Pramod Rijal
South Asian countries offer a significant amount of complementarity in the areas of energy resources and the demand and supply situation at various times and seasons. Moreover, energy cooperation among South Asian countries also helps minimize the cost of electricity generation, enhance energy security and reliability, and minimize environmental problems by accessing renewable sources of energy like hydropower. For instance, Nepal can import electricity from India during the winter season, as there is low production of hydroelectricity due to low volume of water in the rivers. However, Nepal can export electricity to India, Bangladesh and other neighbouring nations during the wet season as generation of hydroelectricity increases because of the high volume of water in the rivers due to the monsoon season and melting of ice. Additionally, energy cooperation helps to reduce income disparities among member countries, and a relatively poor economy can catch up with a richer economy due to an integrated market.
Countries in South Asia are planning to generate more electricity from clean sources such as wind and solar. In this situation, electricity generated from hydroelectricity helps to solve intermittency issues by providing a stable and steady supply of electricity. The currently available mechanism of long-term, medium-term term and short-term bilateral Power Purchasing Agreements (PPA) cannot be an alternative for exchange-based free market trade nearer to real-time, as this system cannot provide a suitable option to meet the needs of daily diversity or even seasonal diversity.
The existing cross-border electricity trade arrangements are long-term to medium-term in nature and do not address the needs of daily or even seasonal diversity. The products in the exchange can be classified into two categories. The Day Ahead Market (DAM), where the bidding and the matching are completed on day n‐1 for trades to be executed on the next day n. This accounts for about 95 percent of the volume of the exchange transactions. The other category is the Term Ahead Market (TAM), which includes products like intra‐day, weekly, etc., but the volume is much less. To harness the full potential of South Asian regional diversity and complementariness, the Day-Ahead Market (DAM) is the only viable option.
Cooperation in energy trade among neighbouring countries of the South Asian Association for Regional Cooperation (SAARC) plays a crucial role in ensuring energy security and economic stability in the region. Recognizing this need, SAARC had formed the South Asia Regional Energy Coalition (SAREC) in 2006 to promote advocacy initiatives, followed by the SAARC Energy Centre (SEC) was established in Islamabad, Pakistan. Finally, in 2014, SAARC nations signed a framework agreement for promoting electricity cooperation. However, the stalemate in the SAARC process has also resulted in stalling of the energy cooperation initiative at the regional level. But it has given momentum to bilateral energy cooperation, while other alternative regional platforms involving such as BBIN (Bangladesh-Bhutan-India-Nepal) and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) have also taken up energy trade as one of the important areas of cooperation.
Countries such as Bangladesh, India, and Afghanistan rely on power imports to meet their growing electricity demands. India’s electricity demand continues to rise because of increasing industrialization and the growing middle class. There was a 7 percent increase in electricity generation in FY 2023–24 and a 4.2 percent rise in peak demand in FY 2024–25. To address these challenges, various agreements have been made on a bilateral level for energy exchange among South Asian nations. These include power trade between Nepal-India and Bhutan-India, and Bangladesh-India. Nepal has symbolically exported 40 MW of electricity to Bangladesh using the transmission infrastructure of India after signing a tripartite agreement among these three countries.
Likewise, Bangladesh imported electricity from the Palatana Power Plant of Tripura, India through a dedicated transmission line in 2016. However, India-Sri Lanka Power Exchange remains in the planning stage. It shows the increasing importance of cross-border energy trade in the region. Additionally, proposals for power imports from Central Asia via the Afghanistan-Pakistan-India corridor reflect efforts to diversify energy sources and enhance regional connectivity. However, due to a combination of geopolitical reasons and the recent attack on tourists in Pahalgam, the relationship between India and Pakistan has significantly deteriorated. Similarly, Bangladesh and Myanmar have also explored possibilities for electricity exchange, as the western part of Myanmar has large potential in hydropower.
The tripartite agreement among Nepal Electricity Authority (NEA), NTPC Vidyut Vyapar Nigam (NVVN) and Bangladesh Power Development Board (BPDB) was signed in October 2024. This agreement marks a significant milestone in electricity trade within the South Asian region. By enabling the sale of 40 MW of power from Nepal to Bangladesh through the Indian grid.
With regional cooperation on energy making only gradual progress, bilateral and sub-regional initiatives have become increasingly important among SAARC countries. Despite the SAARC Framework Agreement for Energy Cooperation (Electricity), several bilateral electricity trade arrangements have taken place, most notably between Bhutan and India, and India and Nepal. Petroleum product trade is also significant, with India supplying refined products to Nepal, Bhutan, Bangladesh, and Sri Lanka, and exporting diesel to Bangladesh as a result of surplus refining capacity.
For achieving long-term energy sustainability, it is imperative to expedite the implementation of the SAARC Power Grid and SAARC Energy Ring as per their original plans. These initiatives will facilitate resource-sharing and regional collaboration, ensuring a stable and reliable energy future for South Asia. However, despite ongoing efforts, the region faces several challenges, such as increasing energy deficits, heavy dependence on a single fuel source, growing reliance on energy imports, and inadequate energy infrastructure. The dominance of a single fuel in the energy mix further exacerbates these issues, highlighting the need for diversification.
There is significant variation in commercial energy resource endowments across South Asia. Countries like India, Pakistan, and Bangladesh are rich in natural gas and coal resources, while Bhutan and Nepal have substantial hydropower potential. All countries in the region have vast renewable energy opportunities, including wind and solar. By sharing these resources, more optimal and cost-effective energy solutions for the entire region can be achieved. Cross-border electricity cooperation can reduce the costs of renewable energy deployment by utilizing a partner country’s additional natural resource potential and by integrating higher shares of variable renewables because a larger interconnected power system allows for greater flexibility and efficiency.
A major barrier to energy cooperation is the trust deficit and complex geopolitics in South Asia. Border disputes, political tensions, and historical rivalries have created an environment of mistrust, which is further exacerbated by the influence of external powers. For example, political considerations often overshadow economic logic in energy trade decisions, as seen in India's reluctance to enter power purchase agreements with hydropower projects in Nepal that involve Chinese investment and contractors. Many South Asian countries lack adequate cross-border transmission infrastructure, and financing large-scale energy projects remains a significant challenge. Chronic underinvestment, bureaucratic inefficiencies, and mismanagement have led to poor quality of energy service, despite the region’s abundant renewable energy potential.
Mr Rijal is an economist. He could be reached at pramodrijal3@gmail.com. This article was published in Trade, Climate Change and Development Monitor, Volume 22, Issue 08, August 2025.
