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Something is not right

   March 24, 2019        189        Babar Khan

Nepal’s fast flowing rivers offer a tremendous resource to generate clean renewable energy that can fuel its inclusive growth. That is a double bonanza given how other energy sources are contributing to climate change—increasing the risks to lives and livelihoods around the world.

As the country marks its first year of a stable government, the hydropower sector is rightly receiving the attention it deserves. While this surge in activities to build new plants is providing Nepal a path toward greater independence in managing its energy requirements, there is a serious issue that needs to be addressed: Lack of standardization of operation and maintenance procedures in the existing plants.

This issue affects the ability of private and public industry players to scale up their operations by eating into their profit margins. If Nepal is serious about tapping its hydropower potential, it also needs to invest in strengthening internal capacity of not just building a hydropower plant but more importantly, operating and maintaining it in a manner that allows for greater efficiency and durability. This internal ability is also important to showcase to foreign investors that this sector is sustainable and offers good returns.

For over two years, I have been visiting Nepal intermittently—working closely with Independent Power Producers Association of Nepal (IPPAN) and International Finance Corporation (IFC)—to help internalize some of the international best practices. I have visited several hydropower plants—both public and private. Our partnership allowed us to take several Nepali private sector players to tour power plants in Canada. The tour in Canada included both public and privately-owned hydropower plants. The 17-year-old plant in Nepal looks and operates poorer than a 90-year-old plant in Canada.

What’s wrong? 
This tells us something isn’t quite right. Hydropower is a cost and time intensive investment. If it requires significant additional rehabilitation and replacement costs to run it even for 30 years—the cut-off period for handing it over the government—this will certainly negatively influence the investors’ confidence.

Nepal has a unique licensing arrangement, which allows Nepal Electricity Authority (NEA) to take over the plants after 30 years. Countries like Canada offer different arrangements where licenses are provided for perpetuity—as long as developers can run it profitably without compromising safety and the environment.  This process provides an added incentive for the developers to maintain the plants properly. This topic requires a separate discussion but creates an upsetting prospect for NEA to take ownership of barely functional power plants after 30 years—whose maintenance costs could outweigh the benefits.

Diagnosis
From my site visits in Nepal, I have concluded that Operation and Maintenance (O&M) appears to be underfunded, and yet we hear from many of the owners that their O&M costs are increasing and out of control. The reason lies in corrective maintenance rather than preventive and routine maintenance. It is like buying a new car. If you don’t do the prescribed regular maintenance and change oil at regular intervals, at some point you will have to replace your car engine altogether.

This heavy reliance on corrective maintenance rather than preventive maintenance also raises the cost significantly. I did a back-of-the-envelope calculation for one hydropower plant in Nepal and compared it with a similar plant in Canada with similar conditions. The plant management in Nepal was spending almost double on operation and maintenance costs, compared to the Canadian plant. The global average annual spending on Operation and Maintenance is between one to four percent of the total investment. From my limited assessment, the average in Nepal seems to be much higher.

Several factors could be contributing to this higher cost. Site staffs perform major maintenance work rather than specialized service providers. The issue is further compounded by the lack of proper maintenance training for staff. There is a possibility that the increased costs are also due to improper alignment and fitting issues associated with replacement parts. Both new and old projects appear to rely heavily on manual input. I also sensed a fear of automation and digitization, perhaps as result of their experience with substandard equipment.

Support services
Since there are no reliable technical support services, owners are forced to depend on site staffs—who have limited in-house capabilities—to perform all the work themselves. This reactive maintenance fails to create a process of systematic risk assessment, prioritization, inventory control, and strategic planning. For example, when a sensor breaks down, there are no replacement parts immediately available. Operators are then forced to bypass the sensor system and make it manual to continue the operation. Over time, even the limited automated systems became a complete manual operation. This process is a recipe for serious disaster, as it deprives the site staff of the opportunity to detect problems early on contributing to a higher maintenance bill.

The other key finding is the plant staffs’ and management’s lack of health and safety awareness and failure to internalize best practices in detecting hazards to prevent injuries or deaths in the work site.

In addition, these projects must be treated as industrial facilities with a built-in culture of safety and environmental stewardship. This issue calls for investment in regular staff training for sustainability of this very significant industry in Nepal.

Understandably, developers do not want to spend more money on O&M. Standardizing the operation and maintenance process does not necessarily mean higher costs. In fact, as I have argued above, a pre-emptive maintenance can save costs and increase profit margins in the long run. IPPAN, the umbrella organization of private sector developers, clearly recognizes this issue and is taking step towards addressing it.

Republica

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