Power Trade With India: A Long Way To Go
India is indeed a big market in South Asia. Many foresee that once there is sufficient electricity generation in Nepal and cross boundary transmission interconnections, it will become an electricity exporting country to India and other South Asian countries, mainly Bangladesh. Then, Nepal will start earning good revenue, and subsequently the trade deficit will improve. But the billion dollar question is: Is it that simple?
Marginal power exchange
Power exchange (not power trade) has been practised between Nepal and India for a long time. It was in 1971 that power exchange first began between the two countries. Power exchange is taking place at more than 20 interconnection points at different voltage levels. But power exchange between the two countries is, still, marginal, which still does not allow it to go on a commercial scale.
According to the Nepal Electricity Authority (NEA) annual report, Nepal imported 1369.89 GWh (~224.41 MW) from India and exported barely 3.21 GWh to that country in 2015. Power exchange (or trade) is presumably considered to be constrained by inadequate transmission infrastructure between the countries. Is that the only reason? If India had seen Nepal as an attractive electricity market, would India not have initiated investing in sufficient transmission networks in Nepal a long time back?
Many hydropower developers are of the opinion that the lack of an umbrella power trade agreement between Nepal and India also poses considerable constraint. Political analysts are of the view that a lack of political will also adds to this issue. Many perceive that the reason is more political than technical or economical.
Nepal has undergone a long political transition. There was an absence of an elected and strong government in Nepal for a long time to initiate any meaningful dialogue with India on power trade. There is no doubt that energy trade with India is necessary in the short term to lessen the on-going power shortage, and in the long term, to earn revenue from it.
The possibility of cross border trade in electricity is mainly constrained by the cost of electricity. Electricity like any other commodity in the market should be cost effective to get a sizable market share in any business environment. Both, in the domestic and external market, the present electricity price is relatively on the higher side. Nepal’s electricity prices are certainly not competitive compared to other South Asian countries to secure a competitive market advantage. Rather, they are in the mid- or high range. If further transmission charges are to be added on to the existing electricity price, then the electricity price will hardly become competitive to meet the Indian base load demand.
NEA earned 25.64 million Nepalese rupees from selling of 3.21 GWh electricity to India in 2015. From this figure, NEA is selling electricity at the rate of 7.98 Nepalese rupees per kWh to India whereas NEA’s average power purchase rate is 7.52 Nepalese rupees for the same year. The average electricity tariff in India is difficult to obtain as different rates are applicable to different states and also depending on the different consumer groups with different power slabs.
For example, the lowest domestic tariff rate is 4 Indian rupees (6.40 Nepalese rupees) per kWh for baseline consumers and 5 Indian rupees (8 Nepalese rupees) for the consumers using more than 501 kWh in Utter Pradesh. Likewise, the lowest domestic tariff slab is 2.85 Indian rupees (4.56 Nepalese rupees) in Bihar, whereas the maximum is 5.3 Indian rupees (8.48 Nepalese rupees) for the consumers using more than 301 kWh.
In addition, the volume available for export and the reliability in supply also determine the feasibility of electricity trade. Unless Nepal has a certain volume of electricity for reliable export, entering into the Indian power market won’t be viable and cost effective. The volume available so far from hydropower generation appears to be uneconomical to export from Nepal, especially in supplementing the peaking electricity demand in India.
Another important factor is that Indian electricity regulator’s confidence in electricity trade with Nepal is still not clear. There are many regulatory issues which the Indian regulator should make clear to the Indian buyers.
Umbrella power trade agreement
In conclusion, for enhancing the power trade with India in a long-term sustainable manner, an umbrella power trade agreement with India and sufficient transmission lines are a pre-requisite. However, the real feasibility is determined by the price of the electricity that is to be paid by the buyers from India at competitive market rates for meeting their base load or supplementing their peaking demands. It is not only the government but also all the hydropower developers that should find a way to make the cost of electricity competitive to achieve full market benefit. Under the present regime, there is only possibility to have power exchange based on some political decisions, but not power trade based on market principles.
(Adhikari is an energy economist: [email protected])