Explainer: Nepal transforms from electricity importer to exporter of India

Nepal, once plagued by frequent blackouts, has transformed into a significant electricity exporter to India. The country is set to supply an additional 251 megawatts (MW) of power to India, mainly through Bihar, due to a medium-term sales agreement involving 12 hydropower projects. This will increase Nepal’s total power exports to India to 941 MW, enough to power nearly 190,000 homes for an entire year.

This transformation was set in motion by the Power Trading Agreement signed by Nepal and India in 2014, allowing Nepal to sell its surplus electricity through platforms like the Indian Energy Exchange (IEX). This agreement has been crucial in enabling Nepal to capitalize on India’s growing demand for clean energy.

Nepal’s strategic use of its abundant hydropower resources has been key to this turnaround. Despite the challenges of high infrastructure costs and bureaucratic hurdles, Nepal has managed to transform its energy sector. Between 2018 and 2023, the country attracted nearly $2 billion in foreign investment for its hydropower sector, with significant contributions from Indian and Chinese companies.

The 2021 launch of the 456 MW Upper Tamakoshi Hydropower Project marked a significant milestone, boosting Nepal’s electricity generation capacity, especially during the monsoon season. Consequently, power exports from Nepal to India soared from a modest 39 MW in 2021 to nearly 1,000 MW by mid-2024.

Nepal exports surplus power to India during the monsoon season when river flows are highest, and hydropower generation is at its peak. This trade is beneficial for both countries, helping Nepal manage its energy surplus and providing India with a reliable source of clean energy to meet regional demands and sustainability goals. Last fiscal year, Nepal earned the title of ‘net electricity exporter,’ exporting electricity worth Rs 16.93 billion to India.

This energy trade also makes economic sense. Nepal’s hydropower generation is cost-effective, averaging around ₹2.5 to ₹3.1 per unit, while the electricity is sold to India at ₹8.40 per unit. This is competitive compared to India’s domestic generation costs, particularly for coal-fired power.

As Nepal and India have signed a 10-year agreement to supply 10,000 MW of power, this partnership is set to play a crucial role in both countries’ energy futures. By harnessing hydropower, Nepal not only secures its energy independence but also contributes to India’s renewable energy targets, helping both nations move towards a sustainable and energy-efficient future.