Economic Analysis of Nepal’s Transmission Power Loss


For sometime, I have been writing about the transmission power losses and its significance in Nepal’s electricity sector. Read about the annual power loss here. The causes of transmission losses and comparison with other countries of the world can be found here. In this blog, I will try quantifying the losses in terms of monetary values. What would the savings be if the loss was just 15 percent? How much has Nepal Electricity Authority (NEA) spent in expanding transmission and distribution network in the last decade?

In order to quantify the transmission losses in Nepal, we can look at the revenue forgone that would have been received by NEA if there was only 15 percent transmission loss. Forgone revenue is a good proxy for measuring transmission losses because it includes both technical and non-technical losses. And, with the availability of high capacity transmission lines and other technology, it is reasonable to assume that NEA is capable of reducing its transmission losses to 15 percent.

Data on annual available energy, total electric sales, and average electricity price are available in annual reports that NEA’s publishes every year. The total inflation-adjusted savings for the last decade by reducing transmission losses to 15 percent would have been approximately $ 789.2 million. This is a substantial amount considering NEA’s total revenue for the same period is just $2.45 billion.  In other words, NEA would have received 32 percent more revenue! Table 1 has yearly information on available energy[1], electricity sales, power lost, and the revenue that NEA would gave collected if transmission loss was reduced to 15%.

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Table 1: Data on available energy, electricity sales, and revenue that NEA would have collected if transmission loss was reduced to 15% during 2001-2010.

Now, let’s look at the amount that NEA has invested in transmission sector in the last decade. The total inflation adjusted investment (to year 2010) is around $225 million. This amount is merely 28.5 % of the amount of extra revenue generated if transmission losses were reduced to 15%. There is one more thing to note is that most of these investments took place in the second-half of the decade when there is significant increase in hydropower generation. So, this new investment towards transmission sector might be just to accommodate additional capacity rather than a step towards decreasing the losses. Therefore, I argue that it would be beneficial NEA investing more on transmission sector than what they have been doing at present.

blog 4.3_tranmission_invest_NEA

Table 2: List of transmission projects under construction

Is there a way out of this mess?

Nepal should be able to reduce its transmission losses considering other countries’ data. The average transmission power loss – among 134 countries that World Bank collects data on – is 13.67 for 2008 – 2010 periods. The first job would be to figure out the factors – both technical and non-technical – that cause most of the transmission and distribution losses. Then, the next step would be to find out how much each of these factors contributes to the total loss. And then we can look at the ways to reduce losses that are associated with each factor and also calculate the cost required for each process. The economic analysis shows that we would save significant amount of money by reducing transmission and distribution losses to 15 %.

Conclusion

Transmission loss cannot be avoided completely; however can be minimized with the help of high powered transmission lines and proper load management. Minimizing transmission loss is a very significant in electricity sector for both reliability and affordability purposes. This will not only increase the power available to customers, but also reduces the need for new investments. Reducing losses is more important in Nepal’s case as the energy growth for the next 10 years is going to increase steadily with the annual rate of  9.06%.  Thus, besides focusing on generation sector to eliminate power crisis from the country, transmission sector should also be given equal importance.

References:

Annual Reports 2010, Nepal Electricity Authority, http://www.nea.org.np//reports/annualReports/BvTeH9hxFHAnnualReport2010.pdf


[1] Available energy (GWh) is the amount of energy that is produced by all power plants in Nepal and the amount of electricity imported in order to meet the demand. Whereas, total electric sales is the amount of electricity received by all costumers. So, the difference between available energy and total electric sales is the amount that is lost during the process of transmission and distribution.

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6 thoughts on “Economic Analysis of Nepal’s Transmission Power Loss

  1. You have raised valid issues, but as always the devil is in the detail. A couple of points: 1) You talk about “transmission” loss but you are actually quoting losses including distribution as well as transmission. It would perhaps be more enlightening to distinguish between the two (and my expectation is that you will find that transmission losses are not unreasonably high). 2) Investment in loss reduction tends to be characterised by decreasing return on investment. 15% might not be an optimum level of total losses, particularly for a network with relatively low load density such as Nepal’s.

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  2. You mentioned to reduce the loss to 15 % but did not mention how much is it now and how is the trend in last couple of years.

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  3. Paul: I agree with you, however my point was to highlight the significance of power losses during T&D process in Nepal. And 15% was just an arbitrary number that I chose. Nepal’s utility company (Nepal Electricity Authority) may be better off by investing in reducing the power loss given the money associated with it.

    Thank you Joel. I like your website. I think I can learn a lot from your website. I will contact you in near future.

    Niraj: I mentioned in couple of places that Nepal’s average annual power loss (national grid connected) is around 28%. However, one of my blogs talk about it in further details. Here is the link:https://energyfornepal.wordpress.com/2013/04/14/causes_comparision_nepal_power_loss/

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