Government of Nepal

Ministry of Science and Technology

Alternative Energy Promotion Centre

Study on Subsidy Policy Revision for

Renewable (Rural) Energy
Technologies
Sectoral Presentation of Hydropower

Tri Ratna Bajracharya

August 11, 2012

 Contents of Presentation
1. Current subsidy
2. Issues from stakeholders consultations and
literature review
3. Reasons for subsidy revision
4. Limitations of the study
5. Proposed subsidy
6. Justifications in favor of  proposed subsidy
7. Issues to be discussed
 Hydropower
• It contains:
– Micro Hydropower
• Pico (up to 5 kW)
• Micro Hydropower (5 – 100 kW)

– Improved Water Mills

• Short Shaft
• Long Shaft
• Electrification
 Current Subsidy of MHP
RET Criteria Subsidy Amount (NPR)
Pico Hydro New project up to 5kW Lower of NPR 97,500 per kW, or NPR 12,000
per HH
Micro Hydro New >5kW<100kW Lower of NPR 125,000 per kW or NPR 15,000
per HH
Rehabilitation >5 kW Lower of NPR 62,500/kW or 50% of
installation cost
Transportation subsidy NPR 500 per km/kW for more than 10 km
distance from road head, but not exceeding
NPR 30,000 and NPR 30,000 per kW for the
projects that are located in in Humla, Jumla,
Kalikot, Dolpa, Mugu, Rolpa, Rukum, Jajarkot,
Bajhang, Bajura, Achham, Dailekh, Darchula

Additional financial support 10,000 NPR/kW but not exceeding NPR

for productive use of 250,000 per project category and NPR 4,500
energy for remote areas
 Current Subsidy of IWM
Criteria Subsidy Amount (NPR)

Short Shaft Grinding 12000 (category C), 14000 (category B) and

17000 (Category A)
Long Shaft Grinding , 27000 (category C), 30000 (category B) and
hauling etc 35000 (Category A)
Electrification 6000 NPR/HH up to 5 kW capacity or 60,000
NPR/kW
REGION up to 5 kW 5-100 kW >100 KW Rehab Average
ERM 54% 47% 47% 29% 44%
ERH 54% 47% 47% 29% 44%
ERT 54% 47% 47% 29% 44%
CRM 54% 47% 47% 29% 44%
CRH 54% 47% 47% 29% 44%
CRT 54% 47% 47% 29% 44%
WRM 54% 47% 47% 29% 44%
WRH 54% 47% 47% 29% 44%
WRT 54% 47% 47% 29% 44%
MRM 54% 47% 47% 29% 44%
MRH 54% 47% 47% 29% 44%
MRT 54% 47% 47% 29% 44%
FRM 54% 47% 47% 29% 44%
FRH 54% 47% 47% 29% 44%
FRT 54% 47% 47% 29% 44%
 Issues from Stakeholders
Consultations
• At least 300 W is reqiured per household for
electricity and cooking purpose.
• Current policy provides only 120 W per
household which is not sufficient to achieve
AEPC’s MHP development plan of 5 MW in
one year.
• Subsidy should be site basis and additional
subsidy should not be introduced.
 Issues from Stakeholders
Consultations
• MHP equipment should not be tailer made
product such as 14.5 kW or 17 kW instead 15
kW 20 kW, etc.
• MHP is mostly community based project. In
practice, out of total project cost, 30-40% is
covered by subsidy, rest 40-60% fund is looked
into other sources which is difficult part and
takes long time.
 Issues from Stakeholders
Consultations
• Transport subsidy is one of the major part in
subsidy sector and need to be especially
defined. It can be managed by DDC or
whoever implemented the project.
• Regional and district base overall model can
be defined but specifically for specific project
decision is needed.
 Issues from Stakeholders
Consultations
• Pre-feasibility and detail feasibility study is to
be strengthened.
• Lack of provision for supervision and
monitoring of project during the
implementation.
• Most of the implemented projects are differ
from their original design. Therefore emphasis
need to be given for study part.
 Reasons for Subsidy Revision
• The MHP policy does not directly consider the
geographical variation
• Over the time, household demand for power
has increased but the energy planning limits
the energy use (120 watt/hh in micro hydro).
• Topping up of subsidy at local levels by local
governments or others has become a rule
than exceptions.
 Reasons for Subsidy Revision
• Delay in project construction has affected the
achievement of target on time. One of the
major reasons for delay, as reported by the
stakeholders, is the time taken by User
Committees to explore additional free
financial resource.
 Reasons for Subsidy Revision
• Currently, in most cases, the technical quality of
pre-feasibility and detailed feasibility study are not
up to the mark. Community recruit and pay the
consulting firms for detailed feasibility study. The
money assigned by communities for these studies
are felt grossly insufficient. In the course of
implementation, one can see many implemented
projects differ from their original design. So there
should be a provision of support to carry out these
tasks.
 Limitations of the study
• Base Cost (Current Capital Cost) is taken from
the project average cost given in ESAP-REF
2011.
• Base cost (CCC) of rehabilitation is taken from
50% of the project cost given in ESAP-REF
2011.
Proposed Subsidy (Scenario 1 & 2)
MH IWM

up to 5 kW 5-100 kW >100 kW Short Shaft Long Shaft Short Shaft

REGION
ERM 63% 54% 54% 48% 57% 17%
ERH 59% 51% 51% 49% 57% 16%
ERT 55% 48% 48% 43% 51% 16%
CRM 63% 53% 53% 48% 57% 17%
CRH 62% 54% 54% 48% 57% 17%
CRT 63% 54% 54% 49% 57% 17%
WRM 58% 49% 49% 44% 52% 16%
WRH 58% 50% 49% 45% 53% 16%
WRT 56% 48% 48% 43% 51% 15%
MRM 74% 64% 64% 57% 68% 20%
MRH 70% 59% 59% 54% 63% 19%
MRT 60% 51% 51% 46% 54% 16%
FRM 70% 59% 59% 56% 66% 19%
FRH 69% 59% 59% 53% 63% 19%
FRT 61% 52% 52% 46% 55% 17%
 Summary of Subsidy as per NRREP 2012
MHP IWM

SUB-REGION up to 5 kW 5-100 kW >100 kW Short Shaft Long Shaft

ERM 50% 50% 50% 40% 40%
ERH 40% 40% 40% 40% 40%
ERT 40% 40% 40% 40% 40%
CRM 40% 40% 40% 30% 30%
CRH 30% 30% 30% 20% 20%
CRT 50% 50% 50% 40% 40%
WRM 40% 40% 40% 40% 40%
WRH 30% 30% 30% 20% 20%
WRT 20% 20% 20% 20% 20%
MRM 60% 60% 60% 50% 50%
MRH 55% 55% 55% 50% 50%
MRT 40% 40% 40% 40% 40%
FRM 55% 55% 55% 50% 50%
FRH 55% 55% 55% 40% 40%
FRT 40% 40% 40% 40% 40%
 Proposed and current subsidy rates for different size MH

65%

60%

55%

50%
Subsidy Rate (%)

45% Proposed Subsidy

40%
Current Subsidy

35%

30%

25%

20%

15%
up to 5 kW 5-100 kW >100 KW
 Proposed and Current Subsidy Rates in
Different Geographical Regions
60%

55%
Subsidy Rate (%)

50%
Proposed Subsidy rate
45%
Current Subsidy Rate

40%

35%

30%
Mountains Hills Terai
 Subsidy rates Comparison of Different Size of MH

70%

65%

60%
Subsidy Rate (%)

55% Mountains
Hills
50% Terai

45%

40%

35%

30%
up to 5 kW 5-100 kW >100 KW
 Subsidy Rate Comparison in Different Geographical Regions
70%

65%

60%
Subsidy Rate (%)

Mountains
55%
Hills

50% Terai
Average Current
45% Subsidy

40%

35%
Eastern Central Western Mid Western Far Western
Subsidy Rate Comparison in different Geographical Regions
(considering NREEP Limits)

70%

60%

50%

40%

30%
Mountains
20% Hills
Terai
10%
Average Current
Subsidy
0%
Eastern Central Western Mid Western Far Western
PROPOSED SUBSIDY OF IWM
 Proposed Subsidy Rates for Different size of IWM

60%

55%

50%
Mountains
45% Hills
Subsidy Rate

Terai
40%

35%
(%)

30%

25%

20%
Short Shaft Long Shaft
 Proposed and Current Subsidy Rates in
Different Geographical Regions

60%

55%

50%
Subsidy Rate (%)

Proposed Subsidy
45%
Current Subsidy
40%

35%

30%

25%

20%
Mountains Hills Terai
 Proposed and Current Subsidy Rates for Different Size of IWM

60%

55%

50%
Subsidy Rate (%)

45% Proposed Subsidy

Current Subsidy
40%

35%

30%

25%

20%
Short Shaft Long Shaft
 Subsidy Rate Comparison in Different Geographical Regions

65%

60%
Mountains
Hills
55%
Subsidy Rate (%)

Terai
Average Current
50% Subsidy

45%

40%

35%
Eastern Central Western Mid Western Far Western
 Recommendation
• For the MHP above 100 kW capacities, direct subsidy
is not recommended. Because:
– Cannot fully utilize the capacity
– In case of grid connection, it become commercially viable
– It discourage the IPPs
• To encourage the construction of such viable projects,
it is strongly recommended to provide indirect subsidy
for carrying out feasibility study, detailed project
report (DPR) and even Technical assistance for
construction.
• Further, these projects should be supported with soft
credit facilities.
Justifications of  Proposed Subsidy
• Different social parameters are considered,
such as: wholesale price index, decline in the
capital costs due to learning curve and
improvement in the RETs, disparity in the
human development indices, gender
inequality, and deprivation to income
generation in different sub-regions
• The proposed subsidy is within the threshold
of 80:20.
 Issues to be Discussed
• Excluding of subsidy for >100kW
• Base cost
 37/37

Email address: triratna@ioe.edu.np