Why greater private sector engagement is necessary in Nepal’s hydro-electricity sector?

Why greater private sector engagement is necessary in Nepal’s hydro-electricity sector?

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Date: 30th October 2015
Author: CDKN Asia
Type: Feature
Countries: Asia, Nepal

Prof. Dr. Govind Nepal, member of the apex planning body of the Government of Nepal, the National Planning Commission (NPC), answers some pressing questions on the importance of close linkages between the private sector and policy makers in adaptation to climate change at a mini-workshop organised as part of the CDKN supported ‘Adaptation to Climate Change in Hydro-electricity Sector in Nepal’ project.

Why is private sector engagement necessary? A conducive environment is necessary for the required synergies to emerge as private sector investment in Nepal’s hydropower sector is set to increase in the coming years. As the hydropower sector is highly vulnerable to the risks of climate change,  private sector investment is key to addressing the challenges of adaptation and must be engaged to encourage major climate finance mechanisms; greater awareness, assessment and management of climate change risks by the private sector is becoming increasingly important.

What are the climate change risks to hydropower? Changes in water availability, intense rainfall landslides and flooding, landslides leading to high siltation, longer dry spells and higher rates of evaporation impacting water storage are some the climate impacts to hydropower that are worrying investors. Such worries have serious implications for Nepal’s power generation capacity, management of peak supply and demand, and dam safety, warranting additional investments and impacting the profitability of the private investors.

How does the private sector view adaptation? The private sector is quite aware of the risks that climate change poses, with many institutions engaged in assessing current and future climate change impacts as part of a general risk assessment. There are several examples of organisations implementing low-cost, no-regret measures to address current uncertainties that arise either due to data scarcity or climate uncertainties. But not all have undertaken risk management measures or implemented adaptation actions.

Why is the private sector not investing as much as it should in adaptation? The reasons are manifold; lack of scientific evidence of location and business specific impact of climate change could be the main cause of the reluctance of private sector to invest in adaptation measures. In addition, the uncertainty of future climate impacts and the short-termism used in many private sector business planning processes is another reason for this reluctance to invest. Institutions are also reluctant to commit to significant up-front investments given uncertainties around the extent of end benefits.

Collaboration between the private sector and policy makers can help incentivise and enable adaptation, with Research and Development (R&D) helping facilitate decision making and encouraging adaptation. Private/public sector partnerships, scientific organisations and academia can build research-based adaptation by providing companies with guidance, information and shared capacity to help them adapt to climate uncertainties. The Government of Nepal is the key; it needs to play a more active role in encouraging scientific research, facilitating technology transfer, developing human resources, and collaborate and incentivise when necessary. On the other hand, the private sector should share both risks and resources with the government and other partners, and work towards understanding, assessing and managing risks.

In conclusion, private companies' vulnerability, adaptive capacities and incentives for actions are influenced by the markets and regulatory envelope they operate in. Accessibility and affordability of climate proofing technology and the prices of the product will enable the private sector go for adaptation. For this, access to research-based information and support to the private sector for adaptation will provide incentives to adapt. Right polices are the key to influence both markets and regulatory environment to enable private sector to adapt to climate change in the hydro-electric sector in Nepal and elsewhere.

Prof. Dr. Govind Nepal, Member of National Planning Commission (NPC) of Nepal, can be contacted on govindnepal56@gmail.com;

For further information on the CDKN-funded "Adaptation to Climate Change in Hydro-electricity Sector in Nepal" project, please contact Dr. Divas B. Basnyat, Team Leader, NDRI, divas@ndri.org.np, Telephone: +977-1-5537362, 5554975)



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