Can Nepal go from hydro to hydrogen?

The venue was the Soaltee Hotel in Kathmandu, the subject was investment in the energy sector, and participants were government officials, international partners, non-resident Nepali investors, engineers and economists.

But unlike previous power summits in Nepal, this one was not about hydro but about hydrogen.

Green hydrogen has suddenly become the holy grail for resource economists because of a confluence of factors: the urgent need to decarbonise in response to the climate crisis, Nepal’s growing hydropower surplus, the country’s burgeoning petroleum import bill, and a chronic shortage of fertiliser that is affecting agriculture production.

The Nepal Green Hydrogen Summit 2022 on 10-11 October in Kathmandu brought together 100 officials and experts from Nepal and abroad to discuss the feasibility and necessity of developing a strategy to use hydropower to produce hydrogen fuel and fertiliser.

The Summit’s sub-heading, ‘An Antidote for the Melting Himalayas’ sounded ambitious and a bit premature, but the sponsors stressed that it could be a win-win-win for the country if the country started planning early for a hydrogen transition.

The technology is not new, and projects in industrialised countries have shown that it is technically feasible to split water molecules into hydrogen and oxygen by electrolysis on an industrial scale. The hydrogen can then be used in fuel cells to heat homes, and to power cars, trucks, ships and even planes.

The hydrogen can also be synthesised with nitrogen from the atmosphere to synthesise ammonia, which can then be combined with carbon dioxide to manufacture urea.

“Because of Nepal’s hydropower surplus, green hydrogen can be a game-changer,” explains Kushal Gurung of Windpower Nepal, a co-organiser of the summit. “There are technical and financial challenges, but they can be overcome.”

Hydrogen fuel cells for cars and trucks still have storage and transportation issues. For now, the most feasible use of green hydrogen in Nepal is for the production of ammonia and urea, both of which are imported and can be produced using renewable hydropower.

The Nepal Army imports Rs13 billion worth of ammonia for explosives, and Nepal needs 700,000 tonnes of urea worth Rs20 billion every year which is heavily subsidised. But a chronic shortage of chemical fertiliser at harvest time has been affecting Nepal’s crop yields.

The production of ammonia by combining hydrogen from water and nitrogen from the air is energy-intensive, but fairly straightforward. To make urea, however, ammonia has to be synthesised with carbon dioxide sourced from cement and other industries. (See chart, below)

Speakers at the Green Hydrogen Summit this week pointed out that if Nepal starts planning now, it will be possible to have a urea plant operational within 4-6 years. But they said it may take another 10 years for Nepal to be able to export hydrogen fuel, or use hydrogen fuel cells for cars.

Energy Minister Pampha Bhusal and Kulman Ghising of the Nepal Electricity Authority (NEA) also attended the summit, and pledged to make 50MW of subsidised power available for future green hydrogen startups.

Investment Board Nepal (IBN) had earlier done a feasibility for a chemical fertiliser plant in Nepal powered by either natural gas or electricity. It showed that if hydroelectricity is available at Rs3 per unit, urea can be manufactured for $436 per tonne. The current international price for urea has gone up to $750/tonne.

But besides subsidised hydroelectricity, a urea factory would also need carbon capture technology and a tie-up with an existing or future cement plant in Nepal.

“We are willing to provide electricity at a cheap and competitive rate to any future green hydrogen industry, and would encourage such investment to consume Nepal’s surplus electricity,” NEA’s Kulman Ghising told the summit.

A spurt in the number of new hydroelectric plants on Nepal’s rivers has increased installed capacity to 2,200MW, while peak national demand is 1,800MW. Lack of distribution lines, and India’s refusal to buy power from plants that were built by Chinese contractors has meant that Nepal can only export 364MW.

NEA was negotiating with India to sell another 200MW, but without success. As a result, up to 800MW of electricity went waste over Dasain because late monsoon rains meant hydropower plants were running at full capacity while demand during the holidays plummeted to only 700MW.

As a result, Ghising said NEA lost Rs20 million in revenue from ‘spilled’ electricity over the Dasain week. This is the kind of excess electricity that Nepal could use to produce green hydrogen to manufacture urea in the country.

Nepal earned nearly Rs8 billion by selling 1 billion units of electricity to the day-ahead market of the Indian Energy Exchange Ltd from 2 May to 11 October this year, but this amount could have been much more if more of the surplus could have been exported to reduce Nepal’s trade deficit with India. Also, Nepal will need to import some electricity from India this winter when generation capacity goes down and demand rises.

At present industrialised countries are producing hydrogen fuel cells for cars and using hydrogen to produce fertiliser, but using fossil fuel as energy. This is called ‘grey’ or ‘black’ hydrogen because the process is carbon-intensive.

‘Blue’ hydrogen technology is also being used in Japan and elsewhere, in which up to 80% of the carbon produced in the process is captured. But high gas prices have affected this pathway.

“Electrolysis for green hydrogen production is capital intensive, and needs to significantly scale-up and reduce its cost by at least three times over the next decade or two,” Emanuele Taibi of the Abu Dhabi-based International Renewable Energy Agency (IRENA) told the World Economic Forum. “But green hydrogen might witness a similar story to that of solar photovoltaics … with decreasing cost.”

More than technology, cost and who will bear it will be the main factors for Nepal’s green hydrogen future. Speakers at the summit suggested private-public partnership with grants and a strategic national decarbonisation policy.

Jamuna Gurung of MIT Group Foundation, another summit co-sponsor, stressed that green hydrogen technology may not be immediately feasible for Nepal. However, she added: “For climate mitigation and to reduce import dependence, we have to go for green hydrogen production from renewable energy. For this, Nepal will need blended financing, with grants and concessionary loans, and private-public partnership investment.”

Windpower Nepal’s Kushal Gurung agreed that green hydrogen will not be feasible at present through the private sector alone. But, he added: “If the government makes this a priority sector for investment and concessional financing, green hydrogen can be a game changer for Nepal.”