Nepal, India and Bangladesh on Thursday, October 3, signed a historic tripartite agreement for energy trade in Kathmandu, paving the way for Nepal to sell electricity to a third country other than India for the first time.

Under the agreement, Nepal will export 40 MW of electricity daily to Bangladesh during the wet season for five years using the Indian transmission line at the rate of 6.4 US cents per unit. The country aims to generate a revenue worth $9.216 million by selling 144,000 megawatt-hours of electricity from mid-June to mid-November.

Kulman Ghising, Managing Director of Nepal Electricity Authority (NEA); Renu Narang, CEO of India's NTPC Vidyut Vyapar Nigam (NVVN); and Md Rezaul Karim, Chairman of Bangladesh Power Development Board (BPDB) signed the agreement. 

Nepal’s Minister for Energy, Water Resources, and Irrigation, Deepak Khadka, and Bangladesh’s Interim Minister for Forest, Environment, Climate Change, and Water Resources, Syeda Rizwana, were present during the occasion.

Minister Khadka said that the tripartite agreement was a milestone for Nepal’s energy sector. “The achievement is a result of continuous effort from Nepali and Bangladeshi authorities since the signing of an MoU for cooperation in the energy sector in 2018,” said Khadka. “With support from India, Nepal has started a new era in regional energy trade.” 

The agreement comes nearly three-and-a-half years after India opened its door for Nepal to sell the hydroelectricity.

Nepal was allowed to enter in the day-ahead market of the Indian Energy Exchange on May 1, 2021 for the import while it was given the go ahead to export electricity on November 3, 2021. In October, the same year, Nepal was allowed to sell 39MW of electricity to India.

Nepal has been selling 690 megawatts of electricity daily in the medium term, day-ahead and real-time markets in India, produced from 16 hydropower projects across the country.

Earlier in August, India showed Nepal the green flag to export an additional 251 MW of electricity from 12 hydropower projects, taking the total approved export quantity of electricity to India to 941 megawatts from 28 hydropower projects.

The long-term energy trade agreement between India and Nepal has envisioned Nepal exporting up to 10,000 megawatts to India in the next 10 years. This is the first year of the agreement.

Moreover, Ganesh Karki, President of Independent Power Producers’ Association, Nepal (IPPAN), told New Business Age that Bangladesh has shown an interest to buy around 9,000 MW of electricity from Nepal by 2040. 

“The agreement today [Thursday] has opened the door to tap on that opportunity,” Karki told the New Business Age. “Despite the delay, it is a huge achievement in Nepal’s energy sector.”

The tripartite agreement was originally scheduled for July 28 but was delayed due to political unrest in Bangladesh. Following the ousting of former Prime Minister Sheikh Hasina amidst widespread protests, the country is now led by an interim government under Mohammad Yunus. 

Nepal aims to achieve its ambitious goal of achieving net zero emission by 2045, by prioritising the production of hydroelectricity. The country targets to generate 28,500 MW by 2035 and export 10,000 MW to India and 5,000 MW to other neighbouring countries, including Bangladesh, in the period. 

The installed capacity of electricity of Nepal increased to 3,156.96 MW –2990.6 MW of hydro electricity, 106.9 MW of solar, 6 MW of cogeneration and

53.4 MW of thermal electricity – in the last fiscal year, 2023/24.

Of the total, nearly 80 percent of the power is produced from the projects developed by the private sector, said Karki. “Nearly 4,000 MW projects are under construction and the Power Purchase Agreement (PPA) has been signed for 10,000 MW projects.” 

“Along with increasing domestic consumption, the government now needs to start thinking on how to generate that amount of electricity,” Karki added. “The government needs to include the country’s private sector in electricity production and trade in the coming days to meet its goal.” 

While Nepal’s initiative of generating clean energy from hydel projects has received appreciation from all quarters, nationally and internationally, experts argue that the authorities concerned need to scale up the protection of hydel projects from disasters triggered by changing rainfall pattern to keep the country's hydropower dream alive.

(This file photo shows the dam site of Upper Tamakoshi Hydel Project affected by landslide last weekend. Photo: Courtesy of NEA)

The rain-induced disasters last weekend severely impacted electricity production in Nepal, causing at least 1,100 MW of hydropower to go offline due to interruptions in both generation and transmission systems. The transmission lines and distribution networks of several hydropower projects are in disarray, with the stalled projects alone accounting for a production capacity of 650 MW.

According to the NEA, meeting energy demand has become challenging, as many power stations were shut down. Preliminary reports from the Ministry of Energy revealed that the floods and landslides have damaged 36 projects, which collectively had the capacity to generate 1,100 MW of electricity.

The disasters have also reduced export of electricity to India. 

Spokesperson for NEA Chandan Kumar Ghosh told New Business Age that Nepal has been exporting 250 MW to 350 MW of electricity, depending on domestic demand, to India in recent days.

Responding to if the country would face load shedding this day season, Ghosh said that it cannot be determined yet, adding, “New powerhouses are being added and we might become more import dependent this winter.”

Of the government’s preliminary estimate of damages worth over Rs 17 billion across the country, the destruction in the energy sector alone totalled to Rs 4 billion. 

Madhukar Upadhya, a senior watershed expert, said that changing nature of monsoon has been a big setback for achievements Nepal have made so far in the hydel sector, adding, “We have been witnessing cases of localised intense rainfall almost every monsoon in the last few years.”

“The risk is huge,” said Upadhya. “There can be normal rainfall for years, causing no threat to hydel projects, but a single case of erratic rainfall can cause an unprecedented destruction.”

Experts recommend improvements in project planning, design, and pre-construction forecasting systems to better address the challenges posed by floods and landslides to Nepal's energy sector.

Karki from IPPAN agreed that securing hydel projects from floods and landslides needs to be a top priority, claiming that they have been more concerned about it in recent years. 

“Assessing risks to the projects from sediments and robust responding mechanisms to disaster warning can help lessen the damage to such projects in the coming days,” Upadhya added.