Electricity distribution in rural Nepal

The Nepal Electricity Authority (NEA) manages its rural electricity distribution systems using two different models – a standard utility model run by the Distribution and Consumer Service business group (NEA-DCS) and a community-managed utility model run by Community Rural Electrification Entities (CREEs). Simon Trace, EEG’s programme director, explains more about CREEs and what an EEG-funded research project has revealed about their performance so far.

Nepal is one of the fastest electrifying countries in the world, with access to electricity increasing at an annual rate of 4.3% – much higher than the 0.8% global average. According to the Government of Nepal’s Economic Survey 2019/20, in mid-March 2020, 90% of Nepal’s population had access to electricity.

The Nepal Electricity Authority (NEA), Nepal’s quasi-governmental utility, is responsible for the generation, transmission, distribution and sale of electricity in the country. Electricity distribution systems (the localised sections of the grid between transmission lines and consumers) are managed either directly through NEA’s own Distribution and Consumer Services (NEA-DCS) offices (a traditional utility-based model) or via forming Community Rural Electrification Entities (CREEs) – electricity distributing entities registered by community-based organisations at the district level – through the Community Rural Electrification programme.

Electrification is widely assumed to be a pre-condition for the sustainable economic growth of rural communities (in 2017, 87% of people living without electricity globally lived in rural areas). Since 2003, the Government of Nepal has been using CREEs as one route to providing rural communities with access to electricity. The country’s rapid electrification has been in part due to these schemes, through which more than 360,000 households have been electrified.

CREEs are responsible for rural electrification and the operation and maintenance of distribution systems under the NEA Community Electricity By-Laws 2003. Most CREEs emerge as a result of new grid expansions (though in some cases, existing distribution systems are handed over to them). Once a CREE has submitted an official request, the Community Rural Electrification Department (CRED), which sits under NEA, initiates a survey and estimates the cost. The CREE must deposit a 10% share of the total budgeted costs prior to work starting (the remaining 90% is released by the Government as a subsidy).

While CRED installs step-down transformers and the entire distribution system, the CREE implements the household connections and also carries out repair and maintenance work (on a needs-based and periodic manner, as per NEA standards). NEA-DCS offices are engaged in technical monitoring and provide technical training to CREE staff.

A CREE purchases bulk electricity from NEA at a reduced rate and then sells it to consumers at or below NEA national consumer tariffs (at present, most charge the same as NEA-DCS). A bulk electricity meter is installed (to measure the total amount consumed by the CREE’s customers), and both the CREE and NEA take monthly meter readings. CREEs are expected to cover all management and repair and maintenance costs from the net income generated from selling electricity (with individual households or enterprises having their own individual meters to provide the basis for billing by the CREE). NEA remains responsible for any transmission losses.


Enterprise development

Currently, almost 94% of NEA customers are domestic consumers (with electricity use being largely restricted to lighting and running household electrical appliances like televisions, radios and refrigerators), with just 2% using electricity for industrial or commercial production (the remaining 4% is used in irrigation and non-commercial sectors). Nepal aims to generate 5,000 MW of electricity in the next few years – and there is huge scope for the expansion of electricity-based enterprises.

It is thought the operational efficiency of community-based electrification is high when compared to the conventional utility-managed approach – and that this might enable enterprises to develop. It has been suggested that once electricity reaches rural areas in this way, communities also see the arrival of technologies that enable the energy to be used, and enterprises are started, or the electricity is used in agriculture.

As well as increasing the number of enterprises and jobs overall, it is thought that by being less bureaucratic and more accessible to users, CREE-managed distribution systems encourage enterprises owned by women, historically excluded groups and individuals from disadvantaged social backgrounds.


Assessing the performance of CREEs

An EEG-funded research project, led by Winrock International Institute for Agricultural Development, is examining the impact of electricity distributed by NEA-DCS versus CREEs on the establishment and growth of economic enterprises in Nepal. To analyse which model has better outcomes, five geographic areas have been selected, and two communities within each (one with a traditional utility-managed distribution system and one with a community-based system) are being studied.

The research team has so far collected data from four of the five districts. While this is not sufficient to assess enterprise growth, a working paper has been produced to showcase some preliminary findings on the performance of distribution systems run by CREEs compared to those run directly by NEA-DCS.

Initial results suggest that CREE management systems offer several advantages over the NEA-DCS model. In particular, CREEs appear to be more service-oriented and more responsive to consumers’ needs. This may be because CREEs cover only their local community; due to the small operational area and the community ownership structure, CREEs are more active and tend to possess more detailed knowledge and information. In contrast, NEA-DCS offices are concentrated in cities, staff (including technicians) cover much larger areas, and there seems to be no direct communication or relationship between staff and consumers.


Quick and easy connections

CREEs seem to provide quicker and easier power connections for new customers. Although electricity connection processes are broadly similar for NEA-DCS and CREEs, for an NEA-DCS connection, it is mandatory for prospective consumers to submit a copy of their land ownership certificates (posing a challenge for groups that won’t have this documentation, such as squatter settlements) – but this is not the case for a CREE connection. Unlike NEA-DCS offices, a CREE can provide an electricity connection upon submission of any utility bill. CREE staff are also able to provide support during the application process, for example by preparing documents and filling in application forms.


Timely repair and maintenance

While frequent unplanned power interruptions and voltage drops were found to be occurring in both NEA-DCS and CREE locations, there are fewer issues in CREE areas.

CREEs carry out regular preventative maintenance (bush-cutting and replacing insulators, for example), and the average number of days taken to resolve minor faults is lower in CREE than in rural NEA-DCS areas, which is probably because of the presence of local technicians. However, a lack of skilled electricians in CREE areas (only a few have appointed electrical engineers, with the rest using sub-engineers) means it often takes a few days for faults to be identified, lengthening the time taken to resolve issues.

Community managed systems are not entirely independent, and CREEs still rely on the utility for some repair and maintenance tasks – including fixing major faults, repairing transformers and resolving issues at substations – which can also cause delays.


Simpler bill payments

In CREE areas, consumers can pay their electricity bills during meter readings or at an office counter situated within their locality, so they don’t have to travel far. In contrast, the NEA-DCS bill payment process is tedious. Although NEA-DCS has introduced an e-payment system, most customers in the study were unfamiliar with the process and have to visit the nearest NEA-DCS office counter to pay their bill, which may be some distance away and can involve time-consuming travel. For example, for some people, the walk takes between one and a half and three hours, and even where road transport is available, travel distances can still be significant (one and a half hours in some cases).


Reduced electricity theft and safety hazards

In addition to seemingly providing better services, stealing electricity through ‘hooking’ – attaching wires to distribution system cables – appears to be much less of a problem in CREE localities than NEA-DCS ones. A longer and more bureaucratic procedure for securing an NEA-DCS electricity connection and the absence of local monitoring or sense of ownership contribute to the presence of cable hooking in NEA-DCS areas.

Some CREEs were also found to have sensitised consumers to the risks of electric fire hazards, either during the initial phase of their establishment or through their technicians. Fewer cases of electric accidents were reported in CREE locations than in NEA-DCS ones.

The Winrock research team has so far concluded that while CREEs lack the technical strength and investment capacity of the government utility, they seem more service-oriented and much more responsive to the needs of their customers. The team suggests that an ideal electricity distribution system should incorporate the strengths of both CREEs and NEA-DCS; one such model could be a more decentralised government utility with more community representation, for example. When completed, the research project will help to inform future investments in electrification models and approaches that are most likely to contribute to economic growth in rural areas.

By Simon Trace