Electricity and enterprise development in Nepal
A comparative analysis of economic activities spurred by two different types of electricity distribution
Background, challenges, and context
Since 2003, the Government of Nepal (GoN) has been providing rural communities with access to electricity, forming Community Rural Electrification Entities (CREE) through the Community Rural Electrification Programme (CREP).
Nepal Electricity Authority (NEA) adopts two models of electrification: a) through CREE and b) through the Distribution and Consumer Service (DCS) centre. Studies have shown that the community electrification model has reduced pilferage and lowered operational costs for NEA, while delivering quality services to rural consumers.
Furthermore, when compared to conventional utility managed electrification, the operational efficiency of the community-based version is high – which might enable enterprises to develop. In addition to 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.
Research overview and objectives
The research project compared economic activities spurred by electricity distributed by CREE vs DCS, analysing which has better outcomes. It asked three main questions:
What differences are there, if any, in the number of enterprises enabled to start up or expand by access to electricity between areas electrified by CREEs vs DCS?
What differences are there, if any, in the types and sizes of enterprises enabled by access to electricity between CREE- and DCS-supplied areas, as well as their ownership and management?
Which factors might be responsible for any documented differences in either quantity or quality of enterprises enabled by access to electricity through the two modalities?
A comparative analysis approach was used for the study. Four CREE-electrified and four DCS-electrified communities were selected in discussion with the National Association of Community Electricity Users Nepal (NACEUN), an umbrella organisation of CREE, and NEA. The pairs of communities were selected based on geographic, infrastructure, socio-economic, and cultural criteria.
The study methodology consisted of a literature review, a structured questionnaire survey (household and enterprise), key informant interviews, focus group discussions, field observations, and consultations with sectoral experts. Household-level information was collected using a structured questionnaire survey of 770 randomly selected households in the study areas (385 households each in CREE and DCS areas). Focus group discussions, key informant interviews, and field observations were used to validate data collected through enterprise and household surveys and also to collect additional information. A participatory process was ensured by engaging project beneficiaries, local government authorities, and local partner organisations in the study.
Given the limited number of pairs of sites in this study, it should be considered as a set of case studies – the findings of which are suggestive of correlations that would require further data collection across a wider sample of sites to confirm.
Research results, key messages, and recommendations
In three out of the four study sites, the CREE-managed distribution systems demonstrated higher levels of enterprise development than the DCS-managed ones, by a clear margin (based on two metrics; households per enterprise, and number of enterprises created per year since electrification). A similar trend was found in terms of local employment generation.
When looking at the role electrification may have played in enterprise establishment, the study categorised enterprises as having a high, medium, or low dependency on electricity. The proportion of enterprises in high and medium electricity dependent industries was higher in CREE-managed systems than in DCS-managed ones.
The number of enterprises with higher level of investment was slightly higher in CREE areas than in DCS ones.
The study found that CREEs are more responsive to consumers’ needs than the traditional utility model, are quicker to issue new connections, and provide quicker power restoration when minor faults occur.
CREE-managed systems are not entirely independent and still have to rely on the utility for major repairs.
These findings suggest that more attention should be paid to the CREE model of distribution system management as a means of providing higher quality and more sustainable access to grid electricity for rural communities.
The research will help to guide the GoN in policy formulation on suitable models for rural electrification. It will provide evidence to policy makers and development partners – informing future investments in the electrification models and approaches that are most likely to contribute to economic growth in rural areas and support livelihood development.
National Association of Community Electricity Users Nepal (NACEUN)