Indian Cabinet approves purchasing 10,000 MW of electricity from Nepal

Kathmandu; In a major milestone development for the cross-border electricity trading, India's Cabinet meeting has approved purchasing 10,000 megawatts of electricity from Nepal.

Nepali Ambassador to India, Dr. Shankar Prasad Sharma, confirmed this development on social media, highlighting the potential positive impact on Nepal's economic development.

The southern neighbor has given green signal to the landlocked country to sell its electricity in reasonable quantities. During Prime Minister Pushpa Kamal Dahal's visit to India three months ago, Nepal forwarded its proposal to sell up to 10,000 MW of electricity to India.

In response, India showing the context of not being discussed in the Indian Cabinet had been reluctant to unveil its decision. Earlier, Indian Prime Minister Narendra Modi, had expressed his commitment to purchasing the aforementioned amount of electricity from Nepal in the next one decade.

In the absence of a formal agreement, Nepal has been unable to fully export its surplus electricity, taking to wastage around 500 MW of electricity every day.

According to the Nepal Electricity Authority (NEA), Nepal produces more than 2,800 MW of electricity, while India so far has agreed to purchase 452 megawatts of electricity from ten projects.

With failing to sell excess electricity produced in the rainy season, the NEA was even compelled to ask private sector power producers to reduce their production. As numerous hydropower projects are currently under construction, securing a long-term electricity trade agreement with India was deemed essential to address the issue of power wastage.

Following the approval by the Indian Cabinet, the energy secretaries of both nations are poised to sign a pivotal long-term power trade agreement, simplifying the process for Nepal to export its electricity to India.

This landmark agreement extends the opportunity for Nepal to sell its electricity in India for a period of 25 years. Currently, Nepal exports electricity to India on a short-term basis, primarily through "day-ahead" and real-time markets.

An official from the Nepal Electricity Authority (NEA) said with the agreement in place, electricity can be sold through long-term contracts spanning from seven to 25 years, as well as medium-term contracts spanning two to seven years. The prospect of long-term sales is expected to incentivize increased investments in hydropower projects.

Several projects that had been on hold due to market uncertainties are likely to gain momentum. "A long-term business agreement will prompt hydropower project license holders to initiate their projects promptly, creating a conducive environment for foreign investment as well," said the NEA source.

Additionally, this agreement opens doors for the sale of power to large-scale Indian investment projects being constructed in Nepal. Currently, projects like Arun III, funded by Indian investment, are currently under construction, while a number of others such as Phukot Karnali and Upper Karnali are on pipelines.

India has been imposing conditions to purchase electricity produced in Nepal. India has consented to procure electricity from projects backed by either Indian or Nepali investments.