Drowning in Diesel

Lazimpat area of Kathmandu at dusk. Hotels and apartment buildings in Kathmandu rely wholly on large diesel generators for regular power supply.

Lazimpat area of Kathmandu at dusk. Hotels and apartment buildings in Kathmandu rely wholly on large diesel generators for regular power supply.

What does it say about a country when it produces about 500 MW of electricity from privately owned diesel generators? In Nepal’s case, nothing good. Not when the diesel and generator are both imported and used in desperation to deal with an energy crisis that has lasted decades and worsened in recent years. Kathmandu alone consumes about 29 percent of the country’s total electricity and 31 percent of petroleum products imported, while it operates about 80-100MW of private diesel generators. When about eight hours of daily rolling blackouts is the norm for months, a figure that once reached 18 hours, how else would banks, hotels, restaurants, hospitals and other service providers continue operations? Indeed, the government itself depends on diesel-based electricity and last December was producing nearly 57 MW of it while shopping around to add another 80MW.

Diesel drains the national treasury and sickens Nepalis. It also dangerously affects our Himalayan glaciers, rivers, and monsoon patterns on which Nepal’s hydro aspirations and the subcontinent’s agriculture sector are hinged.

Economics: 
Last week Nepal Oil Corporation requested the Finance Ministry for Rs 2 billion in grant to maintain normal fuel supplies. It was Rs 28 billion in debt with monthly losses of about Rs 634 million. In January, Nepal Petroleum Dealers’ National Association had reported that the valley’s daily demand for diesel was 700,000 liters. Winter spike in demand for the fossil fuel has been directly linked to its use for generators. The central bank’s 2012 data shows that Nepal’s import of petroleum products have nearly doubled from two years ago and currently stands at Rs 92.95 billion.

Health:
In January this year the Guardian newspaper published an article titled “Diesel fumes more damaging to health than petrol engines” as suggested by UK’s Department for Energy and Climate Change 2011 report ‘Trends in NOx and NO2 emissions and ambient measurements in the UK’.

Using diesel generators like these as a source of electricity for several hours a day has become the norm in Nepal's urban centers. This one at a restaurant in Kathmandu, Photo: Kashish Das Shrestha

Using diesel generators like these as a source of electricity for several hours a day has become the norm in Nepal’s urban centers. This one at a restaurant in Kathmandu, Photo: Kashish Das Shrestha

Kathmandu got its own air-quality report card in 2012, and it only confirmed what residents and doctors of the city have known for a while: the air we breathe is probably killing us. The International Center for Integrated Mountain Development’s 2012 report “Rapid Urban Assessment of Air Quality for Kathmandu, Nepal” noted the increased incidence of respiratory disorders and of eye, throat, and skin conditions, as well as an increase in the incidence of cardiovascular-related problems among people living in Kathmandu in comparison to those living in rural areas. According to the report, “an estimated 30 million Nepalese rupees (USD 400,000) of hospital costs every year could be saved by reducing the level of airborne pollutants to meet World Health Organization guidelines.”

If not, growing science and evidence on climate change’s effects on the Himalayas and the rivers and farms its glaciers feed, hospital records and the country’s balance books are testament to the severe consequences of the diesel generator dependency.

Moving Ahead:
Kathmandu needs to begin the process of replacing its diesel generators with solar energy, and an Energy Exchange Agreement (EEA) policy with the Alternative Energy Promotion Center and Nepal Electricity Authority (NEA) needs to be set in place. This would mean extra electricity produced by a building’s solar unit would be sent to NEA, for which NEA would credit the building’s electricity bill at either a fixed rate or NEA’s tariffs already in place, or a new pricing mechanism that will be established without adding financial stress on NEA or other consumers.

For technical reasons (voltage fluctuation, transmission loss) NEA is generally open to signing any kind of power purchase or exchange agreements with sources that produce at least 100kw.

With a net-metering based EEA in place, electricity would flow both in and out of the building with no obligation for NEA to pay cash for what it takes. If the building owner chooses a storage mechanism with batteries, then the building would be largely using its own solar power and charging its backup system with it too, reducing its dependency on both diesel generators and NEA. Every 100kw solar unit installed and used by a building means it saves on diesel and NEA fees. During dry months, when the power crisis is at its worst, these consumers would have less demand from and more supply for NEA, a benefit for both parties. This would also set the stage for a broader future policy overview on enabling some combination of net metering and feed-in-tariff with those who don’t need to install a 100kw system for their regular use.

Financing:
Anyone who argues renewable energy such as solar is unfeasible without subsidies should consider this: in 2012 developing countries spent about US $630 billion in fossil fuel consumption subsidies while the global subsidy for the fossil fuel industry stood at US $775 billion, an estimated six times the amount of subsidies renewable energies got. Figures from Nepal would surely show an even more startling disparity.

Last week the Ministry of Finance agreed to add another Rs 2 billion grant to the billions it has doled out to Nepal Oil Corporation over the years. When was the last time the Environment or Energy Ministry even able to consider such a grant for sustainable energy in Kathmandu? Not even when daily power cuts reached 18 hours. Is Kathmandu’s recurring fuel crisis more urgent than its crippling electricity crisis, even when the electricity crisis has only deepened the fuel crisis?

Yes, there should be significant switch to solar by those who have to currently depend on diesel generators and that process should be subsidized to the greatest extent possible so that the issue of capital cost, the biggest barrier for solar investments, becomes a non-issue. Banking services, like the one currently offered by Clean Energy Development Bank, should also be in place to finance the remaining capital (if needed). Lower interest rates could both invite more clients and speed up the transition to solar.

The subsidy itself needs to be a domestic effort in combination with the help of development partners who have already invested and pledged millions to develop Nepal’s energy sector. There are several international and regional sustainable urban development funds, and multiple pollution and greenhouse gas emission related funds Nepal could tap into for this effort.

The Rs.0.50 Polluter’s Tax collected for every liter of petrol and diesel sold in Kathmandu was established specifically to curb air pollution and needs to be used to the full extent for this effort. Nepal’s development partners should also match the accumulated fund, a process that seems to already be under way. Not only does this add to the coffers but also helps keep the original fund accountable, which has been a problem in the past.

While the subsidy may cover the installation of solar PVs or other technologies, would it cover the storage component? And how would battery disposal be managed? Could Kathmandu valley offer limited property tax holiday or subsidies for those that are making the switch? After all, the valley itself would be a beneficiary of the initiative. The government already offers a 100 percent tax rebate for the import of pollution control aids and devices. Is it applicable here?

Nepal’s dangerous reliance on and affair with diesel generators must come to an end. The Ministries of Energy, Environment, Finance and Health must join hands and heads for it with the help of our development partners. Nepal should do this even simply to set an example as the Chair of the Least Development Countries at the United Nations Framework on Climate Change. And Kathmandu, Nepal’s largest urban center and single biggest energy consumer, needs to act urgently for its own sake as well as to set an example of how the country can make a leap in sustainable energy production and consumption.

Originally published (March 4, 2013) in Republica national daily.

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