case studies based on micro hydropower projects€¦ · case studies based on micro hydropower...

Promoting Sustainable Development by Creating Enterprises on Renewable Energy Technologies

in Nepal Case Studies Based on Micro Hydropower Projects

Vom Promotionsausschuss der Universität Flensburg

zur Erlangung des akademischen Grades: Doktor der Wirtschaftwissenschaften

Genehmigte Dissertation

von

Govind Raj Pokharel, M. Sc. aus Nepal

Betreuer:

Prof. Dr. Gerd-E. Famulla (Erstbetreuer), Universität Flensburg, Institut für Politik und Wirtschaft und ihre Didaktik

Prof. Dr. Olav Hohmeyer (Zweitbetreuer), Universität Flensburg, Internationales Institut für Management (IIM)

Flensburg, 2006






von


Betreuer:



Flensburg, 2006






von


Betreuer:



Flensburg, 2006






von


Betreuer:



Flensburg, 2006

ISBN 3-00-017882-1 ISBN 3-00-017882-1

ISBN 3-00-017882-1 ISBN 3-00-017882-1

Acknowledgement

I am deeply indebted to Prof. Dr. Gerd-E. Famulla, Director of Institut für Politik und

Wirtschaft und Ihre Didaktik for his moral and all types of supports during my study in

Germany. He was not only „Doctovater“ but also my guardian in Germany. Without his

guidance, support, and encouragement, I could not have completed my study. Similarly,

I am grateful Prof. Dr. Olav Hohmeyer, Director, Internationales Institut für Management

for his guidance and useful discussions during my study. Thank also goes to Prof. Dr.

Binayak Bhadra of Nepal for being my supervisor in Nepal and providing me moral

supports.

I am also very much grateful to Heinrich Böell Stiftung for providing me financial

support for my study in Germany, without which it would have not possible to complete

my study in Germany. Especially thanks goes to Prof. Dr. Grothaus and Frau Grothaus

and Ms. Kathrin Bock-Famulla for their moral supports and encouragements. Similarly, I

would like express my gratitude to all friends in Flensburg, Hamburg, Germany and in

Nepal for their continuous encouragements and supports. I am also equally grateful to

Fördegesellschaft Universität Flensburg e. V. of Universität Flensburg.

Lastly, I would like to give a big thanks to my wife who supported me in every moments

of my life and without her help and support I would not completed my study. Similarly,

my sons Gokul and Girish, my parents, my brothers and all relatives are also equally

thankful for their advices and encouragements.

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I

Contents List of Figures and Tables Acronyms and Abbreviations Executive Summary VI

1. Introduction 1.1 Background 1 1.2 Research questions 3 1.3 Hypothesis 5 1.4 Objectives 6 1.5 Methodology 7 1.5.1 Literature review 7 1.5.2 Managing data needed 7 1.5.2.1 Secondary data 8 1.5.2.2 Primary data 8 1.5.3 Analysis of data and reasons for generalization 9 1.6 Limitations 11 1.7 Structure of dissertation 11 Part A Theoretical Underpinnings 2. Sustainability: compulsion and explication 15

2.1 Sustainability or sustainable development: A compulsion? 15 2.2 Roots of the sustainability concept 17 2.3 Existing explication of sustainability 19 2.4 Taxonomy of sustainability 27 2.4.1 Weak sustainability 28 2.4.2 Strong sustainability 30 2.5 Interconnected elements of sustainability 32 2.5.1 Natural resources consumption and equity 33 2.5.2 Waste generation and population growth 34 2.5.3 Technical efficiency and resource substitution 34 2.5.4 Economic activities 35 2.6 Complete sustainability: A constraint with multifaceted development paradigm 36 2.7 Sustainability definition at the project level 42 2.8 Promoting sustainability through developmental activities 44 2.9 Decisionmaking process for sustainability promoting projects 47 3. Energy, sustainability and renewable energy technology 49 3.1 Background 49 3.2 Global energy issues 51 3.2.1 Energy and society 51

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3.2.2 Energy poverty and economic well-being 53 3.2.3 Energy and environment 57 3.2.3.1 Depletion of energy resources 59 3.2.3.2 Waste and emissions of energy resources 59 3.2.3.3 Global warming and climate change 60 3.2.4 Energy resources and technologies 62 3.3 Nepal: energy at a glimpse 63 3.3.1 Energy poverty 63 3.3.2 Energy and development plans and policies in Nepal 66 3.3.3 Existing macro/micro policy on MHP development in Nepal 68 3.3.4 Energy resources and technologies and their potential in Nepal 72 3.3.5 Economic, social and ecological aspect of energy use in Nepal 74 3.4 Sustainable energy system 76 3.4.1 Micro hydro power in Nepal 78 3.4.2 Historical background of MHP in Nepal 78 3.4.3 Potential of MHP in Nepal 81 3.4.4 Micro hydro technology development in Nepal 84 3.4.5 Micro hydropower systems and sustainability criteria in Nepal 85

4. Concept for the analysis of community owned MHP projects 87 4.1 Background 87 4.2 Factors affecting the project analysis 89 4.2.1 Time horizon 90 4.2.2 System quality 91 4.2.3 Space or system boundary 93 4.3 Analysis and investment decisionmaking criteria in the Nepalese MHP sector 94 4.3.1 Internal rate of return 96 4.3.2 Net present value 97 4.3.3 Cost benefit analysis 98 4.3.3.1 Inclusion of total costs and benefits 100 4.3.3.2 Discount factor 101 4.3.3.3 Operating functions 103 4.4 Analyzing and evaluating MHP projects in Nepal: Alternative approach 104 4.4.1 Sustainability approach of project analysis 106 4.4.2 Framework of sustainability analysis of MHP projects 107 4.5 Factors in sustainability analysis of community owned decentralized MHP

projects in Nepal 115 4.5.1 Equity and fairness considerations 115 4.5.1.1 Basic need factors 117 4.5.1.2 Distribution factors 121 4.5.2 Climate change, risk and uncertainties factors 127

Conclusion of theoretical underpinning 130

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Part B Empirical Analysis

5. Externalities of rural energy use in Nepal 133 5.1 Background 133 5.2 Estimation, quantifying and monetizing the externalities 137 5.3 Externality in Nepalese rural energy sector 139 5.4 Types of externalities in the rural energy sectors of Nepal 142 5.4.1 Economic externalities 144 5.4.1.1 Economic externality in kerosene 145 5.4.1.2 Economic externality in dry-cells 148 5.4.2 Environmental or ecological externalities 150 5.4.2.1 GHG as ecological externalities 151 5.4.2.2 Ecological externalities of dry-cell batteries use in rural Nepal 152 5.4.3 Social externalities 152 5.4.3.1 Employment 153 5.4.3.2 Financial burden 154 5.4.3.3 Accidental losses and health issues 155 5.4.3.4 Feeling better living situation, gender issues and drudgery aspects 156 5.4.4 Political externalities 156 5.4.4.1 Custom duty 158 5.4.4.2 Subsidy in the grid 160 5.5 Internalization of externalities 162 5.6 Findings and conclusion of the chapter 164 6. Sustainability analysis of micro hydro technology in Nepal 167 6.1 Background 167 6.2 Sustainability analysis and issues of MHP 168 6.3 Selection of the case study areas and project sites 169 6.4 Ecological dimension of MHP 169 6.4.1 Analysis of the ecological capital in the beginning 171 6.4.2 Analysis of the ecological outputs 173 6.5 Economic dimension of MHP 179 6.5.1 Micro- economic aspect of MHP in Nepal 180 6.5.1.1 Demand and supply of energy 181 6.5.1.2 Pricing of electricity 183 6.5.1.3 Consumer behaviors and capacity or willingness to pay 185 6.5.1.4 Market analysis 187 6.5.1.5 Uncertainties and risk 188 6.5.2 Macro economic aspects of MHP in Nepal 188 6.5.2.1 Employment opportunities and jobs in the MHP sector 191

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IV

6.5.2.2 Capital investment in the manufacturing sectors 195 6.5.2.3 Cost of MHP plants 198 6.5.2.4 Economic benefits 202 6.5.2.5 Beneficiaries population 203 6.5.3 Reduction of economic poverty 204 6.5.3.1 Through the creation of employment at macro as well as micro level 205 6.5.3.2 Through the reduced household expenses on lighting energy 208 6.5.3.3 Through employment and backward & forward linkages 209 6.5.4 Economic analysis of MHP projects 210 6.5.4.1 Economic analysis of Dajungkhola MHP 212 6.5.4.2 Analysis from the household perspective 212 6.5.4.3 Analysis from the community perspective 215 6.5.4.4 Economic benefits from electricity use in end-use technologies 217 6.5.5 Analysis of MHP from traditional financial approach 218 6.6 Social dimension of MHP 220 6.6.1 Analysis of social capital of community before MHP project implementation 221 6.6.2 Analysis of social capital output 222 6.6.2.1 Enhanced living condition 223 6.6.2.2 Drudgery and burden reduction 226 6.6.2.3 Better education & information awareness 228 6.6.2.4 En-gendering development 228 6.6.2.5 Distribution of output and equity 230 6.6.2.6 Participation, empowerment and accessibility in decision making 233 6.7 Discussion and conclusion of the chapter 235

7. A Way Forward: Realizing Sustainable MHP Projects for Promoting

Sustainability Paradigm in the Rural Energy Sector in Nepal 241 7.1 Background 241 7.2 Future scenarios of MHP 242 7.2.1 Transportation sector 243 7.2.2 Agriculture sector 243 7.2.3 Industrial and commercial sector 245 7.2.4 Domestic or household sector 246 7.2.5 Employment 250 7.2.6 Economic benefits and development 252 7.2.7 Reduction of GHG and other pollution 255 7.2.8 Electricity supply, demand and beneficiaries in the national scenario 255 7.3 Implementation modalities of MHP projects 258 7.3.1 Financing of MHP projects in Nepal 259 7.3.1.1 Incentives, promotion and subsidy 260 7.3.1.1.1 Human development index and expenses on lighting 261 7.3.1.1.2 Capacity to pay and price of sustainable energy system 264

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7.3.1.2 Internalization of existing externalities in the rural energy sector 261 7.3.1.3 Mobilization of resources locally to implement the MHP projects 268 7.3.2 MHP as a CDM project 271 7.3.2.1 Possibilities of getting MHP as CDM projects 273 7.3.2.2 Implementing MHP as the CDM projects 277 7.3.3 Institutional modalities 281 7.3.4 Ownership 282 7.3.5 End-use development 284 7.3.6 Technological development and back-up services 288 7.4 Alternatives to MHP 289 8. Discussion on findings and set hypothesis 293 9. Conclusions and recommendations for research studies and activities 302

Annexes Bibliography Selbstständigkeitserklärung (Declaration)

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A

List of Figures

Figures Page

Figure 1.1 Relation between beneficiary HH and capacity of plant……………………….9

Figure 1.2 Relation between investment and beneficiary HH……………………………10

Figure 1.3 Investment cost and capacity of plant …………………………..………….10

Figure 1.4 Relations between cost/kw and HH/kW……………………………………….11

Figure 1.5 Structure of dissertation ..……………………………………………………..13

Figure 2.1 Two definitions of sustainability ……………………………………………..38

Figure 2.2 Three dimensional development trajectory …………………………………..41

Figure 2.3 Sustainability analysis for promoting sustainability … ……………………….46

Figure 2.4 Decisionmaking process and mechanism for sustainability promoting projects48

Figure 3.1 Energy and development block in the limited biodiversity ………………… 50

Figure 3.2 Energy consumption and human civilization …………………… ………… 52

Figure 3.3 Energy consumption scenarios after 1960 ……………………… …………. 52

Figure 3.4 Commercial energy consumption and GDP ………………………………… 54

Figure 3.5 Commercial energy consumption and infant mortality …………………….. 55

Figure 3.6 Electricity consumption Vs GDP ………………………………………….. 55

Figure 3.7 Renewable energy cycle ………………………………………… ……… 58

Figure 3.8 Non-renewable energy cycle ………………………………………… ……. 58

Figure 3.9 Combined annual land-surface air and sea surface temperature anomalies (°C)61

Figure 3.10 - Global total primary energy supply in the year 2000 ………………………62

Figure 3.11: Linkages between energy poverty and overall poverty in Nepalese context 65

Figure 3.12 Energy consumption scenario of Nepal …………… ……………………. 66

Figure 3.13 Hydropower development and electrification in Nepal …………………… 80

Figure 3.14 Rivers and Rivulets criss-crossing the Nepal ……………………………… 82

Figure 4.1 Time horizon and impacts of the project ……………………………………. 90

Figure 4.2 limits of a project definition …………………………………………………. 92

Figure 4.3 Changing value of NPV for an interest (discount) rate r ……………………. 96

Figure 4.4 Conceptual example of project analysis aspects & coverage of issues …. … 106

Figure 4.5 Sustainability components and system ………………………………………111

Figure 4.6 Input and output capital to an energy system within a defined boundary …114

Figure 4.6 Old systems and new systems of lightings and respective prices and quality .121

Figure 4.7 Average HDI and difference between poor and rich community ……… … 126

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List of Figures

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B

Figure 5.1 Energy system, energy cost and externalities ………………………………..138

Figure 5.2 GDP, petroleum import and kerosene consumption …………………………146

Figure 5.3 Productions of dry cells in Nepal …………………………………………….149

Figure 5.5 Definition of political externality …………………………………………… 157

Figure 5.6 Political externality ……………………………………………………… . 157

Figure 6.1 Status of households and their ability to pay in rural Nepal …………………182

Figure 6.2 Comparative characteristics of five MHP sites in Myagdi …………………..219 Figure 6.3 Enrollment in primary school in Piughar …………………………………. 229

Figure 6.4 Structure of management committee in the community owned MHPs …… 235

Figure 6.5 Impacts of Dajungkhola MHP ……………………………………………… 240

Figure 7.1 Future scenario of MHP with benefited HH, employment & end-uses ……..251

Figure 7.2 NEA's yearly customer increment ………………………………………….. 256

Figure 7.3 Process of internalizing externalities and abandoning subsidies …………… 267

Figure 7.4 Process of internalizing externalities and abandoning subsidies …………….267

Figure 7.5 Financing mechanism of community owned MHP ………………………….270

Figure 7.6 CDM mechanism within Nepalese context ………………………….………277

Figure 7.7 Project’s resource mobilization and its sharing …………………………….. 278

Figure 7.8 Ownership and institution modalities ………………………………………..282

Figure 7.9 Classification of households and their income status in rural Nepal …… …287

List of Tables

Tables Page

Table 2.1 Comparison of weak and strong sustainability ………………………….…….30

Table 2.2 Sustainability matrix ………………………………………………….……….43

Table 3.1 Indoor air concentration in some developing countries …………………….…57

Table 3.2 Energy and its relation to main environmental problem ………………………60

Table 3.3 Development plans and energy in Nepal …………………………………… 67

Table 3.4 Energy and technologies in rural domestic sector in Nepal …………………. 73

Table 3.5 The potential of renewable energy resources/technology ……………………. 73

Table 4.1 System boundary and system quality ………………………………………….93

Table 4.2 Risks and uncertainties of big and micro hydro projects in Nepal ……………130

Table 5.1 GHG gas (CO2) emission from energy carriers in Nepal …………………….141 B



















List of Tables

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Table 5.1 GHG gas (CO2) emission from energy carriers in Nepal …………………….141

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List of Tables

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Table 5.1 GHG gas (CO2) emission from energy carriers in Nepal …………………….141 B



















List of Tables

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Table 5.1 GHG gas (CO2) emission from energy carriers in Nepal …………………….141

C

Table 5.2 Negative impacts of energy resources and technologies used in Nepal …… .143

Table 5.3 Scenario of fossil fuel consumption and pricing (FY 2001/2002) ……………145

Table 5.4 Subsidy provided to rural households on kerosene for lighting only ………. .147

Table 5.5 Typical Household dry-cell batteries used in rural Nepal …………………….148

Table 5.6 Expenses on dry cell battery by rural households …………………………….149

Table 5.7 CO2 emission from energy carriers in rural Nepal ………………………… 151

Table 5.8 CO2 emission from unsustainable energy carriers in rural Nepal. ………… 152

Table 5.9 Average per capita consumption of household in rural Nepal ………………..155

Table 5.10 Customs duties paid for MHP components import ………………………….159 Table 5.11 The average transmission and distribution costs of MHP in Nepal …………161

Table 5.12 Transmission and distribution cost of Grid and MHP in Nepal ……………. 162

Table 5.13 Average externality in rural energy sector of Nepal ……………………… 165

Table 6.1 Kerosene consumption and GHG emission in 10 different villages in Nepal 172

Table 6.2 End-uses and their GHG (CO2) emission in Okharbot before MHP …………172

Table.6.3 Ecological impacts of MHP other than GHG ……………………………… 175

Table 6.4 Kerosene and electricity in rural lighting from ecological perspective …….176

Table 6.5 Ecological benefits in terms of GHG after MHP installation ……………….. 177

Table 6.6 GHG (CO2) avoidance cost and benefits in Dajungkhola MHP ……………. 178

Table 6.7 Tariff rate in few community owned MHP for lighting and end-uses ……….184

Table 6.8 Tariff collection, willingness to pay and behavior ……………………………186

Table 6.9 Employment in MHP survey and manufacturing sector …………………… 191

Table 6.10 MHP technologies and employment in operation and management …… 192

Table 6.11 Employment in hydro & electricity related manufacturing sector in Nepal 193

Table 6.12 Involvement of economically active manpower in economic sectors …….193

Table 6.13 Employment opportunities created by MHP implementation ……………. 194

Table 6.14 Investment in the MHP component manufacturing sectors in Nepal ……….196

Table 6.15 Assets in manufacturing of electromechanical components in Nepal ……… 196

Table 6.16 Salary and tax paid by MHP manufacturers (in Rs for FY 2001/02) ……… 197

Table 6.17 Cost of the some MHP projects ……………………………………………. 199

Table: 6.18 Analyses of the costs of MHP components ……………………………….. 200

Table 6.19 Exiting scenario of MHP ………………………………………………… . 204

Table 6.20 Employment after the MHP systems in five VDCs in Nepal ……………… 206

Table 6.21 The financial status of the project ………………………………………… 211

Table 6.22 Economic analysis internalising subsidy externalities ………………………213

Table 6.23 Economic analysis internalising pecuniary externalities ………………… .214

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D

Table 6.24 Economic analysis from community’s perspective (subsidy externalities) 216

Table 6.25Economic analysis from community ‘s perspective (pecuniary externalities) 216

Table 6.26 Economic benefits due to saving of fossil fuels in the end-use sector …. 217

Table 6.27 Financial indicators of MHPs in Myagdi district ………………………. .219

Table 6.28 Agroprocessing done by different methods and technologies in Nepal …. 222

Table 6.29 Community voluntary contribution for the installation of MHP ………… 223

Table 6.30 Quality of lighting from electricity bulbs and kerosene lamps ………….. 224

Table 6.31 Comparison of pollutions from kerosene and electric bulb ……………… 225

Table 6.32 Agroprocessing technologies in the villages after MHP projects ……… …227 Table 6.33 Women’s employment after the community MHP systems in few VDCs . ..229

Table 6.34 Distribution of bulbs according subscription in Okharbot VDC …………. .231

Table 6.35 Patterns of electricity consumption in Pinthali VDC of Kavre district … ….232

Table 6.36 Financial indicators of Dajungkhola MHP with fluctuating kerosene price ..238

Table 7.1 Production of crops in the hilly and mountainous areas of Nepal ……… ...244

Table 7.2 Agroprocessing energy required to the hills & mountains MHP areas ………244

Table 7.3 Utilization of plant capacity in the community owned MHP plant ………….247

Table 7.4 Utilization of plant capacity in community owned MHP in scenario I …….. 248

Table 7.5 MHP components: locally manufactured and export/imported …………… ..253

Table 7.6 Per capita income, HDI and lighting expenses …………………………… …262

Table 7.7 Average expenses on lighting before and after MHP/year ………………… 264

Table 7.8 CDM/CERs value needed for the projects to be financially feasible ……… .274

Table 7.9 Sensitivity analysis with different scenarios and CDM/CERs values ……… 275

Table 7.10 Increment of electricity tariff to make project feasible …………………….. 276

Table 7.11 Financial indicators of few MHPs after CDM/CERs ……………………… .278

Table 7.12 Financial indicators of MHPs after CDM/CERs (If people pay as before) …278

Table 7.13 Financial indicators of few MHPs after CDM/CERs and Subsidy ………….280

Table 7.14 Impacts of maintaining status quo of kerosene, diesel and battery use …… 290

Table 8.1 Sustainability matrix of MHP project ……………………………………… ..299

D






Table 6.29 Community voluntary contribution for the installation of MHP ………… 223

Table 6.30 Quality of lighting from electricity bulbs and kerosene lamps ………….. 224

Table 6.31 Comparison of pollutions from kerosene and electric bulb ……………… 225

Table 6.32 Agroprocessing technologies in the villages after MHP projects ……… …227 Table 6.33 Women’s employment after the community MHP systems in few VDCs . ..229

Table 6.34 Distribution of bulbs according subscription in Okharbot VDC …………. .231

Table 6.35 Patterns of electricity consumption in Pinthali VDC of Kavre district … ….232

Table 6.36 Financial indicators of Dajungkhola MHP with fluctuating kerosene price ..238

Table 7.1 Production of crops in the hilly and mountainous areas of Nepal ……… ...244

Table 7.2 Agroprocessing energy required to the hills & mountains MHP areas ………244

Table 7.3 Utilization of plant capacity in the community owned MHP plant ………….247

Table 7.4 Utilization of plant capacity in community owned MHP in scenario I …….. 248

Table 7.5 MHP components: locally manufactured and export/imported …………… ..253

Table 7.6 Per capita income, HDI and lighting expenses …………………………… …262

Table 7.7 Average expenses on lighting before and after MHP/year ………………… 264

Table 7.8 CDM/CERs value needed for the projects to be financially feasible ……… .274

Table 7.9 Sensitivity analysis with different scenarios and CDM/CERs values ……… 275

Table 7.10 Increment of electricity tariff to make project feasible …………………….. 276

Table 7.11 Financial indicators of few MHPs after CDM/CERs ……………………… .278

Table 7.12 Financial indicators of MHPs after CDM/CERs (If people pay as before) …278

Table 7.13 Financial indicators of few MHPs after CDM/CERs and Subsidy ………….280

Table 7.14 Impacts of maintaining status quo of kerosene, diesel and battery use …… 290

Table 8.1 Sustainability matrix of MHP project ……………………………………… ..299

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Table 6.29 Community voluntary contribution for the instal

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