Background
Nepal is facing an energy crisis of unprecedented proportions. The 856 MW total generation capacity managed by Nepal Electricity Authority (NEA) is insufficient to meet demand, leading to frequent power outages. More than 3.5 million Nepalis are unconnected to the grid and do not having access to modern energy technology for lighting and cooking. Accelerating the deployment of renewable energy solutions, both on- and off-grid, is a high priority for the Government of Nepal. The government aims to increase the share of renewables from less than 1% to 10% of total energy supply, and to increase access to electricity from renewable energy sources from 10% to 30% within the next 20 years.
Purpose
Donor funding alone will not be enough to achieve these goals, and the government aims to help the sector access new sources of financing through a shift from ‘aid to trade’ and from ‘subsidy to credit’. The Nepal Blended Finance Project will be the first intervention in Nepal to support this shift, by establishing a blended finance instrument for small-scale renewable energy projects in Nepal, and carrying out capacity building activities. Its aims are to:
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mainstream commercial lending for small-scale renewable energy projects in Nepal
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build capacity among key stakeholders at the provincial level for upscaling renewable energy programmes
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accelerate the transition of the Nepalese clean energy market away from being mostly dependent on subsidies, and help establish a market based on credit
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enhance the Nepalese government’s access to and use of international technical assistance and finance.
In addition, the project aims to generate co-benefits such as a reduction of GHG emissions and increased productive end use of energy. The project, which is funded by the Austrian Ministry for Sustainability and Tourism, will run until August 2022, with the core period of implementation in 2019 and early 2020. The project’s activities will be focused in Sudurpashchim Pradesh, Nepal’s far western province.The project leverages experience gained by REEEP through the implementation of its previous project in Sudurpashchim Pradesh province, which provided credit for improved water mills for productive use. It will also leverage the financial innovation and governance structure developed for the Clean Energy Revolving Fund (CERF) in Cambodia.
The finance instrument, a Credit Guarantee Fund, will be created in close collaboration with NMB Bank Nepal and will finance renewable energy projects through wholesale lending to micro finance institutions and direct lending to communities. Additional financial institutions and banks will be engaged during the fund’s set up and operation, ensuring its sustainability and scalability. Working closely with an international NGO with a strong local presence in Nepal, the project will also design and implement capacity development facilities, which will offer training and support to the relevant Nepalese provincial government agencies and renewable energy technology providers, to increase the uptake of renewable energy technologies.
