Nepal lights up South Asia

On Nov 15, Nepal marked a historic milestone by beginning to export 40 MW of electricity to Bangladesh via the Indian grid. This first-ever trilateral power transaction between Nepal, India, and Bangladesh symbolizes a significant step toward sub-regional power connectivity. In 2023, India announced its facilitation of this cooperation, setting the stage for broader regional energy trade. Currently, Nepal exports surplus hydroelectricity to the Indian market, and this agreement enables the export of electricity to Bangladesh, creating a foundation for future expansion.

Bangladesh has long expressed interest in investing in Nepal's hydropower projects and is now negotiating with Nepal Electricity Authority (NEA) to import power generated by the 25 MW Trishuli and 22 MW Chilime hydropower projects. However, complexities arise from India’s policy of not purchasing electricity from hydropower projects involving Chinese investment. This forces Nepal to seek alternative markets, such as Bangladesh, for energy generated by China-linked projects. Over the past decade, India and China have vied to invest in Nepal’s hydropower sector, but India has established a dominant presence. While discussions between Nepal and China on a potential power trade agreement continue, tangible progress remains limited.

Nepal’s hydropower sector currently comprises 124 operational plants with a combined capacity of 2,600 MW, alongside 235 projects under construction. Presently generating approximately 2,700 MW, Nepal is projected to reach 10,000 MW within the next decade. Yet, inadequate transmission infrastructure hampers optimal utilization, with hydropower plants forced to scale down production during the monsoon. Remote hydropower projects remain disconnected from the national grid, compelling the government to prioritize transmission line construction.

The Ministry of Energy, Water Resources, and Irrigation has introduced an ambitious plan, the Energy Development Roadmap and Action Plan 2023–2035. This blueprint envisions meeting Nepal’s projected peak demand of 13,500 MW by 2035 while exporting 15,000 MW to India and Bangladesh. Achieving this target necessitates generating 28,500 MW of renewable energy within the timeframe. Both India and Bangladesh seek clean energy sources to meet growing demands, and Nepal’s abundant hydropower offers a sustainable solution.

Uncertainty surrounding Nepal’s electricity market persisted for years, but key agreements have fostered confidence. A pivotal moment came in January 2023, when Nepal and India signed a long-term energy agreement, with India committing to purchase 10,000 MW of electricity over the next decade. This agreement has spurred international investment interest in Nepal’s hydropower sector.

Earlier, in April 2022, Nepal and India signed a joint vision statement on power sector cooperation. This agreement highlighted joint hydropower development, cross-border transmission infrastructure, and bi-directional power trade. Both countries also pledged to expand collaboration under the BBIN (Bangladesh, Bhutan, India, and Nepal) framework, incorporating mutually beneficial terms. India’s quest for renewable energy aligns with its commitment to achieving net-zero emissions by 2070, positioning Nepal as a key energy partner. India has also deepened energy ties with Bhutan, exporting electricity and exploring new energy trade avenues.

Nepal has already started exporting surplus electricity to India during the monsoon, reaching nearly 1,000 MW in 2023. Power trade is seen as a vital means to reduce Nepal’s trade imbalance with India. Cross-border transmission lines, such as an 18-km link under the US Millennium Challenge Corporation's support, are crucial for enhancing energy trade. India is also assisting in constructing additional transmission infrastructure to strengthen bilateral energy connectivity.

Beyond India, Bangladesh is emerging as a promising energy market for Nepal. According to Bangladesh’s 2023 energy report, its total power consumption is 24,911 MW, with natural gas accounting for 45 percent, coal 11 percent, imports 11 percent, diesel 4 percent, furnace oil 26 percent, and hydropower contributing less than 1 percent. This dependency on fossil fuels highlights the need for clean energy, creating vast opportunities for cooperation with Nepal.

Other South Asian countries, such as Pakistan and Bhutan, also possess significant hydropower potential. Pakistan's estimated hydropower capacity is 60,000 MW, of which only 8,000 MW has been developed. Bhutan, with its long-standing energy partnership with India, demonstrates the feasibility of harnessing hydropower for regional benefit.

While bilateral agreements have gained traction, the prospect of a regional energy framework remains uncertain. The South Asian Association for Regional Cooperation (SAARC) signed a framework agreement on electricity cooperation in 2014, emphasizing regional power trade, energy efficiency, and conservation. However, strained relations between India and Pakistan have hindered progress. Similarly, BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation) has shown potential. The fourth BIMSTEC Summit in Kathmandu in 2018 proposed forming an intergovernmental group to enhance energy cooperation, particularly in hydropower and renewables.

Recent developments, such as Nepal’s trilateral power trade agreement with India and Bangladesh, could serve as a model for broader regional collaboration. By overcoming geopolitical challenges and fostering synergy, South Asian countries can unlock the immense potential of renewable energy trade. A united effort can transform the region into a hub of sustainable energy, benefiting all stakeholders while addressing pressing environmental and economic challenges.