Power Trading Between Nepal and India

There is a free flow of electricity in Nordic countries and prices are determined by free interaction of supply and demand. This mechanism has helped new players to enter the market which eventually reduces the price and brings new innovation. Additionally, it has created energy security in the region. Learning from the success of the Nordic region, East African countries like Rwanda, Tanzania, and Kenya are also reforming their energy policies so as to aid the formation of a common market for energy exchange. All this has been possible in the South Asian region because various sources of electricity are available in different countries—Nepal and Bhutan have rich hydro resources, Bangladesh has a substantial amount of gas reserve and India generates vast amounts of cheap energy from coal.

Power exchange seems much more favorable in case of India and Nepal as there exist a complementary relationship in demand and supply of electricity in these neighboring nations. Electricity production in Nepal is high during summer season due to maximum flow of water in the rivers. Additionally, majority of the projects which are under construction are also run-of-the-rives as such requires low cost and has lesser environmental impacts. As a consequence, there is energy surplus in Nepal during the wet season. At the same time, the demand for energy in India may be higher due to use of refrigerators, coolers, air conditioners, and other electrical appliances that are used for lowering temperature. Moreover, the hydropower potential of Nepal is substantial than its population size and expected needs. On the other hand, energy demand in India is growing at the rate of 9 percent due to rapid economic transformation. Therefore, electricity trade between these countries can be beneficial for both the countries.

Nepal’s hydropower potential which is concentrated in far western region is difficult to harness if it is used only for domestic purpose because demand of electricity in that area is relatively low due to sparse population and less availability of industries. Therefore, lengthy transmission lines should be constructed to bring power to the load center. Building such transmission lines, however, is very costly and sometimes costs more than the construction of hydroelectric project itself. Additionally, it significantly increases technical losses. In this case, it is beneficial to export power to various adjacent parts of India, including Uttarakhand, Uttar Pradesh and even Haryana which makes more economic sense. However, for the execution of such a plan, Nepal needs Power Trading Companies that exchange electrical power in commercial manner considering water as a market commodity instead of a political good. This mechanism will further facilitate buying and selling of electricity at different times of the day. Prices will be fixed according to market signals and this is very essential for the development of hydropower.
Power Trading Companies like Power Trading Company-India were established in India as its energy market was liberalized. It makes energy integration much easier as Power Trading Company is an essential body for trading power in a competitive market. Due to presence of it, power markets seek to maximize competition in generation and compete on price instead of cost. Thus, it creates value for power by discovering market for power which is crucial for introducing innovative products according to need of customers. Additionally, it provides a single window service to take care of all intermediate requirements like transmission agreements, metering, accounting and other necessary things.

Furthermore, integration of energy market through formation of Power Trading Companies helps to optimize existing energy resources and provides commercial outlook to the sector by catalyzing investment especially from domestic and foreign private sector. It identifies and promotes opportunities for mutually beneficial cooperation projects in the power sector. The countries of Greater Mekong Sub-region (GMS) like Cambodia, Lao PDR, Myanmar, Vietnam and two provinces of China, namely Yunnan, Guangxi Zhuang have already practiced this principle. This ushered in much needed prosperity in the region through exchange of energy and further led to integration in other economic activities.

Nepal also needs to initiate similar work by holding a series of dialogues and discussions with the state governments of Uttarakhand, Uttar Pradesh, Haryana and Bihar which are neighboring states of India as people living in this region have been suffering from acute shortage of power for a long time. The invitation from Narendra Modi to Nepalese counterpart during his sworn in program provides a wonderful opportunity to raise such issue for the betterment of both countries. If Nepalese Prime Minster is able to float this idea during his formal and informal meeting, it might pave the way for detailed discussion in secretarial and ministerial level as follow up process, and a long term agreement will happen for power exchange. This leads into construction of mega projects which have been waiting for a long time for suitable environment and the adequate availability of energy will surely bring higher economic growth with rapid industrialization and modernization process in the region and remove people out of vicious circle of poverty in massive number.

(This article was originally published in Econity on 27th May, 2014).