An important step in promoting electricity trade between India and Nepal took place on February 14 when Energy Secretary-level talks — known as the joint steering committee (JSC) meeting — concluded in Kathmandu. Here, it was decided to endorse the detailed project report of the 400 kV Butwal-Gorakhpur cross-border transmission line. It follows the guidelines issued by India’s Ministry of Power for cross-border electricity trade on December 5, 2016.
This is an opportune moment to push for electricity trade with a long-term perspective. Nepal is short of power and will need to import power for some years to accelerate its economic growth. India has surplus capacity at present. In the years to come, it can fruitfully import flexible hydropower from Nepal to balance its fast growing renewable generation and also provide a market for Nepal’s electricity. With this market, Nepal’s hydro potential can be developed faster.
India and Nepal have been talking about electricity trade and joint projects for many years now, but somehow these talks did not succeed. It was only in 2014 when India and Nepal signed a Power Trade Agreement that the doors opened for Nepal developers/traders to access the Indian power market. At first, Nepal was apprehensive that it would not get a fair deal trading with a large neighbour, but power is now traded in India on exchanges transparently and the price is known to all, thus assuaging some of Nepal’s apprehensions.
What the data show
Due to political uncertainty, the development of Nepal’s hydro potential has been delayed. Out of an economically viable and technically feasible potential of 43.5 GW, only 0.8 GW had been developed by March 2016. Thus, a great opportunity has been missed. By selling power to India, Nepal could have developed its economy at a faster rate. Bhutan has reaped the benefit of power export to India and its per capita income in purchasing power parity adjusted for international dollars increased from $475 in 1980 to $7,860 in 2015. India’s was $5,730 in 2015.
Electricity is required for economic growth and well-being. In 2015, Nepal faced load-shedding of up to 16 hours a day during the dry season, when the available capacity of Nepal’s hydropower decreases to a third of installed capacity. Peak load outstripped domestic power generation capacity, causing serious power shortage, which was partly met with by import from India. Nepal’s electricity supply in 2015-16 was around 5,100 GWh, of which 3,300 GWh was domestic generation and remaining 1,758 GWh was import from India. Import has increased steadily from 746 GWh in 2011-12 to 1,758 GWh in 2015-16, an almost threefold increase. Nepal also exports electricity to India in some periods, although in very small quantity. Per capita electricity consumption in Nepal is one of the world’s lowest, at 119 kWh in 2012. It has an ambitious target of reaching 16,500 MW of hydro capacity by 2030, which includes the joint project with India at Pancheshwar.
Energy study
We at the Integrated Research and Action for Development (IRADe) have carried out a detailed modelling study which explored electricity trade potential on an hourly basis till 2045. (This study was carried out as a part of US AID-supported South Asia Regional Initiative for Energy Integration project.) The trade takes place at a price that is acceptable to both buyer and seller. Its macroeconomic impact has also been estimated. For example, Nepal’s revenue from export of electricity to India increases its ability to import more goods and also to invest more in the economy. This increases its gross domestic product, consumption and use of electricity, which improves quality of life.
The prospect of electricity trade with India makes it possible for Nepal to develop its hydropower potential and has important consequences. Even though significant exports to India will begin only from 2025 because domestic capacity development takes time, Nepal could already benefit through larger import of electricity from India. Increased availability of electricity accelerates its economic development. The construction of transmission lines to import electricity become lines to export electricity by 2025. Nepal imports 0.7 billion kWh (bkWh) in 2020 but by 2025 exports 18 bkWh, which increases to 65 bkWh by 2030 and to 113 bkWh by 2040. Its annual export revenue from the electricity trade becomes NPR 310 billion in 2030, NPR 840 billion in 2040 and NPR 1,069 billion in 2045, at 2011-12 prices. By 2045, Nepal’s GDP becomes 39% larger, its per capita consumption 23% higher and per capita electricity consumption 50% higher than if trade were to continue at its modest current level.
Trade also benefits India. Meeting the evening peak in India when its large solar PV capacity would not be available becomes easier and cheaper. The gains in monetary terms are comparable for both Nepal and India.
Therefore, the sooner Nepal develops its hydropower potential, the earlier the benefits. For electricity trade to materialise, policy, institutional and technical infrastructure are necessary. Building hydropower projects and transmission infrastructure is highly investment-intensive. Without a stable, long-term conducive policy and an institutional environment in place, which ensures payment security, it is unlikely that investors will put their money in this risky business. Recently, the Indian government issued guidelines and draft notification on cross-border electricity trade (CBET) policy to enable Indian/Nepal producers/traders to seamlessly exchange power with neighbouring nations.
A climate of confidence and trust in the long-term trading relationship between India and Nepal can greatly help Nepal meet its ambitious target and provide an opportunity for Indian investors to invest in Nepal. This could help us smoothen our recently strained relations with Nepal as well as strengthen our historically friendly ties.
Dr. Kirit Parikh, a former member of the Planning Commission, is Chairman, Integrated Research and Action for Development (IRADe)
