Does India Buy Electricity From Nepal?
India and Nepal are two neighboring countries in South Asia that have seen rapid growth in electricity demand in recent years. India is one of the world’s fastest growing major economies, with a population of over 1.3 billion people. Its electricity demand has been rising steadily, driven by population growth, urbanization, industrialization, and increasing access to electricity in rural areas. However, India has struggled to expand its electricity generation capacity fast enough to meet this growing demand.
Nepal is a smaller nation of around 29 million people that is also experiencing electricity supply shortages. Although Nepal has significant hydropower potential, developing this has been constrained by lack of investment and infrastructure challenges in tapping resources. Nepal’s per capita electricity consumption is also among the lowest in the world.
Given their contrasting size and electricity situations, there has been some cross-border power trade between India and Nepal aimed at helping meet electricity demand in both countries.
India’s Electricity Demand
India is the third largest consumer of electricity in the world, after China and the United States. In 2021, India’s total electricity consumption was 1,417 TWh (terawatt hours). This represents rapid growth, with electricity consumption increasing by around 6% annually over the past decade.
Per capita electricity consumption in India has also been rising steadily, but remains low compared to other major economies. In 2021, per capita electricity consumption in India was 1,051 kWh, up from around 900 kWh in 2015. However, this is still well below the global average of around 3,200 kWh per capita.
India’s electricity demand is expected to continue rising rapidly in the coming decades. The government has set a target for India to achieve power for all by 2022. Major growth drivers include rising incomes, increasing industrialization and urbanization, growing use of appliances and technology, and improved access to electricity in rural areas. Some estimates project that India’s electricity demand could more than double within the next 10-15 years.
Meeting this exponential growth in demand will require massive expansion and upgrades across all aspects of India’s power sector infrastructure. It also represents a major challenge but also opportunity for policymakers and businesses in the Indian electricity industry.
Source: Potential for Demand Side Management in Industry
India’s Electricity Supply
As of October 2022, India had a total installed electricity generation capacity of 407 GW, of which non-fossil fuel energy sources accounted for 44% at 179 GW. The remaining 223 GW of capacity came from thermal power plants, primarily coal-fired plants which make up 53% of India’s total capacity.[1]
India’s electricity generation mix is undergoing a transition as the country aims to reduce its reliance on polluting coal and increase the share of renewables. In recent years, India has made major investments in renewable energy such as solar and wind power. From 2014 to 2022, India’s non-fossil fuel capacity grew from 32% to 44%.
However, coal remains the dominant fuel for power generation in India. As of October 2022, coal-fired plants accounted for 53% of India’s total generation capacity at 215 GW. The government plans to continue investing in coal-fired plants over the next decade to meet rising electricity demand even as it also expands renewables.[2]
Going forward, India faces challenges balancing the twin goals of increasing electricity access through reliable and affordable supply while also transitioning away from fossil fuels and lowering emissions.
[1] https://oilprice.com/Latest-Energy-News/World-News/Share-of-Indias-Non-Fossil-Fuel-Power-Capacity-Rises-to-44.html
[2] https://www.reuters.com/business/energy/indias-coal-renewables-mix-makes-messy-energy-transition-maguire-2023-03-24/
Nepal’s Electricity Supply
Nepal has abundant hydroelectric resources due to its geography in the Himalayan mountains. Studies estimate Nepal’s hydroelectric potential at around 83,000 megawatts (MW), with 42,000 MW considered economically feasible for development (https://www.urjakhabar.com/en/news/2011305829). However, only around 1% of this potential has been developed so far. As of 2022, Nepal had installed hydroelectric capacity of around 1,400 MW, mostly from run-of-river projects.
Developing more of Nepal’s hydro resources could help meet domestic electricity demand, enable industrial growth, and provide a major export opportunity. However, there are challenges around attracting private investment, balancing different project sizes, mitigating environmental impacts, and coordinating with India as the major potential market for electricity exports (https://www.stimson.org/wp-content/files/file-attachments/Developing_Nepals_Hydroelectric_Resources_-_Policy_Alternatives.pdf).
Recent years have seen growing interest in Nepal’s hydro potential from domestic and foreign investors. The government aims to develop 10,000 MW of hydroelectricity by 2030 focusing on storage projects that can provide peaking power and grid stability. Energy storage systems can also help Nepal optimize the value of its hydro resources (https://en.setopati.com/view/162238).
Power Trade Between India and Nepal
Nepal and India have a long history of electricity trade. In 2014, the two countries signed the Power Trade Agreement (PTA) which allowed Nepal to export surplus electricity from its hydropower plants to India [1]. Under this agreement, Nepal Electricity Authority (NEA) sells electricity to Indian power trading companies.
Electricity exports from Nepal to India have been steadily rising over the years. In the fiscal year 2021-22, Nepal exported electricity worth NPR 15.38 billion to India, nearly doubling from NPR 8.78 billion in 2020-21 [2]. In the first four months of 2022-23, Nepal exported electricity worth USD 56 million to India, a significant growth compared to USD 23 million in the same period last fiscal year.
The recent monsoon surplus has further boosted Nepal’s electricity exports. Between mid-July to mid-November 2022, Nepal exported 1.36 billion units of hydropower to India, earning revenue of over NPR 12.5 billion. This is the highest electricity export by Nepal in the first four months of any fiscal year [3].
Power Purchase Agreements
Nepal and India have signed several power purchase agreements (PPAs) over the years to facilitate electricity trade between the two countries. In 2014, they signed a PPA for the export of up to 500 MW from Nepal to India [1].
In January 2024, Nepal and India signed a new long-term PPA to export up to 10,000 MW of electricity from Nepal to India in the next 10 years [2] [3]. This agreement will help Nepal develop its vast hydropower potential by ensuring a ready market for electricity in India.
The two countries are also negotiating additional PPAs for the export of electricity from specific projects in Nepal. Once signed, these project-specific PPAs will supplement the overall framework provided by the long-term PTA [4].
Transmission Infrastructure
India and Nepal have been working to strengthen the transmission infrastructure for cross-border electricity trade. There are currently several high-capacity transmission lines connecting the two countries, enabling Nepal to sell surplus electricity to India.
The key cross-border transmission links include the Muzaffarpur-Dhalkebar 400 kV double-circuit and Dhalkebar-Muzaffarpur 400kV double-circuit transmission lines which have capacity to transmit 200 MW of electricity from Nepal to India [1]. Overall, the transmission capacity from Nepal to India has now reached 1,400 MW [2].
In September 2023, India and Nepal agreed to upgrade the Dhalkebar-Muzaffarpur line to transmit up to 1000 MW, up from 600 MW earlier [3]. Additional transmission lines are also planned to further boost cross-border electricity trade.
Challenges
There are several technical, political and economic challenges that have affected electricity trade between India and Nepal:
Technical challenges include lack of transmission infrastructure to transport electricity from Nepal to India. Currently the only cross-border transmission link is the Muzaffarpur-Dhalkebar 400kV double circuit line with capacity of 600MW [1]. More transmission lines need to be built to allow higher electricity trade.
On the political front, there is opposition in Nepal to the recent Power Trade Agreement signed with India, with concerns that it favors India and allows it to control Nepal’s water resources [2]. This has created uncertainty over the agreement.
Economically, Nepal faces challenges in raising financing for its hydropower projects due to its poor credit rating. Indian officials have also expressed concerns over participation of Chinese contractors in Nepal’s hydropower projects [3].
Future Outlook
India and Nepal have signed a new power trade agreement that will allow Nepal to export up to 10,000 megawatts of hydroelectricity to India over the next 10 years. This represents a major expansion of electricity trade between the two countries. Currently, Nepal exports only about 650 MW of electricity to India.
The deal is expected to spur investment in Nepal’s underdeveloped hydroelectric sector. India will provide Nepal access to its power grid for electricity exports. New cross-border transmission lines will likely need to be constructed to allow higher electricity flows between the countries. There are also plans to develop an 800 kV power transmission line connecting Nepal, India and Bangladesh.
Looking ahead, Nepal and India have set up a joint committee to explore developing up to 28,000 MW in new hydroelectric capacity in Nepal for export to India in the future. However, attracting private investment may prove challenging given Nepal’s past political instability. Still, the recent agreements demonstrate Nepal and India’s commitment to substantially increase electricity trade for mutual economic benefit.
Conclusion
To summarize, India has a growing demand for electricity and faces challenges meeting domestic needs through its own supply. Nepal, in contrast, has a surplus of hydropower potential but lacks transmission infrastructure to fully utilize it. The two countries have signed multiple power trade agreements to enable India to import electricity from Nepal to help meet demand. However, cross-border transmission interconnections are currently limited. While electricity trade holds promise, difficulties remain around financing generation and transmission projects in Nepal as well as navigating issues related to pricing, power purchase terms, and delays. The outlook is hopeful though, with plans to expand transmission and generation underway that could allow Nepal to export more electricity to India in the future.
In conclusion, while India does currently buy some electricity from Nepal, the amount is relatively small. But this could change in the coming years as the two countries work to expand power trade ties and unlock Nepal’s large hydropower potential. The long-term partnership in this sector aims to meet India’s growing power needs while providing an important source of revenue for Nepal.
