Nepal has the potential to be a major player in the regional energy market.

With timely market reforms, and greater private investment, Nepal can emerge as the regional powerhouse, supporting its neighbours to green their energy mix

In Nepal, power outages spanning up to 18 hours a day are a thing of the past.

The country’s improved and regular electricity supply has eliminated the need for expensive backup systems for businesses, increased efficiency in hospitals, enabled households to cook on induction stoves, and allowed more students to complete their homework without the use of candles. While much more needs to be done to improve and expand access and usage domestically, Nepal should take advantage of its surplus capacity to support its neighbours and earn revenue for its people.

The good news for Nepalis that it generates excess electricity during the monsoons, with a projected surplus of 1200 MW this summer-enough to power over one million homes. A recent study indicates that by 2030, the country could earn up to $3 billion annually, increasing to $10 billion by 2045 through regional electricity exports.

More notably, the hydro potential in Nepal is impressive, exceeding 42,000 MW. Unlocking this potential would require an investment of over $80 billion at current prices. Doing so could spur a domino effect, improving the well-being of Nepali people, reviving the manufacturing sector, creating jobs, and significantly reducing import costs.

Inadequate and unstable supply of power has been one of the key constraints to Nepal’s economic growth, particularly for businesses. But just like in the story of power generation, the private sector has a critical role to play in enabling a sustainable regional electricity exchange development.

The private sector in Nepal, India and Bangladesh will have to collaborate to make generation, transmission and distribution possible. Policy makers have an important role to play here to frame regulations and procedures to enable seamless electricity trade in the region, thus opening the market for further private sector investment.

Since early 2018, several factors, including favourable import policies on the Indian side and increased capacity, have led to a promising development of regional power trade. In June 2023, during the India visit of Nepal’s Prime Minister Pushpa Kamal Dahal, both countries reached an agreement outlining the principles of a long-term power purchase agreement.

India also committed to facilitating the initial power trade between Nepal and Bangladesh.

In January 2022, Nepal Power Exchange Limited and Manikaran Power India, a key private electricity trading company in India’s energy sector, signed an MoU that could pave the way for the Nepali private sector to sell electricity in the Indian market. In yet another positive development, India last year published guidelines to promote fair and transparent electricity trade, minimising perceptions of regulatory risks.

Nepal and Bhutan already utilize India’s electricity spot market for buying and selling electricity in real-time.

Now, Nepal and Bangladesh are planning to establish a new transmission interconnection with India, further enhancing electricity trading opportunities in the region.

As to Bangladesh, the nation’s electricity imports are expected to increase threefold by 2030. However, the country needs additional capacity for interconnectivity to accommodate future plans-3-6 GW electricity imports by 2030 and 12-14 GW by 2040. In alignment with the country’s Mujib Climate Prosperity Plan targeting 30 percent of renewable energy by 2030 and 40 percent by 2041, importing renewables will also help Bangladesh meet its climate targets, including COP26 commitments.

Global events have demonstrated the inherent supply and price instability associated with power generated using fossil fuels: the per unit price of electricity in the Indian spot market jumped more than threefold during peak hours in March 2022.

Against this backdrop, Nepal can be a dependable supplier of green power in the region. Reforms, such as redefining electricity as a commodity, can enhance commercial exchange viability.

A secure trans-national electricity exchange and a stable grid are crucial.

Upgrading the country’s distribution infrastructure is essential, and the planned transmission interconnection between Nepal, Bangladesh and India will further enhance electricity trading opportunities in South Asia, ideally leading to a single grid in the region.

As the cross-border electricity trade takes shape, establishing clear procedures, guidelines and timelines will allow Nepal to stay ahead. Finalising the draft Nepal Electricity Act, which enables private sector companies to sell and trade electricity domestically and internationally, holds significant importance. Equally crucial are appropriate regulatory measures, policies and skill development for market players.

To support and complement these efforts, the World Bank – of which the International Finance Corporation (IFC) is a member – continues to collaborate with partners in the region.

IFC assists private sector developers in Nepal to establish strategic partnerships with Indian companies and facilitates discussions and consultations among all three countries to support the scaling up of regional electricity trade with private sector investments.IFC is also involved in financing power generation for both domestic consumption and export in Nepal.

IFC’s historic investments in groundbreaking projects like Khimti and Bhotekoshi in the 1990s played a crucial role in attracting private investments to Nepal’s power sector. Currently, IFC is supporting the financing arrangements for the under-construction Upper Trishuli 1 Hydropower Project, aiming to generate 216MW of power and further contribute to the development of Nepal’s hydropower sector.

While there is still much work ahead, Nepal has the potential to play a significant role in the region’s energy sector, helping its neighbours achieve their climate goals while fostering a green and resilient growth in South Asia.

Ms Lund, IFC’s Vice President for Economics and Private Sector Development, is currently on a visit to Nepal

Source: The Himalayan