Prospect of Green Hydrogen in Nepal

By Vidushi Dembi

Among the latest technological developments in the energy sector, the discussion on powering economies using Hydrogen technology is gathering considerable limelight for past couple of years. After the first major wave of popularity in the 1970s, the recent Hydrogen wave that started picking up in early 2000s has gained considerable momentum since 2017. Hydrogen technology, more importantly Green Hydrogen, is being considered a key component of decarbonization plans for many countries in Global North, especially targeting sectors where renewable electricity isn’t feasible, such as heavy industries and long distance transportation. Notably EU in accordance to their ‘Fit for 55’ plan targeting a 55% reduction in emissions by 2030 and climate neutrality by 2050 have set separate targets for hydrogen. Germany alone has allocated a budget of €9 billion for their national hydrogen strategy. The technology and market mechanisms still being in their early stages of development render green hydrogen prices quite high as compared to other mainstream renewable sources such as solar and wind; cost parity being predicted in some countries only by 2030. Amidst this debate, Nepal, a ‘developing country’ that contributes mere 0.027% to global GHG emissions and is among the list of countries most susceptible to climate change, is interestingly keen on making an early beginning.

Nepal’s present energy scenario

Around 72% of Nepal’s energy demand is met by biomass and waste, other prominent sources being oil, coal and hydropower (Figure 1) for the country’s population of 29 million.

Figure 1. Nepal’s Total Energy Supply (TES) in 2018 [Source: International Energy Agency (IEA) 2021. https://www.iea.org/countries/nepal]

Nepal Electricity Authority (NEA) in its Annual report 2019-20 reports a total installed capacity in the country of 1332 MW for a peak electricity demand of 1408 MW as shown in Figure 2. Country’s final energy consumption 2017 recorded the share of electricity as merely 3.66%. Almost all of the electricity produced in Nepal is from hydropower. The generation capacity is owned by public as well as private enterprises with around 22% of electricity being imported from neighbouring India as of 2020. Almost 94% of the electricity is supplied to the residential sector and around 2% goes for commercial or industrial applications. IEA reports that today only 6% of the country’s population remains unelectrified. As per Nepal’s Ministry of Finance, the country is getting electrified at a rate of 4.3% per year against the global average of 0.8%. NEA has declared that there has been no load shedding in households after 2017 and in industrial sector after 2018. In spite of the progress in electrification, Nepal stands low at a position of 102 out of 108 countries listed in the Energy Trilemma Index 2020. Country’s per capita electricity consumption remains low, one of many reasons being electricity price is still high for a major section of the population (0.069 USD per kWh). Sector-wise energy consumption is topped by the residential sector (75%) followed by transport (12%) and industry (8%). The country is majorly dependent on imported fossil fuels especially crucial for transport sector which entirely runs on oil. Nepal also has largely unexplored but high potential of other renewables such as solar PV, solar thermal and micro hydro.

Due to various reasons such as high import dependency, insufficient storage capacity, inadequate infrastructure and financial constraints of the energy institutions, Nepal faces an energy shortage. The abundant hydropower potential remains largely untapped and the country continues to face challenges to maintain reliable and sustainable energy security.

Figure 2. Total energy available and peak electricity demand 2011-2020 in Nepal (Source: Nepal Electricity Authority, 2020. https://www.nea.org.np/annual_report)

The case of ‘surplus’ hydropower

Reliable electricity access goes hand in hand with GDP growth and hence increasing the share of electricity in the total final consumption forms a major focus for the government. Situated in the Himalayan region with almost 220 billion cubic meters of annual water runoff from the rivers, a 2020 report by Asian Development Bank (ADB) estimates a potential of 83 GW of hydropower in Nepal out of which 43 GW is techno-economically feasible as of now. As of 2019 however the installed capacity of hydropower stood at only 1113 MW which means only 2.5% of the total potential is currently being utilised. Recent estimates by Kathmandu University suggest more than 20 GW of hydropower projects are under various stages of development. NEA owned hydropower plants generated a total of 3021 GWh of electricity in FY 2019-20, an increase by 18.57% over the generation of 2548 GWh in FY 2018-19. Interestingly, provided that the current plans of hydropower development follow through, there is a scope of energy surplus, with figures indicating an excess of 3500 MW of hydroelectricity by 2028. Hydropower plants in Nepal also generate maximum output during rainy season from June to September. However, country’s energy demand is actually low during the time leading to large energy curtailment. NEA estimates hydroelectricity wastage between 53 – 840 MW in 2021 due to low consumption in rainy season. Since the electricity can’t be utilised locally, Nepal also plans on expanding its export options to neighbouring countries of India and Bangladesh experiencing high growth in energy demand. The exports plans have failed to fully materialise yet due to variety of reasons such as infrastructure unavailability, legal issues and geo-politics. Other renewables such as solar are abundantly available in India which are much cheaper than hydroelectricity making the option economically unattractive for India. Transfer to Bangladesh means setting up infrastructure through the Indian mainland that lies in between, impeding any major action. Some development was seen recently in this regard with the three countries in talks to finalise the process of exporting 200 MW electricity to Bangladesh by end of this year. Going a step forward, since 2020 Nepal has initiated the dialogue on utilizing their surplus hydroelectricity and untapped solar potential to establish the country as a major green hydrogen producer for local use as well as international markets.

A case for Green Hydrogen

Hydrogen can be used in either gaseous or liquid form as fuel or for generating electricity. It isn’t freely available in nature hence has to be produced using other energy sources. On the basis of production technique, hydrogen is often classified into colour categories of black, brown, grey, blue, green; even turquoise and purple hydrogen. Today approximately 70 million tonnes of hydrogen is produced globally for use in the industrial sector, most of it being produced by using fossil-fuel sources. The latest centre of attention – Green Hydrogen – is produced using electrolysis of water that splits water into oxygen and hydrogen using renewable electricity, generating two useful end products without contributing emissions to the atmosphere. ADB’s 2020 report ‘A study on the prospect of Hydropower to Hydrogen in Nepal’ studies the country’s scope of green hydrogen production with different levels of assumed hydroelectricity curtailment along with exploring costs of production and energy storage. The report suggests that given Nepal’s conditions of abundant hydropower potential ultimately expected to produce electricity more than the demand, yearly curtailed/wasted hydroelectricity during rainy season due to lower demand, and complications associated with developing hydropower projects as per plan, generating green hydrogen and storing it to fulfil the energy demand during seasons of higher demand is an option worth exploring. Another area of interest for the country is their rapidly growing transport sector which is currently 100% oil dependant and can be potentially powered using hydrogen fuel-cells.

The government in 2020 conceived the ‘National Hydrogen Initiative’ (NHI) to explore the possibilities in a concrete way and establish policy foundations. The main targets of NHI include policy interventions and financing, establishing pilot projects, supporting business for more commercialisation and developing institutional arrangements to support related activities. The government has initiated a collaboration with Kathmandu University and their recently established ‘Green Hydrogen Lab’, whose contributors include the Nepal Oil Corporation and the Norwegian government. Nepal has a potential of becoming a hotspot for cheap green hydrogen production in the future, which is also beneficial for countries in the Global North such as Norway, Denmark and Germany who have elaborate plans for transforming into hydrogen economies but don’t necessarily have the most economically feasible ways to produce the required hydrogen themselves.

Challenges for Green Hydrogen

Even as the share of traditional energy resources in Nepal has slightly decreased, the corresponding energy is being filled in by fossil-fuel sources such as coal and oil. These fossil fuels are largely procured from imports, with the import trends drastically increasing since 2013. Electricity affordability is still a major concern with a consumption of only 238 kWh per capita per year which is one of the lowest in the world. Limited institutional capacity has often led to unfulfilled targets in the past, which is most evidently seen in case of the country’s EV targets. Nepal’s 2016 Nationally Determined Contributions (NDC) for UNFCCC set an aim of increasing the share of EVs up to 20% as compared to the 2010 levels and 50% reduction of dependency on fossil fuels in the mobility sector by 2050. The share of EVs actually stood at less than 1% by 2020, leading to a target revision of 20% EV share in private passenger vehicles by 2025 in their second draft of NDCs. Especially when many have argued (famously Elon Musk) that electric vehicles make more sense than hydrogen-powered vehicles, perhaps focussing on EVs for decarbonizing mobility sector could be more beneficial for the country. The sophisticated hydrogen plan could be a long shot given the history of difficulties with materializing their more abundant primary renewable energy sources such as hydro and solar.

Despite high developments in electrolysis technology, electrolysis still remains a highly expensive process which can be a major challenge in the country’s hydrogen plan. Green hydrogen is still 2-3 times more expensive than blue hydrogen and is expected to match blue hydrogen costs only by 2030. For a country with population struggling with affording fossil-fuel generated electricity, hydrogen technology for local use can appear a distant dream. Another frequently cited crucial barrier for hydrogen technology is its low efficiency of around 30% by the time it crosses multiple conversion stages to finally reach the motor or battery. Moreover, even if GHG emissions aren’t a direct end product of the process, exporting green hydrogen internationally would involve generation of a huge carbon footprint.

Conclusion

As Nepal is still facing challenges to decrease the dependency of traditional energy sources, a dialogue about Green Hydrogen is somewhat unexpected but nevertheless worth exploring. A strong political commitment and institutional support along with eagerness from the industrial sector would be essential. Also important is planning out models of possible value chains and carrying out detailed cost analyses. The country has already initiated the consolidation of a Hydrogen action plan. If successful, it could have the potential to transform Nepal into a highly profitable manufacturer of the green fuel for global markets e.g., for regions like Europe spearheading carbon neutrality and neighboring country India also increasingly focusing on hydrogen. International collaborations could hence be a huge benefit with Global North assisting with technology and capacity development. Ultimately, the basis of this scenario is Nepal’s highly underutilized Hydropower (and other renewables) which, in parallel to the Green Hydrogen plan, should be given prime attention.