existing water wheels with muitipurpose power units (MPPU) and cross-flow turbines 2.19, 2.20 Biogas I. Continue private sector development of family blogas units 2.22, 2.23 2. Systematically monitor the program of community blogas units 2.22, 2.23 ENERGY DEMAND KANAGEMENT 1. Accelerate dissemination of improved cooking stoves, beginning with a pilot project to distribute 100,000 stoves in the Kathmandu Valley over four years 3.3 - 3.6 2. Reduce electric power system losses 3.8 - 3.10 3. Explore the benefits and costs of an energy efficiency 3.13 - 3.14 program for the road transport sector 6.4, 6.,5 4. Move towards the economic pricing of electricity and fuelwood 3.11, 4.11 ENERGY fNSTITUTIONS 1. Increase the effectiveness of WECS In energy planning 4.2, 4.3 2. Strengthen the Energy Planning Directorate of WECS with a forester and renewable energy economist 4.3 3. Proceed with plans to create a National Electricity Authority (NEA) and consider integration of the Small Hydel Development Boara (SHOB) into NE4 4.5 - 4.7 4. Enlarge student enroliment at torestry institutes and send 40 forest officers aoroad for training 4.10 - 4.11 5. Strengthen the Ministry of Forestry's pianning ana monitoring office 4.10 - 4.11  -3- 1.4 Afforestation efforts are progressing along the lines of the "'moderate scenario" of the Energy Assessment. However, a much greater effort will be required to avert large fuelwood deficits over the long term. The greatest scope for afforestation appears to be through the "improved management of existing forests supplemented by fuelwood plan- tations in the short-to-medium term, and the widespread distribution of seedlings among the population to meet long-term needs. The emphasis in hydropower development has been on large and medium sites for domestic use and exports. Surveys and prefeasibility work are planned or underway for the major hydro basins and HMG is seeking donor assistance for some of this work. There is also substantial scope for mini and micro-hydro development but HMG requires technical assistance to (a) reduce the high cost of mini-hydro projects managed by the government, and (b) prepare a strategy to promote expanded micro-hydro development by the private sector. HMG has requested ESMAP assistance to do the prefeasibility work in these areas. In addition to fuelwood and hydropower, there is some scope for the development of biogas resources, though on a much smailer scale. WECS has begun to evaluate the potential for an expanded biogas program and has prepared a draft study. ADB/N's loan program for family- sized units is progressing well and meeting some of the energy needs of those who have enough animals and income to operate them. The develoi- ment -of community-sized biogas units appears to have greater scope for expansion, due to its lower cost per family, but has been constrained by a number of design and operational problems. 1.5 Efforts to improve energy demand management and efficiency have focussed on: (a) reducing fuelwood consumption through the distribution of improved cookstoves; (b) reducing power Losses in the distribution of electricity, and (c) managing energy demand in the transport sector through measures to lower petroleum consumption. Improved cookstoves are being distributed under the various ongoing forestry projects. Accep- tance of these stoves differs according to region but overall utilization is reportedly higher than 50Z. HMG believes that a large-scale demon- stration program is needed immediately for the Kathmandu Valley and would like technical assistance to prepare a strategy for such a program; how- ever, the mission recommends that before seeking such assistance, EMG review the ongoing and planned programs of the various forestry projects, as well as the development of an indigenous capability to implement and monitor a large program. In the power sector, a program with support from ADB and the World Bank is underway to reduce high losses in the electricity distribution system, mainly caused by improper. metering and electricity theft. HMG also has made progress toward the economic pric- ing of electricity. The current tariff structure is under review and further adjustments to bring it in line with the long-run marginal cost of electricity supply should be made by the end of 1984. There also appears to be some scope for energy savings in the road transport sector, which accounts for nearly half of total petroleum product consumption. HMG would like technical assistance to evaluate the scope for short-run, quick-payback energy savings in this sector.  -4- 1.6 Regarding institutional developments, the Water and Energy Commission's coordinating role in energy planning seems to have improved (i.e., the formation of an Energy task Force) though no specific institu- tional changes have taken place. Specialists in forestry and renewable energy will be joining WECS to strengthen its energy sector work outside of hydropower development. In the power ector, HMG plans to establish a new electricity authority, formulate a long-term hydropower development program and expand training facilities. In the forestry sector, a long- term investment plan will be prepared covering projects and manpower requirements. Training programs will be expanded and the planning, pro- gramming, and monitoring office within the Ministry of Forestry and Watershed hanagement will be strengthened. 1.7 In considering the above activities, this report makes the following recommendations for further energy sector work by HMC and/or international donor agencies: (a) review and update fuelwood supply and demand estimates by region, using the results of a recent land resources mapping survey, and formulate strategies for meeting urban and rural fuelwood needs in preparation for a long-term forest develop- men plan; at the same time, there should be a greater effort to transfer the forest estate to the local governments (pan- chayats) for management and development (para. 2.8); (b) consider funding hydropower prefeasibility and feasibility evaluations identified by WECS subject to an analysis of the proposed work in the context of major pro.ects already under study or preparation, i.e. whether or not these will be suf- ficient to satisfy domestic demand and provide ample margin for exports (para. 2.14); (c) provide the necessary technical support to develop a strategy for reducing the high cost of mini-hydro projects developed by the SHDB to date and promote the expansion of multipurpose power units by the private sector; HMG has requested assistance from ESMAP to fund the prefeasibility work (paras. 6.4-6.5); (d) evaluate the improved cookstove dissemination programs for the Kathmandu Valley included as components of various forestry projects and the indigenous production capability to implement a large program immediately (para. 3.4); and (e) evaluate the feasibility of immediate, quick-payback measures for reducing petroleum consumption in the road transport sec.tor and prepare an action program; HMG has requested assistance from ESMAP for this evaluation (paras. 6.2-6.3).  -5- II. ENERGY SUPPLIES AND RESOURCE DEVELOPMENT Overview 2.1 The two principal known indigenous energy resources of Nepal are forests and extensive river systems. The present area of forest cover is estimated at 3.8 million hectares (ha.), of which 2.9 million ha. are, in the Hills atnd 0.9 million ha. in the Terai. Population pres- sure and increasing demand for arable land and forest products have caused about a 40% reduction in forest cover over the past 15 years. The estimated theoretical hydro-electric potential in Nepal is 83,000 MW, of which about 27,000 MW have been investigated for development. Most hydro sites are of such a size that exports to the Indian powet market would be required to economically justify their development. HMG has begun a large program with various donor agencies to tackle the development and rehabilitation of these two energy resources. In addition, HMG is inves- tigating the potential for the substitution of biogas for cooking fuels as well as for running small-scale agro-processing machinery in the Te. . The development of biogas has been handled largely through loans from the Agricultural Development Bank of Nepal (ADB/N) with support from the Asian Development Bank (ADB), UNDP, and UNICEF. Fuelwood 2.2 Background. The Energy Assessment raised serious concern over Nepal's dwindling forests with an illustration of the planting program ,hat would be required to meet projected fuelwood demand through 2010. The forest area was estimated so be about 4.3 million ha. with a total growing stock of 186 million m . Overexploitation of forest areas was found to be the equivalent of clear-felling 100,000 ha. annually. This compared to an afforestation program which has averaged only about 5,000 ha. per year. 2.3 Fuelwood demand was projected to reach at out 13 million m3 (9.1 million tonnes) by the year 2000 and 16 million m (11.4 million tonnes) by 010, compared to the present level of around 8 miLlion m (5.8 mil- lion tonnes). Based on available forest resource data and discussions with forestry experts in Nepal, the Energy Assessment Report produced two scenarios for fuelwood supply in the medium-to-long term: (a) an '"accel- erated program" of annual planting reaching 50,000 ha. by 1990, and (b) "a moderate program" reaching 20,000 ha. per year in 1990 and 50,000 ha. per year by 2010; the latter scenario, however, would result in the  -6 - virtual disappearance of Nepal's forests by 2010, causing a large wood energy deficit. 2/ 2.4 The targets of the above scenarios are based mainly on fast- growing, high-yielding fuelwood plantations producing about 10 m- per ha. However, based on recent Bank/FAO reviews uf the forestry sector, it now appears that, given the limited amount of land available for planta- tions, the greatest scope for increasing fuelwood supplies in the short and medium term will be through the improved management of existing forests; this would include forest protection combined with an aggressive program of forestry mana&ement techniques, such as coppicizg, which can result in yields of 5-6 mJ per ha. compared to less than 1 m per ha. for degraded forests. 2.5 Recciimendation. HMG shold: (a) attempt to meet the produc- tion targets of the "accelerated" planting scenario to avert serious fuelwood shortages; (b) survey plots of land available for forestry; and (c) simplify and accelerate the transfer of public lands to the Panchayats (local governments) for development. 2.6 Response. According to recent Bank/FAO estimates, feasible annual afforestation targets by 1990 would be on the order of 15,000 ha. of forests brought under improved management and 5,000-10,000 ha. of fuelwood plantations. These figures are close to those given for the target afforestation area in the Energy Assessment's "moderate scenario". However, if this scenario were followed through for the subsequent two decades, there would be an enormous fuelwood deficit - 7.3 million tonnes. The gap would have to be filled by other fuels and would amount to the equivalent of 2.5 million toe, or about 20 times the current annual level of oil imports. But given that the basis for current Bank/FAO targets is mainly improved forest management and not only the high-yielding plantat.`ons of the "moderate scenario", the wood energy gap could be even greater. 2.7 The above fuelwood supply scenarios underscore the sense of urgency in exploring innovative ways to increase fuelwood supplies as rapidly as possible and plan for alternative energy sources to meet projected fuel shortages over the long term. The ongoing forestry program includes three groups of activities which are extremely important to meeting this goal: (a) 17 field projects (in 71 of Nepal's 75 dis- tricts) which are designed to meet fuelwood and fodder needs through community participation; (b) seven central support projects to improve the forestry sector's institutional capabilities; and (c) small-scale projects for afforestation, research, forest utilization and energy 2/ These two scenarios include natural forest protection and the distribution of improved cooking stoves that are 25% more efficient than open-fire cooking.  -7- conservation. The afforestation target of the current (Sixth) devel- opment plan (1980/81 to lt '5/86) is about 1',000 ha. per year, of which the Bank/FAQ Community Forestry Project accouncs for about 60X (see Annex 2). The Bank/FAO Second Forestry Project (1983/84 to 1988/89) includes 35,000 ha. of forests to be brought under improved management (averaging 7,000 ha. per year) and 26,250 ha. of fuetwood plantations (averaging 5,250 ha. per year) along with the distribution of 32 million seedlings. 2.8 HMG now is preparing the investment program for the Seventh Five Year Plan and is formulating a national forestry development plan with assistance from ADB and the World Bank. Clearly, meeting projected fuelwood demand will require a much larger afforestation effort than in the past but there are a number of constraints which require attention. First of all, the current forest resource data base is based on old (1964) and incomplete survey data, which is woefully inadequate for plan- ning purposes. Also, estimates made to date have been at a global level and therefore are not very useful for designing action programs to meet fuelwood needs, as these vary considerably by region. Fuithermore, one of the most important steps toward Nepal's forestry development -- the transfer of the forest estate to the panchayats for local protection and management -- has not moved very rapidly. All experts agree that invoLv- ing the local population will be crucial to mobilizing a massive affores- tation program. Considering all of the above constraints, the mission recommends that, in preparation for a national forestry development plan, HMG: (a) accelerate the transfer of the forest estate to local commu- nities for development and provide the necessary technical support; (b) make use of the data recently obtained from the CIDA-financed land resources tlapping survey to more accurately determine the forestry resource base and land use patterns at the regional level; (c) update fuelwood demand estimates based on region.i survey data and the results of improved stove programs; and (d) formulate a two-part fuelwood supply strategy; i.e. for urban areas: centralized, large-scale block plantations under effi- cient management, harvesting and distribution organizations and for rural areas: a decentralized self-managed program for individual farms and local communities through the extension of community forestry.  -8- Hydropower Large and Medium Scale Hydro 2.9 Background. The theoretical potential for large and medium- scale hydropower development in various river systems of Nepal is estimated at 83,000 MW, distributed by basin and region as follows: Estimated Basin Region Theoretical Potential (MW) Sapt Kosi Eastern Region 22,000 Sapt Gandaki Central and Western 21,000 Karnali and Mahakali Far Western 36,000 Others 4 000 Total 83"000 2.10 The current installed hydropower capacity is 126 MW. The next step in the development program, the 69 MW Marsyangdi Hydroelectric Proj- ect, is designed to meet domestic power demand through 1993. Most of the hydropower development to date has focussed on projects sized to meet domestic requirements, which have resulted in electricity costs in Nepal as high as US