report_138401_Nepal_Business As Usual

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<p class="doc-text shared">Energy Transition Pathways for the 2030 Agenda</p>
<p class="country-text shared">SDG 7 Roadmap for Nepal</p>
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<p class="ref-text shared">Developed using National Expert SDG 7 Tool for Energy Planning (NEXSTEP)</p>
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<h1>Executive summary</h1><p>Transitioning the energy sector to achieve the 2030 Agenda for Sustainable Development and the objectives of the Paris Agreement presents a complex and difficult task for policymakers. It needs to ensure sustained economic growth as well as respond to increasing energy demand, reduce emissions, and consider and capitalize on the interlinkages between Sustainable Development Goal 7 (SDG 7) and other SDGs. To address this challenge, ESCAP has developed the National Expert SDG Tool for Energy Planning (NEXSTEP). This tool enables policymakers to make informed policy decisions to support the achievement of the SDG 7 targets as well as nationally determined contributions (NDCs). The initiative has been undertaken in response to the Ministerial Declaration of the Second Asian and Pacific Energy Forum (April 2018, Bangkok) and Commission Resolution 74/9, which endorsed its outcome. NEXSTEP also garnered the support of the Committee on Energy in its Second Session, with recommendations to expand the number of countries being supported by this tool.</p><p>The key objective of this SDG 7 roadmap is to assist the Government of Nepal in developing enabling policy measures to achieve the SDG 7 targets. This roadmap contains a matrix of technological options and enabling policy measures for the Government to consider. It presents several scenarios that have been developed using national data, and which consider existing energy policies and strategies as well as reflect on other development plans. These scenarios are expected to enable the Government to make an informed decision to develop and implement a set of policies to achieve SDG 7 by 2030, together with the NDC.</p><h2>Highlights of the roadmap</h2><p>Nepal has made significant progress in increasing access to electricity in recent years. Based on this progress, it is estimated that Nepal will achieve universal access to electricity by 2024, earlier than the timeline mentioned in the Sustainable Development Goals Status and Roadmap 2016-2030. However, universal access to clean cooking technology and fuel has been, and remains, a challenge as more than half of the population is still relying on polluting cooking fuels and technology. Well-planned and concerted efforts will need to be made to achieve universal access to clean cooking by 2030. Energy efficiency improvement needs to be boosted across different sectors in order to achieve a 2.98 per cent annual improvement, reducing energy intensity to 3.5 megajoules per United States dollar by 2030.</p><p>Being a landlocked country with a mountainous topography and no proven fossil fuel reserve, Nepal is heavily reliant on imported energy resources (i.e., oil products); therefore, energy security is high on the national agenda. On the bright side, Nepal’s abundant hydro resources supply two-thirds of the country’s electricity demand. Small-scale renewable energy resources – mainly micro- and mini-hydro, and solar energy – are also used in meeting the electricity demand of remote and very remote areas. In addition, in its second NDC, Nepal has set out a plan for increasing its clean electricity exports to neighbouring countries. The NEXSTEP analysis has examined the usage of fossil fuel in the country e.g., in the transport sector and identified ways for Nepal to reduce its reliance on imported fuel to safeguard its energy sector from price and supply shocks.</p><h2>Achieving Nepal’s SDG 7 and NDC targets by 2030</h2><p><strong><i>Universal access to electricity</i></strong></p><p>As of 2019, Nepal’s electrification rate is estimated to be 86 per cent. Of the portion of Nepal’s population that lacks access to electricity, 90 per cent are in rural areas. Based on the historical improvement trend between 2000 and 2019, NEXSTEP analysis indicates that the remaining population will receive access by 2024, under the business-as-usual scenario.4 In light of Nepal’s complex terrain, providing last-mile connectivity may not be an easy feat, and achieving it will still require continued efforts from the Government, development partners and the private sector. NEXSTEP analysis indicates that providing off-grid/mini-grid electrification systems utilizing indigenous renewable resources may be the most appropriate solution, as micro- and mini-hydro systems provide the lowest cost per unit of electricity generated.</p><p><strong><i>Universal access to clean cooking</i></strong></p><p>As of 2019, more than half of the population in Nepal still relied on polluting cooking fuel and technology, thereby exposing themselves to negative health impacts. The Government of Nepal has disseminated more than 1 million clay and metallic improved cooking stoves; in 2019, the cooking stove distributions (estimated at 15) were made to 2.7 per cent of the total households in Nepal. It is expected that the clean cooking access rate will be raised to 72.3 per cent through the current policy settings, in accordance with the targets stipulated in the second NDC document. The targets include increasing the market penetration of electric cooking stoves to 25 per cent by 2030, and further dissemination of 500,000 Improved Cooking Stoves (ICS), 200,000 household biogas digesters and 500 large-scale biogas plants by 2025. Nevertheless, more needs to be done; NEXSTEP analysis suggests that electric cooking stoves may be the most suitable long-term solution in closing the remaining gap.</p><p style="text-align:center"><strong>Figure ES 1. Nepal’s access to clean cooking under the BAU, CPS and SDG scenarios</strong> [^1]</p><img style="max-width: 100%;display: block;margin: auto;" src="https://nexstepenergy.org/web/sites/default/files/imagename_1693.png&qu…; title="" alt="" /><p><strong><i>Renewable energy</i></strong></p><p>The share of renewable energy in the total final energy consumption (TFEC) was 21.3 per cent in 2019. Based on current policies, the share of renewable energy is projected to increase to 35.9 per cent by 2030. The increase is due to the projected increase both in renewable electricity and other renewable energy (excluding traditional use of biomass) consumption, while the TFEC increases at a slower rate. In the SDG scenario, the share of renewable energy is further improved to 39 per cent of TFEC in 2030. This improvement is solely due to the adoption of electric stoves while phasing out of traditional biomass usage, which also decreases the total final energy consumption.</p><p><strong><i>Energy efficiency</i></strong></p><p>Nepal’s energy intensity in 2019 is estimated to have been 4.12 MJ/USD2011. Energy intensity in Nepal has declined at an average annual rate of 1.49 per cent between 1990 and 2010. A doubling of the 1990-2010 improvement rate is required to achieve the SDG 7.3 target, which requires an average annual rate increase of 2.98 per cent between 2018 and 2030. Correspondingly, the energy intensity in 2030 should be 2.96 MJ/USD2011 to achieve the SDG 7 target.</p><p style="text-align:center"><strong>Figure ES 2. Nepal’s energy efficiency target</strong></p><img style="max-width: 100%;display: block;margin: auto;" src="https://nexstepenergy.org/web/sites/default/files/imagename_1694.png&qu…; title="" alt="" /><p>Under the current policy settings, the energy intensity is projected to drop to 2.96 MJ//USD2011. While the energy efficiency improvement target is achieved, more needs to be done to close the clean cooking gap. The energy efficiency target is exceeded in the SDG scenario with an energy intensity of 2.46 MJ//USD2011, compared with the target of 2.96 MJ//USD2011. This is achieved simultaneously with the clean cooking target through the phasing out of inefficient cooking technologies. There are ample energy savings opportunities for Nepal, as explored in the ambitious scenario. These opportunities are discussed in later sections of this report.</p><p><strong><i>Nationally Determined Contributions</i></strong></p><p>Nepal does not have an overarching GHG reduction target but has stipulated several sectoral strategies and measures in its second NDC document published at the end of 2020. As modelled, the stipulated measures may allow Nepal to reduce its GHG emissions by 11.2 per cent, with reference to the BAU scenario. In the SDG scenario, the GHG emission is projected to be 15.8 MTCO2-e in 2030, a 15.4 per cent reduction from the BAU scenario.</p><p style="text-align:center"><strong>Figure ES 3. Comparison of emissions by scenario, 2000-2030</strong></p><img style="max-width: 100%;display: block;margin: auto;" src="https://nexstepenergy.org/web/sites/default/files/imagename_1695.png&qu…; title="" alt="" /><h2>C. Important policy directions</h2><p>The roadmap sets out four key policy recommendations to help Nepal achieve the SDG 7 targets as well as reduce reliance on imported energy sources:</p><ol><li>To ensure electricity access is on track to achieve the SDG 7 target by 2024, decentralised energy generation using indigenous resources such as wind and solar power should be utilized. Given Nepal’s complex mountainous terrain and last-mile connectivity challenges, these approaches are needed to complement grid extensions;</li><li>Electric cooking stoves should be the priority technology in improving clean cooking access. More effort is required from the Government to close the clean cooking gap. NEXSTEP analysis suggests that electric cooking stoves may be more appropriate technology, in terms of the health benefits, cost effectiveness, and little maintenance and follow-up requirements. However, comprehensive policies are required for promoting the uptake and long-term adoption of electric cooking stoves;</li><li>Transport electrification strategies provide multi-fold benefits. Vigorous adoption of electric vehicles reduces the demand for oil products, hence reducing Nepal’s reliance on imported energy resources. At the same time, it can contribute to climate mitigation by using Nepal’s zero-carbon hydropower-based electricity;</li><li>Energy efficiency measures should be encouraged with a whole-economy approach. Substantial energy savings can be achieved through sustainable heating technologies in the residential and commercial sectors, while utilization of efficient household appliances reduces electricity demand. Significant energy reduction can be similarly achieved through industry sector best practices.</li></ol><p><H1 class="pb-before">CHAPTER 1: INTRODUCTION</h1></p>
<h2>Background</h2><p>Transitioning the energy sector to achieve the 2030 Agenda for Sustainable Development and the objectives of the Paris Agreement presents a complex and difficult task for policymakers. It needs to ensure sustained economic growth, respond to increasing energy demand, reduce emissions, and consider and capitalise on the interlinkages between Sustainable Development Goal 7 (SDG7) and other SDGs. In this connection, the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) has developed the National Expert SDG Tool for Energy Planning (NEXSTEP). This tool enables policymakers to make informed policy decisions to support the achievement of the SDG7 targets as well as nationally determined contributions (NDCs). The initiative has been undertaken in response to the Ministerial Declaration of the second Asian and Pacific Energy Forum (April 2018, Bangkok) and Commission Resolution 74/9 which endorsed the meeting’s outcome. NEXSTEP has also garnered the support of the Committee on Energy in its second session, with recommendations to expand the number of countries being supported by this tool. The ministerial declaration advises ESCAP to support its member States, upon request, in developing national SDG 7 roadmaps.</p><h2>SDG 7 targets and indicators</h2><p>SDG 7 aims to ensure access to affordable, reliable, sustainable and modern energy for all. It has three key targets, which are outlined below.</p><p>• Target 7.1. “By 2030, ensure universal access to affordable, reliable and modern energy services.” Two indicators are used to measure this target: (a) the proportion of the population with access to electricity; and (b) the proportion of the population with primary reliance on clean cooking fuels and technology.</p><p>• Target 7.2. “By 2030, increase substantially the share of renewable energy in the global energy mix”. This is measured by the renewable energy share in total final energy consumption (TFEC). It is calculated by dividing the consumption of energy from all renewable sources by total energy consumption. Renewable energy consumption includes consumption of energy derived from hydropower, solid biofuels (including traditional use), wind, solar, liquid biofuels, biogas, geothermal, marine and waste. Due to the inherent complexity of accurately estimating traditional use of biomass, NEXSTEP focuses entirely on modern renewables (excluding traditional use of biomass) for meeting this target.</p><p>• Target 7.3. “By 2030, double the global rate of improvement in energy efficiency”, as measured by the energy intensity of the economy. This is the ratio of the total primary energy supply (TPES) and GDP. Energy intensity is an indication of how much energy is used to produce one unit of economic output. As defined by the IEA, TPES is made up of production plus net imports minus international marine and aviation bunkers plus stock changes. For comparison purposes, GDP is measured in constant terms at 2011 PPP.</p><h2>Nationally Determined Contribution</h2><p>NDCs represent pledges by each country to reduce national emissions and are the stepping-stones to the implementation of the Paris Agreement. Since the energy sector is the largest contributor to GHG emissions in most countries, decarbonizing energy systems should be given a high priority. For example, the global energy sector was responsible for 76 per cent of the global GHG emissions in 2018 (Climate Watch, 2021). For Nepal, the contribution from the energy sector is estimated to have been 46 per cent in 2011 (Government of Nepal, 2020). Key approaches to reducing emissions from the energy sector include increasing renewable energy in the generation mix and improving energy efficiency. In its second NDC document published at the end of 2020, Nepal stipulated several emissions reduction measures to be implemented and achieved by 2030. It is noted that some of the measures stipulated in the NDC document are conditional, unless international financial contribution is provided. Nonetheless, based on the consensus achieved during the stakeholder consultation workshop held in March 2021, all measures will be considered fulfilled by 2030, and the NDC commitments are included in the current policy scenario.</p><p><H1 class="pb-before">CHAPTER 2: NEXSTEP METHODOLOGY</h1></p>
<p>The main purpose of NEXSTEP is to help in designing the type and mix of policies that will enable achievement of the SDG 7 targets and the emission reduction targets (under NDCs) through policy analysis. However, policy analysis cannot be done without: (a) modelling energy systems to forecast/backcast energy and emissions; and (b) economic analysis to assess which policies or options would be economically suitable. Based on this, a three-step approach has been proposed. Each step is discussed in the following sections.</p><h2>Key methodological steps</h2><h2>Scenario definitions</h2><p>The LEAP modelling system is designed for scenario analysis, to enable energy specialists to model energy system evolution based on current energy policies. In the NEXSTEP model for Georgia, three main scenarios have been modelled: (a) a BAU scenario; (b) the current policy scenario (CPS); and (c) Sustainable Development Goal (SDG) scenario.</p><h3>Economic analysis module</h3><p>The energy and emissions modelling section selects the appropriate technologies, and the economic analysis builds on this by selecting the least cost energy supply mix for the country. The economic analysis is used to examine economic performances of individual technical options identified and prioritize least-cost options. As such, it is important to estimate some of the key economic parameters such as net present value, internal rate of return and payback period. A ranking of selected technologies will help policymakers to identify and select economically effective projects for better allocation of resources. The economic analysis helps to present several economic parameters and indicators that would be useful for policymakers in making an informed policy decision.</p><h2>Scenario analysis</h2><p>The scenario analysis evaluates and ranks the scenarios, using the Multi Criteria Decision Analysis (MCDA) tool, with a set of criteria and weights assigned to each criterion. Ideally, the weights assigned to each criterion should be decided in a stakeholder consultation. If deemed necessary, this step can be repeated using the NEXSTEP tool in consultation with stakeholders where the participants may want to change weights of each criterion, where the total weight needs to be 100 per cent. The criteria considered in the MCDA tool can include those listed below; however, stakeholders may wish to add/remove criteria to suit the local context.</p><ul><li>Access to clean cooking fuel</li><li>Energy efficiency</li><li>Share of renewable energy</li><li>Emissions in 2030</li><li>Alignment with Paris Agreement</li><li>Fossil fuel subsidy phased out</li><li>Price on carbon</li><li>Fossil fuel phase-out</li><li>Cost of access to electricity</li><li>Cost of access to clean cooking fuel</li><li>Investment cost of the power sector</li><li>Net benefit from the power sector</li></ul><p>This step is generally applied to all countries utilizing NEXSTEP in developing the national SDG 7 Roadmap, as a means to suggest the best way forward for the countries by prioritizing the several scenarios. Nevertheless, it has not been applied to Nepal as a limited number of scenarios have been developed.</p><p><H1 class="pb-before">CHAPTER 3: OVERVIEW OF NEPAL'S ENERGY SECTOR</h1></p>
<h2>Current situation</h2><p>Geography and climate: Located in the South Asia region, Nepal is a landlocked country bordering India and China. The country occupies a land area of 147,181 km2, with an average stretch of 885 km in the East-West direction and 193 km in the North-South direction (Government of Nepal, 2014). Nepal has a diverse geography, including the fertile plain in the southern border area and some of the most challenging terrain in the world, i.e., the Himalayan mountain range. The country can be divided into five physio-graphic regions, characterized by an elevation ranging from 60 metres to 8,845 metres above sea level. While Nepal sits within the subtropical climatic zone, it exhibits a wide range of climatic conditions that vary from tropical in the south to alpine/arctic in the north due to topographic extremes. Its capital city, Kathmandu, sits in the Kathmandu Valley in central Nepal.</p><p>Population: The total population of Nepal was estimated at 29.6 million in 2019. The total population recorded in 2011 was 26.5 million (Government of Nepal, 2014), which translates into an annual growth rate of 1.4 per cent between 2011 and 2019. The recorded annual growth rate has slowed, compared to the growth rate between 1961 and 2001 (Government of Nepal, 2014). Nonetheless, the population has increased by more than threefold during the past 60 years, from just 9.6 million in 1961. The percentage of urban population ways estimated to be 23 per cent in 2019, a rapid increase from just 4 per cent in 1971 (Government of Nepal, 2014)</p><p>Economy: Nepal’s GDP in 2019 was estimated as US$30.6 billion. Correspondingly, the GDP per capita stood at US$1,039. The growth in GDP per capita is remarkable, increasing at an average annual growth rate of 6.4 per cent during the past decade, from just US$592 in 2010 (World Bank, 2021a). According to the World Bank’s country classification, Nepal is classified as a lower-middle income economy as of the 2021 fiscal year (World Bank, 2021b). The agricultural sector has been consistently the main contributing economic sector, accounting for about 27 per cent of the national GDP (Ministry of Finance, 2019). The Government of Nepal (2014) noted that the agricultural sector was the base of livelihood for around 80 per cent of its population and accounted for 60 per cent of the total employment.</p><p>Climate change risks: Nepal is highly vulnerable to climate change impacts as it is ranked fourth in terms of vulnerability towards climate change (UNDP, 2021b). As a nation that is highly dependent on its agricultural sector, probable changes in climatic conditions may cause adverse effect on Nepal’s economy and its population’s livelihood. Additionally, as the planet warms, the increased rate of glacier melting in the mountainous region towards the North will alter the dynamics of river flows in Nepal and across the region as well as increase the risk of glacier lake outburst flooding.</p><p>Energy: The Government’s ambition towards a more sustainable energy transition is depicted in its second NDC, (Government of Nepal, 2020). For the energy sector, Nepal envisions increasing its clean power capacity by ten-fold, not only to meet the increasing electricity demand sufficiently but also to allow cross-border power trade. In addition, it plans to increase the market penetration of electric vehicles during the coming decade. Increased ambitions are also stipulated for the cooking sector to expand the share of clean cooking technologies (i.e., electric cooking stoves). Nepal is currently formulating a long-term low greenhouse gas emission development strategy, which aims to achieve carbon net-zero by 2050.</p><h2>National energy profile</h2><p>The electrification rate in Nepal was 86 per cent in 2019. That has left around 887,000 households yet to be connected to any form of electricity supply. Nevertheless, Nepal’s progress in electricity access improvement has been remarkable, rising by about 60 percentage points from 2001 to 2019 (ESCAP, 2021a). Among the unelectrified households, around 8 per cent are in urban areas, while the remaining are in rural areas.7 The majority (approximately 89 per cent) of the current electrified population is connected to the main grid. A small percentage of households rely on off-grid systems, such as micro-hydro power and solar PV systems. The provision of off-grid systems not only provides essential electricity needs, but also brings in other indirect positive impacts, such as increasing local employment and women’s empowerment.</p><p>In 2019, only 46.5 per cent of the population had access to clean cooking fuel and technologies.7 Liquefied petroleum gas (LPG) stoves are the dominant cooking technology used by the majority of Nepalese urban households, accounting for around a 31 per cent share of total stove usage distribution. This is followed by the traditional biomass stove, which has a share of 38 per cent and includes the use of wood, agricultural residue and animal dung as fuel mostly in rural areas. The Alternative Energy Promotion Centre (AEPC) of Nepal has disseminated more than 1 million improved cooking stoves, mostly mud stoves, since 2005. The cooking stove distribution of clay ICS and metallic ICS in 2019 was estimated at 15 per cent and 2.7 per cent, respectively. This analysis considers metallic ICS as a clean cooking technology (Tier 3+ Multi-Tier Framework – MTF) for cooking exposure attribute), while clay ICS is regarded as a non-clean cooking technology. Other stove usage includes electric cooking stoves (6.4 per cent), biogas digesters (6.3 per cent) and kerosene (0.5 per cent).</p><p style="text-align:center"><strong>Figure 2. Cooking stove distribution in 2019</strong></p><img style="max-width: 100%;display: block;margin: auto;" src="https://nexstepenergy.org/web/sites/default/files/imagename_1696.png&qu…; title="" alt="" /><p>Modern renewable energy delivered approximately 21.3 per cent of TFEC in 2019. This excludes traditional biomass usage in residential cooking and heating, which corresponds to an estimated 2,970 ktoe. On average in 2019, 37 per cent of Nepal’s electricity demand was met by imported electricity from India, which is assumed non-renewable for the NEXSTEP analysis as electricity from India is mostly produced from fossil fuels. Most of the remainder (61.9 per cent) was locally produced in 2019 with large hydropower. Strategies to raise the renewable energy share are set out in the second NDC (Government of Nepal, 2020). These include increasing the renewable energy capacity to meet both local and external demand, and increasing the market penetration of electric vehicles that utilize renewable electricity.</p><p>While endowed with an abundance of hydropower potential, Nepal has a high reliance on imported fuels (i.e., coal and oil products) to meet its heating and transport fuel demands. Several strategies have been put forward to reduce its imported oil dependency in order to safeguard the energy sector from supply and prices shocks. For example, transport electrification ambitions set out in its second NDC does not only reduce GHG emissions, but also makes Nepal less susceptible to future supply and price shocks. In addition, the Government has set a maximum threshold for LPG stove penetration of 30 per cent.</p><p>The energy intensity in 2019 was calculated as 4.12 MJ/US$ 2011. [^2]</p><h2>National energy policies and targets</h2><p>Nepal’s energy sector development is guided by several national policies and frameworks. These policies have been used as guiding references for the NEXSTEP modelling, to better understand the country context and to provide recommendations in adherence to the Government’s overarching direction. Where applicable, the currently implemented and adopted policies or regulations are considered in the current policy scenario, in order to identify gaps in achieving the SDG 7 targets. [^3] The policies or strategic documents consulted are detailed below.</p><ul><li><strong>Nepal’s Second NDC (</strong> Government of Nepal, 2020) stipulates ambitions to:
- Raise the renewable capacity by another 15,000 MW by 2030, of which 5-10 per cent of the capacity will be from renewable technologies exclusive of large hydropower;
- To produce15 per cent of the total electricity demand from renewable sources (not including large hydropower);
- Raise the market sales of electric vehicles for private 2- and 4-wheelers and public 4-wheelers;
- Increase the share of electric stoves to 25 per cent and disseminate an additional of 500,000 ICS and 200,000 household-scale biogas plants.</li><li><strong>Biomass Energy Strategy 2017</strong> (Ministry of Population and Environment, 2017) aims to increase the access to biomass energy and hence contribute to environment conservation by transforming biomass energy use into modern, sustainable and clean energy.</li><li><strong>National Energy Efficiency Strategy 2018</strong> (MOEWRI, 2019) is to promote energy efficiency by effectively implementing energy efficiency programmes through establishing policy, legal and institutional frameworks. It also stipulates a goal of doubling the average improvement rate of energy efficiency from 0.84 per cent per year (between 2000-2015) to 1.68 per cent per year in 2030.</li><li><strong>National Renewable Energy Framework</strong> (AEPC, 2017) was formulated in 2017 as an umbrella mechanism for AEPC to coalesce and coordinate policies and programmes in the renewable sector, covering four objectives (i.e., governance, demand, supply and financing) with activities in capacity-building, knowledge management, gender and social inclusion, and monitoring in a cross-cutting manner.</li><li><strong>Renewable Energy Subsidy Policy 2016</strong> (Ministry of Population and Environment, 2016) details the subsidy mechanism for various renewable energy technologies with a long-term goal of achieving universal access to clean, reliable and affordable renewable energy solutions by 2030.</li><li><strong>Rural Energy Policy 2006</strong> aims to contribute to rural poverty reduction and environmental conservation by ensuring access to clean, reliable and appropriate energy in the rural areas.</li><li><strong>National Climate Change Policy 2019</strong> (Ministry of Forests and Environment, 2020) provides policy guidance to various sectors and thematic areas (i.e., agriculture and food security, water resources and energy), in order to contribute to socio-economic prosperity of the nation by building a climate resilient society. </li></ul><p><strong>The Fifteenth Plan</strong> (National Planning Commission, 2020) was formulated with the aim of raising Nepal from a least developed country to a developing country by 2022, and achieving the SDGs by 2030. At the same time, it is aimed lifting Nepal to the level of a middle-income country through an increase in income level, development of quality human capital and the reduction of economic risks. Several energy sector targets and strategies are also outlined in the national development plan.</p><h2>National energy resources</h2><p>Nepal depends on both indigenous renewable resources (i.e., hydro and solar) and imported electricity to meet its electricity demand. Other resources used in its energy system include petroleum products, coal and biomass. Nepal does not have its own petroleum reserve; the demand is met through importation via India. Coal deposits exist in Nepal; however, they are of low quality. The majority of its coal is imported from India and other countries (WECS, 2010). Nepal’s theoretical hydropower potential has been estimated at about 83,000 MW, of which 45,000 and 42,000 MW is technically and economically feasible, respectively (WECS, 2010). Nepal has an abundant solar power potential; the average solar insolation intensity is about 4.7 kWh/m2/day.</p><p>A study carried out by AEPC and UNEP in 2008 shows that potential of solar energy in grid connected areas was estimated as 2,100 MW based on free land availability (WECS, 2010). Wind potential is largely untapped in Nepal; the commercial potential of wind power is suggested at 3,000 MW (AEPC, 2021), a comparatively low level which is in part due to the lack of road and grid access to the regions with high wind speeds. Biomass is widely used in Nepal for cooking and heating purposes. Khatiwada, Purohit and Ackom (2019) estimated that the economic potential of biomass power using surplus agricultural residue is approximately 0.6 GW in 2030.</p><h2>National energy balance</h2><p>The official national energy balance is unfortunately not available for 2019. The following describes the estimated national energy consumption, built up using data collected with a bottom-up approach, based on data such as activity level and energy intensity.</p><p>In 2019, the total final energy consumption (TFEC) was 9,179 ktoe. Most of the demand came from the residential sector (51.7 per cent). Within the residential sector, 85.7 per cent of energy is consumed for cooking purposes. Such a high share is attributable to the widespread use of inefficient traditional biomass stoves. This is followed by the transport sector (20.5 per cent), industry sector (16.7 per cent), commercial (7.5 per cent) and others (3.6 per cent).</p><p>In terms of fuel usage in the TFEC, biomass is the dominant fuel, accounting for 47.3 per cent. Oil products, including LPG, diesel, kerosene and petroleum account for around 35 per cent of the TFEC. The transport sector, which operates predominantly with internal combustion engine vehicles, is the main consuming sector for oil products (58 per cent). Other uses of oil products include residential cooking and space heating (21.4 per cent), process heating in the industry sector (5.12 per cent) and space heating in the commercial sector (4.83 per cent). Other fuel use includes coal (10.5 per cent) and electricity (6 per cent). Coal is mainly used in the industrial sector, with a small percentage (15 per cent) used in the commercial sector as a heating fuel. Figures 3 and 4 illustrate the total final energy consumption by consuming sector and fuel type.</p><p style="text-align:center"><strong>Figure 3</strong> <strong>Total final energy consumption by sector, 2019</strong></p><img style="max-width: 100%;display: block;margin: auto;" src="https://nexstepenergy.org/web/sites/default/files/imagename_1697.png&qu…; title="" alt="" /><p style="text-align:center"><strong>Figure 4. Total final energy consumption by fuel type, 2019</strong></p><img style="max-width: 100%;display: block;margin: auto;" src="https://nexstepenergy.org/web/sites/default/files/imagename_1698.png&qu…; title="" alt="" /><p>The total primary energy supply (TPES) in 2019 was 9,279 ktoe. It generally shows a fuel usage distribution similar to the TFEC. Hydro and solar power contribute a total of 4.6 per cent and are used in power generation. Around 3 per cent of the primary energy is supplied in the form of electricity, imported from India. Imported electricity accounts for about 37 per cent of the electricity demand of Nepal.</p><p style="text-align:center"><strong>Figure 5. Total primary energy supply by fuel type, 2019</strong></p><img style="max-width: 100%;display: block;margin: auto;" src="https://nexstepenergy.org/web/sites/default/files/imagename_1699.png&qu…; title="" alt="" /><ol><li><strong>Energy modelling projections</strong></li></ol><p>The energy demand is estimated using the activity level and energy intensity in the LEAP model. The demand outlook throughout the NEXSTEP analysis period is influenced by factors such as annual population growth and annual GDP growth. The assumptions used in the NEXSTEP modelling are further detailed in Annex II, while table 1 provides a summary of the key modelling assumptions for the three main scenarios (i.e., BAU, CPS and SDG scenarios).</p><p style="text-align:center"><strong>Table 1. Important factors, targets and assumptions used in NEXSTEP modelling</strong></p><table><tr><th><strong>Parameters</strong></th><th><strong>Business as usual scenario</strong></th><th><strong>Current policy scenario</strong></th><th><strong>Sustainable Development Goal (SDG) scenario</strong></th></tr><tr><td>Economic growth</td><td>3.11% per annum</td><td></td><td></td></tr><tr><td>Population growth</td><td>1.36% per annum</td><td></td><td></td></tr><tr><td>Urbanization rate</td><td>23 per cent in 2019, gradually increasing to 28.6 per cent in 2030</td><td></td><td></td></tr><tr><td>Commercial floor space</td><td>127.2 million m2in 2019, annual growth rate of 3.11 per cent</td><td></td><td></td></tr><tr><td>Transport activity</td><td>Transport activities in 2019 were 125.6 billion passenger-kilometres and 23.1 billion tonne-kilometres, with assumed growth of 1.35 per cent annually</td><td></td><td></td></tr><tr><td>Access to electricity</td><td>2024: 100%</td><td>2024: 100%</td><td>2024: 100%</td></tr><tr><td>Access to clean cooking fuels</td><td>Based on the historical penetration rate assumed for LPG and electric cookstove. Number of households utilizing biogas digester and ICS are assumed constant.</td><td>As per the ambitions stated in the NDC document:increase share of electric stoves to 25% by 2025disseminate an additional of 500,000 ICS and 200,000 household-scale biogas plants by 2030In addition, a maximum limit of 30 per cent LPG stove penetration by 2030 is applied</td><td>Building on the current policy scenario, NEXSTEP further recommends the use of electric stoves in reaching a 100% access rate.</td></tr><tr><td>Energy efficiency</td><td>Additional energy efficiency measures not applied</td><td>Improvement based on current policies (explained further in section 3.7)</td><td>2.98 per cent annual improvement in TPES target achieved</td></tr><tr><td>Power plant</td><td>Based on 2018 capacity share</td><td>New renewable energy capacity of 15,000 MW, and 15 per cent of total electricity demand will come from renewable energy (excluding large hydro), as stated in the second NDC</td><td>New renewable energy capacity of 15,000 MW13, and 15 per cent of total electricity demand will come from renewable energy (excluding large hydro), as stipulated in the second NDC</td></tr></table><style>
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</style><ol><li><strong>Energy demand outlook</strong></li></ol><p>Several measures have been outlined in the recently published NDC document in a bid to reduce GHG emissions. These include clean cooking strategies involving the dissemination of ICS and biogas digesters as well as increasing the market penetration of electric cooking stoves, as described in table 1. In addition, the Government is aiming to raise the usage of electric vehicles – an effective emission reduction strategy by phasing out the use of oil products with replacement by carbon-free electricity in the transport sector. The market sales of electric vehicles for private passenger 2- and 4-wheelers is expected to reach 25 per cent in 2025, and gradually rise to 90 per cent in 2030.The market sales of electric vehicles for public passenger 4-wheelers will be 20 per cent in 2025 and gradually increase to 60 per cent in 2030. These policy measures and targets, as included in the CP scenario, have substantial implications for the energy demand outlook in 2020-2030, relative to the BAU scenario.</p><p>In the current policy settings, TFEC is projected to increase from 9,179 ktoe in 2019 to 9,223 ktoe in 2030. This corresponds to an average annual growth rate of 0.04 per cent, a number that is much lower than the projected growth in GDP (3.11 per cent) and population (1.34 per cent). As mentioned above, such low growth in energy demand is attributable to the Government’s GHG emission reduction strategies in the residential sector (mainly by replacing biomass cooking stoves) and the transport sector.</p><p>In 2030, the residential sector will remain the main consuming sector, with an estimated TFEC of 3,847 ktoe (41.7 per cent), followed by the industrial sector at 2,153 ktoe (23.3 per cent), transport sector at 1,928 ktoe (20.9 per cent), commercial sector at 968 ktoe (10.5 per cent) and others at 327 ktoe (3.5 per cent). The sectoral overview of energy demand in the current policy scenario is discussed below and shown in figure 6.</p><p style="text-align:center"><strong>Figure 6. Nepal's energy demand outlook, 2019-2030</strong></p><img style="max-width: 100%;display: block;margin: auto;" src="https://nexstepenergy.org/web/sites/default/files/imagename_1700.png&qu…; title="" alt="" /><ol><li>Residential</li></ol><p>The residential sector will continue to dominate Nepal’s TFEC, with a 41.7 per cent share in 2030. Nevertheless, demand is projected to decrease to 3,847 ktoe by 2030, compared with 4,471 ktoe in 2019. The notable decrease in energy demand is attributable to the phasing out of unclean and inefficient cooking technologies, specifically traditional biomass stoves. The share of traditional biomass in the cooking stove distribution is projected to decrease to 14.7 per cent, as the uptake of electric cooking stoves, ICS and biogas digesters increases in accordance with the Government’s plans stipulated in the second NDC and Fifteenth Plan. As projected in NEXSTEP, the energy demand for cooking decreases from 4,061 ktoe in 2019 to 3,191 ktoe in 2030 through the adoption of more efficient cooking stoves, and fuel switching from traditional biomass to electricity.</p><p>(b) Transport</p><p>Nepal’s transport sector comprises passenger and freight road transport. The total energy demand is projected to be 1,928 ktoe in 2030, increasing from 1,882 ktoe in 2019. Such a slow average annual growth rate of 0.21 per cent is due to the increased market penetration of electric vehicles as envisaged in the NDC document, specifically in the passenger road transport sector. A decreasing trend in energy demand growth is also projected from 2026 onwards, as the share of electric vehicles grows exponentially, replacing the less efficient internal combustion engine vehicles.</p><p>(c) Commercial</p><p>The commercial sector energy demand is projected to increase from 691 ktoe in 2019 to 968 ktoe in 2030. The sector is divided into seven subcategories, with each one projected to grow at an annual rate similar to the GDP growth rate (i.e., 3.11 per cent). The energy demand distribution is dominated by hotels at 467.2 ktoe (67.6 per cent), followed by government buildings at 97.2 ktoe (14.1 per cent). Other subcategories are shopping malls at 48 ktoe (6.9 per cent), universities at 31.4 ktoe (4.6 per cent), private offices at 20.8 ktoe (3 per cent), hospitals at 17.7 ktoe (2.6 per cent) and religious buildings at 9.2 ktoe (1.3 per cent).</p><p>(d) Industry sector</p><p>Energy demand by the industry sector is expected to grow from 1,537 ktoe in 2019 to 2,153 ktoe in 2030. The share of energy demand from the 10 different industrial sectors are detailed in Annex II. The energy intensity of the industrial sector is assumed to be constant, while the industrial sector GDP is projected to grow by 3.11 per cent annually.</p>