Indian Council of World Affairs

National Hydroelectric Power Corporation Limited (NHPCL) of India signed a Memorandum of Understanding (MOU) with the Investment Board of Nepal in August 2022 to develop the West Seti and Seti River (SR6) projects with a total installed capacity of 1200 MW.[i] The project, which was earlier supposed to have been developed by the China Three Gorges Corporation (CTGC), has now been awarded to India after the former withdrew from the project 4 years earlier. The project intends to export power to India and Bangladesh through PTC India Limited. This move is yet another step towards growing power and energy cooperation in South Asia. The objective of the paper is to chart the recent expansion of power cooperation in the region and highlighting the challenges in this regard.

Cross-Border Electricity Trade

The cross border electricity trade (CBET) has been one of the highlights of the joint power cooperation between countries in South Asia. The India Energy Exchange (IEX), India’s primary energy marketplace, is the primary platform facilitating cross-border power trade in South Asia. The IEX commenced cross-border electricity trade from Nepal in April 2021, making Nepal the first country to access India’s ‘Electricity Day Ahead’ market platform.[ii] Currently, there are more than 20 transmission interconnections between India and Nepal, most of them being there for power exchange at local levels. Two important cross-border transmission lines, through which large power exchanges take place, are between Kataiya (India) and Kusaha(Nepal) and between Raxaul (India) and Parwanipur (Nepal). Both these lines were completed in 2017.

Accessing India’s primary electricity platform has enabled Nepal to export over 780 million units of electricity to India in the last 4 months.[iii] The IEX is also being used to facilitate power trade with Bhutan and Bangladesh. Bangladesh has imported around 1160 MW units of power from India through the IEX till October 2022.

Recent Power Cooperation Initiatives Facilitating Joint Power Cooperation in South Asia

India and Nepal have deepened their power sector cooperation in recent times. Currently, power cooperation between India and Nepal has five pillars as stated in the Joint Vision Statement on Power Sector Cooperation released on 2 April 2022,[iv] namely: common development of hydropower projects in Nepal; development of two way transmission infrastructure; increased power trade with adequate access to electricity markets in both countries; synchronous operation of both the national grids; and institutional cooperation in sharing latest best practices and technical know-how.[v] Prime Minister Narendra Modi’s visit to Nepal on 16 May 2022 further strengthened the implementation of these five pillars. Historically, power cooperation between Nepal and India was one dimensional; it focused majorly on developing hydropower projects in Nepal. After PM Modi’s visit, this cooperation has become multidimensional. Furthermore, as highlighted in the India- Nepal Joint Vision Statement, cross-border power cooperation can become a significant pillar of power cooperation involving other South Asian countries such as Bangladesh and Bhutan.

A direct result of this new arrangement has been the increase in electricity exports to India from Nepal. As per National Electricity Authority (NEA) of Nepal, Nepal exported electricity worth over USD 56 million to India between June and September.[vi] Indian cooperation in developing power projects and dedicated power exporting transmission lines has also enabled Nepal to become a power surplus nation.[vii] Earlier, during Nepal Prime Minister Sher Bahadur Deuba’s visit to India on 1 April 2022, an agreement was signed, which enabled Nepal to export up to 364 MW of electricity to the Indian national grid.[viii] During the visit, another MOU for the development of the 490 MW Arun-4 hydropower project was signed between the Satlej Jal Vidyut Nigam of India and National Electricity Authority of Nepal.[ix] The construction of Arun-3 project is progressing well and the survey of Lower Arun project is being conducted.[x] The series of Arun projects, one of the largest hydropower projects in Nepal, is also stated to benefit electricity exports to India. Moreover, according to India’s Ministry of Power, 400 kV Direct Current (DC) transmission lines between Gorakhpur (India) and Butwal (Nepal) , Dhalkebar (Nepal) and Sitamarhi (India), and Nanpara, (India)  and Kohalpur (Nepal) have been agreed upon recently.[xi]

The following map shows the proposed cross-border transmission lines between India and Nepal.

Similarly, India and Bangladesh have agreed to increase sub-regional connectivity in the power sector through better coordination between the respective national grids. In the Joint Statement issued during the visit of Prime Minister Sheikh Hasina of Bangladesh to India in September 2022, India and Bangladesh decided to implement the high capacity transmission line from Katihar (Bihar) to Bornagar (Assam) through Parbatipur in Bangladesh.[xii] Furthermore, Adani Power Ltd, following Bangladesh PM Sheikh Hasina’s visit to India in September 2022, has announced the commissioning of 1.6 GW power plant in Jharkhand, which will directly export power to Bangladesh from December 2022 through dedicated transmission lines.[xiii]

These recent developments indicate that cross-border power cooperation is increasing at the bilateral level in South Asia, paving the way for larger multilateral power cooperation in the region. In this context, India has been playing an important role indeed. India has stepped up efforts to include multilateral power trade under the ambit of Bangladesh, Bhutan, India, Nepal (BBIN) sub-regional energy cooperation. For instance, on 30 April 2022, in a bilateral meeting between Bangladesh and Nepal, it was decided to import power from Nepal to Bangladesh through India. Minister Nasrul Hamid, State Minister for power, energy and mineral resources of the Government of Bangladesh, stated, “Bangladesh can import surplus electricity from Nepal during the summer and monsoon seasons.” [xiv]

According to the April 2022 India-Nepal Joint Vision Statement on Power Sector Cooperation, Prime Ministers of India and Nepal agreed to enhance energy cooperation and facilitate cross-border electricity trade to include other member states under the BBIN framework.[xv] Amidst these developments, both Bangladesh and Nepal have written to India for finalising a tripartite power deal between the three countries.[xvi] The finalisation of the deal would enable Bangladesh to import 50 MW of electricity from Nepal through the Indian power grid. Prior to this, Nepal and Bangladesh had also agreed to send a joint request to the NTPC Vidyut Vyapar Nigam Ltd (NVVN) of India for a trilateral power trade agreement between the three countries.[xvii] Prime Minister Sheikh Hasina during her official state visit to India on 7 September 2022 requested India to facilitate electricity transmission from Nepal to Bangladesh through the Baharampur-Bheramara cross-border transmission line, which is currently operational between India and Bangladesh.[xviii] India’s role in this regard as a transit provider will be important.

The following map shows the proposed electricity transmission route from Nepal to Bangladesh through India.

Source: Bangladesh Power Development Board

Furthermore, PTC Ltd, a state-owned company in India, has also planned to set up a power trading company to facilitate cross-border electricity trade to India and further onward to Bangladesh.[xix] In a recent development, Bangladesh has also decided to buy 500 MW of electricity from the Upper Karnali Hydropower Project of Nepal being developed by India's GMR group.[xx] The Upper Karnali Hydropower Project is one of the prime examples of Indo-Nepal hydropower cooperation. Involvement of Bangladesh in this project signifies closer tripartite power cooperation between the three countries.

The tenth meeting of the India and Nepal Joint Working Group and the Joint Steering Committee on energy is scheduled to take place later this year where further scope and possibilities of power trade are going to be discussed apart from finalisation of the above-mentioned developments.[xxi] Nepal continues to seek to connect with energy grids of India and Bangladesh; with the latter being facilitated by India.

Furthermore, in April 2022, amidst the economic crisis in Sri Lanka, India and Sri Lanka reportedly held talks on the proposed overhead and underwater electricity lines between the two countries to address power shortages in Sri Lanka.[xxii] The proposal to link the two national electric grids was first made in 2019.  How far these talks materialise and the practicality of the proposals remain to be seen.

India also has a Memorandum of Understanding (MOU) in place with Myanmar to improve power connectivity between the two countries. India exported 7.34 million units of electricity via the power transmission line from Moreh in Manipur to Myanmar.[xxiii] Increasing power cooperation between India and Bangladesh has the potential to increase existing electricity exports to Myanmar.

As far as Pakistan is concerned, it imports approximately 70 MW (1% of its total electricity generation) from Iran but does not import power from any of the South Asian countries including India.[xxiv] Moreover, amidst continued geopolitical tensions with India, furthering of power cooperation between the two countries seems difficult, if not improbable.

Benefits of Cross-Border Electricity Trade and Power Cooperation

The cross-border electricity trade is mutually beneficial for all the countries being part of it. Upon the completion of joint hydropower projects in Nepal, annual power exports from Nepal to India are stated to increase by 60%, while production costs would decline in the long run.[xxv] This can result in reduced electricity charges for consumers in both the countries. Studies also show that close to 45 % of available electricity in Nepal is not being exported to India due to structural grid barriers, which, if overcome, can further accelerate the cross-border electricity trade. In this context, as highlighted in the India-Nepal April 2022 Joint Vision Statement, coordinated operations between electricity supply grids of the two countries has the potential to overcome the structural grid barriers and make energy trade more efficient.[xxvi]

Amidst India’s increasing solar energy capacity and its feeding into the national grid, there have been concerns regarding intermittency of solar power especially during India’s monsoon season. This is where hydropower exports from Nepal and Bhutan can plug the gap since hydropower projects in both these countries are mostly run of the river systems. Bhutan exports its surplus power, close to 70 % of its total production from the Tala, Dagachhu and Mangdechhu hydroelectric power plants, to India during the monsoon season, while it imports power during the dry summer season from India. Bhutan, in a significant development, imported power equal to 135.4 units through the IEX during the dry season of 2022 through existing power transmission lines. This significantly benefits Bhutan and helps it overcome its power shortage during the dry season.[xxvii]

This implies that during the monsoon season when rivers in Nepal and Bhutan are in full force, increased hydropower exports can complement solar power in northern India, especially in Uttar Pradesh and Bihar.[xxviii] As demand throughout the Eastern Regional Load Despatch Centre (RLDC) of India increases, the additional burden requires operational flexibility, which mainly coal-based plants in the region are not able to provide as efficiently as Nepal’s hydropower plants do, running at full capacity during the monsoon.[xxix] Therefore, seasonal power exports from Nepal, and Bhutan’s India built hydropower projects, to India’s Eastern RLDC are a potentially viable alternative.

Challenges

Despite the encouraging developments and possibilities, there are certain challenges which need to be overcome in order to sustain power cooperation in the region in the long run.

For one, environmental damage has been a concern even in case of renewable energy sources such as hydropower. Some domestic environmentalists in Nepal have opposed Indian hydropower projects, namely, the Upper Karnali Hydropower Project (UKHP) and the Saptakoshi High Dam Multipurpose Project (SHDP) stating that both the projects can have damaging impacts on the Himalayan environment and that more detailed environmental impact studies are needed.[xxx] However, the Nepalese government has stated that both these projects are being built according to all the existing environmental guidelines.

Secondly, hurdle rates have also been a key aspect with respect to barriers in cross border power exports. The hurdle rate represents the economic costs due to structural grid barriers between two countries which needs to be factored in the price offered for electricity trade. With domestic electrification schemes such as SAUBHAGYA being launched by the Indian government and a boost in domestic electricity production, per unit electricity rates have come down in India especially in states like Uttar Pradesh and Bihar where majority of electricity trade takes place with Nepal and Bhutan. This reduction in domestic prices in India has resulted in sub-optimal utilisation of electricity exports from Nepal to India as prices offered by the Nepal Electricity Authority (NEA) to Indian importers are still higher due to the comparatively high hurdle rates.[xxxi] Hence, resolving structural barriers would be instrumental in bringing down the hurdle rates thereby facilitating increased power exports from Nepal to India.

Furthermore, according to the World Bank’s Ganges Strategic Basin Assessment Report, although most Indo-Nepal hydropower projects are multipurpose with regard to operational capabilities, the projects are largely used primarily for electricity generation. This has led to other objectives (such as flood control, water harvesting) being neglected in some instances.[xxxii] Thus, there is a need to ensure that the multi utility purpose of these hydroelectric projects is achieved.

Conclusion

Increased power cooperation between South Asian states will have a positive impact on development in the South Asian region. As brought out in this paper, stakeholders from all the countries need to resolve the issue of hurdle rates and other technical barriers to power trade. Coordinated Operations (CO) are the key as they allow Nepal and Bhutan to export power during the monsoon season while enabling India to export power to Bhutan, Nepal and Bangladesh during the dry season.[xxxiii] Additionally, enhanced power cooperation can play a greater role in integrating South Asia, one of the least integrated regions of the world. From a bilateral model consisting of interconnection of national grids, a regional model can eventually be envisaged as prevalent in the Greater Mekong region.[xxxiv] Lastly, this model may also strengthen the BBIN initiative, helping countries like Nepal, Bhutan and Bangladesh to benefit significantly from economies of scale while strengthening regional energy security in South Asia.

*****

*Kaushik Nag, Research Intern, Indian Council of World Affairs, Sapru House, New Delhi.
Disclaimer: The views are of the author. 

Endnotes

[i] Mukesh Kumar Srivastava (28 September 2022), Energising India-Nepal ties, the hydropower way. https://www.thehindu.com/opinion/op-ed/energising-india-nepal-ties-the-hydropower-way/article65943114.ece. Accessed on 10 October 2022.

[ii] The Day Ahead Market (DAM) is a physical electricity trading market for deliveries for any/some/all 15 minute time blocks in 24 hours of next day starting from midnight.

IEX Media Release (19 April 2022), IEX pioneers cross-border electricity trade in an endeavour towards building an integrated South Asian regional power market.

https://www.iexindia.com/Uploads/NewsUpdate/19_04_2021Press%20Release%20-%20CBET%20Launch-19.4.21.pdf. Accessed on 10 November 2022.

[iii] Rohit Bajaj (6 November 2022), Potential of cross-border electricity trade, The Hindu Businessline. https://www.thehindubusinessline.com/opinion/potential-of-cross-border-electricity-trade/article66104895.ece. Accessed on 11 November 2022.

[iv] Ministry of External Affairs, Government of India (2 April 2022), India-Nepal Joint Vision Statement on Power Sector Cooperation. https://mea.gov.in/bilateral-documents.htm?dtl/35146/IndiaNepal+Joint+Vision+Statement+on+Power+Sector+Cooperation. Accessed on 11 October 2022.

[v] Ibid.

[vi] Santosh Ghimire (22 September 2022), Nepal electricity exports to India surge to USD 56 million in the last 4 months, India Narrative. https://www.indianarrative.com/india-news/nepal-electricity-exports-to-india-surge-to-usd-56-million-in-the-last-4-months-52394.html. Accessed on 10 October 2022.

[vii] The Economic Times (3 June 2022), For second consecutive year, Nepal exports surplus electricity to India.

https://economictimes.indiatimes.com/industry/energy/power/for-second-consecutive-year-nepal-exports-surplus-electricity-to india/articleshow/91985276.cms?from=mdr. Accessed on 13 October 2022.

[viii] Ibid.

[ix] The Economic Times (2 May 2022), SJVN to develop 490 MW Arun-4 hydel power project worth Rs 4,900 crore in Nepal.
https://economictimes.indiatimes.com/industry/renewables/sjvn-to-develop-hydel-490-mw-arun-4-power-project-worth-rs-4900-crore-in-nepal/articleshow/91597836.cms?from=mdr. Accessed on 15 October 2022.

[x] Ibid.

[xi] Ministry of Power, Government of India, Interconnection with neighbouring countries. https://powermin.gov.in/en/content/interconnection-neighbouring-countries#:~:text=India%20%E2%80%93%20Nepal,33kV%2C%20132kV%20and%20220kV%20lines. Accessed on 7 October 2022.

[xii] All India Radio, News Services Division (7 September 2022), India-Bangladesh to expand energy connectivity, cooperation in railways. https://newsonair.gov.in/News?title=India--Bangladesh-to-expand-energy-connectivity%2C-cooperation-in-railways&id=447278#:~:text=India%20and%20Bangladesh%20have%20agreed,of%20the%20two%20countries%20synchronously. Accessed on 25 October 2022.

[xiii] Arun Devnath, Rajesh Kumar Singh (6 September 2022), Adani Power to start exporting power from India to Bangladesh. https://www.business-standard.com/article/economy-policy/tycoon-gautam-adani-to-start-exporting-power-from-india-to-bangladesh-122090600612_1.html. Accessed on 15 October 2022.

[xiv] South Asia Subregional Economic Cooperation (30 April 2022), Bangladesh for electricity trade with Nepal. https://www.sasec.asia/index.php?page=news&nid=1381&url=ban-elec-trade-nep. Accessed on 6 October 2022.

[xv] Ibid.

[xvi] The Business Standard (17 October 2022), Bangladesh, Nepal write to India for trilateral power trade deal. https://www.tbsnews.net/bangladesh/bangladesh-nepal-write-india-trilateral-power-trade-deal-514846. Accessed on 20 October 2022.

[xvii] Ibid.

[xviii] Ibid.

[xix] Kamran Siddiqui (5 September 2022), PTC India plans company in Nepal to sell power to Bangladesh. https://www.tbsnews.net/world/south-asia/ptc-plans-company-nepal-sell-power-india-bangladesh-490358. Accessed on 14 October 2022.

[xx] The Business Standard (17 October 2022), Bangladesh, Nepal write to India for trilateral power trade deal. https://www.tbsnews.net/bangladesh/bangladesh-nepal-write-india-trilateral-power-trade-deal-514846. Accessed on 20 October 2022.

[xxi] The Kathmandu Post (27 July 2022), Nepal-Bangladesh meeting on power cooperation likely next month.

 https://kathmandupost.com/national/2022/07/27/nepal-bangladesh-meeting-on-power-cooperation-likely-next-month. Accessed on 14 October 2022.

[xxii] The Times of India (19 April 2022), Crisis-hit Sri Lanka, India revive talks to link electric grids. https://timesofindia.indiatimes.com/business/india-business/crisis-hit-sri-lanka-india-revive-talks-to-link-electric-grids/articleshow/90940569.cms. Accessed on 10 November 2022.

[xxiii] Press Information Bureau, Government of India (19 March 2022), Trade in electricity. https://pib.gov.in/PressReleasePage.aspx?PRID=1607177. Accessed on 5 November 2022.

[xxiv] Zafar Bhutta (24 August 2021), More power import from Iran likely. https://tribune.com.pk/story/2316864/more-power-import-from-iran-likely. Accessed on 5 November 2022.

[xxv] Ibid.

[xxvi] Brendan McBennett, Amy Rose, David Hurlbut, David Palchak, Jaquelin Cochran, Cross-Border Energy Trade between Nepal and India: Assessment of Trading Opportunities, National Renewable Energy Laboratory, USA. https://www.nrel.gov/docs/fy19osti/72066.pdf. Accessed on 10 October, 2022.

[xxvii] Priyanka Kwatra (4 November 2022), Power Connections: Cross Border Electricity Trade gains traction in South Asia. https://powerline.net.in/2022/11/04/power-connections/. Accessed on 6 November 2022.

[xxviii] South Asia Regional Initiative for Energy Integration (SARI/EI), Economic Benefits from Nepal-India Electricity Trade, Integrated Research and Action for Development, USA. https://irade.org/Analytical%20Study%20Economic%20Benefits%20from%20Nepal-India%20Electricity%20Trade.pdf. Accessed on 12 October 2022.

[xxix] Ibid.

[xxx] Promod Tandan (31 October 2021), Challenging hydro-hegemony of India: Resistance of Nepal in the Upper Karnali and Saptakoshi Dam Project. https://link.springer.com/article/10.1007/s40899-021-00580-2.  Accessed on 12 October 2022.

[xxxi] Brendan McBennett, Amy Rose, David Hurlbut, David Palchak, Jaquelin Cochran, Cross-Border Energy Trade between Nepal and India: Assessment of Trading Opportunities, National Renewable Energy Laboratory, USA. https://www.nrel.gov/docs/fy19osti/72066.pdf. Accessed on 10 October 2022.

[xxxii] Prakash Gaudel (August 2022), Cross-border electricity trade: Opportunities and challenges for Nepal. https://www.researchgate.net/publication/327177062_Cross-Border_Electricity_Trade_Opportunities_and_Challenges_for_Nepal. Accessed on 10 October 2022.

[xxxiii] Ajay Chathurvedi (20 October 2019), India and Nepal: Energy Cooperation, The peninsula. https://www.thepeninsula.org.in/2019/10/20/indo-nepal-energy-cooperation/#:~:text=India%20is%20currently%20supplying%20a,signed%20on%2021%20October%202014. Accessed on 7 October 2022.

[xxxiv] Centre for International Trade Economics and Environment, Energy Cooperation in the BBIN Region. https://cuts-citee.org/energy-cooperation-in-the-bbin-region/. Accessed on 10 October 2022.