Solar with Storage: The future for renewables in Nepal

Solar with Storage: The future for renewables in Nepal

Saral Urja Nepal is one of the oldest developers in the block when it comes to renewable energy in Nepal. Better known as SUN, the company represents itself as a distributed energy services company with innovative solutions to address the energy needs of the Nepalese market. SUN strives to help design, develop, implement, manage and finance affordable, reliable, and sustainable energy solutions for all Nepalese. With partnerships ranging from government organizations to financial institutions, Saral Urja has been an active player in the marketplace for solar energy in Nepal. One of the key figures that have been instrumental in leading the company through its growth is Mr. Aashish Chalise, the CEO of Saral Urja. I met with Aashish over a zoom call on a September afternoon to know about his experience of leading a successful renewable energy company and his general insights and expectations of the future solar market in Nepal.

Our conversation kicked off with Aashish reminiscing about one of the projects from the very early days of SUN. The Dubung project at a remote village in the Southern hills of Nepal was the country’s first off-grid solar micro-grid under the Pro-Poor Public-Private Partnership (5P) program. The project was a great success for SUN with high degrees of social and economic impact. “There were stories of people moving back to the villages from Kathmandu after the microgrid was installed as new businesses and entrepreneurial opportunities were created; the electricity enabled new businesses and allowed for government offices and services. We could introduce computers and the internet in the community school as a result.” The micro-grid project of Dubung was developed and maintained by SUN as a micro-grid operator. But things changed when the government policies and regulations shifted to create a system of tendering for the microgrids. With this alteration, the market for micro-grid projects saw the transformation of the business model from serving as developers and grid-operators to just serving as project contractors which ended their responsibility as soon as the construction ended and the grid was handed over to the consumers. With seemingly zero focus on Pro-Poor and in cases not even on making Public-Private Partnership projects, the change in market dynamics attracted bigger developers to bid for lucrative government tenders making the micro-grids a business case only. For Saral Urja, this meant that the market was now somewhere else! “We did not chase these impact projects anymore. They were kept as back-burners. If they came to us, we did it but we did not pursue them.”

Aashish described that during the mid-months of 2016, the electrical connections were a bit more stable in Nepal and SUN started to shift their focus on urban on-grid solar projects. This was a reflection of a bigger picture that was yet to come for SUN. The capital of Kathmandu hosts a lot of houses with terraces containing pre-existing solar systems which were installed to combat the problem of load-shedding. “Once the grid was reliable, we started retrofitting those existing solar projects into on-grid systems. The costs were low and only about 60%-70% had to change their inverters.” This paved the way for installing new solar systems and the Power Purchase Agreement (PPA) to come into existence and eventually the bigger C&I (Commercial and Industrial) model for Saral Urja. “The PPA model allowed cost-free installations of solar systems for customers in the OPEX model, charging them a kWh price less than the utility company giving us a big break-through.” The successful transition of SUN into on-grid renewable solutions saw them closing the third round of investments from Infraco Asia.

New markets
The customer segment in the solar market for urban on-grid is divided into three segments as Aashish sees it. The big industries like cement factories or spinning mills with large roof-tops and high electricity demands fit the criterion for the net-metered rooftop solution. With new restrictions from Nepal Electricity Authority (NEA) to allow projects for up to 500 KW to be net-metered, a drastic downward policy (reducing from 1 MW to 500KW) puts a cap for bigger potential projects in the future. “The PPA format is the chosen mechanism for this segment of large net-metered rooftop C&I projects”. The medium-sized industries are also a lucrative segment for the rooftop solar systems with SUN offering the customers a choice of both PPA and buy-out model (option for consumers to buy out the system at the start). Aashish explains the success of Saral Urja for this segment as they were able to work together with banks to provide collateral-free loans to finance the solar systems. “We got the banks to accept the solar system as a collateral and as such our customers had credit access without risking any personal collateral.” The third and arguably the most lucrative segment in the market would be the individual households. With the sheer amount of households, the segment can be profitable but as Aashish explains, “It is equally challenging and tough to convince a household as it is for a big business. If at Saral Urja we had enough resources, we would have gone for it but now with limited resources, it would make sense to go for a 500KW project compared to a 5Kw project”.

The segmentation of the solar market consumers didn’t necessarily dictate SUN to offer different sale strategies. Aashish explains that the biggest selling point for the consumers was cost-savings. “The concept of saving 10%-12% without spending a single rupee from day 1 was very attractive.” For larger businesses as well as households, the lower costs owing to the shift in renewables coupled with cost-free installation boosted the positivity towards this new system. Interestingly, Aashish points out that in Nepal, the cost-savings are greater for households than businesses as unlike anywhere in the world. Households are charged a higher rate for electricity compared to big businesses and industries. Another significant marketing point for developers to convince the individual micro-level customers was tapping into their sense of patriotism. Aashish describes, “The chance to feed in and contribute to the national energy mix and thus reduce the energy imports from India works as a good selling point”. Although cost savings were on top of the priority list, the bigger organizations were also incentivized by environmental ratings and credentials provided by the governments and other organizations. A global mandate of the global giant Anheuser-Busch in 2021 to implement Renewables in all their breweries saw the Budweiser plant in Nepal move towards the installation of renewables. As a developer in one of the projects, Saral Urja will be taking part in this transformation which can potentially act as an example for the domestic market. Aashish believes that international companies and their pressure for moving towards renewables and sustainability can show the Nepali companies the way for the future. But Aashish rightly summarizes and points out, “90% of the deals is attributed to the cost-saving and Opex model (zero-upfront cost) whereas the rest depends on other contributing factors.”

The market for solar has developed in the last few years in Nepal and Saral Urja has witnessed the hardships and problems that have come along with the success. Answering a question regarding the problems that developers need to tackle, Aashish pointed out the two different streams of problems. “With small house-owners at micro level, firstly adequate roof-space is a concern that house-owners have and issues with the aesthetics of the houses being ruined by solar installations. They are often skeptical about the installed on-grid solar system and the difference between battery backed-up and the one without can be confusing as solar systems are often considered substitutes of on-grid electricity.” The biggest problem in the solar roof-top market for big C&I projects now seems to be the erratic policy making. This along with the slow-paced bureaucratic and organizational process can often delay the projects significantly. Aashish also shared his views on such a process, “In Nepal, the process of having a net metering permission granted can take up to 3-4 months which is very long.”

One of the things we wanted to know from Aashish was his take on the subsidies and grants existing in the market. The access to finance and discounted interest-based loans can often act as a distraction for the developers. Mr Chalise has a clear take on this issue. “See what I try to tell the developers and communicate the message is that the projects are themselves profitable and commercially viable without grants or subsidies. The policies are unstable and erratic and the process is a nightmare.” The market has now experienced a host of developers waiting for more than over a year to avail these subsidies. Talking about the discounted interest provided by the government, Mr. Chalise tells us that the program stopped after two years but has left a mark on the market with developers still awaiting its comeback. We at Saral Urja discourage subsidies. I wouldn’t want to waste my own or my team’s time to run after these subsidies.

The future for SUN
Moving on, our focus shifted to how Aashish envisions the future for Saral Urja. The vision is to not completely change but adequately disrupt the utility market in Nepal as he explains. “We started with solar rooftops and acquired the data from the market. With analysis and gaining more knowledge, we want to integrate battery storage in the near future when the price drops. Slowly from there we move on to energy efficiency and sustainability strategy implementation. So, moving from a roof-top developer we want to be an entire energy management company.” The ideal future scenario for SUN would see them acting as an ancillary service provider to NEA where they come in as a supplier for an area to manage the peak load. “The future in household perspective is to supply energy efficient appliances to designing the entire solar energy system.” The vision of a solar developer is strongly tied with the vision of its investors. Saral Urja is not an exception in this case. Talking about the early stages of the company, Mr. Chalise remembers that choosing an investor was not a luxury they could afford. But now SUN has come a long way and actively looks for investors who share the same vision as them. “The future lies in peer-to-peer energy sharing. So now not only the cost of funds or debt vs equity matters to us but we also look for an investor who could be aligned with our vision and help us achieve that.”

Impediments in the Market
We were nearing the end of our time with Mr. Chalise and before we finished we wanted to know what the future holds for the Nepalese renewable market and what would be the biggest impediments for it. “Nepal is a crazy place for the energy market with the erratic policy formulation and implementation in the market. The Ministry of Energy and the Energy Regulatory Commission formulates solar roof-top policies whereas NEA implements them. For the net metering, we have seen that the formulated policy was changed by the implementing authority.” The development of the solar market has seen the steady rise of consumers availing solar-based solutions. Aashish has rightly pointed out that hustle between solar developers, utility companies, and the electricity authority is always prevalent in the market whether it is in the U.S, Europe, or Nepal. “We have to fight that fight and wait for the time when we can integrate the battery, be financially feasible, and cut the wire.”

The exciting market for the future
“The future for renewables in Nepal is in the solar industry as wind is too expensive and we don’t have enough data.” The market for solar is still relatively empty as Aashish sees it and admits to enjoying the first mover’s advantage when talking to new market segments and industries. “I believe that solar with storage is the next big thing for renewables in Nepal. We need to tackle the dry season, managing the peak load is crucial. If we do not have storage, we can’t solve that and we will always be reliant on imports from India.” The way that Aashish imagines, within the next 5 to 6 years, Nepal should have a fair distribution of renewable energy projects with storage across the country and transmission lines strategically planned. The plans are exciting and the future for the solar market in Nepal is getting ready to embrace the future in a post-pandemic era.

Before we ended our conversation, I wanted to ask Aashish to recommend a book about Renewables for our readers. “I would say that the book Sustainable Energy Without the Hot Air is an interesting read.” Thanking Aashish we ended the call and I was excited to sketch up this article and wait for my next interviewee.

The interview was conducted by Shabab Salehin for OTW