Background
According to the Nepal Electricity Authority (NEA), 98% of Nepal’s population has access to electricity – 95% from the Integrated Nepal Power System (INPS), the national electricity grid, and the remaining from isolated systems such as micro hydropower and solar PV. The Alternative Energy Promotion Centre (AEPC), the nodal agency of the Government of Nepal, mandated to promote renewable energy, has been supporting rural communities to develop mini and micro hydropower projects (MHP) of less than 1MW capacity in off-grid areas. The AEPC has so far supported communities to install more than 1800 MHPs with a total installed capacity of 23MW which has directly provided electricity access to about half a million households. Most of the MHPs supported by AEPC are of 100 KW or less capacity but 7 MHPs are of capacities ranging from 200KW to 998KW. The 380KW Tara Khola Mini Hydropower Project (TKMHP) is one of the first MHPs of its category and has been operational since 2019.
As all these AEPC-supported MHPs are operated and managed by the beneficiary communities themselves, AEPC only provides one training for each MHP operator selected by the respective communities. It has been observed that the MHP operation training provided is not adequate for smooth and trouble-free operation. As a consequence, most of the MHPs are operational but with a lot of difficulties. Studies carried out by AEPC show that MHPs are kept in operational condition by the beneficiaries unless the damages caused by natural calamities are extensive and require resources beyond their financial capacity or when the grid reaches their service areas. On the other hand, TKMHP is operated by a public limited company owned by the beneficiaries.
As all these AEPC-supported MHPs are operated and managed by the beneficiary communities themselves, AEPC only provides one training for each MHP operator selected by the respective communities.
Tara Khola Mini Hydropower Project
The Tara Khola River flows through the homonymous Tara Khola Rural Municipality in Baglung district of Gandaki Province. The community of the area initiated the 380KW Tara Khola Mini Hydropower Project (TKMHP) in 2010 and approached AEPC for technical and financial support. The TKMHP was initially promoted by a Users’ Group with 9 executive members who were responsible for equity collection, and coordination with the contractor and other concerned stakeholders for the construction of the project. Despite endless efforts of the executive members, they were not able to collect the required equity amount and take out loans to achieve financial closure. The beneficiaries then decided to develop the project through a public limited company with 1884 shareholders and registered Tara Khola Jalbidyut Company Limited for construction and operation and management. The company has authorized capital of NPR 100 million and paid- up capital of NPR. 3 million.
After the company took over the operations, the local people’s perception towards their project completely changed as the roles and responsibilities of the Board of Directors, project staff, and shareholders are clearly defined, and all financial transactions were well recorded and can be observed by the ordinary shareholders. As a result, the company was able to collect equity of NPR. 10.63 million or almost 50% of the total project cost of NPR 21 million from 1884 shareholders, the project received NPR 92.74 million subsidies from the government which is 44% of the total cost, and took out a loan of NPR 1.5 million. Consequently, the TKMHP was finally completed in October 2019 with technical assistance of the Renewable Energy for Rural Livelihood Programme (RERL), a joint imitative of AEPC and the United Nations Development Programme (UNDP).
Additionally, RERL contributed to enhancing the skills of three operators, one linesman, and a manager to ensure the proper handling of machinery and efficient project management. Furthermore, RERL provided an orientation to the Board of Directors on the management of a public limited company, with a focus on legal aspects.
The TKMHP provides regular electricity to 1400 households and more than 70 small enterprises that include 50 slate industries, 12 agro-processing mills, 5 sawmills and carpentries, three telephone towers, three fresh houses, and one metal fabricator. Besides, the plant provides electricity to several poultries, beauty parlors, and eateries. These productive uses have generated employment opportunities for over 300 women and men locally. Despite so many productive uses, the plant load factor of TKMHP was merely 10% and the developers wanted to sell the surplus electricity to the NEA grid, which had arrived near the TKMHP powerhouse.
Tarakhola Jalbidyut Company Limited signed a Net Metering Agreement with NEA in 2021 and has been continuously exporting electricity to the national grid. This has significantly improved the plant factor and the overall revenue generation of the project. The average plant factor of the MHP was estimated to be 63% in the Fiscal Year 2023/2024 with a peak of up to 83% in November 2023. Additionally, in the year 2023/24, the project earned NPR 15,285,180, with a monthly average of NPR 1,273,765, sales to NEA accounted for 68% of the total annual revenue. In terms of domestic sales, which totaled NPR 4,922,600 or 32% of the total annual revenue generated, the share of local businesses was about 34%. During the same period, the company recorded a total expenditure of NPR 5,170,000 mainly the salaries of 3 operators, a linesman, and a manager, and made a net profit of NPR 10,115,175. So far, the company has distributed a dividend of NPR 26,300,000 to its 1884 shareholders.
The TKMHP is probably the only MHP supported by AEPC that has provided dividends to its shareholders. The key difference between TKMHP and the 200KW Lower Bom Khola MHP, Lukla, Solukhumbu, and other AEPC’s MHPs is the ownership and management model, while the formers are privately owned and managed the remaining MHPs are owned and managed by the communities. Learning from the experience of these two profitable projects, AEPC attempted to attract private investment in MHP development and management but to no avail.
Beyond electrification, AEPC-led community mobilization extends to broader socio-economic dimensions, such as literacy, hygiene, and income-generating activities, among others.
A holistic approach to community development
The community-owned but privately managed model of the TKMHP presents a unique value proposition compared to government- or privately-owned projects. This model adopts a participatory and bottom-up approach to rural electrification. AEPC has always emphasized holistic development, ensuring that households are engaged from the early project planning stages. The combination of community ownership and private-sector management fosters both local accountability and operational efficiency, contributing to the project’s long-term sustainability.
Beyond electrification, AEPC-led community mobilization extends to broader socio-economic dimensions, such as literacy, hygiene, and income-generating activities, among others. At the outset, many participants in public meetings were hesitant to even introduce themselves. However, through continued engagement, their confidence and communication skills improved, with some eventually gaining the ability to document meeting minutes. Community mobilizers, who spend significant time within local communities, also address everyday issues beyond energy—encouraging hygiene practices like handwashing before meals or maintaining clean toilets. While these aspects may seem unrelated to energy access, they play a crucial role in fostering long-term project sustainability and community ownership.
AEPC’s approach goes beyond just providing electricity—it acts as a catalyst for economic and social transformation, fostering women’s empowerment, promoting social enterprises, strengthening local economies, encouraging participatory development, ensuring community ownership, and driving broader social progress.
Way forward
Although official statistics indicate that 98% of Nepal’s population has access to electricity, with 95% connected to the grid, a closer examination reveals significant concerns regarding the reliability and quality of the electricity supplied. A study by the World Bank’s Energy Sector Management Assistance Program (ESMAP) introduced a Multi-Tier Framework that evaluates electricity access based on factors such as quality, reliability, time of day, adequacy, legality, and affordability. According to this framework, only half of the grid electricity users have access to electricity that meets Tier 3 or higher standards.
A potential solution lies in interconnecting these MHPs, which are either already displaced or at risk of being displaced, with the national grid.
The primary issue with the grid in rural areas is the long distribution lines, which significantly diminish both the reliability and quality of the electricity supply. Introducing distributed generation at key bottleneck points could greatly improve this situation. Conversely, the rapid expansion of the national grid is encroaching upon the service areas of AEPC-supported Micro-Hydropower Plants (MHPs), putting these projects at risk of abandonment. This not only wastes valuable national resources but also undermines the time, effort, and financial investments made by rural communities.
Some communities are facing severe financial strain, struggling to repay loans taken to build Micro-Hydropower Plants (MHPs). A potential solution lies in interconnecting these MHPs, which are either already displaced or at risk of being displaced, with the national grid. This would create a win-win scenario: the grid would benefit from distributed generation, improving voltage stability and reducing line losses, while MHP owners could generate additional income by selling electricity to the grid. However, as many MHP operators are already overwhelmed by the challenges of running their plants, the operation of grid-connected MHPs could be more efficiently managed by private companies involved in Independent Power Producer (IPP) projects.
(Mr. Gautam is National Programme Manager, Renewable Energy for Rural Livelihood (RERL) AEPC/UNDP)
