May 24, 2022, Tuesday
Nepal 1:37:26 pm

Cross border trading of electricity for Nepal: want or need?

The Nepal Weekly
February 15, 2022

By Krishna Adhikari

Comparing with the situation of five years earlier when Nepalese electricity consumers were facing power cut up to 14 hours a day due to acute shortage of supply against the demand, it is much improved now. At present, total installed capacity of electricity generation has reached above 2,000MW whereas daily peak demand is around 1500 MW. Considering this, Nepal has attained self dependency in electricity after 110 years of generation and use of electricity for the first time in 1911, although still this self dependency is seasonal. These figures of generating capacity during rainy season when most plants generate at their installed capacity and the maximum domestic demand indicate scope for 500 MW export of electricity in the cross border markets. Major credit to this charismatic leap in the electricity supply sector goes to the completion of largest capacity hydropower project 456 MW Upper Tamakoshi. Country’s electricity supply system has undergone facelift after completion of this project. Country was importing around 800 MW power from India resulting in cash outflow of 20 billion rupees most of which is substituted by domestic electricity generation projects including Upper Tamakoshi. Under construction hydropower projects in the country clearly indicate that Nepal’s domestic electricity generation capacity will surpass 5,000 MW in coming five years and Nepal will be turned as net exporter of electricity.

Systemic Problems

But this enhanced level of electricity generation has not created confidence among the consumers for willful use of electricity. This because of two reasons:

(a) Our electricity transmission and distribution capacity is insufficient to cater the supply for full scale demand by the consumers. Few industrial corridors are still facing forced load shedding due to insufficient capacity of related transmission and distribution infrastructure despite enough generation capacity. Similar consumers of domestic category willing to cook their meals using electricity are unable to do so as the supply may be interrupted any time due to insufficient capacity of distribution infrastructure and fear of meal being spoiled. These limitations in the domestic consumption of electricity are contributing to supply surplus and there is threat of spillage of this unused generating capacity. There is urgent need of upgrading, expanding and reinforcing the electricity transmission and distribution system for maximum use of generating capacity within the country. 

(b) Most of the electricity generation projects are Run of the River (ROR) type hydropower projects though few of them small pondage for storing water and using it on daily basis. These are called Peaking Run of the River (PROR) Projects. But the water in the rivers recedes, the dry season generation of most ROR hydropower projects drop down to one third of their installed capacity. This is so because Nepal uses forty percent exceedence rate as design criterion for ROR projects. That means with the current installed generation capacity slightly above 2,000 MW, Nepal can generate about 800 MW in the dry seasons. PROR projects provide additional 400 MW during peak hours by storing water during off peak hours. But there is still shortfall of 300 MW during peak demand period for few hours.

Cross border Electricity Trade: Dependable Solution of the Systemic Problems

Increasing graph of electricity generation has shown brighter sides but the systemic limitations of domestic use of electricity and seasonality resulting in reduced generation and supply shortfall in dry season pose serious challenges to balance the system. In the economic world, unbalance of whichever nature results in economic and financial losses and the problem is at the doorsteps of the power sector also. Nepal Electricity Authority (NEA) as single off-taker of generated power has signed Power Purchase Agreements (PPA) on Take or Pay basis. If NEA could not market the available generation during rainy season, they will not be able to pay to generators for deemed power on take or pay basis, generators will not be able to pay to banks that financed the project, banks will not be able to return money to their depositors. This will invite serious financial crisis. On the other side even if the installed capacity becomes 5,000MW, available generation in dry season will be nearly 1,600 MW. It is apparent that this available generation will not be sufficient to offset the domestic demand.

It is very apparent that the immediate solution of these problems i.e. surplus in rainy season and deficit in dry season is not available in domestic market. We must access the cross border market to resolve this challenge. Exporting surplus power of the rainy season in cross border market and importing the deficit quantum from the same cross border market during dry season is the solution model. This establishes that Cross Border Electricity Trade is not a want but a need for Nepal.

Initiatives Undertaken for Cross border Electricity Trade

In the last two decades, there have been policy and infrastructure related initiatives of significant importance on bilateral and regional basis for transaction or trading of electricity among the countries of South Asia. Few of the bilateral initiatives pushed by Nepal are:

(a) Nepal and India signed Indo-Nepal Power Trading and Grid Integration Agreement in 2015.

(b) Nepal and Bangladesh signed an Memorandum of Understanding for of electricity trade between the countries in 2018.

(c) Nepal and China signed an agreement regarding the development of cross border transmission line and grid interconnection, renewable energy, hydropower and other energy projects in 2018.

(d) Dhalkebar (Nepal) – Muzaffarpur (India) Double Circuit 400 k V AC transmission line has been constructed and commissioned.

(e) India and Nepal have agreed to construct Butwal (Nepal) – Gorakhpur (India) Double Circuit 400 kV AC transmission line as second high capacity interconnection of two grids.

(f)  Nepal has signed an agreement with Millennium Challenge Corporation (MCC) of US for the grant support of 500 MUSD mainly for construction of about 400 kms of high capacity 400 kV transmission line within the country. The target project will not only provide strong transmission back bone to the country’s power system but will provide dependable interface with planned Butwal-Gorakhpur cross border line for cross border trading of electricity.

These initiatives on bilateral basis shall definitely contribute and facilitate cross border electricity trade by Nepal.

Following are the regional initiatives for grid integration and cross border electricity trade among the South Asian countries:

(a) SAARC Member states signed SAARC Intergovernmental Framework Agreement for cooperation in electricity generation, grid integration, power trade and transaction during SAARC Summit 2010.

(b) In 2018, BIMSTEK Member states signed BIMSTEK Grid Interconnection MOU regarding optimum use of different sources of energy, grid integration, development of energy related infrastructures and power trading. 

Initiatives by individual countries at their own level:

(a) India has issued electricity import and export guidelines. These guidelines provide the procedures and conditions for import and export of electricity by any Indian entity. Interested neighboring countries can explore the import and export of electricity in light of these guidelines.

(b) Government of Nepal has also drafted the procedures for trading of electricity including the cross border trading.

(c) The new Electricity Bill submitted by government in the federal parliament has acknowledged trading of electricity as business activity and made provision for trading license. Considering this, few electricity trading companies are registered in the country.

External Support for Cross Border Electricity Trade in South Asia

SAARC Energy Centre, Islamabad is the regional think tank to promote grid integration and cross border electricity trade in the region. Collective efforts of SAARC member states for cross border electricity trade and grid integration are consolidated through SAARC Energy Centre. But United States government through USAID have been actively supporting activities related to grid integration and cross border electricity trade through the SARIE and SARI/EI program since 2000. The program provided greater platform for the technocrats, bureaucrats and politicians of the region to sit together, interact and identify the needs on improving national legal, regulatory and institutional frameworks for a greater cooperation among South Asian countries regarding grid integration and cross border electricity trading.