Satish Joshi on Reframing Nepal's Hydropower Energy Narrative

TRANSCRIPT

[00:00:04] - [Aparna Paudyal]
Namaste and welcome to Pods by PEI, a policy discussion series brought to you by Policy Entrepreneurs Inc. My name is Aparna Paudyal. In today's episode, we have Saumitra Neupane, Executive Director of PEI, in conversation with Satish Joshi. Satish has worked in Nepal's electricity sector for over a decade on issues ranging from institutional reforms to electricity trade. He is a founding partner at Vrock and Company, where he oversees VRock's engagements in the energy sector.

Before that, he was the principal manager at the Investment Board of Nepal, where he led negotiations for the Upper Karnali and the Arun three hydropower projects. Saumitra and Satish discuss the past, the present and the future of Nepal's electricity sector and its narrative. The two examine Nepal's inability to harness its hydropower potential and the impact on its economy. They dissect Nepal's hydro centric energy narrative and offer updates grounded on the concepts of energy security, affordability and access. They also provide insights into the future of Nepal's energy sector, considering the current global energy transition to renewables.

We hope you enjoy the conversation.

[00:01:16] - [Saumitra Neupane]
Welcome to the show, Satish. Great to have you here.

[00:01:19] - [Satish Joshi]
Thank you, Saumitra. It's a real pleasure.

[00:01:21] - [Saumitra Neupane]
I want to begin this conversation with the very genesis of Nepal's hydro narrative itself. So 1960s, you had Doctor. Hari Manstra's famous PhD thesis concluding Nepal had a hydro potential of 83,000 megawatts. That was later revised to 43,000. But this whole idea of hydro imagination linked to Nepal's prosperity continues to inform policy and public discourse.

[00:01:45] - [Saumitra Neupane]
I want to start by asking your reflections on this broader imagination of this narrative. What were the key policy assumptions that underscored Nepal's idea of hydro potential and how we wanted to use it?

[00:02:02] - [Satish Joshi]
Yeah. So, Saumitra, I think, you know, this is we're talking about a time that's way before, you know, we were even thinking about energy or hydropower. But I think, like you mentioned, it all, you know, emanates from Hariman Shrestha's thesis. Right? I think this just illuminated the Nepali imagination that 83,000 megawatts, I mean, you think of it in the context of that time.

[00:02:26] - [Satish Joshi]
It was just out of this world kind of numbers. And I think policymakers, decision makers, technicians all just gravitated towards exploiting that potential for our prosperity. And quite naturally, the evolution of that imagination followed the path of developing large hydropower projects. So there were numerous initiatives by the government to undertake studies on these large hydropower projects. So there was the Sapta Koshi High Dam, and there was the big Karnali Chisapani.

[00:03:05] - [Satish Joshi]
And I think up until, you know, we reached a point where these projects really didn't find traction and a way forward, the policy push was always about developing these large hydropower projects. And there wasn't any talk about developing small projects as a way of capitalizing on this potential. It's not to say that projects weren't developed. You know? The Kulikhani project was commissioned in the early eighties.

[00:03:37] - [Satish Joshi]
There were quite a few projects that were developed under government leadership, including the Marseigny project. But the imagination was still about large hydropower projects.

[00:03:51] - [Saumitra Neupane]
Thanks, Satish. I think some of the assumptions that you mentioned in the initial formulation of this hydropotential narrative, This seem to have been kind of challenged in the decades to come. So you see several factors such as this whole idea of dams and development really taking shape during the 80s that really narrowed the focus around concerns of building large dams to the environment, the society. So that was a significant challenge. Also for Nepal's part, I think this whole idea of selling to India seemed to be another great challenge and that kind of seemed to have limited opportunities for investment in the Nepali hydro space.

[00:04:35] - [Saumitra Neupane]
Moving forward in the decades of '90s, what kind of policy choices did these contests actually informed Nepal's movement in the hydro sector?

[00:04:46] - [Satish Joshi]
Yeah. So, Saumitra, I will actually pick it up from where you pointed out that, you know, the before the nineties, there was this twin narrative. You know, there was developing smaller, medium high power projects for our own needs, but the imagination was always about big. And the modality in which they were being developed or would be developed was on bilateral modalities with India, and the obvious choice of market was India. When that narrative hit a dead end, right, with Karnali Chisappani, Then I think, you know, there was a series of events in history when you look back, you know, it gives us a real great perspective.

[00:05:31] - [Satish Joshi]
So I'd like to start by saying there was obviously the democracy movement. Right? There was liberalization in India. And for that matter, with the end of Cold War across the world. Right?

[00:05:43] - [Satish Joshi]
And so how did that influence Nepal? When we realized that the bilateral modality of developing large hydro was not possible, I think there was a realization within the country that we need to mobilize capital from outside of government because, as you know, at that point, you know, Nepal as a country didn't have the financial resources or the wherewithal to develop this resource on its own. And then came, you know, 1992, the Electricity Act. And that was really seminal because that act, you know, if you look back on it, was way ahead of its time. To attract or to have the ambition to attract private investment in hydro was new not in Nepal only, but for the world.

[00:06:28] - [Satish Joshi]
And then that narrative led on to the Arun three project. Right? There was big multilateral banks were really interested in financing large hydro. And in Nepal's instance, it was Arun four. And when that failed, for whatever reason, you know, we don't need to get into it.

[00:06:46] - [Satish Joshi]
You and I know the history of that. The narrative then became, you know, do we develop large hydro or small hydro? And at that point, I think it was very clear that Nepal's ambition for developing its hydro was more about meeting its needs and less about getting rich by selling energy to India or its neighbors. Right? It's not like that narrative was completely abandoned because, as you recall, in the late nineties, West Sethi, the seven fifty megawatt project was also taken up by the government and there was substantial traction.

[00:07:29] - [Satish Joshi]
But the focus was still just small hydro. And then when Arun failed, you had Kimthi and Bhotekoshi, like the two big projects for that time. In hindsight, they may not sound big, but sixty, forty five megawatts were big projects at that point in time. So I think, you know, to summarize, Sumithra, the '92 Electricity Act laid the foundation for what really became the independent power producers movement in Nepal. And while it took a while for it to really bear fruit, that was like a seminal moment for the history of development of hydro in Nepal.

[00:08:11] - [Saumitra Neupane]
That that particular point of electricity act, when it came, it was, as you said, very seminal in the sense that there was a lot of movement, I think, uproar around that the sector is going to move forward very fast. There's going to be power produced. So at that point, I think there was also this duality that you mentioned in the sense that at one hand, saw that the policy focus was really building towards developing small hydro, really catering to the domestic market. But at the same time, the narratives around big hydro do not actually go away. So you mentioned West CT.

[00:08:51] - [Saumitra Neupane]
There were conversations going around some of the larger projects. It was also timely with this whole idea of developing Mahakali. So the politics around hydropower seem to have kind of developed these two different pathways where one was catering to domestic interest, whereas this larger narrative still was alive and was kept alive by the politics in Nepal. So moving on from there, I think the period of the 1990s to 2000s, there was a lot of movement, there were a lot of issues. But we come to a point where in 2000s then there was almost sixteen hours of power cut.

[00:09:32] - [Saumitra Neupane]
So it really is an interesting point of exploration for the entire audience. Nepal having the central narrative around hydropower, hydropower richness, we're wanting to develop our prosperity to hydropower. But in a decade or two, we actually did not make significant progress, and we were stuck with extreme power cuts up to sixteen hours a day. How did we end up in such a position?

[00:09:57] - [Satish Joshi]
You know, Sumithra, I think I'm not a student of history, but I think when we when we discuss these issues, we cannot isolate history from the conversation. Right? After the development and commissioning of the Kimthis and Bodhi Koshis in the early two thousands, you know, our power system wasn't really a big power system. Right? Electricity was never an engine for economic growth.

[00:10:24] - [Speaker 2]
It was more for household consumption and very low value consumption. And and so when you have a large project like Kimti or Akali Gandaki, right, in about 2003 is when Akali Gandaki, a 144 megawatts commissioned, we actually had energy electricity surplus. Right? And then at that point, again, there was this talk about, you know, exporting to India briefly. And then, you know, the thing with electricity is when it's there and when you can count on it, people find a way to use it.

[00:11:00] - [Satish Joshi]
And that's exactly what happened. In a couple of years, we were actually you know, we were short of electricity. Right? And then, you know, I talked about history is this was also about the time when the insurgency in Nepal was really beginning to gather momentum, and the nation's attention was really not focused on economic growth and meeting our electricity needs. The the the the, you know, the attention was diverted to combating the conflict.

[00:11:33] - [Satish Joshi]
And and so even projects that were in the pipeline got delayed. And in the meantime, electricity demand didn't really abate. It just kept growing as our economy grew. And that's really what led to the chronic power shortages. You know, you you have to understand that the idea of consuming power is an instantaneous act.

[00:11:57] - [Satish Joshi]
Right? It's generated instantly, and you are consuming it instantaneously. But the planning to make that instantaneous consumption of electricity happen is a long term process. Hydropower projects take five years to develop on average. But there's also a gestation period of getting to that point where you can start constructing it.

[00:12:18] - [Satish Joshi]
And I think that is where we lost it. That decade from '96 to 2006 is when we were not thinking about how we meet our electricity demand. You know? So they were like, I was just looking at some of the numbers, and there was no significant projects added from 2003 to 02/2013, about only 60 megawatts. And so you can imagine that, you know, in in a decade, obviously, our power consumption demand is increasing, but we're we've only added 60 megawatts in the span of a decade.

[00:12:55] - [Satish Joshi]
And and and from that point, we were just simply playing catch up. And, you know, and and as I said, it's an eight year period before you get to the point of commissioning these plants. And and and that's why the period from 02/2010 till about '16, as we call in the dark decade, was when we suffered the most.

[00:13:15] - [Saumitra Neupane]
Satish, I really want to hold this conversation here. You mentioned dark decade. And earlier, you'd mentioned about Nepal's policy effort in the liberalization process being really way ahead of time. If policy was really way ahead of time, so why did not that capture the needs and requirements? And why did not set a policy direction for Nepal for the next twenty years?

[00:13:41] - [Saumitra Neupane]
I mean, my understanding is that there were certain failures in policy by which we could not develop projects in time, right? So you mentioned that it takes around five to seven years as a gestation period to build projects. There was the conflict, but it almost feels that there had to be some anticipation back in the '90s to actually see that there's going to be a power requirement moving forward and that push actually did not happen. What is your view around around this?

[00:14:12] - [Satish Joshi]
You know, that's that's a really hard one, Sumithra. I think if I was to really look back on it, you know, while the poll while I'm I still stand by the fact that the policy of '92 that came out on liberalizing the hydropower sector was groundbreaking, it takes time for that policy to translate into action. Right? The and there was immediate action. You know, we were able to mobilize foreign investment for over a 100 megawatts of projects as a result of this.

[00:14:46] - [Satish Joshi]
But in terms of domestic hydro independent power producers, I think there was a crisis of confidence that, one, you know, there was you know, NE was the only entity that were building hydropower projects. Now when you opened it to everyone, you know, the ones that were developing these projects in other jurisdictions came, they built their projects in Nepal. But for local producers, it took time, right, to develop that confidence that, yes, we could build these hydropower projects. And then when that is intertwined with the conflict period, that whole period from 'ninety six, 'ninety seven to 02/2006, everything just came to a standstill. Like even projects that NEA was building, there was significant delays like Midmercy Angi.

[00:15:34] - [Satish Joshi]
So I think I would point it as a crisis of confidence that was not helped by the conflict.

[00:15:40] - [Saumitra Neupane]
It would be fair to say that the policy was there, but the entire ecosystem, including the capacity of developers, the financial markets, other regulations, enabling environment, they did not actually exist to drive the sector forward. So hence, you had one or two foreign investments that came in, and you see Bhutti Kusi and Kimti come up. But other hydropower developers, especially on the Nepali side, they could not actually motor through with the process.

[00:16:10] - [Satish Joshi]
That's exactly what it is. Right? There was the financial constraint. And I think what I'm glad you brought that because what changed that was Chilimay in 02/2002. Right?

[00:16:20] - [Satish Joshi]
While Chilimay is like the poster boy for, you know, the IPP movement in Nepal. Right? And I say that the poster boy, even though it was actually developed as a subsidiary of NEA, it actually made people realize that, look. We can develop a project of substantial size. We can mobilize domestic investment, and we can do it with domestic resources, technical resources.

[00:16:43] - [Satish Joshi]
So so that really, I think, changed that was a game changer with with Chile May.

[00:16:50] - [Saumitra Neupane]
Satish, can you elaborate on the Chilime hydropower project a bit?

[00:16:54] - [Satish Joshi]
Sure, Saumitra. I think it I think it deserves a little bit delving into. So Chilime is a 22 megawatt project. Right? It was commissioned in 02/2003.

[00:17:05] - [Satish Joshi]
I think there was a deliberate choice and effort by the government to slowly back away from generation, developing generation projects, and really focus its efforts on rural electrification and the downstream infrastructure. And so what NEA now was confronted with is the hesitancy of the government to finance hydropower projects. So it had to find a way to do it itself. Right? It didn't have the wherewithal at that point in time to mobilize commercial capital from outside the country.

[00:17:40] - [Satish Joshi]
So it had to come in from Nepal. Right? And so that is really what gave I talk about a crisis of confidence, and that's and how we overcame that was when ChilliMay was financed by domestic resources, domestic banks, domestic pension funds, and equity invested mostly by initially by NEA employees. Now, obviously, there are issues around conflict of interests. And if we put that aside, you know, the the benefit that resulted out of Chile May is what the is what we're reaping today in terms of you know, like, I think by next year, IPPs will have more generation capacity than any and its subsidiary companies.

[00:18:29] - [Satish Joshi]
And I think that is, despite all its faults, is something that was worth it.

[00:18:35] - [Saumitra Neupane]
Moving the conversation forward, Satish, so how did we actually resolve the crisis? How did we end the sixteen hour power cuts? I mean, there is a lot of narratives around town of how we did it, but how did it actually happen?

[00:18:50] - [Satish Joshi]
That's the million dollar question. No. Actually, the you know, wasn't it Kulman Gissing?

[00:19:00] - [Saumitra Neupane]
I don't know. Was it Kulman Gissing?

[00:19:02] - [Satish Joshi]
Well, I think he does deserve a lot of credit for it, for sure. For sure. Right? But there's enough credit to go around and be shared by a lot of people and a lot of institutions and events that happen. So let me begin.

[00:19:15] - [Satish Joshi]
So we're having twelve, sixteen hour power shortages. And it's interesting because the narrative you talked about actually comes back over here. Our whole hydro narrative is driven, as you said, around how we can get rich by exporting electricity. But how the load shedding ended was by how we imported electricity. So in around 2016, 'seventeen is when the first major cross border transmission line was commissioned, the Muzavpur Tulkibar line, that allowed us to have the infrastructure to be able to import power on a substantial quantum.

[00:19:58] - [Satish Joshi]
So that was one. Right? And I think as soon as we're so the load shedding at that point was a result of a shortage of power. Right? We have a different situation now today.

[00:20:12] - [Satish Joshi]
But at that point in time, it was we just didn't have enough electricity. So once we had the infrastructure to bring in power from India, there was a lot of things that that that actually kicked in a a virtuous cycle. So as soon as we were able to bring in power from India, the system planners of which, you know, Kulman Sur is a great student of, he studied the system. And what it allowed him to do is he first provided uninterrupted power to the households. Now that was deliberate.

[00:20:47] - [Satish Joshi]
And maybe there was a political dimension to that. But I think even from a technical perspective, that was the right thing to do. Because as you recall, we all had these inverters that charged these when we had lights for three, four hours, we charged it. Right? Now just remember that when you charge a battery and you discharge it, sometimes as much as 40% gets lost.

[00:21:08] - [Satish Joshi]
So we were losing 40% of our energy in the charge and discharge process. So as soon as we didn't have to do that in the household, suddenly, like fifty, sixty, 7,100 megawatts of power appeared in the system that was just getting lost because of the charge and discharge cycle. So as soon as that happened, he was then able to now provide power to other consumers, including the industries. So I think I would say that the commissioning of the Muzurvpur Dhalkebar line and having someone at the helm that understood the power system very well and had the backing, the political backing, to cut off power from industries and actually just give it to households. Right?

[00:21:59] - [Satish Joshi]
Because as I said, that kicked off this virtual cycle that about 60 megawatts that was being lost could now be available for industries. But if you had done it the other way around, we would still be losing that 60 megawatts. So I would I would say, you know, three things. Kulman, Muzaffur Dalkibar line, and the backing that he had to do what he needed to do. Not necessarily in that order per se, but those are the three things.

[00:22:29] - [Saumitra Neupane]
So imports from India did actually play a major role in ending the crisis.

[00:22:35] - [Satish Joshi]
Absolutely. Right? But but I think the good thing we did is you know, I wanna actually go back to 02/2008. Right? When the conflict ended, there was exuberance about hydropower development again restored, both from a domestic perspective as well as from the export market potential perspective.

[00:23:01] - [Satish Joshi]
Right? If you recall, Sumitra, 2008 was the time when the Indian power market was really coming into its own. After the 2003 Electricity Act in India, by February, the power exchange market in India was developing. They they opened for business. And there was a lot of enthusiasm about this power exchange.

[00:23:27] - [Satish Joshi]
And power was actually trading for as high as INR $8.10 on certain blocks of time. Right? So suddenly, there was renewed interest, not only from within Nepal, but even from developers and business interests from India to use Nepal's hydropower to capitalize on this export potential. Right? And this was the time.

[00:23:53] - [Satish Joshi]
I love to call this the gold rush of hydropower. You had hydropower developers riding on choppers, circling rivers, looking at bends, and saying, Okay, this is the site. And they would get a so that was the level of enthusiasm that was there. And that all paid off post 2016 because projects that were canvassed and reconned at that point in time slowly entered the development phase. They got their licenses.

[00:24:20] - [Satish Joshi]
They got their power purchase agreements. We're able to finance it. And after 2016 is when these projects were beginning to be commissioned. So yes, export was the catalyzer, but the domestic generation is what actually continued to fill that gap as our demand increased, and we tried to begin offsetting some of that imported power.

[00:24:42] - [Saumitra Neupane]
This is around the same time that you and I were kind of working on different sector issues ourselves. So the conversation I used to be part of, and I'm sure you were also part of these conversations, was that the momentum that had generated post conflict in Nepal and the enthusiasm there was around hydropower. There was a need to look back at what our policy focus was and then kind of revise that policy framework to move forward, give that another push. So what do you think were the learnings? And were these learnings really actually translated into the policy revision process?

[00:25:20] - [Satish Joshi]
Know, Sumit, there's definitely been numerous policy impetus since 02/2008, for sure. Right? But have we actually learned anything from that, from the lessons of history? You know, I'm a little skeptical about that, which is not to say that the policies were not right or not appropriate. I think, you know, I think the most significant one I mean, we've had several attempts at revamping our electricity act, but there have been some policies that have actually come into place.

[00:25:54] - [Satish Joshi]
You know, the energy development decade policy, which was a response to the blockade. You know, I think we've reached reaped some benefits out of that. That has really translated into some significant action on the ground, including you know, it's outlined a vision for the type of generation mix that we need to have. And I think for listeners, you know, when I say generation mix is, you know, hydropower projects are of different types. There are ones that are run of the rivers where you just generate based on the flow in the river.

[00:26:28] - [Satish Joshi]
There are peaking run of the river projects where you hold water for a couple hour a certain amount of time and then are able to generate power when you need it. Very important for the system. And then there are storage projects that do it for an entire season, where you store water for most of the wet season and generate when you need it in the dry. So the Energy Development Decade policy identified a target for this, how much we need in the system. Now that was a good first step, but have we actually accomplished those targets or even made substantial progress?

[00:27:03] - [Satish Joshi]
And that's where I'm skep when I say I'm skeptical if we've learned our lessons is we have the capacity, the appetite to develop run of the river projects. And so we've added significant capacity in that category. But what we need now in the system and what's more valuable, even if we were to export it in India, is power that can be dispatched when you need it, which comes from the peaking run of the river projects.

[00:27:27] - [Saumitra Neupane]
Or storage projects.

[00:27:28] - [Satish Joshi]
Or storage projects. And in that area, we haven't really made much progress. There's been a significant addition in terms of the project that NEA subsidiary, Upper Tamakoshi, the four fifty six megawatt project. That's a peaking project. And that's immensely valuable for the system.

[00:27:47] - [Satish Joshi]
We can generate four fifty six megawatts for four to five hours, even in the dry season, when we need it. And that's allowed NEA to really optimize its trading strategy. You know? It could hold power and generate it when it can maximize value in the Indian power market. So that's what we need more, but I don't think we've actually learned a lesson there.

[00:28:14] - [Saumitra Neupane]
It's a very interesting point, Satish, because you say that the system requires storages and peaking ROI projects, whereas we have run of river projects. We essentially do not dam and hold the water. So why is it that we were so invested in building ROR process ROR projects, and then we could not, in time, develop adequate peaking and storage projects?

[00:28:41] - [Satish Joshi]
Know, it's from a technical perspective, it's definitely harder to build a peaking or a storage project, and not just technically, but even socially and as well as economically. And that's the point I wanna get to is I don't think we've given the right price signals for the private sector to develop these assets. Right? And as you said, there's been private developers develop run of the river projects because, economically, it makes sense. The tariff and the price signals that it gives.

[00:29:15] - [Satish Joshi]
So it was a no brainer for them. Right? But when you want to build and the system requires peaking, I I think that's where I think we've fallen short is I don't think the price signals really incentivize the development of these projects, notwithstanding, you know, the the challenges that are associated with them.

[00:29:33] - [Saumitra Neupane]
So this is the second thing that really seem to crop up in this brief period of transition of the Nepali hydropower sector is one, this realignment of the renewable energy discourse. You see that there was this push to bring in quicker forms of energy in the sense of bringing solar power in Nepal so that that would kind of support the energy crisis. So that paved way for solar to come into Nepal. So, Satish, in this brief period of transition that you mentioned, you see two things really cropping up. One is this entry of new renewable energy technology.

[00:30:13] - [Saumitra Neupane]
So there was this focus of the government to bring in solar to resolve crisis. There was attractive tariff actually to begin with, which paid for a few solar companies to come in. At the same time, there was this increasing attention to the domestic market. So you had this hydro narrative around selling to India, but then again, you see this emergence of a new narrative that we should start focusing on creating domestic market, serving the domestic demand, etcetera. So how do you see these two narratives as as part of the larger transition that was happening post crisis in Nepal?

[00:30:54] - [Satish Joshi]
So, Sumithra, I think I'd like to begin by actually talking about energy and electricity. Right? So we're today in a situation where we're a net exporter. So we do import some during the dry season, but we export way more during the wet season. So we're a net importer today as we stand today, right, of electricity.

[00:31:19] - [Satish Joshi]
But but electricity only meets us very a small fraction of our total energy needs. Right? And so when we stay here today, stand here today, and look forward, We're talking about a surplus scenario where we would be surplus year round. We would have surplus. And I think this is where the narrative is a little distorted.

[00:31:45] - [Satish Joshi]
And I think this is where sometimes Nepalis feel like we don't get due value for this energy because we're we're kind of building a narrative that this is surplus energy or electricity, and it's not. It's not. Because even today, I would go on a limb out there and say and, you know, I've studied the system. We work with NEA a lot. That there's at least a thousand megawatts of unserved demand.

[00:32:12] - [Satish Joshi]
Right? So how can this energy or electricity actually be surplus? It's not. We just haven't found a way to get it to where it needs to be consumed. Right?

[00:32:24] - [Satish Joshi]
So I think we, as Nepalis, we have to really revisit this surplus narrative. We're not in a energy surplus scenario. We're definitely not. And and and and I think the focus now because standing here and looking forward today, I see a scenario where in two years, Sumithra, in two years, we would be having more electricity. I'm gonna call it surplus even though I said I shouldn't.

[00:32:53] - [Satish Joshi]
Then we consume today. Now just think of that. In two years, three years maybe, if we stretch it, we will have more surplus energy than we consume today.

[00:33:07] - [Saumitra Neupane]
Very interesting you talk about surplus, and maybe it's good to hold conversation there and kind of dissect it. I find it very difficult to work with this idea of surplus because I look at the numbers around per capita electricity consumption in Nepal, which in South Asia remains really low. I mean, we are under 500. And then you look at energy access, but the quality of electricity is not there. There was this recent report that came from the private sector in Nepal that said that still around 68% or 70% of businesses in Nepal were running gensets from fossil fuels.

[00:33:48] - [Saumitra Neupane]
And here, are talking about surpluses. So how are we to interpret this paradox of surpluses and then underserved demand in the domestic market?

[00:33:59] - [Satish Joshi]
So, Samitra, I'd like to actually take you back to 02/2016, right, when the expectation in the country was rock bottom. And when I say expectation, you know, from the energy sector, from NEA, we were okay with you know, if eighteen hour load shedding was more like if it was six hours, we'd be fine with it. But, you know, Kulmancer, NEA, you know, they work their magic, whatever. And so now people have come to expect, you know, twenty four seven power. Right?

[00:34:34] - [Satish Joshi]
And they've not only come to expect it, but they've also experienced it. And what that does, you know, from a consumer perspective is once you can count on it, you start actually incorporating devices and your lifestyle choices in such a way that you start consuming more because now you can rely on it. Right? And so what the end of load shedding and the available availability of power twenty four seven did is actually started shooting up demand. Right?

[00:35:04] - [Satish Joshi]
And and this demand doesn't materialize right away. It takes people a few years to get comfortable with the availability of power. So that's what's what we're experiencing in the last five years since the end of load shedding is there is gonna be a steady demand of electricity. Our focus in this last five years, I'd say, was still primarily on hydro generation, whereas the focus should have actually shifted to work. Because, you know, in 2016, 'seventeen, if you look forward, you saw this scenario that we would have a lot of electricity.

[00:35:42] - [Satish Joshi]
Right? So our focus should have been turned to how can we use that electricity or how can we distribute and transmit that electricity? And that's where we've fallen short in the last five years. You you talk about lessons. You know, that's one primary lesson.

[00:35:58] - [Satish Joshi]
Because, you know, the narrative is very romantic about, like, 10,000 megawatts in ten years.

[00:36:03] - [Saumitra Neupane]
It's a very generation centric narrative. Whereas

[00:36:07] - [Satish Joshi]
whereas the narrative should have been, you know, how do we distribute and transmit 10,000 megawatts, not generate, because that is going to happen. Right? NEA signed over 6,000 megawatts of PPA. They're gonna sign another 1,500, 2,000. So that's gonna take care of itself.

[00:36:27] - [Satish Joshi]
Right? But how do you consume this electricity? So I wanna go back to the energy transition. Right? We're seeing a generational shift I mean, a transition now.

[00:36:41] - [Satish Joshi]
Right? And and and if we don't build the transmission and distribution infrastructure to be able to do that, in a couple I mean, we are experiencing load shedding now. I mean, it's not the debilitating type of load shedding that we had in the past. But power is having to be curtailed in different parts of the country to different segments of the customers.

[00:37:04] - [Saumitra Neupane]
So Sathis, we ended the load shedding, and there have been some recent developments more around Nepal having seasonal surpluses and the possibility of power traded India. It almost seems that the sector has made kind of significant progress from where it was a decade ago. What is your current take on the state of the sector today?

[00:37:27] - [Satish Joshi]
Saumitra, I'm more optimistic today than I ever was about the electricity sector and the energy sector. And I say that for a couple of reasons. You know? One, the NEA is central to this electricity sector. Right?

[00:37:40] - [Satish Joshi]
Whether we believe that it should be that way or not is a different point, but it is central. And the transformation we've seen in NEA in terms of its technical and financial performance is nothing short of commendable. Right? And that gives me a lot of optimism about the sector because of the position that NEA is in. It's the primary entity that buys all the power and sells it to the end consumer.

[00:38:08] - [Satish Joshi]
Right? So to know that they are in a financially viable and a sustainable situation, and it looks like going forward that will be the case, is one big progress in the sector. The other is the commissioning of the four fifty six megawatt Tamakoshi project. You know, as a nation, as a Nepali, I feel extremely proud that this was a project of this size, was built by domestic resources, right, with domestic management. Yes, there were external consultants that were not Nepali.

[00:38:43] - [Satish Joshi]
But it was a Nepal led project. It took a while. And not everything was at fault because of governance and management issues. You add the blockade, you add the earthquake. But the fact that it saw the light of day and the value that it's adding to the system, that's another significant achievement.

[00:39:04] - [Satish Joshi]
The other thing is we go back to our narrative about how we're going to get rich by selling electricity. We're finally at the threshold of potentially realizing that dream. Now I'm not saying it's all smooth sailing or it has going forward, but we really are the the tantalizing possibility of realizing that potential is more real today than it ever has been. Right? And I say that because we're actually selling power to India on commercial terms.

[00:39:35] - [Satish Joshi]
We're accessing a market mechanism to sell power to India. The other thing that I'm really optimistic about, and maybe this was not the model that we would have wanted to sell to realize our selling hydropower and getting rich narrative, is the progress that is being made on Arun 3 project that is being developed by an Indian developer, SJVN. That's a 900 megawatt project. It's about 60% complete. There's been substantial progress on the transmission infrastructure to take that power across the border.

[00:40:13] - [Satish Joshi]
And then, you know, related to that and, you know, I have a fondness for these transactions because I was very much involved in in the negotiation of these agreements, is I'm actually waiting for the other project, which is the Upper Karnali project. And and I'm optimistic that we will even be able to sell power to Bangladesh on commercial terms. So you put all that together, Samithra, and if you're not optimistic, then I'd say you'd never be an optimist if those don't give you room to be optimistic about.

[00:40:48] - [Saumitra Neupane]
Satish, your optimism does stretch to a point that kind of also accommodates the fact that there is now an enabling environment in Nepal for investments to come in to develop these different key infrastructures, not just on the generation side, but on transmission, distribution, etcetera.

[00:41:09] - [Satish Joshi]
I'm optimistic, but I'm also realistic. Right? And so we're not quite there, I think. I think the government still needs to do more to really get foreign investment into the sector and not just in generation where there is substantial involvement of foreign investors. But I think it's time we actually start exploring the possibility of engaging the private sector and foreign investors in the transmission segment.

[00:41:38] - [Satish Joshi]
Now I talked about the challenge that NEA faces. Right? It's the sole entity that's building this network across the country, and I think it could use some help building that infrastructure. It you know, there are various models that we can use. It's not like NEA needs to we need to bust that monopoly.

[00:41:57] - [Satish Joshi]
But if we want to really, like, as you mentioned, you know, come up the per capita consumption of electricity index and other measures of measuring progress, then I think we need to do more to attract private sector and commercial capital into other segments of the electricity industry.

[00:42:19] - [Saumitra Neupane]
Much of that optimism is grounded on this idea that now in Nepal, we're generating surplus energy through hydropower. And that is being traded or that has a trade potential with India moving forward. But it's really difficult to kind of put that into a larger picture where you have a domestic market that is underserved. You have the private sector that is still running digital gensets. I think there was this number that the private sector recently put out that almost 68% to 70% of them were running gensets.

[00:42:56] - [Saumitra Neupane]
And the quality issues and the reliability issues of electricity supply still remain fairly questionable. So how are we to interpret this paradox of Nepal now having surplus and then pursuing a trade potential with India and then this underserved or underrepresented domestic market?

[00:43:19] - [Satish Joshi]
So I would begin by saying that, you know, we really don't have an electricity surplus. We just don't we only have it because we're not able to serve the demand that is already there within the country to consume that. Right? And and, you know, at the expense of, like, repeating myself, it it really comes down to developing the infrastructure, the transmission, and distribution to get the power where it's needed. I talked about the transition and the consumer expectation that has translated into increased electricity demand.

[00:43:53] - [Satish Joshi]
But that will only go to a point, and I think we've reached that point right now. Until there is an improvement in the reliability and the quality of power, I think the next quantum jump in electricity demand will not materialize. And this is where I think our focus now should shift from I mean, I'm not saying that we abandon generation. I think that's gonna take care of itself. But the focus should be now on developing this transmission and distribution infrastructure.

[00:44:31] - [Satish Joshi]
And we're all too familiar with the challenges there. You know, no one wants any of that ugly infrastructure in your own backyard. That's and that's not only Nepal's unique problem. It's it's it's universal. Right?

[00:44:45] - [Satish Joshi]
But But we have to figure out how government agencies forget the right of way acquisitions for transmission line and the land acquisition from private owners. The government itself needs to be more cohesive in how it approaches this problem. It's almost like the Ministry of Forestry has a mandate to increase forest cover. And so and the Ministry of Energy has a mandate to increase electricity consumption. Right?

[00:45:16] - [Satish Joshi]
And those two have policies that are at loggerheads. And that, I think, we can't really ask others to clean their house until we clean our own house. So the government, until it resolves that duality in its own policies, I don't think we're gonna really be able to make a lot of progress or the type of progress we need. And so we'll continue to have surplus, not because we can consume it, but because we can't figure out a way to distribute it within the country, which is really tragic because we have the infrastructure to be able to export it, but we don't have the infrastructure to be able to consume it. So I think that's a major area of focus, or it has to be a major area of focus, effort by everyone, especially the government.

[00:46:05] - [Saumitra Neupane]
So this beyond these issues of policy that might enable projects, especially on the transmission side to move forward really quick and that might add value to the entire sector. For the benefit of the listeners, would you also kind of elaborate on the costs that are required to build these infrastructures? We heavily talk about the costs that are involved for building generation projects, but this whole idea of investments in infrastructures, critical infrastructures, especially transmissions, are kind of underrepresented in the investment discourse. So would you want to elaborate on that?

[00:46:45] - [Satish Joshi]
Yeah. Sure, Saumitra. So I think just like in hydropower, the metric is usually $2,000,000 or 20 crores per megawatt. You know, there are similar metrics in transmission depending on the capacity. But let's say for very high voltage lines, it's a million dollars a mile.

[00:47:05] - [Satish Joshi]
You know, that's it's around that ballpark. But that's not the only cost associated with transmission line. Right? That's the that's the technical component for the poles, for the wires, for the substations. Now you have to remember that these transmission lines traversed hundreds of kilometers.

[00:47:25] - [Satish Joshi]
Right? And so there's the cost of acquiring the land on which the transmission poles are actually erected. And then in between those poles is what we call the right of way. So that land that lies beneath the wire, in many ways, the productivity or the value, the commercial value of that land is significantly reduced. But the way we're compensated when you build a road and you acquire land, you're paying people for that entire road, the land that was acquired.

[00:47:57] - [Satish Joshi]
But in transmission, it's a little different. And this is a typical practice around the world. But I think if you put yourself in the shoes of those people in which whose lands are underneath that transmission line, with that line overhead, their commercial value is zilch or close to it. They can probably just use it for agriculture. Right?

[00:48:20] - [Satish Joshi]
And so we have to think of some innovative way of compensating people for that. The usual metric people say is 20% of the value is what you pay for the right of way. And and and the other the double whammy for people, you know, is that that that land has lost commercial value, and they cannot really use it as collateral to, you know, take out loans or build a house or for anything. So, you know, it's got not only the value is gone, but they can can even leverage it to derive other values. And I think that's where some policy incentives, innovative kind of compensation mechanisms where they get a stream of income over the life of the transmission line.

[00:49:05] - [Satish Joshi]
These are things that I think that need to be explored. We give adequate justified compensation for land when we're building a hydropower project. And I don't think the same thing is really being happening in transmission. And that and that's one of the fundamental reasons we have a challenge.

[00:49:21] - [Saumitra Neupane]
So resolving that crisis is going to be really important for Nepal if the sector is to move forward.

[00:49:27] - [Satish Joshi]
Absolutely. Absolutely. So, Samitra, I think there are two I I think there are two fundamental reasons why that that's the case. Right? One is the institutional arrangement.

[00:49:39] - [Satish Joshi]
The ministry of energy really is just the ministry of electricity. You know? What constitutes more than twenty four, twenty seven percent of our energy consumption is actually managed by another ministry. This is the Ministry of Commerce, Supplies and Industry. So I think that's one disconnect.

[00:49:57] - [Satish Joshi]
But the more important one is the incentives. And when I say incentives, I mean the commercial incentives. That's purely about hydro generation, right? From the licensing to the development of the project and the commercial arrangements that allow for the development of hydropower projects, it's natural that people will only gravitate towards the commercial incentive. Whereas, you know, biomass, I mean, come on.

[00:50:29] - [Satish Joshi]
There's no money in that. I wouldn't be talking about biomass when I talk about energy if there was no money to follow on that.

[00:50:38] - [Saumitra Neupane]
Well, would it be fair to kind of assume that we've at our policy space, we've not been successful to capture that discourse around energy? There's bits and pieces still lying around that need to come in to this larger narrative of energy and hydro kind of being placed within that narrative.

[00:50:56] - [Satish Joshi]
Absolutely. Hydro is a component of that broader energy narrative, and we need to expand the energy narrative to include all kinds of energy. And and I think that's where some realignment and it cannot really happen without some realignment at the institutional level. That's what I believe.

[00:51:16] - [Aparna Paudyal]
You have been listening to Pods by PEI. I am Aparna Paudel. This is a quick reminder to all of you to do us a favor by sharing us in social media and leave a review on Spotify, Apple Podcasts, and Google Podcasts, or wherever you listen to the show. More from our guests when we return. Welcome back to Pods by PEI.

[00:51:39] - [Aparna Paudyal]
I am Aparna Paudyal. Let's get back to the show.

[00:51:43] - [Saumitra Neupane]
Moving the conversation forward, Sathis, it almost feels that this entire fascination with hydro, the energy discourse also being kind of really centered around hydro, the policy space, the institutions also being really focusing in the hydro, that might kind of lead to certain challenges moving forward. If you are to take into consideration things like climate change and how that might impact the sector tomorrow is something that I am still grappling over. I've talked to several developers who state that climate change is a growing concern. We've seen in the news that several projects have been impacted with reduced water flows and that has kind of impacted their own business prospects. We've also seen global examples of really landslides and floods that are impacting these power systems, including recent examples in Uttarakhand and elsewhere.

[00:52:45] - [Saumitra Neupane]
So what does climate change have as an implication for where we want to go with our hydropower sector tomorrow?

[00:52:54] - [Satish Joshi]
So, Mitra, before I address your question about where we want to go, I just briefly want to talk about the impact that climate change could potentially have. You're absolutely right. We're putting all our eggs in one basket. We need to talk about the broader energy security agenda. And, you know, that's where we talk about the diversification of energy sources.

[00:53:16] - [Satish Joshi]
But in terms of the impact of hydropower of climate change on hydropower, I think the jury is still out there. It's an evolving science. But what can you know, we can't be certain about how it's going to impact, but we can be certain that it's going to have an impact. Right? And there's some studies by the World Bank and ECMODE have done where some of the you know, this is one of the most comprehensive study that's been done.

[00:53:43] - [Satish Joshi]
And the conclusion is that as a a result of climate change, as things warm up, it's actually going to have a beneficial impact on Nepalese hydro. Remember, these are perennial rivers that are served during the monsoons, obviously, with the precipitation. But in the dry seasons, it's by snow melt. So as things warm up, we're going to have a longer period of snow melt. Right?

[00:54:14] - [Satish Joshi]
So we're going to have increased generation during periods when snow is melting. Right? Which is a good thing because we mean that means we'll have more dry season power. Also, it's still unclear how climate change will impact the intensity of and duration of the monsoons itself. There's evidence to suggest that they are changing, but there's no conclusive evidence about how it's changing.

[00:54:41] - [Satish Joshi]
So I think until the the glaciers are there, the snowpack is there, it's gonna have a beneficial impact. And I think the forecast is, I think, till this century, it should have a beneficial impact. And then after that, I think it's a cliff.

[00:54:56] - [Saumitra Neupane]
But the predictability element of all of this, I would imagine, is very low. I mean, because I've seen pictures of glaciers. So you often see these pictures in social media versus glaciers then and now, and it almost feels that the glaciers have significantly reduced. I concur to the fact that the science is still kind of catching up and we don't have a conclusive answer, but talking to people who made investments in projects and their concerns, I think it almost feels very realistic in the sense that that impact of climate change is being felt. Future concerns, things like the investment requirements that will be necessary to make our infrastructures more resilient.

[00:55:42] - [Saumitra Neupane]
I was talking to one of the developers very recently and he was mentioning that projects tomorrow might be required to develop their infrastructure to a quality standard that kind of absorbs a hundred year flood return cycle, whereas currently infrastructures are being built on a fifty year flood return cycle. So that intensity of water could be a very big thing.

[00:56:10] - [Satish Joshi]

You're absolutely right, Saumitra. I think we, in the past, have not incorporated the resiliency element or we have. When you're building structures like this, you don't have an option not to. But the climate dimension is something that, as you said, is really evolving. Right?

[00:56:32] - [Satish Joshi]
And I think that's going to have, like you said, an implication on the cost. Right? The cost is one element, but the resilience aspect, like you said, you know, you're talking about fifty years, you know, probability of maximum flood design. You know, you're having, like, two hundred year floods within three years. You know, how do you explain that?

[00:56:54] - [Satish Joshi]
And how do you build structures that can withstand or are resilient to that kind those kind of events? Those are definitely gonna have cost implications for sure. Right? And and this is where I wanna, like, address your earlier question about how do we ensure, given all this, that that we're not being more vulnerable in terms of our energy security? Right?

[00:57:22] - [Speaker 2]
And and I I think, you know, from you quoted the 19 you know, the evolution of our energy consumption profile in the last thirty years. You know, energy today is not just about lighting bulbs. It's the driver of our engine. You know, our economy, our GDP has evolved to the point where it's a very critical input. And so we've reached that we're way past that inflection point, but we haven't really given serious thought about energy security.

[00:57:52] - [Satish Joshi]
And energy security, I think about three fundamental As. You know? It's about the availability, access to that availability, and so in an affordable manner. And all of these three As, how do you secure it and insulate it from shocks, whether it's climate related, whether it's tectonic shocks, whether it's economic shocks. So that's the discussion that needs to happen yesterday.

[00:58:26] - [Satish Joshi]
And and and then the other thing that we need to talk about in terms of energy security is it's no longer just electricity. We cannot just have the electricity Ministry of Energy deciding and formulating energy sector energy security policy without having a more inclusive dialogue with other components of our economy, you know, the Ministry of Industry, the industrialists, agriculture. You know, so these things are all really intertwined, and we need to have a more wholesome conversation about energy security and how we ensure it.

[00:59:03] - [Saumitra Neupane]
You've been part of policy circles in Kathmandu. Is that conversation happening today? Not yesterday. You said that it should have happened yesterday. But is it happening today?

[00:59:14] - [Saumitra Neupane]
If it's happening today, what do you think are the immediate concerns and priorities for energy security in Nepal?

[00:59:25] - [Satish Joshi]
I think some of my concerns I, you know, just expressed earlier, Sumithra, I think the dialogue you asked, is it happening? It is. But it is not happening with the sense of purpose and seriousness that it merits. We're talking about energy transition. We're talking about zero net zero by 02/1945.

[00:59:47] - [Satish Joshi]
And what I feel is, you know, we have we always have good intentions, and we, as a country, we always wanna be out there at the forefront with these declarations. But we're lacking an implementation plan, you know, a a more thought out. And I feel like this is one of the shortcomings of our policy formulation is we love bold pronouncements, but we don't really do the work, you know, the hard work that's required to formulate plans about how you get there. You know, case in point, we wanted to be what is it? In electricity cooking, we wanna be 20% by 2020.

[01:00:26] - [Saumitra Neupane]
'20.

[01:00:27] - [Satish Joshi]
Right? And that was just somebody just pulled out a number out of thin air and said 20% of electric cooking will be electric by 2020. But there was really you know, I talked about the kind of distribution infrastructure you need to be able to make that happen, but there was none of that. You know? And now here we're in twenty twenty three, twenty two.

[01:00:48] - [Satish Joshi]
We're trying to figure out how to make that happen. So I wish we would have a more thoughtful, deliberate conversation about energy security at all levels. I I think it's happening at the intellectual level, but not at the levels that it's where it can actually have impact.

[01:01:11] - [Saumitra Neupane]
So interesting, Satish, that you mentioned energy security, and I think this is very kind of timely with what's happening in the region and globally, fuel shocks, the climate change having an impact on the energy system, etcetera, etcetera. What is the goal that we as a nation are kind of pursuing towards building a more energy secure future for Nepal?

[01:01:39] - [Satish Joshi]
Samitra, I think when we talk about energy security, I think we have to talk about you know, it's the fundamental question on energy security is how do you strike a balance between what you have and what you need but you don't have? Right? We don't have fossil fuels. We have abundant hydroelectricity, clean hydroelectricity. So it's about balancing, and then there are trade offs.

[01:02:03] - [Satish Joshi]
You know, I can't say and the model that and the the debate on the model is about, are you aspiring for complete energy independence where you meet all your energy needs through domestic resources? Or do you go for an interdependence model where trade is an important element of that? Right? I'd say that complete energy independence is a mirage. Right?

[01:02:31] - [Satish Joshi]
It's not possible.

[01:02:33] - [Saumitra Neupane]
Why would you want to elaborate on that?

[01:02:36] - [Satish Joshi]
Because we don't have fossil fuels. Right?

[01:02:38] - [Saumitra Neupane]
And your view is that we will still be requiring fossil fuels?

[01:02:41] - [Satish Joshi]
Require until the look. Even if we undertake this phased transition away from fossil fuels, there are certain industrial processes. Let's take, for example, cement manufacturing of which, you know, it's a major industry in Nepal. I don't think, at least today, you know, we have the technology to completely not need any fossil fuels in the generation process or in the manufacturing process of cement. We need coal.

[01:03:12] - [Satish Joshi]
Right? Now replacing coal may be technically possible now, and I think there is a lot of work going on in this. But it's not commercially possibly as of now. Right? So when you know, so we will rely on fossil fuels.

[01:03:27] - [Satish Joshi]
We just have to figure out how to rely less on it. Right? That should be our security agenda, It's that balancing what you have and what you don't. And what you don't, how do you what what's your plan in reducing the quantum of what you don't have? Right?

[01:03:43] - [Satish Joshi]
So that should be the discussion around energy security.

[01:03:48] - [Saumitra Neupane]
And how does how we want to build our hydro kind of fit into this entire equation? You said that it's towards building what we have, but I'm pretty sure that's a more nuanced there is a more nuanced interpretation around how we pursue that line of engagement in the sense that do we continue building ROI projects like we have? Or we spend time, money, resources into diversifying our portfolio of hydropower?

[01:04:18] - [Satish Joshi]
Yeah. I think so there are two approaches to this. Right? And I think we have to undertake both. The first is what you mentioned, which is we need to start developing hydropower assets that meet our requirements.

[01:04:33] - [Satish Joshi]
Right? And so run of the river projects are what we call the when you look at the stack of electricity requirements, it's called like your, you know, low duration curve. There's what's called the base power, which is the amount of energy that you need in a twenty four hour period cycle regardless of anything. So that's the minimum amount of power that you need. Am I getting too technical?

[01:04:57] - [Saumitra Neupane]
No. No. Fine. Okay.

[01:04:58] - [Satish Joshi]
But so run of the river can actually meet that need. Right? And then, as you know, electricity consumption is not a straight line. We don't consume the same amount of energy throughout the day. It peaks and troughs.

[01:05:11] - [Satish Joshi]
Right? And meeting the peak and trough, even though the quantum of energy is much less than what is in the base load, is what costs you the most to meet that need. Right? Because you're you're actually trying to meet that need, which occurs for a very short period of time, you know, a few hours a day in the morning or evening. But you still have to build that infrastructure and procure that power.

[01:05:34] - [Satish Joshi]
And that power is usually expensive. And that's where we need to build the peaking run of the power projects that can meet those peaks when we need it. You know, it's what I call dispatchable power is you generate it when you need it. So you're holding water, which is like stored form of energy, and you generate it when you need it. So we definitely need to invest in that if we want to move towards a path of being more energy independent.

[01:06:02] - [Satish Joshi]
Now, alternatively, we can meet that need also through trade. Right? Why build a hydropower project just to meet your needs for two hours a day when you can probably import?

[01:06:16] - [Saumitra Neupane]
So, Thiess, what you're essentially saying is that it is going to cost us more to build a power system for when everybody switches their light on at the same time. Right? So in the evenings when everybody is switching on their lights, so we need more power. And to develop a power system to meet that particular need is the most expensive. Right?

[01:06:38] - [Satish Joshi]
Absolutely. And it's expensive because when you make an investment decision, right, you're making the calculus about how you're going to get that return. Right? And if your asset is only being used for four hours out of twenty four, and it almost costs you the same to develop that asset, or in fact, it costs a little bit more to produce that dispatchable type power, So the underutilization of the asset, whether it's the distribution infrastructure, right, because remember, when you're building your distribution and transmission infrastructure, you're building it to meet your power requirement even when what we call the peak power requirement, when your demand is the maximum. But that maximum demand only occurs for a very short duration of time.

[01:07:26] - [Satish Joshi]
But you still have to build that infrastructure to meet that demand. And so the underutilization of that asset is what makes it an expensive proposition.

[01:07:35] - [Saumitra Neupane]
But it also has an interesting proposition in the sense that catering to that demand is really where is the potential in the Indian market itself, right? So here you're kind of in a policy dilemma in the sense that it's expensive to build that infrastructure and then it may make sense to bring in the trade element with India to bring that power in. But at the same time, that is where you're going to fetch the largest amount of value for trade in India.

[01:08:06] - [Satish Joshi]
Yeah. It's valuable, Saumitra, because the cost of not providing the power is even more expensive. Right? You're there are you have two alternatives. Either you meet that requirement, develop that infrastructure, or you not meet it and just shed load.

[01:08:21] - [Satish Joshi]
Right? And that is more costly, like the economic impacts of not meeting. And in terms of the value of that power in the Indian market and now because, you know, power is traded on an exchange, you have so I just wanna talk a little bit about how the exchange works. Right? You have 96 time blocks in which you can sell power.

[01:08:42] - [Satish Joshi]
You can sell x megawatts for fifteen minutes or any multiple of that through a twenty four hour period day. And and and the market the good thing about the exchange is it gives you the right price signal. So when there is extremely high demand, power price is high. Right? And this is why, you know, we need to develop more of these assets in Nepal, not only to meet our own domestic needs, but also make it a more valuable proposition when we need to sell it, when we have surplus and we need to sell it in the in the export market.

[01:09:17] - [Saumitra Neupane]
Satish, I wanna come back to your point about how you framed the energy security idea, that being Nepal utilizing its own resources, hydropower resources, at the same time pursuing a strategy of interdependence with its neighboring countries vis a vis India specifically. How would energy trade kind of feature you've talked about this, but is energy trade a realistic possibility to be discussing with India at this current moment in time?

[01:09:52] - [Satish Joshi]
You know, absolutely, Samitra. And and and the reason I'm so affirmative about that is it's actually happening. Right? But you and I know we've had a lot of discussions about this. India recognizes electricity as a strategic commodity.

[01:10:09] - [Satish Joshi]
And what that means is it's not going to be or it's the trading of electricity is not going to be solely governed by commercial principles, the dynamics of the market. Right? And what that does is it always casts a shadow. Geopolitics and a country's strategic interests casts a long shadow on trade of electricity. But be that as it may and the risks that are associated with that, trade has an important role to play in reducing the overall cost of electricity across the region, improving reliability and affordability.

[01:11:00] - [Saumitra Neupane]
You say win win for all.

[01:11:01] - [Satish Joshi]
It is a win win for all. But but like I said, you know, the the shadow of geopolitics will always be all over that. Right? But the with the with the risks notwithstanding, I still think that trade can benefit is a win win for all of us in the region. One, because it reduces the overall cost.

[01:11:26] - [Satish Joshi]
Second is it can play a very important role in meeting the decarbonization goals of all countries in the region. Right? And, you know, and it's not only for Nepal by, you know, exporting our electricity and offsetting emissions from coal production of coal based production of power. Even for Nepal itself, you know, we need to undertake a phased transition away from fossil fuels wherever it's technically and economically possible. Right?

[01:11:58] - [Satish Joshi]
If we continue that trajectory that we're on in terms of the the growth of fossil fuels, by 02/1930, if we just continue at that same rate that we have in the last thirty years, you know, we'll be around 30% or 40% of our energy source would be met by fossil fuels. Now that, you know, from a

[01:12:19] - [Saumitra Neupane]
That is a big number.

[01:12:20] - [Satish Joshi]
That's a big number, and it's of a bigger energy pie. Remember. We'll be consuming a lot more energy in 2030 than we are today. Right? So the transition to electricity, clean electricity is, you know, that should be the top of the agenda in terms of and and we can achieve that through trade.

[01:12:40] - [Satish Joshi]
Right? And the reason I say trade and why it's important for Nepal also, you know, if we develop these hydropower projects and with the production profile that they have, there's a feast in the wet season and there's a famine in the dry season means to meet all our energy needs during the dry season implies that we will have tremendous amount of extra energy in the wet season. Right? And for all of that electricity to go waste would increase the cost of electricity domestically. So if that can find a market in India, in Bangladesh, and beyond, you know, it's a win win for all because that electricity would offset coal based generation in India and Bangladesh as opposed to just not deriving any value.

[01:13:31] - [Satish Joshi]
You know?

[01:13:32] - [Saumitra Neupane]
There's this idea of complementarity and if you are to take the Indian energy market or the energy system overall and the kind of transition it's making. So it's often said that with growth of renewable energy, especially solar and wind in India, that is going to send a better signal for power profiles like we have in Nepal from hydropower. How much of that is actually true?

[01:14:02] - [Satish Joshi]
I think in terms of the price signals, I think there is already movement on that front. So I'm actually really optimistic that that will come, right? And I see two drivers for that. We talked about the zero the zero net zero and decarbonization goals of countries and the targets that they've set for themselves. And one of the ways that India is actually trying to achieve that is just ramping up renewable generation.

[01:14:31] - [Satish Joshi]
Right? And by its very nature, renewable is intermittent, whereas power demand is not necessarily in sync with the intermittent generation of solar or wind. Right? So there will be the intermittency will require a source of generation that can be turned on and turned off as and when the system requires it. And the reason I say that the price signals will come is there's already an evolving discussion in the policy circles in India about the kind of incentives that can be put in place to bring on these types of generation that a high or dispatchable hydropower project can bring.

[01:15:19] - [Satish Joshi]
You know, we've already seen the hydro purchase obligations. So what that is is a lot of countries have renewable purchase obligations as a mechanism for governments or utilities to source more of their generation from green sources. Right? It's similar to that, except this is specifically from hydropower generation. Now while this is not currently available for hydropower projects outside of India, I think it's only a matter of time that it will be counted towards that even if the generation is from Bhutan or Nepal.

[01:15:56] - [Satish Joshi]
The other thing is there's this thing called spinning reserves and black start. And what these are really is excess or standby capacity in the system to be turned on when you need it. So the spinning reserves are something is when there's a mismatch in demand and supply before the system actually breaks down, the frequency of the electricity starts deviating from what is the desired level. So like 50 hertz in Nepal's case.

[01:16:23] - [Saumitra Neupane]
That would mean you would require some power and the backup just in case there's something wrong with the system operations.

[01:16:31] - [Satish Joshi]
Exactly. And and so you need a source of power that can come on and off immediately. Coal or thermal generation can't do that. Right? Solar, you can't rely on solar to be there when you need it.

[01:16:45] - [Satish Joshi]
So it's really the hydropower projects, and the specific ones are the ones, whether it's peaking or storage, that have stored water, which is stored energy, that can be turned on when you need it. And with hydro, you can generate electricity and you can ramp up in a matter of seconds. Whereas, let's say, coal, it would take hours. For combined cycle gas plants, it's also pretty close to instantaneous, but not as fast as hydro.

[01:17:15] - [Saumitra Neupane]
So really, the signals, if you are to see the regional markets, our own security agenda, climate change, the signal is towards building specific type of projects that we are currently not building, right? So this would include peaking run of river projects or storages, projects that are way too expensive, have larger footprints, may have larger environmental and social costs. How are we to move forward with this in the sense that how do we set a policy direction that we develop adequate systems of PROR and storage where that is also catering to our own requirements as well as kind of cashing in into available opportunities in the regional markets.

[01:18:09] - [Satish Joshi]
Yeah, I think you answered your own question, Sumitra. It's a question of that that mindset that now you're developing hydropower for a very specific need. Right? And that is that and that need is the power this the the dispatchable nature of power that will be increasingly valuable as India ramps up its solar power and wind power targets. You know, they have targets to put up 400 gigawatts.

[01:18:42] - [Satish Joshi]
Right? Just to give viewers or listeners context, Nepal's total system right now is two gigawatts, and India plans to add 400 gigawatts by 02/1930. That's going to introduce a lot of variability in the system. And to stabilize that, we're gonna need peaking the type of power that peaking out of the river and storage projects can provide. And and and I think realizing this, there are discussions already in underway in policy circles and regulatory circles in India about addressing this need and what kind of price signal would be appropriate.

[01:19:21] - [Satish Joshi]
So I'm really optimistic that they'll come. It's a matter of time.

[01:19:24] - [Saumitra Neupane]
What about the policy space in Nepal? What kind of conversations are currently happening around this future direction for hydropower?

[01:19:33] - [Satish Joshi]
I think, you know, in in in Nepal's context, I I'm actually a little disappointed that we're not making the same kind of effort to address these kind of issues. You know? Just case in point, there was a recent decision by the cabinet to adjust the generation mix targets in favor of having more run of the river projects. So what they did is, for instance, if the target for peaking ROR projects or storage was, let's say, 35%, they're like, we're not going to build storage projects, so let's might as well build more ROR projects. So let's take 10% off that 35% and add it to the ROR target mix.

[01:20:20] - [Satish Joshi]
And I think that's a little disappointing because we're taking the easy way out, and we're taking the easy way out to a point where we're actually developing projects and products that aren't going to be of significant value in the markets where these products are eventually going to have to sell their product.

[01:20:42] - [Saumitra Neupane]
Finally, Satish, to end the conversation, what would you say are our key priorities moving forward?

[01:20:50] - [Satish Joshi]
Sumithra, I would like to see efforts towards an accelerated transition of our energy consumption away from sources that we don't have and reduce our reliance on imported fossil fuels. And the way we can do that, like I said, is accelerate the energy transition. There are three only three or four things that we really need to focus on. First is how do you supply reliable, quality power? Right?

[01:21:22] - [Satish Joshi]
The transition is not gonna happen without that. So to knee so we need the transmission and distribution infrastructure for sure, and we need to really focus on PROR and storage projects. So that's one. Now how do you get that kind of infrastructure? We get that infrastructure by better planning.

[01:21:42] - [Satish Joshi]
Unfortunately, in Nepal, the history has been that planning has never been organized. It's always been ad hoc, responding to crisis. So we need to have better planning to develop the kind of infrastructure we want. And that infrastructure is going to cost money. And I think we need to do some work on the market structure and design of our electricity sector if we want to attract capital to develop these infrastructures.

[01:22:13] - [Satish Joshi]
Right? And that's not to say we need to make really radical steps. We could do some very minor policy adjustments. We could have open access regulations that allow generators and consumers to use NEA's infrastructure, so their transmission infrastructure, to sell power either to India or to another consumer in the network. Right?

[01:22:40] - [Satish Joshi]
So so some minor regulations like that on the policy front and to improve the market structure. And we need to continue to push the trade agenda because, like I said, it's a win win. We just need to figure out a way to insulate it from the shadow that geopolitics casts on it. Right? And the other thing is we need to diversify our energy mix.

[01:23:08] - [Satish Joshi]
We cannot just be hydro, hydro, hydro, Right? Trade will bring about diversification. But even internally, I think we need to look at other sources of generation. I I think that's that's it.

[01:23:22] - [Saumitra Neupane]
Excellent points, Satish. Thank you so much for your points and insights in today's conversation.

[01:23:26] - [Satish Joshi]
Thank you for having me, Sumithra.

[01:23:29] - [Aparna Paudyal]
Thanks for listening to Parts by PEI. I hope you enjoyed today's conversation between Saumitra and Satish on the changing narratives of Nepal's electricity and energy sector. Today's episode is part of PEI series on the past, the present, and the future of Nepal's energy sector. It was produced by Nirjan Rai with support from Saurav Lama, Khushi Hang, and Shanta Nagarkoti, along with Itisha Giri and Bhrikuti Rai from Boju Boju team. The episode was recorded at KatJazz studio.

[01:23:58] - [Aparna Paudyal]
Our theme music is courtesy of Sanjay Srashta from 1974AD. If you like today's episode, please subscribe to our podcast and be informed about our latest shows. Also, please do us a favor by sharing us on your favorite social media and by leaving us a review on Spotify, Apple Podcast, and Google Podcast, or wherever you listen to the show. To catch the latest from us on Nepal's policy and politics, please follow us on Twitter at tweet to PEI and on Facebook at Policy Entrepreneurs Inc. You can also visit www.pei.center to learn more about us.

[01:24:36] - [Aparna Paudyal]
Thanks once again from me, Aparna Paudyal. We'll see you soon in our next episode.