Bhutan (2012)

Degree of reliance on imported energy: 

<p>
Bhutan does not have oil and gas resources, and depends exclusively on importing refined petroleum products from India. Total oil and petroleum product imports were 1,250 bbl/day in 2007. The domestic consumption is considerably lower than indigenous electricity production.</p>
<p>
The country also imports electricity from India during winter months to meet peak demand during winter.<br />
&nbsp;</p>

Main sources of Energy: 

<p>
Total Installed Electricity Capacity (2010): 1,505 MW<br />
Hydro-electric: 1,488 MW<br />
Diesel; 17 MW<br />
<br />
Total Primary Energy Supply (2005): 554.7 ktoe<br />
Biomass (predominantly Fuelwood):&nbsp; 41.8%<br />
Electricity: 39.1%<br />
Oil and Petroleum Products: 13.2%<br />
Coal: 4.9%<br />
Others: 1.0%<br />
<br />
Bhutan, due to its rugged terrain, is endowed with a perennial flow of rivers, and rich vegetative cover of approximately 64.35 %. Bhutan is the only country in South Asia with surplus power generation capacity, and a hydropower sector that contributes 40% of government revenues, 45% of export earnings, and 25% of gross domestic product (GDP) in 2009. Given the potential of hydropower as a major export, and the potential of electrification to improve the living conditions of the rural population, the government has undertaken far-reaching institutional reforms to improve the investment climate for export-oriented hydropower projects, and to expand power distribution to largely rural domestic consumers in a financially sustainable manner.&nbsp; Today, Bhutan exports more than 75% of the hydroelectricity produced to neighbouring India.<br />
<br />
Renewable energy sources dominate the current energy supply in Bhutan.&nbsp; Firewood is the main source of primary energy and it represents the largest share of energy consumption.&nbsp; More than 60% of the population live in rural areas, where they have no access to modern forms of energy supply, and fuel wood is easily available from nearby forests.&nbsp; Bhutan is also endowed with vast hydropower potential from the perennially snow-fed north-south flowing rivers .&nbsp;<br />
<br />
Since 2007, hydropower generation has quadrupled to 1,489 MW and is further expected to increase to 1,602 MW by the end of the Tenth Plan and possibly reach 10,000 MW by 2020 .&nbsp; The total installed capacity of hydro power at present is 1488.66 MW. The domestic consumption is approximately 250 MW, and the rest is exported to India through a bilateral contract. Bhutan has 27 hydropower stations, comprising 4 major hydroelectric power plants, 12 mini-hydro plants, and 10 micro-hydro plants.&nbsp; The total power generation increased from 2,060 GWh in 2002 to 6,925 GWh in 2009, as a result of the commissioning of the Tala HPP in 2007.<br />
&nbsp;</p>

Country: 

Bhutan

Extent of the network: 

<p>
Population Access to Electricity (2009): 60%<br />
<br />
The figure above is expected to reach 84% by 2012 on the completion of two ongoing projects supported by ADB and the Japan International Cooperation Agency (JICA). After the completion of the government&rsquo;s own rural electrification program, which is running in parallel with those projects, around 8,500 households will still be left for further electrification through grid extension. After the completion of the Government&rsquo;s own rural electrification program, which is running in parallel with those projects, around 8,500 households will still be left for further electrification through grid extension. Those households are scattered in remote areas throughout the country and most of them are in the central and eastern regions of Bhutan, which are far from the commercial and industrial centres in the western region.<br />
&nbsp;</p>

Capacity concerns: 

<p>
In Bhutan, domestic demand for electricity has been growing by around 17% per year on average over the past 5 years. This demand growth is expected to escalate in the long run due to the increase in the number of new customers connecting as ongoing rural electrification is completed. Bhutan has already experienced power shortages, particularly in the dry winter periods when hydropower generation is reduced due to low river flows. Despite the nation&#39;s annual net power surplus, Bhutan&#39;s power generation from run-of-the-river hydropower plants is very seasonal, as the water flows and levels are difficult to control in the dry season. Consequently, the existing generation systems have been unable to meet the recent fast-growing demand during the dry winter peak periods. In the last two winters, the BPC has been forced to limit power supply to industry, resulting in economic and revenue losses. In the 2010 winter, it was estimated that the power generation shortfall against the growing demand was around 25 MW, which would have significant impacts on industrial production. The Druk Green Power Corporation (a state-owned generation company) also reported that levels of water flow in rivers had been declining in recent years due to changes of monsoon patterns, leading to less hydropower production. Increased power imports from India would not be feasible due to more severe power deficits on the Indian side.&nbsp;</p>

Potential for Renewable Energy: 

<p>
<u>Hydropower</u><br />
Hydropower is the largest RE resource in Bhutan - the source for 99% of the country&rsquo;s electricity generation today. It is widely abundant in terms of potential, estimated at 30,000 MW.&nbsp; The total hydroelectric technically exploitable capacity, based on all practicable sites for head development and assuming average flows, is estimated at 23,500 MW .<br />
<br />
Accelerating hydropower development for export is of strategic significance for Bhutan&rsquo;s economy. Given the government&rsquo;s limited fiscal capacity for large infrastructure projects, the strategy is to leverage public and private investments to accelerate hydropower, and generate income for further socio-economic development.&nbsp;<br />
<br />
<u>Biomass Energy </u><br />
Today, biomass is the predominant fuel, with the largest share of the overall energy supply.&nbsp; Biomass includes wood, wood waste, pear, wood liquors, rail-road ties, pitch, wood sludge, municipal solid waste, agricultural waste, straw, tires, landfill gases, fish oils, and other waste materials. The entire rural population uses fuel wood as its main source of energy, while the urban and suburban population uses it for space heating during winter.<br />
<br />
<u>Solar Energy </u><br />
Solar power has become an important part of rural electrification. Where the grid extension is assessed economically unfeasible, off-grid electrification has been pursued, mainly through stand-alone solar home systems. Most of them have been installed in rural households under donor-assisted grant projects, and up to 2010, 1,750 additional solar home systems were installed by the Government under the National Solar Electrification Program.&nbsp; So far the total installed capacity in the country is a marginal 0.239 MW.&nbsp; The use of solar energy for space heating and domestic hot water production has received little attention from the public and private sectors, mainly due to high cost of solar PV systems, and availability of cheap hydroelectricity, which has diverted the attention of the consumers.&nbsp;&nbsp;&nbsp; The solar resources in the southern and northern parts of the country were found to be 4.0 kWh/m2 and 5.0kWh/m2 per day respectively, according to a study carried out by UNEP.<br />
&nbsp;<br />
<u>Wind Energy / Geothermal Energy </u><br />
Wind power has remained unexplored so far although some efforts have been made in the past to tap it, without any success. No study has yet been conducted into the geothermal potential of the country.<br />
&nbsp;</p>

Potential for Energy Efficiency: 

<p>
Total primary energy consumption in 2005 stood at 323.7 ktoe, with the residential sector contributing the largest share, at 48.7%. The industrial sector consumes the most electricity in the country. Bhutan also has one of the highest per-capita electricity consumptions in South Asia, at 1,174 kWh in 2005. Per-capita energy consumption was 0.62 toe in 2005. The government has recognised the need for energy efficiency in Bhutan&#39;s energy sector, and improvements in efficiency and energy conservation standards for the building sector are being promoted by the government, particularly in terms of lighting and ventilation.</p>

Ownership: 

<p>
<b>Electricity </b><br />
The Electricity Act, 2001 deals with restructuring the power sector. In 2002, the government restructured the Department of Power of the Ministry of Trade and Industry into the (i) Department of Energy (DOE) as the government&rsquo;s policy and planning agency; and (ii) Bhutan Power Corporation (BPC, www.bpc.bt) as the utility service company responsible for transmission, distribution, and supply of electricity. DOE under the renamed Ministry of Economic Affairs continues to be the nodal agency for all planning and coordination activities for the energy sector .&nbsp;<br />
<br />
Bhutan has four major wholly state-owned power stations: (i) Chhukha Hydro Power Corporation (336 MW), (ii) Basochhu Hydro Power Corporation (64 MW), (iii) Kurichhu Hydro Power Corporation (60 MW) and (iv) Tala Hydroelectric Project Authority (1,020 MW).&nbsp; The first three companies (GenCos) were amalgamated to form the Druk Green Power Corporation (DGPC, www.drukgreen.bt) in January 2008.&nbsp; The government established the DGPC as a holding company to oversee its interests in hydropower companies and projects, and accelerate new hydropower development . The DGPC will help usher in more IPP participation (from both within the country and across the border) and Foreign Direct Investment (FDI) to harness the hydro-electric potential of Bhutan.<br />
<br />
<b>Oil and gas</b><br />
There is no upstream oil industry in the country. Downstream services are handled by two firms, in partnership with Indian oil distribution companies; the Bhutan Oil Corporation (part of the Tashi group), and the Druk Petroleum Corporation, Ltd.<br />
&nbsp;</p>

Structure / extent of competition: 

<p>
A competitive market structure is non-existing in Bhutan at present. The electricity supply in Bhutan is still a monopoly, in spite of the restructuring efforts carried out by the government with unbundling of the generation and transmission systems from the otherwise government owned, vertically integrated utility.&nbsp; The BPC has a monopoly on all transmission, distribution and supply activities in the country, whilst the DGPC is the sole government entity in the generation sector .</p>

Existence of an energy framework and programmes to promote sustainable energy: 

<p>
The government&rsquo;s energy development strategy during 1994&ndash;2009 recognised the central role of the power sector in promoting (i) economic development and poverty alleviation by exploiting the abundant hydropower potential for increasing the government&rsquo;s fiscal revenues from power exports; (ii) balanced regional growth through access to electricity for rural communities, and (iii) industrial investments based on the cheap and reliable supply of electricity. To achieve these objectives, the government has recognised the importance of improving the institutional capacity of power sector entities, to expand power generation capacity through investments in large export-oriented hydropower projects, and to expand the reach of the power transmission and distribution network to rural areas .<br />
<br />
The government followed a consistent policy framework during 1994&ndash;2009 to achieve these strategic objectives. The five year plans during this period prioritised the following aspects of this strategy:<br />
(i) establishing a transparent governance framework for the sector by separating the policy making, sector regulation, and utility operation functions;<br />
(ii) increasing the commercial orientation and operational efficiency of the utility function of the power sector, to expand the power transmission and distribution network, to facilitate the evacuation of power from export-oriented hydropower plants (HPPs), and to increase access to electricity for people in rural areas;<br />
(iii) improving the financial performance and cost recovery of the sector through tariff adjustments, whilst maintaining the government&rsquo;s objective of providing affordable electricity to low-income households; and<br />
(iv) establishing a competent agency to consolidate government ownership in export-oriented hydropower projects ,and to act as a strategic partner in developing new export-oriented HPPs .<br />
<br />
<i>10th Five Year Plan, 2008&ndash;2013 </i><br />
The 10th Five Year Plan, 2008&ndash;2013 targeted electrification of additional households to achieve an electrification rate of 80% by 2013. The electrification program under the 10th plan is estimated to cost US$82 million (average cost of US$3,280 per household) as the households remaining to be electrified are located in more remote areas. The rural electrification program under the 10th plan is expected to be financed by Japan International Cooperation Agency (JICA) (for US$31.2 million), the Asian Development Bank (ADB) under the Green Power Development Project (US$25.3 million), Austrian bilateral financing (US$2.9 million), and the government of Bhutan (US$24.5 million). Development partner funding for the 25,000-households program is fully committed, and is being implemented. The government recently increased the target for electrification by 8,989 households under the 10th plan, to achieve the ambitious target of 100% electrification by 2013. This will require additional funding of US$40 million, which is expected to be financed under a proposed ADB loan, to be approved in 2010 or 2011, and additional financial commitments from the JICA.<br />
<br />
<i>Sustainable Hydropower Development Policy of Bhutan </i><br />
The key objectives of this policy are to mobilize funds and attract investments for accelerated hydropower development, enhance the revenue contribution to the Royal Government, contribute towards development of clean energy to mitigate problems related to global warming and climate change. According to the section 1 of Bhutan Sustainable Hydropower Development Policy 2008, there is great potential for increasing electricity export and consequently earn substantial revenues. Huge energy demand in the region offers a big opportunity for Bhutan to develop its rich hydropower resources for export.<br />
&nbsp;</p>

Current energy debates or legislation: 

<p>
In 2011, the Government issued a Draft Renewable Energy Policy that aims to promote alternative renewable energy sources other than large hydropower, and diversify the energy supply base through wind, solar, biomass, and small and micro hydropower.</p>

Major energy studies: 

<p>
Bhutan is part of the South Asian Regional Initiative for Energy under USAID (SARI/E) a program that promotes energy security in South Asia through three focus areas :<br />
<br />
(1) cross border energy trade,<br />
(2) energy market formation, and<br />
(3) regional clean energy development.<br />
<br />
Through these activities SARI/E facilitates more efficient regional energy resource utilisation, works toward transparent and profitable energy practices, mitigates the environmental impacts of energy production, and increases regional access to energy. SARI/E countries also include: Afghanistan, Bangladesh, Nepal, India, the Maldives, Pakistan, and Sri Lanka .<br />
&nbsp;</p>

Role of government: 

<p>
The energy sector is administered under two ministries: the <i>Ministry of Agriculture</i> (MOA, <a href="http://www.moa.gov.bt">www.moa.gov.bt</a>) and the <i>Ministry of Economic Affairs</i> (MOEA, www.moea.gov.bt).&nbsp; The former is mainly associated with the administration of biomass while the latter is responsible for policy formulation, planning, coordination and implementation of conventional energy generation, consumption and exports and fossil fuel imports .&nbsp;<br />
<br />
Under the ministry of Economic Affairs, three departments; the Department of Energy (DOE), the Department of Geology &amp; Mines (DGM) and the Department of Trade (DOT); the regulatory authority (the Bhutan Electricity Authority (BEA)),&nbsp; and the government owned corporations (BPC &amp; DGPC) are the main players in the energy sector.&nbsp; The DOE is the department for the formulation of policies, plans, projects and programmes related to hydropower and alternative forms of energy, whilst the Bhutan Electricity Authority is an autonomous regulatory agency, which regulates the electricity sector .<br />
<br />
The Rural Electrification Department (RED) under the BPC is responsible for the construction of medium voltage (MV) and low voltage (LV) lines and substations, and the provision of service connections to customers in rural areas. The mandate of the RED is distribution infrastructure expansion to work towards achieving the Royal Government&rsquo;s goal of &ldquo;Electricity for All by the year 2020&rdquo;<br />
&nbsp;</p>

Government agencies in sustainable energy: 

<p>
The <b>Renewable Energy Division (RED)</b> under the Department of Energy oversees renewable energy development. The<b> National Environment Commission</b> is responsible for environmental protection.<br />
<br />
The <i>Planning and Coordination Division (PCD)</i> under the DOE has the capacity to assist communities in preparing a Clean Development Mechanism (CDM), and environmentally-related documentations. The PCD also conducts feasibility studies related to the development of large hydropower, and the national transmission and distribution network expansion.<br />
&nbsp;</p>

Energy planning procedures: 

<p>
<i>Hydropower mega-projects </i><br />
The government has entered into a memorandum of understanding with its Indian counterpart to develop 10,000 MW of hydropower capacity, consisting of 11 mega-projects, under bilateral financing from the Indian government and joint ventures with Indian public sector entities. The 1,200 MW Punatsangchhu-I HPP belonging to the 10,000 MW program is under construction with government of India financing, and is expected to be commissioned in 2016. Two other projects (the 990 MW Punatsangchhu-II and 720 MW Mangdechhu HPPs) are expected to begin construction in 2011, with government of India financing, and to be commissioned in 2019.<br />
<br />
<i>Green Power Development Project </i><br />
The Green Power Development Project has two components: (i) regional clean power trade, and (ii) RE access for the poor. Under the first component, the Dagachhu hydropower development (a 114 MW run-of-river type) aims to export power from Bhutan to India through the existing transmission infrastructure. The rural electrification component will provide access to electricity sourced from hydropower to 8,767 households and facilities with grid extensions, and electricity sourced from solar energy to 119 remote public facilities on an off-grid basis.<br />
<br />
In April 2010, the Dagachhu hydropower development was registered as the first cross-border initiative under the Clean Development Mechanism (CDM).&nbsp; The Dagachhu project will enhance cross-border power trade and reduce greenhouse gas pollution in the South Asia region. The plant has been promoted by a joint venture company between the DGPC in Bhutan and the Tata Power Company (TPC) in India through a public&ndash;private partnership (PPP). The rural electrification component is going to be mainly served by the BPC, a public utility service company.<br />
<br />
The <i>DOE</i> has already issued <i>2003-2022 Power System Master Plan</i> and the <i>Rural Electrification Master Plan</i>. An<i> Integrated Energy Management Master Plan</i> is currently has been prepared.<br />
<br />
<i>Power System Master Plan </i><br />
The Power System Master Plan estimates the overall hydropower potential of Bhutan at 30,000 MW with production capability of about 120,000 GWh. With the commissioning of Tala hydroelectric project (1020 MW) in 2006-07, the installed hydropower capacity in Bhutan has reached 1,488 MW, which constitutes only 5% of the potential. The Power System Master Plan 2003-22 shortlists 76 projects: 70 run-of-the-river and 6 reservoir schemes. The total estimated capacity of these 76 projects is about 23,760 MW.<br />
<br />
<i>Rural Renewable Energy Development Project (2010-2015) </i><br />
Supported by the ADB, the Rural Renewable Energy Development Project&rsquo;s primary objective is to increase electrification coverage of households and to strengthen the diversification of power generation source in Bhutan by: (i) expanding rural electrification for all households, and (ii) sustaining its operations and energy security, through a mix of clean energy supply sourced from hydropower, solar, wind, and biogas. The Project has four components: (i) on-grid rural electrification (RE), (ii) off-grid solar RE, (iii) establishment and grid-connection of pilot wind power generation mills, and (iv) a pilot program to promote biogas plants. The project areas are scattered throughout the country and the executing agency is the DOE.<br />
&nbsp;</p>

Energy regulator Date of creation: 

<p>
Under the Electricity Act of 2001, the <i>Bhutan Electricity Authority (BEA,</i> www.bea.gov.bt) was set up as the sector regulator in 2002, and since then it has been regularly revising the tariff structure. In 2007, the BEA approved a multiyear tariff revision for 3 years from 1 July 2007 to 30 June 2010. The BEA issued separate tariff structures for low-voltage, medium-voltage, and high-voltage consumers, in accordance with the Tariff Determination Regulations, 2006.</p>

Degree of independence: 

<p>
The BEA, a functional autonomous agency, was established under the DOE in 2006 in accordance with the Electricity Act (Section 7). The BEA became financially independent in 2007, while functioning as a division of the DOE. It became administratively independent in January 2010, when staffing was de-linked from the civil service.&nbsp; The Authority consists of five part-time Members appointed by the Minister of Economic Affairs, with its Secretariat Office in Thimphu, the capital. Financing for the Authority previously came from budgetary support from the government, and is currently derived from operational revenues, including licence fees.</p>

Regulatory framework for sustainable energy: 

<p>
Electricity Act, 2001 and Bhutan Hydropower Policy, 2008 are the major Act and policy guidelines for the electricity sector of Bhutan. The Electricity Act of Bhutan, 2001 enables the restructuring of the power supply industry and the possible participation of the private sector, by providing mechanisms for licensing and regulating the operations of power companies. The Electricity Act defines the roles and responsibilities of suppliers and protects the interests of the general public. Major purpose of this Act is to provide the technical regulation of the electricity supply industry and one of the objectives is to enhance revenue generation through export of electricity .<br />
<br />
Whilst no dedicated regulations are in place for sustainable energy, other pertinent pieces of legislation include the Grid Code Regulation 2008, the Tariff Determination Regulation 2007, and the Accounting and Reporting Regulation 2007.<br />
&nbsp;</p>

Regulatory roles: 

<p>
The functions of the BEA are to regulate the electricity supply industry, which includes the following :</p>
<ol>
<li>
To set technical, safety and performance standards for the electricity sector;</li>
<li>
To develop electricity tariff regulations and approve tariffs;</li>
<li>
To issue licenses;</li>
<li>
To monitor and ensure the compliance of licensees;</li>
<li>
To settle disputes that may arise between any two licensees or between a customer and licensee;</li>
<li>
The determination of royalties, fines, and penalties to be paid by licensees.</li>
</ol>
<p>
<br />
&nbsp;The BEA regulates the hydropower generation licensees, transmission and distribution licensees and the system operator. It will also regulate other participants in the electricity sector in the future. Previously, if consumers had problems with the BPC, they had no agency to consult to resolve their problems. Now, if consumers are not satisfied with the way the BPC handles their problems, they can appeal to the forum that has been set up to handle consumer grievances<br />
&nbsp;</p>

Role of government department in energy regulation: 

<p>
Although the BEA is envisaged to be an independent authority, it currently falls under the Department of Energy, Ministry of Economic Affairs. Whilst the DOE is responsible for energy planning in the country, it does not take an active role in energy regulation.</p>

Regulatory barriers: 

<p>
The development of RE projects in Bhutan is limited by a lack of data and feasibility studies on potential, including small hydropower projects (below 25 MW); transmission network connectivity constraints, and financial constraints. The systematic assessment of renewable energy resources in the country, in conjunction with further development of the transmission and distribution infrastructure, and supporting financial mechanisms, would foster a beneficial environment for further investment in energy development, particularly from the private sector.</p>

References: 

Department of Energy-Ministry of Economic Affairs-Royal Government of Bhutan. Overview of Energy Policies of Bhutan. 27 March 2009. Available at: <a href="http://eneken.ieej.or.jp/data/2621.pdf">http://eneken.ieej.or.jp/data/26... [Accessed 10th September 2013]<br />
<br />
Department of Energy, Government of Bhutan for the Asian Development Bank (ADB). BHU: Rural Renewable Energy Development Project. August 2010. Available at: <a href="http://www.adb.org/Documents/IEES/BHU/42252/42252-02-bhu-iee-07.pdf">htt... [Accessed 10th September 2013]<br />
<br />
Asian Development Bank (ADB). Bhutan: Energy Sector. August 2010. Available at: <a href="http://www.adb.org/documents/sector-assistance-program-evaluation-bhutan... [Accessed 10th September 2013]<br />
<br />
Asian Development Bank (ADB). Proposed Loans, Asian Development Fund Grant, Technical Assistance Grant, and Administration of Grant. Bhutan: Green Power Development Project. October 2008. Available at: <a href="http://www.adb.org/Documents/RRPs/BHU/37399-BHU-RRP.pdf">http://www.adb.... [Accessed 10th September 2013]<br />
<br />
Pema Yangdon. Department of Energy and Environment- Division of Electric Power Engineering. Chalmers University of Technology. Modeling and Analysis of Competitive Electricity Market in Bhutan. Available at: <a href="http://webfiles.portal.chalmers.se/et/MSc/YangdonPemaMSc.pdf">http://web... [Accessed 10th September 2013]<br />
<br />
Obaidullah, ANM. SAARC Energy Centre Islamabad. Regional Electricity Trade-Legal Frameworks of South Asia. September 2010. Available at: <a href="http://www.saarcenergy.org/PDF%20Files/RET-LFSA-Obaid.pdf">http://www.sa... [Accessed 10th September 2013]<br />
<br />
South Asia Regional Initiative for Energy (SARI) website. Mission statement USAID/SARI. Available at: <a href="http://www.sari-energy.org/">http://www.sari-energy.org/</a> [Accessed 10th September 2013]<br />
<br />
UNDP. Augmenting Gross National Happiness in a Remote Bhutan Community: Community-based micro-hydro for livelihoods enhancement. Towards an &ldquo;Energy Plus&rdquo; approach for the poor: A review of good practices and lessons learned from Asia and the Pacific. Project Duration: August 2005-June 2009. Available at: <a href="http://www.snap-undp.org/elibrary/Publications/Case13-Sengor.pdf">http:/... 10th September 2013]<br />
<br />
South Asia Regional Initiative for Energy (SARI) website. Countries: Bhutan-Energy Sector Overview. Available at: <span style="display: none;">&nbsp;</span><a href="http://www.sari-energy.org/PageFiles/Countries/Bhutan_Energy_detail.asp"... [Accessed 10th September 2013]<br />
<br />
SARI Energy. Renewable Energy and Biofuel Prospects in Bhutan. 25 March 2011. Available at <a href="http://www.sari-energy.org/PageFiles/What_We_Do/activities/worldbiofuels... [Accessed 10th September 2013]<br />