Introduction

• Context and objective of the study

• Overview of Nepal's development context

• Development

• Energy

• Rural energy development programme (REDP)

• REDP in Nepal

• Costs and investments for REDP's MHS programme

The aim of this study is to quantify the development benefits of electricity access and to assess how electricity access contributes to the achievement of the millennium development goals using Nepal as a case study. Nepal is one of the poorest and least developed countries, with marked disparities between rural and urban areas; it is also emerging from a period of internal unrest. Access to electricity remains very low, especially in rural areas, where only 34 per cent of the population has access to electricity. To boost development in rural areas, the Government of Nepal is emphasizing the provision of decentralized energy systems such as micro-hydropower, solar PV home systems or improved cooking stoves. Its Rural Energy Development Programme (REDP) operates not only in the provision of hardware but also in wider development activities through community mobilization.

Context and objective of the study

Access to modern energy services is essential for poverty reduction and sustainable development. Living without modern energy services significantly compromises progress towards the MDGs, including those relating to poverty reduction, child and maternal survival, education, gender equity and environmental sustainability. Yet 2.7 billion people still depend on traditional biomass for cooking and heating, and 1.4 billion people have no access to electricity (IEA, UNDP, UNIDO, 2010).

Access to modern energy services to meet the basic development needs of poor people must be a top priority on the international development agenda. Those needs include:

• modern fuels and devices for cooking;

• electricity for health clinics, schools and public lighting;

• mechanical power for basic agricultural and food processing, and water pumping;

• energy for cottage- and micro-enterprises; and

• household electricity for illumination and communication.

Such services can drastically expand poor people's opportunities and choices for development. They also help to develop social, economic and environmental capital, which are essential for people faced with adapting to the increased risks from climate change.

Recognizing the fundamental role of energy for sustainable development, a recent report issued by the United Nations Secretary General's Advisory Group on Energy and Climate Change (AGECC) has called on the United Nations system and its Member States to commit themselves to ensuring universal access to modern energy services by 2030 (AGECC, 2010).

In order to ensure that new investments in energy access programmes are cost effective and actually provide the expected development benefits, it is critical for policy makers and practitioners to understand what works and what does not work, and where their efforts should best be concentrated. Evaluation of the impacts of energy initiatives allows for comparisons between different approaches in terms of delivery of results, and provides a more solid basis for prioritizing programmes and developing successful policies.

It is particularly important to document the development benefits of decentralized off-grid electrification systems, because the relatively high up-front costs have often deterred governments from investing in these systems (Box 1). To date, analysis of the impacts of decentralized off-grid electrification models has been scarce and there is a knowledge gap in terms of exactly what levels of development benefits they deliver to communities.

This study aims to fill the knowledge gap on the development benefits of off-grid electrification systems by providing an assessment of impacts from such programmes, and showing that the benefits from investing public and private funding in this area far outweigh the costs.

The main objectives of this study of the Nepal national micro-hydropower programme are to:

• quantify the benefits of access to off-grid electricity in remote rural villages. The study assesses the development benefits of electricity from Nepal's national micro-hydropower programme (popularly known as the Rural Energy Development Programme), which is executed by the Alternative Energy Promotion Centre of the Government of Nepal with support from UNDP, the World Bank and other partners. It also examines the benefits of expanding access to electricity using micro-hydropower systems as an entry point for rural development.

• demonstrate the linkages between electricity access and the MDGs. The study seeks a better understanding of the various MDG-related development benefits of expanding access to electricity based on decentralized off-grid models. A previous report produced by Winrock International Nepal (2007) assessed the development impacts of the Rural Energy Development Programme, which provides a wide variety of energy systems (e.g. solar household systems, improved cooking stoves, and biogas), with regard to MDG-specific indicators; however, it did not quantify the development benefits derived specifically from expanding access to electricity.

• highlight lessons learned and provide recommendations to policy makers. The study provides important information and recommendations for policy makers and development practitioners seeking to expand energy services to enhance economic growth in rural communities and accelerate progress in meeting MDG targets.

Overview of Nepal's development context

Development

Nepal is among the world's poorest and least developed countries. The Human Development Index 2007 ranks Nepal 144th out of 182 countries (Table 1; UNDP, 2009).

Rural-urban disparities are still large in Nepal. Urban poverty stands at around 10 per cent, compared to about 35 per cent in rural areas, where 85 per cent of the people live. While 80 per cent of households are involved in agriculture, the sector contributes only 35 per cent of Gross Domestic Product (GDP) and has high underemployment rates and low productivity. Expansion of rural electrification is one of the five key elements outlined by the national Agriculture Perspective Plan to improve the agricultural sector (IMF, 2007).

Nepal is currently in a transitional period following internal conflict. The government proposed a three-year Interim Development Plan to address challenges during the transition. The Plan's main objective is to reduce poverty and unemployment, and to establish sustainable peace. The main strategies identified are broad-based economic prosperity, good governance in development activities and service delivery, and inclusive development (ADB, 2007). The primary challenge is to alleviate poverty and reduce the increasing gap between rich and poor (Government of Nepal National Planning Commission, 2007b).

Energy

The primary source of energy in Nepal is traditional biomass. Biomass accounts for about 86 per cent of total energy consumption. Firewood alone meets nearly 77 per cent of total energy consumption. Around 93 per cent of rural households and 40 per cent of urban households rely on biomass fuels for cooking and heating (Ministry of Health and Population, 2007). Electricity, meanwhile, accounts for just 2 per cent of the total energy consumption in Nepal; more than 99 per cent of electricity is generated by hydropower.

Access to electricity remains very low, especially in rural areas, where only 34 per cent of the population has access to electricity, compared with 90 per cent in urban areas (IEA/OECD, 2009). In 2007, just over half of Nepal's Village Development Committees (VDCs, the lowest local administrative units) had electricity access (Government of Nepal National Planning Commission, 2007a).

New and renewable energies are already well developed in Nepal. This is a result of the strong support of the national executing agency for rural energy programmes, the Alternative Energy Promotion Centre. By July 2009, renewable and alternative energy systems had benefited about nine per cent of the population nationally. The installed systems include biogas plants (214,000), micro-hydropower (13.5 MW), improved cooking stoves (300,000), solar PV home systems (18,000), solar tuki sets (59,120), and improved water mills (5,500) (AEPC, 2010).

The government recognizes that the expansion of electricity services to rural areas will improve the standard of living of the rural population and promote social justice. Under its Interim Development Plan, electrification in remote rural areas will be promoted by developing alternative energy systems and, more specifically, through the development of small and micro-hydropower projects. These are considered the foundation for overall economic development, by providing quality energy services at low cost (Government of Nepal National Planning Commission, 2007b).

Rural energy development programme (REDP)

REDP in Nepal

The Rural Energy Development Programme aims to expand access to energy services in rural areas. The programme is executed by the Government of Nepal's Alternative Energy Promotion Centre, with support from UNDP, the World Bank and other partners. It focuses on decentralized, off-grid approaches, particularly efficient in reaching the poor in remote and rural areas (Box 1). By December 2009, REDP had installed 267 micro-hydropower systems (equivalent to 4,453 kW) in addition to 5,440 toilet-attached biogas plants, 2,410 solar PV home systems and 11,757 improved cooking stoves.

REDP applies a holistic development approach that adopts community mobilization as a vehicle for ensuring sustainable active participation and self-governance (see Box 2).

Access to electricity is used as an 'entry point' for REDP programmes, but other activities are also implemented to enhance sustainable development in remote villages. In Baglung, for example, the programme has held awareness campaigns on health and sanitation and has promoted the installation of toilet-attached biogas plants and improved cooking stoves. It has also conducted training on income generation activities using agricultural products. In Kavre, REDP has conducted environmental management classes in the community and encourages parents to send their children to school. It has provided training on off-season vegetable farming, and on productive activities such as poultry farming, sewing/ knitting, saw mills, agricultural processing, or incense stick making. Programme activities are mainly demand driven and based on an assessment of needs. Depending on demand and available resources, some programme managers decide to focus on different training activities. For example, in Baglung, more training was given on issues related to health and the environment, whereas in Kavre the focus was on productive activities.

Water catchment systems, which are needed for hydropower electricity generating systems, can also be used to manage water for drinking, irrigation or other applications.

Costs and investments for REDP's MHS Programme

Between 1996 and 2006, micro-hydropower systems installed by REDP have reached more than 130,000 people at an average cost of about $110 per beneficiary (in 2005 constant dollars). A recent study from UNDP and AEPC (2010) estimated that between 1996 and 2006, REDP's MHS programme installed systems producing 2500kW and benefiting more than 130,000 people. The total cost of this programme over that period was about $14.3 million, of which 56 per cent was spent on capacity development activities. The study showed, however, that per-unit programme costs declined by 73 per cent between 1996 and 2006, mainly driven by the decline in capacity development costs. Funding from public sources was dominant at the outset (well over 90 per cent), but community contributions increased over time to reach almost 40 per cent of investments in 2006.

The MHSs selected for the current study were installed between 1998 and 2002 at an average cost of $85 per beneficiary, and benefit about 7,000 people. The hard costs and capacity development costs vary between sites, but capacity development costs make up the largest share of the programme costs (Figure 1).

Methodology

• Selection of sites for the survey

• Collection of data

• Analysis of data

• Review of compiled data and analysis of general trends

• Identification of potential association between development indicators and access to electricity

• Determination of the extent to which electricity access is associated with observed impacts

• Quantification of benefits in monetary terms

• Limitations

• The with/without methodology

• Data quality and reliability

• Econometric tools and number of observations

• Correlation versus causality

• Sample bias

• Representativeness of the sample

The analysis of the development benefits of the decentralized off-grid electrification programme presented in this study is based on a field survey conducted in rural communities of Nepal. Information was collected from communities that have been beneficiaries of the REDP micro-hydropower programme, as well as nearby communities without electricity access, and it was analysed to determine linkages between electricity access and MDG-related indicators. Where possible, the contributions of electricity in improving economic, social and environmental conditions of electrified communities were quantified. This chapter describes the selection criteria for the communities and the 570 households that participated in the survey, how the data were collected and analysed, and the limitations of the method.

Introduction

In order to evaluate the development benefits from access to electricity in a specific context, it is necessary to compare the actual observed benefits with a hypothetical situation in which there is no electricity.

For this study we chose to compare communities 'with' and 'without' electricity. This method was chosen because it allows for identification of incremental development benefits or changes in socio-economic and environmental conditions of a particular community in relation to a baseline situation where there is no access to electricity. For the purpose of this study, we were able to identify communities with and without electricity that had similar baseline situations.

The study then used statistical techniques to analyse the differences observed between communities with and without electricity. The objective was to evaluate the strength of the correlation between electricity access and the improvements in MDG-related indicators. A strong correlation was confirmed when statistical analysis showed a low probability that the connection between electricity access and a particular indicator was due to chance.

In order to determine the extent to which development benefits, such as increased incomes, could be attributed specifically to electricity access rather than other factors such as geographical location or education levels, the study then used a software programme to perform statistical regression analysis. Using regression models, the study produced estimates quantifying the average development benefits gained by households with electricity. For those benefits related to development indicators such as income, expenditures and time allocation, an estimated monetary value was also determined.

Selection of sites for the survey

Out of 273 MHSs installed by REDP in 2008, six MHS installations were selected, located in the two districts of Baglung and Kavre (Tables 2 and 3, and see map in Annex 2). These MHSs are managed by Village Development Committees (VDC). The two districts were selected out of 17 districts in which REDP is active, based on a number of criteria designed to enable evaluation of the potential benefits of electricity access in rural areas. First, only districts that contained at least three MHSs were selected. Second, selected MHSs had been in operation for at least five years and were providing services to at least 50 households. Third, each of the two districts contained communities with and without electricity that had similar baseline situations (e.g. population sizes, socio-economic development levels, and geographic situations such as similar ecological zones and distance to the river). Finally, electrified communities had some productive use of electricity (e.g. agro-processing, sawmills).