Policy of Repair: MHP Development in Nepal
There are over 3000 MHPs of different size and capacity contributing approximately generating 32 MW of electricity in Nepal. Over the next 20 years, the government wants to expand the share of electricity generated from micro and mini-hydro plants to 15 percent of total electricity demand. The apex government body for promoting the renewable energy technologies in Nepal, the Alternative Energy Promotion Centre (AEPC) wants one MHP every village . In the absence of a national census, both the number and significance of MHPs becomes little unreliable. There are, however, good indicators which suggest that MHPs have brought substantial changes in the quality of life and in the social capital formation in the project sites. Besides, the MHPs have created a whole array of forward and backward linkages in the rural economy, creating a new set of investors, firms, implementing institutions, and end-users.
Yet, our understanding about the state of MHPs in Nepal is fragmentary and, being at best indicative, is inadequate to formulate effective long-term and medium-term policies. The existing knowledge on MHP-use, for instance, is based on generalisations of case studies that are neither proven to be representative of the whole nor conducted with required rigour.
To illustrate, a study has shown that the operation and maintenance (O&M) costs in MHP, expressed as a share of the revenue generated, varies between 33-60% in a medium term (4-14 years). The result was tested against the everyday operation of the 14 MHPs in Gulmi. The findings suggest that O&M costs do turn out to be the largest factor that causes a very low internal rate of return (irr) in the long run. The subsidy, which amounts up to 70% of the initial investment, seems to affect the irr only marginally (from 2% without to 8% with subsidy). These findings, if true across the country, could have major policy implication on first, promotion of the MHPs as attractive financial propositions; second, the effects of subsidies on the MHP project life; third, the structured intervention required to reduce O&M costs; and fourth, the emphasis given on the social consequences of the MHPs.
The crux of the problem is we do not have a comprehensive, real-time picture of the use and operating conditions of the MHPs in Nepal. Much of the existing knowledge on the MHPs is based on anecdotal, unrealistically small and non-representative case studies. The aforementioned study, for instance, utilised data only from three MHPs (out of 3000 MHPs) and estimated the income and expenditure of the units based solely on oral interviews with the owners. Indeed, AEPC’s chief has openly admitted that the institution has no comprehensive knowledge about the operating conditions of the MHPs in Nepal. The problem is the lack of a detailed knowledge of the landscape of the MHP use. Such knowledge will consist of both quantitative and qualitative data on not only use and economy of the MHPs, but also on its governance. Such knowledge is crucial for understanding how energy infrastructures alter the social structures and relations, and are in turn altered by them.