From the development of hydroelectric projects to realizing power export potentials, Nepal is finally getting it right in energy sector development after years of dilly-dallying.
l Nepal exported electricity worth around Rs 8 billion in the last five months. Nepal Electricity Authority (NEA), the state-owned power utility, has exported electricity worth Rs 7.93 billion from early June to mid-October 2022.
- Just before Dashain this year, the government decided to issue an ordinance to amend the Electricity Act 1992, allowing the Nepali private sector to get into power trading. Once President Bidya Devi Bhandari authenticates the ordinance, the process of granting licenses to the private sector for power trade will begin by amending the existing guidelines.
- India’s Adani Group has shown interest to invest in Nepal’s energy sector. The Gautam Adani-led group has proposed to immediately invest in three hydropower projects namely Phukot Karnali and Tila-1 and Tila-2.
- With the prospect of electricity export from Nepal to Bangladesh looking brighter, India’s state-owned PTC India Ltd is planning to set up a power trading company in Nepal to supply electricity to India and Bangladesh.
Nepal Electricity Authority (NEA) Executive Director Kulman Ghising in the last week of July said NEA would export electricity worth Rs 16 billion to India in the current fiscal year. If Ghising had said the same thing 2-3 years back, many would have questioned him. But, not now. Ghising’s buoyancy in electricity export is based on the fact that India, the principal buyer of Nepali energy, is positive to purchase power from Nepal. India, the largest South Asian economy, is reeling from power shortages as the Russia-Ukraine war has sent the global prices of fossil fuels such as oil and coal skyrocketing over the past eight months.
The data published by NEA shows that the state-owned power utility is on track to achieve the Rs 16 billion target in exporting electricity to India. In the five months of the commencement of power export, electricity export exceeded 1 billion units with NEA earning around Rs 8 billion in revenue from the sales.
Now, talks are going on among Nepal, India, and Bangladesh to allow Nepal to export electricity to Bangladesh by 2023. For a country that was a net importer of electricity till a year ago, the opportunity to export power to neighboring countries is a huge leap going forward.
The year 2022 is turning out to be a defining year for Nepal’s hydropower sector with multiple developments and breakthroughs taking place one after another.
The year 2022 started with the country’s political parties sharply divided over the parliamentary ratification of the Millennium Challenge Corporation (MCC)-Nepal Compact. After weeks of political wrangling, the parliament finally endorsed the USD 500 million US grant on February 27.
In June, Nepal started exporting 364 MW of power to the Indian Energy Exchange in a day-ahead market. The improved political understanding between Nepal and India also led to the signing of agreements with Indian state-owned companies for the development of West Seti, SR-6, and Arun-IV projects.
“The surety of the market for our electricity and commitment from the developers to construct hydropower projects are very important developments that are pivotal to Nepal’s energy sector that have happened in the last few years,” said Khadga Bahadur Bisht, Executive Director of Millennium Challenge Account Nepal (MCA-N).
NEA Executive Director Kulman Ghising says that given the current state of development of hydropower plants and transmission lines, 700-800 MW of electricity will be added to the national grid every year. “For the current fiscal year, we have projected that 800 MW will be added to the grid. At least for another two years, our domestic production will still be incapable of addressing domestic demand, especially for the winter season,” he said.
According to him, once NEA reaches a situation where it could manage power demand in the winter through Nepal’s own energy, the power utility has to manage the surplus energy available during the wet season. “The management of surplus energy during the wet season is a challenge for us,” he said. He shares that NEA is looking to broaden its presence in the vast Indian energy market. “We should not depend on the Indian Energy Exchange only. We have requested India for access to the real-time market in India and the term ahead market (TAM),” he mentioned.
Breakthrough in Power Export
While NEA started selling its surplus power to India in November last year, the major breakthrough happened in June 2022 when it started to supply 364 MW of electricity to the Indian Energy Exchange. NEA has been allowed to export a maximum of 364MW in India via the exchange. According to Ghising, NEA expects to earn Rs 16 billion in the current fiscal year and Rs 30 billion in the next fiscal year through power exports to India. Ghising said NEA has already asked the Indian authorities to allow it to sell an extra 212.7 MW of electricity through the power exchange market in India. “The unveiling of the Joint Vision Statement on Power Sector Cooperation in early April during Nepali Prime Minister Sher Bahadur Deuba’s India visit has paved the way for exporting electricity,” he said.
In the vision statement, Nepal and India have envisioned expanding cooperation in the power sector to include their partner countries under the Bangladesh, Bhutan, India, and Nepal (BBIN) framework. “The vision statement talks about power cooperation in the BBIN region and Indian officials have also been assuring us that it would provide transmission access to enable energy trade between Nepal and Bangladesh,” said Ghising.
According to energy experts, three factors forced India to give access to Nepali electricity to their market. The other sources of electricity mainly coal and diesel getting costlier due to the Russia-Ukraine conflict, India’s commitment at CoP26 to reducing the carbon footprint, and the advantage of using energy from hydropower plants, where ramping up and down of electricity generation is very rapid compared to the coal-based plant. During the CoP26, one of the commitments India made was it would meet 50 percent of its energy commitment from renewable energy by 2030.
Renewed Indian Interest
In recent years, India has been seen as keen to increase its presence in Nepal’s energy sector. In the past few months, Nepal has signed agreements with two Indian companies to develop three large hydropower projects.
On August 8, Investment Board Nepal gave the green light to India’s state-owned NHPC Limited to study and develop two hydropower projects with a combined capacity of 1,200 megawatts. The 750 MW West Seti Hydropower Project and 450-megawatt Seti River (SR-6) are worth a combined USD 2.4 billion.
In May this year, Nepal and India signed a pact to develop the 490-megawatt Arun-IV Hydropower Project which will be developed as a joint venture between India’s state-owned Satluj Jal Vidyut Nigam (SJVN) and Nepal Electricity Authority (NEA), with SJVN having a majority share in the company that will operate the proposed project.
Last July, Nepal signed a pact with SJVN to develop the 679 MW Lower Arun Hydropower Project. SJVN is currently constructing the USD 1.04 billion 900 MW Arun-III Hydropower Project in Province 1.
Similarly, the government has recently extended the deadline for the financial closure of the 900 MW Upper Karnali Hydropower Project for India’s GMR Group.
The NHPC Limited has already registered an application for obtaining a survey license for the 750 MW West Seti Hydropower Project. As per the MoU, the Indian developer has to apply for the survey license for the West Seti project within 45 days of signing the agreement. According to the MoU, after the survey license is approved, the developer has to complete the detailed project reports (DPRs) within two years and submit them to the Investment Board Nepal.
Adani Group, PTC India Showing Interest in Investing in Nepal
The Indian business conglomerate Adani Group, led by the world’s third richest person Gautam Adani, has shown interest to invest in Nepal’s energy sector. The group has proposed to immediately invest in three hydropower projects, namely Phukot Karnali and Tila-1 and Tila-2. The group has also shown interest in the construction of the 10,000 MW Karnali Chisapani Project and the 1,902 MW Mugu Karnali Hydroelectric Project. Pranab Adani, Managing Director (Agro, Oil, and Gas), Adani Group recently met with Energy Minister Pampha Bhusal and NEA Executive Director Kulman Ghising and expressed interest to invest in these projects.
With the prospect of Nepal exporting electricity to Bangladesh getting brighter, another Indian state-owned entity, PTC India Ltd is planning to set up a power trading company in Nepal for supplying electricity to India and Bangladesh. According to PTC India Chairman and Managing Director Rajib K. Mishra, the PTC India board has given approval for starting a new trading company in Nepal, reported Indian newsportal livemint.com. “For the first time, we will try to have a company there in Nepal,” said Mishra.
This company would act as an aggregator and trade power on multiple fronts, in contrast to PTC India’s mandate of trading power to and from India.
Noting that PTC has entered into partnerships with hydropower majors SJVNL and NHPC, Mishra said that the company is also in talks with other players that can be potential sources of power generation in the northern neighbor.
“We are proposing a joint venture company, both for the Indian public and private sector companies having an interest in the power sector of Nepal. There might be an entity from Nepal which can also be in roped as a stakeholder in the company. This is to ensure energy security and stability in the cross-border trade,” he said.
Roadblocks Still Persist
Despite India’s positive response to importing electricity from Nepal, energy experts and private developers are still wary. The reason, they say, is the Guidelines for Import/Export (Cross Border) of Electricity-2018 issued by the Indian government. The guidelines have imposed restrictions on power trading if there is investment from a country generating electricity with which India shares a land border and a third country sharing a land border with India, which does not have a bilateral agreement on power sector cooperation.
According to Nepali power producers, they initially thought such restriction would be applicable only to projects with Chinese investment. “But, of late, India has been reluctant to accept power trading from projects where Chinese contractors are also involved,” said a member of IPPAN.
While India has agreed to buy 364 megawatts generated by six Nepali projects, it has given its green signal to purchase electricity generated by the Upper Tamakoshi, Nepal’s largest power plant. The reason for the reluctance, according to insiders, is that the project’s civil works were carried out by a Chinese contractor.
India’s Renewable Purchase Obligation (RPO) has specified Hydropower Purchase Obligation (HPO) within Non-Solar Purchase Obligation. As per that obligation, every distribution company has to purchase 0.18 percent hydropower (HPO) by 2022 and 2.8 percent by 2030. As of now, only electricity produced by the Indian hydropower plant has been included in the HPO. Hydropower imported from outside India has not been included under the HPO.
“This provision does not encourage the import of electricity generated by hydropower plants from Nepal. We should request India to include electricity from Nepal in the HPO,” said an energy expert.
Opening up power trade for the Nepali private sector
Just ahead of Dashain, the government gave a reason to cheer to the Nepali private sector as it decides to bring an ordinance allowing the private sector in power trading. The private sector has long been lobbying for the law that would ensure their entry into the power trade.
The power trading license will be issued after the President authenticates the ordinance. According to the Department of Electricity Development (DoED), Nepal Power Exchange Ltd (NEPEX) and Power Trading and Energy Exchange Ltd (PTEEL) have applied for power trading licenses. Similarly, Nepal Infrastructure Bank has applied to the Ministry of Energy, on behalf of the Power Trading Company (PTC) Ltd, and the Himalayan Trading Company is also preparing to register an application for the license.
“The ordinance is yet to be authenticated by the president. But the government introducing this ordinance is a positive step as the NEA has not purchased electricity produced by private companies and has suspended power purchase agreements (PPAs) with private power producers,” said Sailendra Guragain, Immediate Past President of Independent Power Producers’ Association, Nepal (IPPAN). According to him the government’s plan to involve the private sector in power trade will be a big step moving forward.
There was confusion about granting trading licenses to the private sector after the government withdrew the Electricity Bill long pending at the National Assembly on September 16. With the prorogation of the parliament, the government decided to bring an ordinance to address the demand of the private sector.
The bill has provisions for the developers to sell their electricity in the market after taking approval from the ministry and the private sector can also obtain a license to trade power in the international market.
Nepal Power Exchange Limited, a Nepali private sector power trading company, and India’s Manikaran Power Limited, signed a memorandum of understanding on energy trading on January 10. As per the MoU, the Indian company will buy 500MW of electricity from the Nepal Power Exchange Limited besides investing in the Nepali company itself.
Moving Beyond the Indian Market
In the last three years, Nepal has tried to explore the market for Nepali electricity beyond India with Bangladesh showing interest to import Nepali electricity.
With Bangladesh expressing readiness to import 40-50 MW of electricity from Nepal during the recent Energy Secretary-level ‘Joint Steering Committee’ (JSC) meeting of the two countries held in Kathmandu in the last week of August, Nepali officials said there is a possibility of Nepal exporting a certain amount of electricity to Bangladesh in the next rainy season.
Nepali officials are hopeful that export to Bangladesh will happen as there has been a request from the highest political level of Bangladesh to India. Bangladeshi Prime Minister Sheikh Hasina during her recent visit to India requested her Indian counterpart Narendra Modi for a power transmission corridor to import electricity generated in Nepal.
“It was agreed to strengthen sub-regional cooperation in the power sector. The Bangladesh side requested for import of power from Nepal and Bhutan through India,” reads the Bangladesh-India joint statement issued after the visit. And the Indian side replied that the guidelines for the same are already in place in India.
While it may take some time to export electricity to Bangladesh, progress has been seen in forming mechanisms for power export to the energy shortage-stricken growing economy of South Asia.
“We are in the process of getting clearance for the tripartite agreement between NEA, Bangladesh Power Development Board (BPDP), and India’s NVVN. By 2023, we might be able to export 50 MW of electricity to Bangladesh,” said NEA Executive Director Ghising.
Bangladesh in its policy document has already stated that it would buy 9,000 MW of electricity from Nepal. “For that to happen, India’s role will be crucial, and I think India will facilitate the power export from Nepal to Bangladesh,” he said.
NEA and the Bangladesh Power Development Board have decided to request India’s NVVN for a trilateral energy sales and purchase agreement. They plan to trade power using the Baharampur-Bheramara cross-border power transmission line, which links India and Bangladesh. The transmission line inaugurated in 2013 facilitates the exchange of 500MW of electricity.
Nepal and Bangladesh had decided to request India to allow Nepal to export 40-50MW of electricity to Bangladesh in the initial phase. The NVVN is the nodal agency of India to deal with cross-border power trade with both Nepal and Bangladesh.
IPPAN President Guragain urges the government to become serious to realize the potential of energy export to Bangladesh.
“Though talks are ongoing, there is a lack of seriousness on the side of our government to concretely move ahead to seal the deal with India to sell power to Bangladesh,” he opined.
“We have projected that Nepal will not have to import power from India by FY2024/25”
KULMAN GHISING, Executive Director, Nepal Electricity Authority
Your second tenure as the Executive Director of NEA is concentrated on electricity export. What factors have helped Nepal to realize the dream of exporting power to India?
Our priority has been to increase the consumption of electricity generated by hydropower plants within the country and NEA is clearly working on this. In the last one year, our energy consumption has increased by 22-23 percent as a result of the initiations of NEA. But we also have surplus energy during the wet season. So, one of our efforts now is to export surplus energy to India and Bangladesh.
In the previous fiscal year, around 717 MW of electricity was added to the national grid. In the first three months of the current fiscal year, around 200 MW of electricity has already been added to the system. It’s been a year since I joined the NEA for the second time and 900 MW of electricity was added during this one year. As of now, we have 2,350 MW of electricity available in our system.
The average demand of the country currently is 1,700-1,800 MW. While the demand is increasing every year, we have to export surplus energy. The formal export of electricity to India began in the last fiscal year, selling to the day-ahead market of the Indian Energy Exchange which was a breakthrough for Nepal. We began exports by selling 39 MW initially. While we have received permission to export 364 MW to India, we can sell an additional 48 MW to India.
There is a long background on how Nepal made it possible to export power to India. Even during my first tenure, we held a series of discussions with Indian energy entities that Nepal should be allowed to bid in the Indian Energy Exchange to sell surplus energy. In 2017, the Indian government introduced a guideline and regulation to facilitate the cross-border power trade between the two countries. Back then, India also designated the NTPC Vidhyut Vyapar Nigam (NVVN) Limited as the nodal agency for cross-border trading of power with Nepal as well as with Bangladesh, and Bhutan. The continuous efforts put forward by our Energy Ministry with its Indian counterpart, and our interaction with NVVN made it possible.
The other thing that happened was the unveiling of the Nepal-India Vision Statement on Power Sector Cooperation. The vision statement envisions the joint development of power generation projects in Nepal and cross-border transmission infrastructure as well as bi-directional power trade with appropriate access to electricity markets in both countries based on mutual benefits, and market demand.
This led to the opening of the Indian market for bulk export of electricity produced in Nepal as well as the development of the Butwal-Gorakhpur Cross-border Transmission Line Project. Agreements were signed for the development of hydropower projects such as West Seti, SR-6, and Arun-IV with Indian developers.
The opening of the Indian market has proven very beneficial for us. The model under which Arun-III is being developed is one of the best models in hydropower development for Nepal.
With the opening of the Indian market for electricity generated in Nepal, what new prospects do you see in the Nepali hydropower sector?
Given the current state of development of hydropower plants and transmission lines, 700-800 MW of electricity will be added to the national grid every year. For the current fiscal year, we have projected that 800 MW will be added to the grid. At least for another two years, our domestic production will still be incapable of addressing domestic demand, especially for the winter season.
Once we reach a situation where we could manage power demand in the winter through Nepal’s own energy, NEA has to manage the surplus energy available during the wet season. The management of surplus energy during the wet season is a challenge for us.
This is why we should not depend on the Indian Energy Exchange only. We have requested India for access to the real-time market in India and the term ahead market (TAM). I believe India will give access to these markets. We are also exploring the mid-term and long-term markets.
We are also discussing with Bangladesh for energy export and have reached an understanding in this respect during the Secretary level meeting. The recent secretary-level meeting agreed to have a tripartite agreement among Nepal, India, and Bangladesh in order to export 50 MW of electricity to Bangladesh.
We are in the process of getting clearance for the tripartite agreement NEA, Bangladesh Power Development Board (BPDP), and India’s NVVN. By 2023, we might be able to export 50 MW of electricity to Bangladesh.
Bangladesh in its policy document has already stated that it would buy 9,000 MW of electricity from Nepal. For that to happen, India’s role will be crucial and I think India will facilitate the power export from Nepal to Bangladesh.
Bangladeshi Prime Minister Sheikh Hasina during her recent visit to India requested her Indian counterpart for a power transmission corridor to import electricity generated in Nepal.
How do you observe the cooperation between Nepal and India in terms of the utilization of water resources in the coming days?
We should think about the management of overall water resources regionally which includes not only hydropower but also flood control and irrigation.
The understanding developed between Nepal and India after the Nepal-India Vision Statement will bring a huge impact on water resource management as well as energy trading in this region. Not only Indian government companies but also large business conglomerates such as the Adani Group have shown their interest in investing in hydropower and water resources. The modality which we are currently pursuing in project development is a win-win model for us.
What is the projection of NEA regarding power exports? When Nepal will become a net exporter of power?
We can export 600 MW to India this year for which we’ve been requesting them to allow the export of an additional 200 MW. By next year, we can export around 1,000 MW of electricity during the wet season. We have projected that Nepal will not have to import power from India by FY2024/25.
What challenges do you think we need to overcome to get full benefit from power trade?
In terms of infrastructure, I don’t see major challenges as many transmission infrastructures will be ready in the next 2-3 years.
Getting access to the Indian market is crucial. If there is open access to the market for all in the BBIN (Bhutan, Bangladesh, India and Nepal) region, all countries in this South Asia sub-region will be benefitted.
The potential challenge I see is policy-level restrictions that still persist. This could potentially pose challenges for cross-border trade. But, the higher authorities of three countries – Nepal, India, and Bangladesh – should move ahead, making breakthroughs when there is a need. Energy should be treated as a commodity and not as a strategic or political tool.