KATHMANDU, Sep 5: India's cabinet has granted approval for the purchase of 10,000 megawatts of electricity from Nepal, marking a major milestone in bilateral cooperation. This agreement on electricity trade had been a priority for Nepal, and it has now received the green light, three months after the initial proposal.
Nepal had initially sought to sign a Memorandum of Understanding (MoU) during Prime Minister Pushpa Kamal Dahal's visit to India in May. However, at that time, the matter was not discussed in the Indian Cabinet, leading to a delay in the signing. Nevertheless, Indian Prime Minister Narendra Modi, following bilateral discussions, publicly committed to purchasing 10,000 megawatts of electricity from Nepal over the next decade.
Prime Minister Dahal viewed this commitment as a significant achievement during his visit to India. However, due to the absence of a formal agreement, Nepal was unable to fully export the electricity it generated, leading to challenges for the Nepal Electricity Authority (NEA). NEA has struggled to sell more than 452 megawatts of electricity from ten projects, resulting in excess power supply in the wet season. In response, NEA asked private sector power producers to reduce their production.
As numerous hydropower projects are currently under construction, securing a long-term electricity trade agreement with India was deemed essential to address the issue of power wastage. Last week, India's Cabinet approved this agreement, signaling a commitment to strengthen energy ties with Nepal. Nepali Ambassador to India, Shankar Prasad Sharma, confirmed this development on social media, highlighting the potential positive impact on Nepal's economic development.
Following the approval by the Indian cabinet, the energy secretaries of both nations are poised to sign a pivotal long-term power trade agreement, simplifying the process for Nepal to export its electricity to India.
This landmark agreement extends the opportunity for Nepal to sell its electricity in India for a period of 25 years. Currently, Nepal exports electricity to India on a short-term basis, primarily through "day-ahead" and real-time markets.
An official from the Nepal Electricity Authority (NEA) has noted that, with the agreement in place, electricity can be sold through long-term contracts spanning from seven to 25 years, as well as medium-term contracts spanning two to seven years. The prospect of long-term sales is expected to incentivize increased investments in hydropower projects. Several projects that had been on hold due to market uncertainties are likely to gain momentum.
The NEA official emphasized, "A long-term business agreement will prompt hydropower project license holders to initiate their projects promptly, creating a conducive environment for foreign investment as well."
Additionally, this agreement opens doors for the sale of power to large-scale Indian investment projects in Nepal. Notably, projects like Arun III, funded by Indian investment, are currently under construction, and other major ventures such as Phukot Karnali and Upper Karnali are making progress.
It's important to note that India's agreement to purchase electricity from Nepal comes with specific conditions. India will exclusively procure electricity from projects backed by either Indian or Nepali investments and will not buy electricity from Chinese-invested projects.