Exporting Electricity to India: Will it Prove to be a Milestone?

Published On: November 10, 2021 07:30 AM NPT By: Shanker Man Singh

The Nepal Electricity Authority is now in a position to sell its surplus energy. The countries of South Asia are some of the poorest countries, which aspire to high economic growth to improve the quality of life in the coming years. However, the unavailability of reliable and adequate electricity is one of the major obstacles to realizing their economic potential.

South Asia is expected to be the fastest-growing region in the world and has already shown its resilience in 2016 to global unrest. As South Asia is one of the least-integrated regions in the world, there is a great opportunity to increase energy security by engaging in it. The sector is growing rapidly (per capita GDP growth above 6%) which can only be sustained through increased and improved access to energy.

Recent developments in South Asia such as (i) SAARC Framework Agreement on Energy Cooperation signed by Member States, (ii) Energy Trade Agreement between Nepal and India and (iii) Agreement to Extend Transmission Link between India and Bangladesh from 500 MW to 1000 MW expand through cross border electricity trade. These are strong signs of progress toward energy security.

Recently, Nepal has been allowed to sell electricity at competitive rates in the Indian energy market. With the consent of the Ministry of Power of India, the body approving for inter-country electricity trade has given permission to the Nepal Electricity Authority to sell electricity at the Indian Energy Exchange Market. Meanwhile, in the first phase, it has been made public that NEA has given permission to sell 39 MW of electricity generated from the 24 MW Trishuli and 15 MW Devighat power plants in Nuwakot to the Indian Energy Exchange (IEX).

The electricity generated from the two power plants has been allowed to be sold in the Indian market as a source. NEA will start exporting electricity through the Dhalkebar-Muzaffarpur 400 KV interstate transmission line soon. So far, Nepal has been only importing electricity through this line.

With the permission to export electricity, electricity trade between Nepal and India has entered a new phase. According to the Ministry of Energy, Water Resources and Irrigation, Nepal is the first country in South Asia to enter the Indian Energy Exchange market to buy and sell electricity. Some say that energy is a cornerstone of trade between the two countries and that Nepal expects to get permission to sell the energy generated by the 456 MW Upper Tamakoshi, 69 MW Marsyangdi and 45 MW Upper Bhotekoshi power plants in the Indian market soon.

When the price of coal increased in India, the price of electricity in the exchange market had reached 28 Indian rupees (Indian rupees) per unit. NTPC Electricity Trading Corporation will be the liaison body for electricity trade with Nepal. It will send details of daily transactions to NEA at 6PM every day.

The study on "Macro-Economic Benefits of Cross-Border Electricity Trade between Nepal and India" provides a comprehensive perspective on the technical and macro-economic benefits of electricity trade. In export revenue, high utilization of hydropower, increase in GDP, high consumption gain, etc. are the major advantages.

Benefits for India include the import of peaking power and the balance of power for its huge renewable production capacity program, the market for its thermal power generation, and improved results. Both nations can benefit from low energy reserves.

In the procedure of approving and facilitating the import / export (cross border) of electricity by NEA, the Central Electricity Authority of India has given details of the process of importing and exporting electricity from the neighboring country which allows Nepal to trade electricity. Article 6.3 of the Rules of Procedure states, Indian entities shall not be allowed to enter into power projects from neighboring countries either directly or through a government or government company or a licensed trader of that country. Electricity can be imported with approval, but the manufacturing company is not directly or indirectly owned by any natural / legal entity (s) whose effective control or source of funds or the residence of the beneficiary owner is located in a third country / citizen with land boundary partnership with India. The ‘Import / Export of Electricity (Cross Border) Directive-2018’, on the basis of which this procedure has been implemented, does not provide for a ban on import of electricity from projects invested by third countries. With which India has attached its borders. Even if India helps  Nepal export electricity to India after the introduction of electricity trade procedures, the provision to ban the process has resolved the suspicion that foreign investment in Nepal will be discouraged.

Due to the possible impact on foreign direct investment in Nepal's power sector, Nepal has been lobbying with India against these restrictive provisions. The new guidelines, introduced in 2018, removed the provision allowing companies to trade energy freely in India and neighboring countries.

The Nepal Electricity Authority (NEA) has stated that the Indian market is needed to sell its energy to Nepal as Nepal will save energy in the monsoon after the completion of the 456 MW Upper Tamakoshi Hydropower Project. The project will be completed by mid-April

The project had set a target of generating 76 MW of electricity from at least one turbine by mid-April and the entire project including five more turbines is expected to start generating by mid-July of the current fiscal year. As the Nepal Electricity Authority (NEA) has reached the stage of selling its surplus energy, India has opened the door to sell its electricity to Nepal for the first time in India's power exchange market after continuous lobbying from Kathmandu. After New Delhi allowed neighboring countries to trade its electricity in the Indian power exchange market, Nepal will sell its surplus electricity to India at a competitive rate, according to media reports.

The Nepal Electricity Authority (NEA) is now in a position to sell its surplus energy. The countries of South Asia are some of the poorest countries, which aspire to high economic growth to improve the quality of life in the coming years. However, the unavailability of reliable and adequate electricity is one of the major obstacles to achieving their economic potential. Per capita electricity consumption in this area is very low. It was a fact that Nepal faced 16 hours of load shedding daily during the dry season when the available capacity of Nepal's hydropower was reduced to one third of the installed capacity. In India, 300 million people have no access to electricity.

The potential power-demand growth rate is as high as 8-10% per annum across the region and is expected to continue at the same rate for many years to come. This underscores the need for rapid expansion of power supply systems in both regions to reduce current shortages and meet future demands, as well as the need for maximum utilization of power resources in the region. The distribution of energy resources is not the same in all countries.

Nepal and Bhutan have great potential for hydropower, which is not yet being utilized. The economic deployment of these water resources requires access to large regional markets for the electricity generated. India's growing dependence on coal is a major concern as it harms the local and global environment. By taking advantage of the complementarities between these resources, nationwide electricity trade can be done to provide cheap electricity to all, improve energy security and promote eco-friendly socio-economic development of the region by allocating energy resources, energy infrastructure and capacity reserves.

Electricity trade can be driven by the following factors: (i) differences in energy source subsidies relative to demand; (ii) variation in maximum load and leave time; (iii) local factors supporting cross-border connectivity; (iv) level economy of construction of large power plants or other facilities and connection of electric power grids; (v) improve energy security and reliability through diversification of supplies; And (vi) environmental damage can be reduced by increasing access to clean sources such as hydropower and more efficient energy production and utilization. These factors should lead to lower energy costs and higher growth and more reliable energy supply that will benefit the economy and society in terms of productivity, and better access to energy (energy security) for all countries in the region.   

At the same time, income inequality in economies can be reduced and poor economies can focus on economic development of rich countries through investment in integrated markets and knowledge transfer. Nepal can benefit by developing its main resource, hydropower potential, for which there will be a market and export earnings can boost its economy and human welfare.

On the other hand, India can promote renewable sources such as solar and wind energy, the interstates of which can be balanced by importing from Nepal's flexible hydropower. The benefits of interconnected regional grids have been used in many parts of the world. Nepal's hydropower potential could be a major source of potential economic export to India from 2025 as the development of hydropower projects takes some time.

The sooner the trade infrastructure is developed, the better for Nepal To allow the import of essential electricity from India in the short or medium term while constructing the hydropower project, which will help in the development of Nepal and to use the same infrastructure for export when the hydropower project is ready. Per capita growth leads to significant growth in household consumption, an indicator of improvement in welfare, which increases by 23% in the base scenario.   The increase in household consumption and electricity consumption directly enhances human welfare, while the increase in GDP has other benefits such as employment, better public goods, etc. Similarly, changes in the structure of the economy create opportunities for better paying jobs.


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