Nepal could play a crucial role in providing green energy to South Asia by reducing the output of black carbon that accelerates climate change and pollutes the majestic Himalayas. But how can we ensure Nepal’s energy production is in harmony with nature and local communities? FMO’s ‘Environmental and Social’ sector initiative is a good start.

Black snow on the slopes of the Himalayas; those words alone should send shivers down anybody’s spine. The kind of chills you get when realizing something is horribly wrong. And there is. In the Himalayas snow turns dark as increasing amounts of dust settle on the icy peaks of the roof of the world. The dust is made of soil, soot from fires and ultra-fine particles of black carbon from industry and diesel engines, whipped up by fierce winds sometimes hundreds, even thousands of kilometers away.

Mountains may be rugged and majestic, but they also nurture fragile environments that are particularly vulnerable to climate change. The darkness of the snow reduces the ability of the ice to reflect sunlight, a process known as albedo. When less sunlight is reflected, more must be absorbed by the earth and converted into heat. The quicker the ice melts, the less it can reflect, and so on. This is a huge barrier to reaching the Paris Agreement’s 1.5⁰C goal and a cause for grave concern, as it will increase the frequency and magnitude of extreme weather events and natural hazards. Under a business-as-usual scenario, 50 percent of the Himalayas glacier volume will be gone by the end of the century, predicts Joseph Shea, a glaciologist at the University of Northern British Columbia in Canada.

But it is also a process that can be slowed down, or maybe even stopped. “Renewable energy that offsets fossil fuels can provide an immediate reduction in black carbon emissions,’’ says Joseph Silvanus, managing director of Dolma Consulting, part of the Dolma Group, which includes the Dolma Fund, an impact fund designed to grow sustainable private sector employment in Nepal. “And it takes only one layer of snowfall to cover dark deposit caused by soot emission,’’ he added.

Joseph Silvanus - managing director of Dolma Consulting
“Renewable energy that offsets fossil fuels give an immediate reduction in black carbon emissions.’’

Nepal – the landlocked Himalayan country, sandwiched between Asia’s two most populous nations, India and China – has the potential to hold a key position on the subcontinent when it comes to green energy. Its rivers that sprout from the highest mountains in the world, offer a vast potential for hydropower in the region of 40.000 megawatt. The Himalayan region is also known for high solar radiation, providing a huge capacity for potential solar power development. “Nepal could potentially provide North India, Bangladesh and parts of China with green energy,’’ Silvanus says. And at the same time, address chronic poverty levels in Nepal, one of the world’s least developed countries. With the potential revenues from power export, funds could be generated for education, healthcare, housing, agriculture and infrastructure.

FMO’s mandate is to provide sustainable economic development and generate positive impact from its investments. In 2008 FMO invested in the Nepali Clean Energy Development Bank, now merged with NMB, one of the leading commercial banks in Nepal. It was an investment that triggered a journey in Nepal towards responsible investments in renewable energy, and the adoption of high environmental and social standards. But it is also a journey that comes with challenges. Despite its abundant renewable energy potential, Nepal still currently imports 500 MW of (coal-fired) electricity from India throughout the year.

FMO co-financed two hydropower projects in Nepal. Lower Solu in 2014 and Upper Trishuli in 2019. As the largest private sector hydropower project in the country, Upper Trishuli 1 – still under construction - is a role model for Nepal’s energy sector, having implemented Nepal’s first Free, Prior and Informed Consent (“FPIC”) process for Indigenous Peoples, as well as being the first hydro to use eDNA as a tool for management of impacts on aquatic biodiversity. Furthermore, it has a fish ladder made to international standards incorporated into the design of the project that minimizes biodiversity impacts by allowing upstream migration of fish. A costly, but necessary, provision to support the maintenance of fish habitats and river ecosystems, says Anjali Sekharan Klein, Environmental and Social Officer at FMO.

Benavides: “It’s a gradual process. You need a few champions to make the case with their peers. Those champions are usually our clients.’’

The fish ladder, or fish bypass, also provides an example of how the journey towards a sustainable hydro-sector is still a challenge. While international investors may require these measures, local investors typically do not monitor whether these mitigation measures are being implemented, which can leave fish stuck in one part of a river. “What we need is a level playing field in Nepal. The same rules should apply for all developers,’’ Anjali said.

Smaller, local developers still struggle to implement high Environmental and Social standards, something that Silvanus from Dolma Consulting confirms. ”Not all energy projects in Nepal are done with enough care for the environment. The smaller developers in particular tend to look too much at the economic side of the project." Carolina Benavides, Capacity Development Officer at FMO, adds: ”Development is good, but not at the cost of environmental and social harm."

For proper environmental care, there is a need for more factual data, Silvanus says. “In particular regarding fish migration and spawning habits. The flora and fauna of Nepal are unique. Do Nepal’s native fish have the same mobility and characteristics as for example fish in Canada? The Golden Masheer is an IUCN endangered species and can weigh up to 70 pounds. With that kind of body weight and length, does it have the capacity to go back to its spawning site through a fish passage? There is no reliable data available on that.’’

In 2018 IFC – the largest global development institution and sister organisation of the World Bank – led an assessment of the cumulative impact of hydropower development in the Trishuli river basin, an area of 32,000 square kilometres across the Central Development Region of Nepal.

The Trishuli River cascades downward from an altitude of 2,600 meters and continues its descent for 130 kilometres through high-altitude mountains before joining the Kali Gandaki River at Devighat in the Chitwan District. At the time of the assessment there were six operational hydropower projects along the Trishuli River. In addition, seven hydropower projects were under construction and at least 23 hydropower projects were in the planning stage with survey licenses being issued by the Department of Electricity Development.

One of the conclusions of the assessments is that given the large number of proposed hydropower projects, alongside other stressors in the basin, continuation of a business-as-usual approach is predicted to result in significant degradation of the Trishuli River and other important environmental components. This would include terrestrial biodiversity, community livelihoods, cultural and religious sites, and water quality. Benavides summarizes it as follows: “40 thousand megawatts is huge and could mean a world of difference to the environment in South Asia and to the economics of Nepal. But only if Nepal gets the environmental and social conditions right. They need to take care of their rivers: if they do not, they could kill the chicken who lays the golden eggs.’’ Or maybe the green eggs in this case.

“They need to take care of their rivers: if they do not, they could kill the chicken who lays the golden eggs.’’

Nita Neupane, Senior Program Officer from the Nepali office of the International Labor Organization, also sees a pressing social issue that needs to be addressed. Some project developers don’t consider the rights of local communities. ”Building a hydropower plant can do a lot of damage to indigenous people. Forests are destroyed, roads are built, sometimes people have to relocate, landslides occur.’’ The ILO-convention 169 – in place since 1989 - is the major binding international convention concerning indigenous and tribal peoples, and a forerunner of the Declaration on the Rights of Indigenous Peoples. ”When it comes to the hydropower sector, this is what we press for, every day.’’

An important step towards a sustainable hydropower sector in Nepal is the upcoming sector initiative. In 2019 FMO facilitated the signing of a joint declaration of the Nepal Bankers’ Association and the Independent Power Producers’ Association of Nepal to promote sustainable development of hydropower in the country. Once cooperation agreements between the Nepal Bankers Association and FMO and IPPAN are also signed, FMO intends to support both sectors in developing capacity based on good industry practice with respect to environmental and social matters. “By cooperating with these associations we hope to support their members in engaging in a long term process to incorporate international ESG standards through trainings, sectorial discussions, by addressing authorities collectively, etc,’’ Benavides explains. “We jointly develop the agenda and they commit to making sure the right people participate and start implementing.’’

It is quite a process, Sekharan Klein acknowledges. “For the initiative to be successful, it is key that the Nepalese believe in it as well.’’ And some already do. IFC has done a significant amount of groundwork in supporting the development of the country’s first Environmental and Social Risk Management guidelines for the financial sector, and has also developed new EIA (Environmental Impact Assessment) Guidelines for the hydropower sector in Nepal. Because of this “push”, the bankers are generally on board.

“Bankers will begin to require their clients to implement Environmental & Social (E&S) standards, not only in the hydropower sector, but also in other businesses. This means slowly, a systemic change is on the way. Developers will need to understand what will be required of them in terms of E&S standards and will need to integrate them into their processes. They may not be eager, but they do acknowledge the importance.’’ Benavides adds: “It is a gradual process, and a few champions are helping to lead the way to make the case with their peers. Those champions are usually our clients.’’

Frontrunner Dolma is at the same time exploring a new route: solar energy. “Hydropower is interesting up to a point,’’ Silvanus states. “The cost of climate mitigation is high. You must keep the equation right. We believe in a judicious mix of hydro and solar. With the kinetic force needed in hydropower, storage is difficult. We still have to work out how to best utilise energy that is generated at off-peak hours. With solar power you can potentially have a battery back-up, storing energy for when it is needed the most. This helps in further reducing the dependence on India’s coal-fired energy import.’’

"To reach Nepal’s ‘15,000 MW in 2030’ goal, it is very important to prepare the sector for international requirements and align on best practices in E&S standards. By bringing together the Banker’s Association and the Independent Power Producers’ Association of Nepal we intend to support the creation of a level-playing field for all actors in the hydropower sector", says Linda Broekhuizen CEO a.i. at FMO.

In the picture seated first at the left side of the table is FMO's Carolina Benavides-Piaggio, Capacity Development Officer, and at the right side in the first seat is Anjali Sekharan Klein Senior Environmental & Social Officer.

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