Nepal's Historic Electricity Export to Bangladesh Begins Today: Policies, Provisions, and Regional Energy Leadership

Nepal has reached a groundbreaking milestone in its energy sector by exporting electricity to Bangladesh for the first time. This historic event, marked by the supply of 40 MW of electricity on November 15, 2024, under the name “The Nepal Bangladesh Power Sales Agreement” signifies Nepal’s strategic shift toward regional energy trade and integration. Backed by robust policies and years of planning, this achievement underscores Nepal’s potential as a regional clean energy leader while fostering economic growth and environmental sustainability.

A Historic First for Nepal

On November 15, 2024, Nepal Electricity Authority (NEA) commenced a one-day export of 40 megawatts (MW) of electricity to Bangladesh, facilitated through India’s cross-border transmission infrastructure. This transaction is projected to generate NPR 3.8 million (USD 28,400) in revenue for Nepal and marks the start of an annual export program during Nepal’s surplus electricity production months from June to November.  Under this arrangement, the Nepal Electricity Authority (NEA) and the Bangladesh Power Development Board (BPDB) agreed on a tariff of 6.40 US cents per unit for cross-border energy trade.

This inaugural export, sourced from the Trishuli (25 MW) and Chilime (22 MW) hydropower projects, is facilitated by the Dhalkebar-Muzaffarpur transmission line in India and the Baharampur-Bheramara line connecting India and Bangladesh. This tripartite cooperation between Nepal, India, and Bangladesh demonstrates the potential for regional collaboration in energy sharing.  During the designated five-month peak production period, Nepal will export 28,800 MWh of electricity per month, amounting to a total of 144,000 MWh. This will generate approximately USD 9.216 million in revenue for Nepal.

Bangladesh has outlined ambitious energy plans, aiming to purchase 9,000 MW of electricity from Nepal by 2040 to support its clean energy transition. The initial phase of the collaboration includes exporting 40 MW of electricity using the 400 kV Baharampur-Bheramara cross-border transmission line, connecting India and Bangladesh. India’s Dhalkebar-Muzaffarpur transmission line will facilitate Nepal’s supply of electricity to Bangladesh.

Nepal's electricity export to Bangladesh, originally planned for three months earlier, faced delays due to unexpected developments. A tripartite agreement scheduled for July 28 was postponed due to protests in Bangladesh against the quota reservation system. This system allocates jobs to relatives of veterans from the 1971 war of independence from Pakistan, which sparked nationwide demonstrations.

Before this momentous step toward Bangladesh, Nepal had already been exporting electricity to India through the Dhalkebar-Muzaffarpur 400 kV transmission line, which connects Nepal’s grid to India’s. This existing trade agreement has been a cornerstone of Nepal’s hydropower sector, with surplus electricity primarily flowing to India during Nepal's peak hydropower production seasons (typically during the monsoon).

Since Nepal’s entry into the regional energy market in 2021, it has been selling electricity from key hydropower plants like the Upper Tamakoshi (456 MW), Upper Bhotekoshi (45 MW), and Marsyangdi (69 MW) to India. These plants produce more electricity than Nepal’s domestic needs, making Nepal an ideal supplier of clean energy to its southern neighbor.

For the first time, Nepal will conduct an international energy transaction in U.S. dollars rather than Indian rupees, setting a precedent for future deals and adding flexibility to Nepal’s international trade practices.

This collaboration required India’s approval due to Nepal’s landlocked geography and the need for transit through Indian territory. India’s Central Electricity Regulatory Commission (CERC) played a pivotal role in facilitating this export, showcasing the importance of trilateral cooperation.

Background and Development of the Agreement

This electricity export comes after six years of negotiation and collaboration between Nepal, Bangladesh, and India. The trilateral agreement finalized between the three nations highlights India’s critical role in enabling the energy transfer, as Nepal’s electricity will pass through India to reach Bangladesh. The arrangement makes use of the Dhalkebar-Muzaffarpur 400 kV transmission line, the first cross-border energy link between Nepal and India, and India’s internal grid to connect to Bangladesh via the Baharampur-Bheramara line.The infrastructure setup required for this transaction underscores the level of technical and diplomatic collaboration involved, and it demonstrates the commitment of all three nations to fostering energy cooperation in the region

Strategic Framework and Policy Foundations

While Nepal has been exporting electricity to India for years, this new partnership with Bangladesh reflects the strategic implementation of policies aimed at making hydropower a cornerstone of Nepal’s economic and regional diplomacy.

This export stems from years of strategic planning, legal framework, and collaborative efforts, as outlined in the Hydropower Development Policy, 2001. While the event itself is historic, the foundations for this achievement were laid years ago under Nepal’s Hydropower Development Policy of 2001, which emphasizes hydropower as an exportable commodity. This milestone not only demonstrates Nepal’s potential as a regional clean energy provider but also underscores the strategic policies driving its success. The Hydropower Development Policy, 2001, lays the framework for such exports and regional collaboration. Some pivotal provisions include:

1. Hydropower as an Exportable Commodity The policy emphasizes hydropower's role in Nepal's economy as an exportable resource. This vision has guided initiatives like export-oriented projects, such as the upcoming sale to Bangladesh.
2. Private Sector Involvement Provisions encourage private sector participation by maintaining transparent and investor-friendly policies. This has fostered an environment where domestic and international stakeholders can invest in Nepal’s hydropower sector for both internal use and export.
3. Regional Cooperation The policy promotes bilateral and regional energy collaboration, leveraging Nepal’s hydropower to meet the energy demands of neighboring countries like India and Bangladesh.
4. Export Facilitation

The policy specifies clear guidelines for electricity exports, requiring formal agreements between exporters and the Government of Nepal. It also allows the government to retain up to 10% of the capacity from export-oriented projects for domestic needs when necessary. For large-scale projects exceeding 1,000 MW, royalty rates and other terms are negotiated, ensuring economically advantageous outcomes for Nepal.

1. Royalties and Revenue Royalty structures categorize projects based on capacity, with escalating rates over time to benefit the nation. For export-oriented projects of up to 1,000 MW, royalty charges range from Rs. 400 per MW (7.5%) initially to Rs. 1,800 per MW (12%) after 15 years.

 Economic and Environmental Impacts

Nepal’s energy export strategy promises both financial and environmental benefits:

• Revenue Generation: With plans to export 144,000 MWh of electricity annually from June to November, Nepal anticipates earning approximately USD 9.216 million per season, bolstering its economy.
• Sustainability Goals: Exporting clean hydropower to energy-deficient neighbors like Bangladesh helps reduce reliance on fossil fuels, contributing to global climate goals.
• Regional Integration: By meeting energy demands in South Asia, Nepal strengthens economic ties with its neighbors, fostering long-term collaboration.

Addressing Challenges

While Nepal’s achievement is commendable, challenges remain:

1. Transmission Infrastructure: Expanding and upgrading cross-border transmission lines is crucial for sustaining and scaling energy trade.
2. Policy Consistency: Continued implementation of hydropower policies is necessary to attract further investments.
3. Royalty Negotiations: Transparent and favorable terms for projects exceeding 1,000 MW will be critical for sustaining investor confidence.

Future Outlook

Bangladesh aims to import 9,000 MW of electricity from Nepal by 2040, indicating immense potential for future energy trade. Nepal is poised to identify additional export-oriented hydropower projects, improve transmission infrastructure, and increase capacity.

Conclusion

Nepal’s first electricity export to Bangladesh is more than a historic transaction. It is a significant step towards achieving the long awaited vision through a policy-driven approach to hydropower development. By leveraging the Hydropower Development Policy, 2001, and fostering regional collaboration, Nepal could position itself as a clean energy powerhouse in South Asia. This milestone not only strengthens regional ties but also underscores Nepal’s strategic role in promoting economic growth and environmental sustainability.