A few current success cases and an assessment of biomass potential in the country clearly signal that Nepal’s domestic biomass-based renewable fuel, such as biomass pellets and briquettes, has the potential to extensively replace Rs 62.34 billion (equivalent to diesel) worth of imported fossil fuel, which is mostly used for thermal applications in the industrial sector as well as in micro, small, and medium-sized enterprises (MSMEs) in Nepal. This article presents a significant opportunity for Nepali enterprises to reduce their carbon footprint and become more competitive while achieving substantial fuel cost savings by switching to biomass pellets as a replacement for fossil fuels.
Once adopted, this energy transition will contribute significantly towards retaining foreign currency, mitigating climate change through carbon emission reductions, and relying on renewable energy sources within the country. This shift is a remarkable step that Nepal must take for its sustainable energy future, as it aligns with the local carbon development pathway and contributes substantially towards the country’s NDC, SDG, and Net-zero ambition targets.
With support from the Government of Nepal’s Sustainable Energy Challenge Fund (SECF) viability gap funding focused on market development, awareness generation and demand creation activities to pellet manufacturers, there has been initial traction from industries and enterprises switching from fossil fuels to biomass pellet based burners. SECF, which is embedded within the Central Renewable Energy Fund (CREF), a financial mechanism of the Alternative Energy Promotion Centre, was established and operationalized with funding support from the UK in Nepal and technical assistance from Nepal Renewable Energy Programme (NREP). NREP is a Government of Nepal programme implemented by Alternative Energy Promotion Centre, and a consortium led by DAI Global and Winrock International.
So far, SECF has supported over 40 MSMEs in transitioning to pellet burners, replacing fossil fuels such as diesel, LPG, and firewood. The investment required is relatively manageable, typically involving only the replacement of burner equipment rather than the entire boiler set.
SECF motivates and supports enterprises and industries to switch to biomass pellet or electric burners by offering 50% capital cost coverage for large technologies like boilers and burners or 50% of market development costs for smaller burners and stoves, with funding not exceeding NPR 10 million.
Fuel switching
Fuel switching refers to the process of transitioning from carbon-intensive fuels, such as diesel, LPG, furnace oil, and burnt engine oil, to low- or zero-carbon fuels like biomass pellets, briquettes, and electricity. This shift is aimed at achieving economic, environmental, and efficiency benefits by reducing carbon emissions, lowering fuel costs, and promoting cleaner energy sources. Based on Fiscal Year 2022/23 data, out of the total petroleum products import of Rs 300.28 billion, a significant portion is used for thermal applications in industries and enterprises. Nepal has more than 60,000 industries, out of which approximately 3,200 are manufacturing industries. The total thermal energy consumption by manufacturing industries was estimated to be around 92.90 petajoules (PJ) in FY 2022. These industries consume around 63 percent of non-renewable fossil fuels (petrol, diesel, coal, furnace oil, LPG, and burnt engine oil).
On the other hand, boilers are heavily used in the food, beverage, and tobacco industries, with diesel accounting for 12 percent of the thermal energy used in boilers, generating approximately 0.83 million tons of CO2 emissions. Whereas in furnaces, coal is the primary fuel, with 31.46 PJ consumed, followed by furnace oil (11.83 PJ) and diesel (7.11 PJ). This reliance on fossil-based fuels results in the generation of approximately 4.43 million tons of CO2, and siphons Rs 85.65 billion annually for fossil fuel imports for thermal use.
Cement, bricks, concrete, and clay products are other manufacturing industries identified as major energy consumers for thermal applications. Additionally, small and medium enterprises, such as food and snack manufacturers, rely on fossil fuels like LPG, diesel, and burnt engine oil for processing. During a recent assessment and discussions with Dalmoth and chips factories, we found that many have faced strong opposition from local communities due to the pollution caused by burning fossil fuels like burnt engine oil, forcing some to relocate their factories. Moreover, these industries are grappling with high fuel costs, which are affecting their competitiveness and leading to reduced production or even closure. Many business owners also expressed a lack of awareness regarding the availability of sustainable and reliable alternative fuels, such as pellets and briquettes, that are produced domestically.
On the contrary, there has been almost Rs 1.4 billion invested in setting up over a dozen pellet/ briquette manufacturing facilities across the country, from Jhapa in the east to Dang in the west. These facilities are entirely based on local renewable forest waste and biomass sources but are operating at very low capacity due to insufficient demand.
Nepal, with approximately 42 percent forest cover, is ideally positioned to harness a colossal volume of biomass as a renewable energy source. Extrapolating from a rough assessment done for the Sagarmatha National Park area, Nepal has enough biomass resources to produce 2.34 million tons of pellets annually from forest waste residues alone. A similar quantity could be produced annually from other waste biomass sources such as wood waste (from plywood factories and furniture industries) and agricultural waste (rice husk).
There are over a dozen active briquette/ pellet industries in Nepal with a combined production capacity of around 1,300 tons per day (assuming 24-hour operations), which can theoretically replace 219.68 million litres of diesel and 181.54 million kg of LPG annually in the country.
Despite being economically competitive, merely increasing the supply of fuel is not enough to drive the adoption of renewables like biomass pellets. Pellet suppliers or suitable market agents must create awareness among industries and enterprises about suitable technological options for converting their existing fossil fuel-based burners and boilers, the calorific value equivalence of pellets, and the robustness of supply to ensure uninterrupted operations.
Economic and environmental impact
Some larger paper/ packaging industries have already switched to pellets by purchasing more than one burner of average size 300,000 kcal, replacing approximately 10,000 liters of diesel monthly. Additionally, small enterprises, such as food and snacks producers (Dalmoth and potato chips factories), have switched to biomass from diesel and burnt engine oil, saving approximately Rs 5,000 per day on fuel costs with a 150,000 kcal burner. These switchers have reported fuel cost savings of 40 percent to 50 percent after switching to pellet burners.
In a typical scenario analysis with a 600,000 kcal/hr pellet burner, which costs approximately NPR 1.5 million, it can replace 13,520 liters of diesel per month. This results in monthly fuel cost savings of NPR 1,118,520 at current diesel prices, with a payback period of just 1.43 months. In addition to cost savings, the economic and environmental impacts are substantial. Annually, NPR 12.37 million can be saved in foreign currency through the import substitution of diesel, positively contributing to the country’s balance of payments. Furthermore, a single industry can reduce CO2 emissions by approximately 852.61 tons each year. This reduction plays a crucial role in Nepal’s broader efforts to combat climate change and meet international environmental standards.
Looking ahead
The above analysis indicates a bright future for biomass fuel in Nepal’s industrial sector. With a few initiatives already underway, if the Government of Nepal streamlines a sustainable enabling environment with appropriate policy instruments, Nepal has the potential to lead in renewable energy fuel across South Asia.
Most industries and enterprises currently using LPG, diesel, furnace oil, and burnt engine oil could immediately benefit from fuel switching, leading to increased competitiveness due to reduced energy costs. By embracing biomass pellets, our industries can achieve significant economic benefits while contributing to a healthier environment. If all fossil fuels are replaced with domestic renewable biomass-based pellets and briquettes, Nepal could theoretically save Rs 194.79 billion annually in import substitution, replace 1.29 billion litres of diesel annually, and reduce 3.46 million tons of CO2 emissions annually, contributing to our international commitments, including NDC, SDG, and Net-zero emissions targets.
As momentum for fuel switching grows, Nepali industries and enterprises are set to play a pivotal role in the country’s journey towards a sustainable and cost-effective energy future. We urge all concerned authorities and the government agencies to pay due attention to this promising opportunity.
