Powering India-Nepal Ties

By —At the recent Energy Secretary-level talks of the Joint Steering Committee (JSC) in Kathmandu (February 13-14, 2017), an important step in promoting electricity trade between India and Nepal took place when it was decided to endorse the detailed project report of the 400 kV Butwal-Gorakhpur cross-border transmission line. It was in accordance with the guidelines issued by India’s Ministry of Power for cross-border electricity trade on December 5, 2016. This article examines the potential of energy relations and electricity trading in particular as a factor in stabilizing the oft turbulent, but important India-Nepal relations

Hydropower Potential

Against the total estimated hydropower potential of over 83 GW, Nepal’s economically feasible potential is 43 GW. But its existing capacity is less than 1GW. Out of an economically viable and technically feasible potential of 43.5 GW, only 0.8 GW had been developed by March 2016. Against peak demand of around 950MW, the country’s production during dry winter goes as low as 450MW due to lack of water flow along the streams.

In 2015, Nepal faced load-shedding of up to 16 hours a day during the dry season, when Nepal’s available hydropower capacity decreased to a third of the installed capacity. Peak load outstripped domestic power generation capacity, causing serious power shortage, which was partly met with imports from India. Contribution of imported electricity in the total electricity supply in Nepal increased to 23 percent in 2016. This will rise further this year. Dependence on Indian electricity has been increasing steadily due to the demand-supply mismatch.

The cross-border electricity trade between the two countries rests on a sustainable and mutually beneficial commercial proposition. Nepal is short of power and will need to import power for some years to accelerate its economic growth. India at present has surplus capacity to meet the Nepalese demand but, more importantly, in the years ahead after Nepal has harnessed sufficiently its existing hydropower potential, India can gainfully import this flexible hydropower from Nepal to balance its fast growing but inherently varying renewable generation. This in turn would provide a market for Nepal’s electricity, which it can leverage to develop its presently unrealised hydel potential faster.

Power Availability

In November 2016, the Nepal Electricity Authority (NEA) decided to buy up to 170 MW from the Power Trading Corporation (PTC) of India to limit load-shedding to 12 hours a day during the winter season — in the process taking total import to 260 MW. In 2015, Nepal had imported up to 200 MW from India. There is another issue at play; Nepal could import only up to 237 MW through the transmission system which had been scaled up to 260 MW with repair of the transmission lines from India. This is the reason why the transmission lines used for importing electricity from India always remain in the priority list of Nepal’s policy makers.

Nepal’s imports from India now total 350MW through four cross-country lines. Kataiya-Kushhawa line carries 120MW while 30MW goes through Tanakpur-Mahendranagar and 25MW through Ramnagar-Gandak transmission lines. The remaining 120MW is received by Nepal through Dhalkebar-Muzaffarpur. This route is under capacity-augmentation process to have a handling capacity of 280 MW. The NEA last year imported electricity from 13 points including Kataiya, Jaleshwore, Raxaul Mahanagar and Tananakpur.

In December 2016, NEA imported an additional 30 MW of electricity from Tanakpur to reduce load-shedding. NEA procured the electricity from the Power Trading Corporation of India (PTC) Ltd at INR 3.75 per unit. This additional electricity for the Far West Region had to be imported as the quota of free electricity Nepal has been receiving from India as per the Tanakpur Treaty was exhausted. Nepal receives 70 mn units of free electricity annually from the Tanakpur point.

Cost to State

While Nepal has been procuring from India at a cheaper rate as per the electricity exchange agreement between the two countries, it has also been procuring electricity at commercial rate per unit from the PTC. The NEA has also signed an agreement to import up to 150 MW of electricity from PTC at commercial rate for 25 years.

Early this year NEA and Vidyut Vyapar Nigam Ltd. of India signed a power purchase agreement signed for import of 25MW from India, in addition to the existing 350MW imported by Nepal. The additional intake takes place through a cross-country transmission line between Dhalkebar in Nepal and Muzaffarpur in the Indian state of Bihar. At the existing tariff of INR 3.60 per unit, the increased import is likely to continue till arrival of rainfall in the Himalayan terrain in May.

Nepal will import electricity worth NRS 15 billion from India during the current fiscal to end power cuts in the country. The NEA has so far imported electricity worth NRS 9.68 billion from India in the first nine months of the 2016-17 fiscal.  Power worth around NRS 14.9 billion was imported during the last fiscal. It is projected that additional power worth INR 6 billion would be required to be imported from India in the next three months to end power outages in the country.

Accordingly, Nepal has a set plan to establish 2,200 MW fresh generation capacity and 3,000 km of transmission lines by 2020. In addition, there are plans for other projects of total 2,300MW to be developed by Indian Companies. Once established, these new projects will make Nepal a major power exporting country in the South Asian region. At the same time, India, being the major contributor to these projects and next-door neighbour of Nepal, will be one of the largest beneficiaries of the augmented volume of generated power.

Power Trade

India and Nepal have been talking about electricity trade and joint projects for many years now, but somehow these talks did not succeed. It was only in 2014, when India and Nepal signed a Power Trade Agreement, that the doors opened for Nepal developers/traders to access the Indian power market. At first, Nepal was apprehensive that it would not get a fair deal trading with its neighbour, but power is now traded in India on exchanges transparently and the price is known to all, thus assuaging some of the Nepali apprehensions.

By selling power to India, Nepal could have developed its economy at a faster rate. Bhutan has reaped the benefits of power export to India and its per capita income in purchasing power parity adjusted for international dollars increased from USD475 in 1980 to USD7,860 in 2015. Therefore, the sooner Nepal develops its hydropower potential, the earlier the benefits will accrue. However, for electricity trade to materialise, policy, institutional and technical infrastructure are necessary.

The prospect of electricity trade with India makes it possible for Nepal to develop its hydro-power potential and has important consequences. A climate of confidence and trust in the long-term trading relationship between India and Nepal not only in hydro-power but in the full portfolio of energy sources can greatly help Nepal meet its ambitious target and provide an opportunity for Indian investors to invest in Nepal. This could also help smoothen the recently strained relations with Nepal as well as strengthen the historically friendly ties.

(This article was published at the Centre for Land Warfare Studies and reprinted with permission at the eurasiareview.com on May 22,2017.)

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