A composite indicator-based method to assess the energy security of Nepal and prospects of cross-border electricity sharing in South Asia

Abstract

Scholars recommend country (or region) specific energy security indices capable of adequately considering local specificities in the absence of a ‘universal’ index. Such an index is not available for Nepal. Hence, this study is the first to develop the Energy Security Composite Index of Nepal (ESCOIN), applying a comprehensive indicator-based approach to quantify energy security (ES) of Nepal. We build upon the notion that a country is able to trade energy when it is energy secure. We quantify Nepal's energy security and qualitatively assess the prospect for regional power trade in South Asia. A long list of 77 indicators is compiled from an extensive review of international literature. Based on the context, applicability to Nepal, data availability and conditions of multi-collinearity, this list of indicators is narrowed down to 21. Principal Component Analysis is then applied to evaluate the importance of the components for ESCOIN. Our results show that Nepal has consistently held a boundary position between “moderate” to “high” classes of ES in the last decade. We identify key reasons for this. First, the country's domestic sector is over-reliant on traditional fuels (dry-dung, firewood and agricultural residues). Second, Nepal faces a problem of suppressed demand in the absence of energy-intensive development activities in all productive sectors of the economy. Third, the growth in the energy demand is met only marginally by domestic hydropower and other renewables, and largely by increasing imports. Hence, we surmise a ‘pseudo energy secure’ state for Nepal. Although efforts are underway, electricity trade with China, Bangladesh and other South Asian Association for Regional Cooperation (SAARC) countries is economically difficult and technically challenging. Hence, cross-border electricity trading, particularly with India, can be seen as an opportunity for Nepal provided considerable infrastructural development occurs, institutional capacity is strengthened, and genuine political commitment and trust are sustained. Moreover, Nepal should focus on achieving self-sufficiency in energy through domestic hydropower and renewable sources and aim to stabilize energy consumption rather than being overly ambitious of exports, at least in the near future.