West Seti Project – Opportunities and Challenges

The Investment Board Nepal (IBN) approved China’s CWE Investment Corporation, a subsidiary of Three Gorges Company on April 2015. The CWE Corp will form a joint venture with Nepal Electricity Authority (NEA) for the development of West Seti Project. The hydro-project is storage-based with a capacity of 750 MW and costs $1.6 billion. This will be the biggest foreign investment project in Nepal’s history.

The West Seti project was envisioned more than couple of decades ago with the first feasibility study conducted in 1987. There were multiple companies showing interest in the project since then. During the early years, Snowy Mountain Engineering Corporation (SMEC) signed an agreement with the government of Nepal, however the license was revoked at the later date. Government then formed another company, West Seti Hydro Limited, and conducted environmental impact assessment and resettlement action plan in 1997 and later revised in 2007.

The annual electricity production from the West Seti project will be 636 gigawatt-hours (GWh). The project will have 195 m high concrete dam, 6.7 km headrace tunnel, 620m tailrace tunnel covering 2,060 hectare by reservoir. The project will also construct 20.3 km permanent access roads and 132.5 km 400 kilovolt (kV) double-circuit transmission.

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The new developments in Nepal’s hydro sector and Three Gorges Chairman’s recent visit to Nepal provided the Seti project with renewed impetus. The project is going to generate much-needed dry season energy. As it is storage based, it can hold water during the rainy season and utilize it when most of the hydro-projects are generating at 1/3rd of their capacity during the dry season.

The West Seti project will be a great boost for Nepal. The project will be able to provide peak energy at a reasonable cost. The total cost of 750 MW West Seti project is $1.6 Billion – an average cost of $2133/kW. The average capital cost of run-of-river project in Nepal is around $2000/kW. This means that we are getting electricity from storage-based plant and the flexibility of water generation as needed at the same rate as the run-off-river project cost!

Moreover, the storage project can also be used flood control and dry season augmented flow. With the help of dam constructed for the hydro-project, the flow of water in the downstream river can be regulated.

However, there are many challenges associated with this project. First, the project is storage based which requires a large reservoir area and resettlement. Moreover, there will be loss in agriculture land. As the project will hold (store) water for the energy production, especially when the project is not operating, downstream water sharing can be challenging considering that this water is utilized for agriculture and other purposes.

The West Seti project report mentions that the project requires total land of 2,326 hectare (ha) containing 28% of cultivated land and 35% of forests. Another 678 ha will be needed to build transmission lines. The report submitted to ADB mentions that the project will impact 2,421 households directly with an estimated of 1,579 requiring resettlement. The resulting environmental, social, and anthropological impacts of the West Seti project will be huge, thus requires a careful assessment.

Moreover, next set of challenges stem from uncertainty associated with timely execution of transmission infrastructures and market availability for surplus electricity. The CWE Investment Corporation has already asked Nepal government to provide market guarantee for the electricity generated from West Seti Project. Without finding electricity market besides Nepal, it will be challenge for Nepal to utilize all electricity produced (assuming that Nepal’s power demand increases as the rate forecasted by Nepal Electricity Authority). There is a need to create viable alternate electricity market. Evacuating power to India and Bangladesh are possible options. However, we would need India’s cooperation to sell power to Bangladesh as transmission lines go through Indian territory.

The other challenge is associated with building necessary transmission infrastructures. It is not clear who responsibility it is for constructing high-powered transmission lines to evacuate power from West Seti project. The government recently asked Chinese Government for financial assistance, either in form of aid or soft loans, of $400 million to invest in hydro project and transmission lines. The project requires 400 km-long transmission lines to connect the West Seti project to the national grid.

Overall, the West Seti project is excellent from economic point of view. The project will increase Nepal’s national grid capacity substantially. It will also provide much needed dry season energy and help Nepal achieve a reliable and adequate electricity system. However, the project also has many serious challenges mainly environmental, social, and as well as building transmission infrastructures and creating a market for the surplus electricity.

 

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Foreign investments in Nepal’s Hydropower sector

With Nepal’s domestic power producers focusing on developing small-to-medium hydro projects, mainly because of lack of capital and technical expertise, there is a need for foreign investments in Nepal’s hydro sector. In the last few months, Nepal Government has successfully signed project development agreements (PDA) with two Indian companies regarding 900 MW Arun III and 900 MW Upper Karnali projects. Three George Corp., a Chinese company that is doing electromechanical work for Upper Tamakoshi (456 MW project), is also vying to get into Nepal’s hydro business through the West Seti project. Foreign investment in hydropower is definitely welcoming as the country is facing dire energy crisis. A research done for Britain’s Department for International Development suggests that four big hydro projects could earn Nepal a total of $17 billion in the next 30 years— this is not bad considering Nepal’s GDP last year was a mere $19 billion. However there are also some challenges mainly in building trust and cooperation, timely execution, electricity load management, and finding markets for surplus electricity. This post briefly summarizes these mega projects and also discusses the impact of foreign investment to Nepal.

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Source: Ekantipur

Nepal Investment Board (IBN) and GMR-Energy signed an agreement in September 2014 to build a 900 MW, $1.4 billion plant in Upper Karnali. The commercial operation of the project is expected to begin in September 2021 with financial closure to be completed by September 2016. GMR has also partnered with International Finance Corporation (IFC) in developing Upper Karnali project and two high-powered transmission lines. The Upper Karnali development project was agreed in principle in 2008 but delayed primarily because of political instability in Nepal. GMR is also in advanced stage of developing another big project, Upper Marsyangdi-2 (600 MW). Nepal Investment Board (NIB) and GMR signed the agreement with the aim of providing greater security to foreign investors in Nepal and also asserting foreign entities’ responsibilities to protect Nepal’s national interests. Similarly, India’s state-owned power company, Satlij Jal Vidyut Nigam, will construct a 900 MW Arun III hydro river project after signing the agreement in November 2015. The deal was completed during SAARC summit in the presence of Prime Ministers of India and Nepal and is expected to generate electricity from 2021.

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Proposed Power Agreement between Nepal and India

There are a lot of ongoing discussions on the proposed power agreement between Governments of Nepal and India. With Nepal’s untapped hydropower resources, India’s power need, and recent changes in Indian politics, the discussions for power treaty is again back on the table. I was lucky enough to get a copy of the draft of the agreement. In this post, I discuss the important points of the agreement and few areas that need clarification.

Both countries realize the importance of meeting electricity demand for socio-economic development and the progress of people. The agreement aims to facilitate cooperation in the fields of power generation, power transfer, grid connectivity, energy efficiency, renewable energy, and power related consulting and research services. More importantly, both countries are emphasizing the importance of developing additional hydropower potential by cooperating in the construction and operation of hydropower.
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Getting into Nepal’s Hydropower? – Few Things to Consider and Opportunity to Invest

The hydropower business is booming in Nepal, mainly due to massive untapped resources and huge power shortages. The data from Department of Electricity Development (accessed July 2013) shows that it has issued Survey License to 674 projects totaling 20,756 MW in capacity. Whereas, 59 projects of 1357 MW capacity have obtained Construction License. Please see the table at the end of the post for detailed information. With the limited transmission capacity and lack of India-Nepal intercountry grid connection, will all these projects get built? I doubt. Then, how do you choose the right project to invest? This post discusses few points to consider in analyzing the project and intends to help potential investors choose the right one.

Things to Consider

The following paragraph considers few questions to consider while choosing hydro projects to invest.

Road: Is there road access to the project location? If not, how far is it from the highway? How much road construction is necessary? How much does it cost?
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CA Election of Nepal: Are parties’ energy sector promises feasible?

The second Constitution Assembly (CA) election in Nepal  is scheduled for Nov 19, 2013 due to the inability to draft a constitution after the first election. What are the election manifestos of the parties? Even though parties are used to making lofty promises during election campaign and not fulfilling most of them after, the manifesto indicates the parties’ future direction. Let’s discuss and compare major political parties’ election manifestos regarding Nepal’s energy and environmental sectors.

Almost all major parties have announced unrealistic plans claiming to eliminate current power shortage problems between 3 – 5 years. The manifestos give priority to the country’s hydropower sector and also aim to exploit renewable sources to increase electricity generating capacity.

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Nepal Energy in the News: August 15-31

Power wastage amounts to 50m units due to lack of transmission lines (The Kathmandu Post, accessed September 4, 2013)

I have raised the issue about the consequences of lack of transmission infrastructure in Nepal.  NEA reports that the total loss due to insufficient transmission lines in 2012-13 fiscal year is worth of Rs 420 millions. The posts cites Bhuwan Chettri, chief of Load Dispatch Center (LDC), and writes that NEA’s loss was due to the delay  in construction of three power line projects, including Khimti- Dhalkebar (220kv), Suchayatar-Matathirtha-Kulekhani – 2 (132kv) and Bharatpur-Hetaunda (220kv). The delay affected power generated from hydro power projects like Kaligandaki, Marysandi, Madhya Marsyandi, Trishuli, Chilime, Indrawati and Spring Khola to connect to the national grid. The news reiterates the fact that Nepal should focus on building new transmission and distribution lines to accommodate additional generation if it seriously wants to solve the energy crisis.

Power Grid preparing road map for SAARC electricity grid (The Economic Times, accessed August 30 2013)

This is a very welcoming news indeed. An electricity grid connecting South Asian countries will not only increase reliability, but also will help to harness each SAARC nation’s capacities and resources to address growing energy needs in the region. India, Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka are part of SAARC.  The Indian State-run Power Grid is finalizing the construction of transmission line between India and Nepal for transfer of bulk power.

Other News articles:

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Nepal Energy in the News: Week of July 22

Energy For Nepal will bring you news related with Nepal’s energy sector in biweekly basis. We will summarize important news and also provide links of other the published news during the period. We hope to make this blog a one-stop source  for news and analysis of Nepal’s energy sector.

First, some of the news article published some time ago but are still relevant:

Here are some of the energy related news from this week:

  • Energy sector gets highest Foreign aid commitment (ekantipur, accessed July 24 2013). Ekantipur writes that “The sector received Rs 42 billion out of total commitments worth Rs 115.15 billion, thanks to a huge commitment of Rs 33 billion for Tanahun hydropower project. Earlier news about ADB lending $150 million to this same project (ekantipur, accessed July 24 2013) .
  • Government failed to achieve energy targets – both in generation and transmission sectors –  set in the 12th Development Plan. In the three-year plan, Nepal government planned to add 184 MW of electricity to the national grid, but only succeeded in adding 21 MW. According to the National Public Commission’s  report published on myrepublica, government added only 500 m of transmission lines when it planned for building 500 km! Read the article in myrepblica, accessed July 24 2013.

Other News articles: