Three months after Nepal and India signed a preliminary agreement on long-term power trade, the Indian Cabinet has finally endorsed the deal under which the southern neighbor has agreed to buy 10,000 MW of electricity from Nepal in the next 10 years.

While Indian approval for the purchase of 10,000 MW of electricity from Nepal marks a major milestone in bilateral energy cooperation, it has come at a time when Nepali Prime Minister Pushpa Kamal Dahal is preparing for a China visit, during which Nepal plans to seal power trade agreement with the northern neighbor.  

The endorsement from the Indian Cabinet has paved the way for signing long-term power trade between India and Nepal. Nepal has been requesting the southern neighbor for a long-term power trade deal arguing that an inter-government agreement would lock in the market and end the unpredictability of the Indian market’s availability for electricity from Nepal in the long run. With a gradual increment in electricity generation in the past few years, Nepal has been looking for a market for its electricity export to avoid energy spillage. 

While Nepal wanted to sign the final deal during Prime Minister Dahal’s India visit in the first week of June, the signing was delayed as it was yet to be passed by the Indian Cabinet. Both countries then planned for the third week of June for agreement signing for which Energy Secretary Dinesh Kumar Ghimire did travel to New Delhi. However, it was again postponed as Indian Prime Minister Narendra Modi was busy on an abroad visit. 

Madhu Prasad Bhetuwal, spokesperson at the Energy Ministry said that they have received information that the draft of the long-term electricity trade agreement has been approved by the Indian Cabinet. “We are yet to receive the official letter on it,” said Bhetuwal. However, Shankar Prasad Sharma, Nepali Ambassador to India, confirmed this on social media, saying that “India’s cabinet approval to purchase 10,000 MWs of electricity from Nepal in the next ten years has paved the way to develop a new road map for electricity development in Nepal. This could play a significant role in the economic development and restructuring of Nepal.”

According to Energy Ministry officials, energy secretaries of both countries will now sign the intergovernmental agreement for medium-term and long-term electricity trade. The Energy Ministry plans to sign the agreement amid a special program in Kathmandu. 

According to NEA officials, with an umbrella agreement in place, electricity can be sold through long-term agreements spanning from 7-25 years, as well as medium-term agreements spanning 2-7 years. 

The agreement is an umbrella agreement that will pave the way for power trading agencies in Nepal and India such as Nepal Electricity Authority and NTPC Vidyut Vyapar Nigam Limited (NVVN) to enter into a long-term power purchase agreement (PPA). The NEA and NVVN will sign a separate agreement for commercial deals. 

The long-term power deal has become of paramount importance for Nepal with the country’s electricity generation capacity gradually increasing. If the market for Nepali electricity is not ensured, the country faces the risk of electricity spillage every year, especially during the wet season.  In the rainy season last year, the country’s electricity spillage reached as high as 800 MW during the festive period in October and November.

The country’s generation capacity has already reached nearly 2,700 MW which requires more exports to India to avoid spillage in the rainy season when power plants start generating power at their full capacity.

India allows Nepal to export additional 180 MW of electricity 

India has also allowed Nepal to sell an additional 180 MW of electricity to its market. Nepal has already received approval to export 452 MW to India. With an additional 180 MW of electricity export now allowed, total energy exports to India have reached 632 MW. 

Of the 180 MW, 70 MW will be exported from Tanakpur in western Nepal to Uttar Pradesh while 110 MW will be exported to another Indian state of Haryana through Dhalkebar-Muzaffpur 400 KV cross-border transmission line. 

According to Nepal Electricity Authority (NEA), India has allowed the export of electricity from 83 MW Dudhkosi Project, and 27 MW Lamjung’s Dordi Corridor under the medium-term agreement. Similarly, the electricity from 37 MW Upper Chameliya, and 33 MW Upper Kalangada projects will be exported from Tanakpur. 

Nepal which has been selling its electricity to India's day-ahead market since Nov 2021, has recently been allowed to sell electricity to its real-time market also.