Where will Nepal sell its excess energy?

Nepal will soon become a net energy exporting country in South Asia, behind only Bhutan.

Nepal already generates surplus electricity in the summer and the state power utility, the Nepal Electricity Authority, has been exporting 364 MW to India on a daily basis. With the 456 MW Upper Tamakoshi Hydropower Project likely to come online after two years and several other projects also in the pipeline, Nepal will soon become a round-the-year energy-surplus country.

For now, India is Nepal’s sole energy market but there are other several prospective markets in South and Southeast Asia. Energy-hungry Bangladesh is one. Many Bangladeshi companies are eager to invest in Nepal’s hydropower but are unable to do so due to a lack of legal framework.

This is where the Bilateral Investment Protection Agreement (BIPA) comes in, says Sunil KC, CEO of the Asian Institute of Diplomacy and International Affairs (AIDIA). “It will pave the way for Bangladeshi companies to invest in Nepal’s hydropower and take electricity to their country.”

Bangladesh has already proposed a draft agreement, with the proposal of importing 9,000 MW electricity from Nepal by 2040.

India, which was previously reluctant to allow Nepal to use Indian transmission infrastructure to export electricity to third countries, has also agreed to support Nepal’s energy trade. 

India’s Central Electricity Authority still bars power trading from a Nepali company with Chinese investment.

But during Prime Minister Sher Bahadur Deuba’s India visit in April this year, Nepal and India came up with a joint energy vision, agreeing to expand energy cooperation to include a third country under the framework of BBIN, a SAARC’s sub-regional grouping comprising Bangladesh, Bhutan, India and Nepal. They also pledged to develop cross-border transmission infrastructure and joint power generation projects, as well as to ensure two- way power trade —in what was a breakthrough in cross-border electricity trade.

Earlier last year, former Indian foreign secretary Harsh Vardhan Shringla had also said that India was taking the lead to promote a regional approach to energy cooperation.

But many doubt India will follow through on the agreement. They reckon India will not facilitate the sale of energy produced in Nepal in India or in Bangladesh for that matter. 

Former Energy Minister Dipak Gyawali is not hopeful India will help Nepal sell electricity to Bangladesh.

“We must instead devise a policy of using the produced electricity within the country,” he says.

The former energy minister sees flaws in Nepal’s export-oriented approach to energy. 

KC, of AIDIA, disagrees. There is no need to heed conspiracy theories that India will neither buy Nepal’s electricity nor allow its export to third countries.  

The fact remains that Nepal alone will not be able to consume the electricity generated by its hydropower plants. “There is still going to be surplus energy to sell,” says KC.

Power export is also vital for Nepal to achieve the desired level of economic growth. Some energy experts say Nepal could in the long run devise a policy of utilizing electricity to fulfill its domestic needs. But for now there is no alternative to exporting energy to India and beyond.

Sushil Pokhrel, managing director of Hydro Village Pvt Ltd, sees China as another viable energy market. He says hydropower companies and government officials are currently doing homework to open a line for energy trade with China via the Rasuwagadhi border point.

For Nepal, ensuring an energy market in China is also important because India has made it clear that it will not purchase electricity produced by Chinese companies or from projects with Chinese components.

Government sources say Nepal has asked potential Chinese investors to explore the market for Nepali energy in their country.

Only a few weeks ago, Prime Minister Sher Bahadur Deuba had also said that India would not buy electricity produced by Chinese companies. So before Chinese companies are given the right to build hydropower projects in Nepal, the government wants to ensure the viability of the Chinese market.

Regional bodies like the SAARC and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) have also taken initiatives for regional energy trade. Hence there is a prospect for regional energy trade beyond India and Bangladesh.

For instance, the SAARC Framework Agreement on Energy Cooperation (Electricity) was signed during the 18th SAARC Summit (Kandu, 26-27 November 2014) and later ratified by all SAARC countries..

But as the SAARC is in a dormant state over India-Pakistan disputes, energy cooperation among member states remains a distant dream.

There is hope from BIMSTEC though. In April 2020, a meeting of the energy ministers from its member countries approved the establishment of BIMSTEC Grid Interconnection Coordination Committee (BGICC). They also decided to seek Asian Development Bank’s help in preparing a master plan and directed the BIMSTEC Expert Group on Energy to develop a comprehensive plan on energy cooperation.

Energy Minister Pampha Bhusal says the BIMSTEC route could unlock the regional energy market for Nepal. 

“It will benefit both Nepal and the region by reducing non-renewable energy generation and paving the way for an energy-sustainable future,” she says.

Nepal could potentially lose billions of dollars if it fails to export electricity to India and Bangladesh. But Bhusal is optimistic. 

“India still relies a lot on energy from coal,” she says. “Electricity from Nepal can help it phase out dirty energy sources and switch to cleaner and greener ones.”