Scenario of energy trade

Nepal and Bangladesh have entered an agreement to strengthen their energy trade cooperation. During the fifth meeting of the secretary-level Joint Steering Committee (JSC) on energy cooperation held in Dhaka, both governments agreed to jointly develop the Sunkoshi-III Hydropower Project. This storage-type hydropower plant, with a capacity of 683 MW, aims to supply electricity to Bangladesh.

The JSC meeting also agreed to work on a tripartite agreement with India to facilitate the export of 40 MW of electricity from Nepal to Bangladesh. It’s been a year since talks for electricity exports from Nepal to Bangladesh gained momentum. Nepal’s quest for finding a market for its electricity beyond India was further emboldened after Bangladesh expressed readiness to import 40-50 MW of power from Nepal during the energy secretary-level JSC meeting of the two countries held in Kathmandu in the last week of August last year.

Nepal and Bangladesh had also agreed to request India for the passage of 40-50 MW of electricity from Nepal to Bangladesh through the existing transmission infrastructure of India. Both sides have been making efforts to bring India on board for this purpose. Bangladesh’s state Minister for Power, Energy, and Mineral Resources Nasrul Hamid had also sought “visible Indian cooperation” for importing hydropower from Nepal.

According to The Daily Star, Hamid talked about the growth of Bangladesh’s power sector and said the demand for electricity is increasing continuously in the country. In response, the Indian side assured to cooperate to operationalize Nepal-Bangladesh energy trade, The Daily Star reported in Jan 2023.  Bangladesh is eager to buy electricity from Nepal—their engagements say so. Nepal Electricity Authority (NEA) Managing Director Kulman Ghising also confirmed it recently.

At the Memorandum of Understanding (MoU) signing event between the  NEA and Employees Provident Fund (EPF) for investing in Tamakoshi-V Hydropower Project, Ghising said the market for power export is getting assured. “India and Bangladesh are eager to purchase power from Nepal,” he added. In an interview with ApEx in Jan 2023, Ambassador of Bangladesh to Nepal, Salahuddin Noman Chowdhury had said that energy cooperation is a very prospective area between two countries. He said: “Bangladesh is energy hungry while Nepal will soon become energy surplus. That is a perfect scenario for complementing each other’s needs.” 

Nepal’s ambitious goal of producing 6.8 GW of hydropower by 2030 seems achievable, with numerous hydropower projects currently operational or in the pipeline. However, the current domestic peak demand falls significantly short of this capacity, with the NEA reporting a current peak demand of 1,700 MW.

In the Power Summit 2023 held last month, Prime Minister Pushpa Kamal Dahal said that the government expects Nepal to become a net power exporter by 2025. Efforts are underway to strengthen transmission lines and other infrastructure connecting Nepal, India, and Bangladesh to support the realization of surplus energy trade objectives.

“Nepal can not only achieve its ambitious net zero emissions by 2045 but can also help neighboring nations meet their climate goal by exporting surplus energy,” says Jason Pellmar, New Business Manager for Infrastructure Investment, South Asia, IFC. However, Dipak Gyawali, former minister of water resources, doesn’t see profit in energy trade. “It’s a waste of time to focus on exporting energy to Bangladesh”, he says. “India won’t let Nepal export electricity to Bangladesh.” Even if India allows, they will ask us to export it to India and they will export it to Bangladesh from their national grid, which is not profitable at all, Gyawali adds. “India will try to create monopoly.”

The prospect of Nepal exporting 50 MW of electricity to Bangladesh through the Indian transmission link may not happen soon. The Indian side in Jan 2023 told Nepali officials that electricity export from Nepal to Bangladesh through the Baharampur-Bheramara cross-border power transmission line is not immediately possible.

However, it is expected that Prime Minister Dahal’s visit to India may give some breakthrough. Government officials involved in the preparation of the visit said that energy sector cooperation between the two countries will be on the list of agendas for the prime minister to take up with the Indian side.

Private sector’s involvement  

“Private sector should have a role in the energy trade too,” says Pellmar. “International Finance Corporation (IFC) sees tremendous space for private collaboration in regional energy trade and looks forward to continuously working with the private sector building on correct momentum to help Nepal meet its climate goals.” He further adds that the private sector should be encouraged by policy makers by framing regulations to open the market. The government is planning to amend the Hydropower Development Policy, 2001.

The two-decade-old policy is being revised in order to incorporate the latest developments and changes in the energy sector as Nepal gradually moves toward becoming a net energy exporter from a net energy importer. During a discussion to prepare a framework of the amendment, stakeholders stressed the need to make the policy private-sector friendly.

“The investment of the private sector in hydropower has increased lately. But the government’s policy is not private sector friendly,” said Ganesh Karki, vice-president of Independent Power Producers’ Association, Nepal (IPPAN). “Currently, the private sector contributes 80 percent to the electricity production. Still, the private sector is ignored.” The private sector representatives also mentioned the need to allow the private sector to engage in power trading.

“The participation of the private sector in electricity production has brought Nepal to this stage. Within a few years, Nepal’s installed capacity will reach 8,000 MW. However, all the electricity generated will not be consumed in Nepal. It needs to be sold to India and Bangladesh, for which government initiative alone is not enough,” Karki said. “Now, we need the participation of the private sector to take a leap in the power trading business.”

The Power Summit 2023, held recently, witnessed the signing of deals between Nepali and Indian power entities. Manikaran Power Limited agreed to purchase approximately 200 MW of electricity directly from hydropower projects in Nepal, while Vedanta India initiated the process of signing a long-term power purchase agreement (PPA) with Nepal Power Exchange Limited for the purchase of 2,000 MW of electricity.

With Indian companies showing increasing interest in buying energy from Nepal, local power developers emphasize the need for laws facilitating private sector involvement in power trading.  According to the Ministry of Energy, Water Resources and Irrigation (MoEWRI), around half a dozen companies have already applied for power trading licenses and have signed contracts with Indian companies for electricity selling, though there are no laws for such licenses. The southern neighbor so far has allowed Nepal to sell power in the day-ahead market—the type of market where the price of electricity is fixed a day before the trading of power. Nepal sold electricity worth over Rs 11bn in the last wet season (June-Nov 2022) in the Indian day-ahead market. But this number would have been increased if Nepal had the opportunity to sell its electricity in all kinds of Indian power markets.

The stakeholders in the Power Summit also asked for more flexible guidelines on providing market access to Nepal’s power to the Indian market. Currently, India provides market access on a project-to-project basis and the export of electricity has to go through several approval processes with the Indian authorities. Nepali officials say that a long-term inter-government agreement would help end the existing red tape in the approval process. Power generation capacity in the country has now reached 2,650 MW and it is expected to increase to 2,853 MW by mid-July this year, according to NEA.

According to Ashish Garg, vice-president of IPPAN, the Power Summit 2023 reinforced the fact that there are buyers for the electricity produced in Nepal. “If we do not act urgently, over 1,000 MW of electricity will be wasted in the upcoming wet season.” Among the few challenges like internal issues of regulations and acts, geopolitical situations, infrastructure and techno-economic for the power trade, Kumar Pandey, executive chairperson of National Hydropower Company, says there is nothing vast to address but our stakeholders lack willingness.