Nepal recently took a significant step towards fulfilling its aspiration of exporting hydroelectric power to India, signing a power trade agreement to export 10,000 MW over the next decade. The agreement, announced in January and following discussions initiated in June 2023 between Prime Minister Pushpa Kamal Dahal and India’s Narendra Modi, outlines bilateral cooperation principles across ten clauses. However, the agreement’s text reflects more aspirational intentions than concrete, binding commitments, leaving observers uncertain about its implications.
While the agreement aims to boost Nepal’s energy sector and attract investors to build new power plants, uncertainties persist regarding long-term power purchase agreements and tariff structures with India. The agreement emphasizes the need for entities to sign power purchase agreements, but specifics regarding tariffs and regulatory frameworks remain unclear. This ambiguity poses challenges for hydroelectric plant developers seeking stable investment environments and long-term commitments from off-takers.
Despite Nepal’s substantial electricity exports to India, particularly in the fiscal year 2022-23, uncertainties linger regarding the competitiveness of Nepali hydropower in India’s long-term power markets. While the Nepal Electricity Authority (NEA) has access to India’s short-term trading platforms, which yield varying market clearing prices, new hydropower projects require secure, long-term power purchase agreements to secure financing—a requirement that Indian regulations demand for new power plants.
The complexity deepens as Indian companies, with significant investments in Nepali hydropower projects, negotiate directly with the Nepali government to export power to India, bypassing the NEA. However, PM Dahal’s post-agreement statement highlighted challenges, suggesting India’s reluctance to purchase electricity from Nepali hydropower plants with Chinese involvement. Such geopolitical nuances complicate Nepal’s efforts to leverage its hydropower potential and underscore the need for concerted efforts among government, civil society, and stakeholders to navigate these intricacies and harness Nepal’s energy resources effectively.
