Cross-Border Energy Trade between Nepal and India: Assessment of Trading Opportunities

Abstract

Recent developments in India and Nepal highlight new opportunities for increased cross-border energy trade (CBET). This study builds on several prior analyses of CBET in South Asia to explore potential trading opportunities among India, Nepal, Bangladesh, and Bhutan. Uniquely, this study uses a detailed 1-year, 1-hour resolution unit commitment and economic dispatch model of the South Asia power system in the year 2022 to examine the technical and economic impacts of CBET under different assumptions about hydropower development in Nepal and regional trade agreements. The study finds that although Nepal might have the physical capacity to increase annual exports to India if development of domestic hydropower is accelerated (to 4,500 megawatts ), much of this increase would be uneconomic to export if current market inefficiencies between the two countries remain. But the economics of trade can improve dramatically with institutional changes. If market and system operating rules are revised to treat transactions with Nepal the same as transactions between Indian states, our findings suggest that annual net exports to India could increase threefold (to 9.0 terawatt hours), hydro curtailment in Nepal would decrease, and production costs for electricity in both countries would fall $359 million. These factors-the level of hydropower development in Nepal and the ease of crossborder trade-are the biggest drivers of potential CBET in South Asia. The study also examines the impact of CBET on renewable energy development in India, a supply contract between Nepal and Bangladesh, and fully coordinated market operations across Bangladesh, Bhutan, India's eastern region, and Nepal. Although this study does not provide a complete characterization of system operations within each South Asia country, it does capture many previously unconsidered intertemporal operational constraints. Additional work can include more detailed representations of the Bhutan and Bangladesh power systems and alternative trading arrangements with these countries, which could be especially fruitful in light of the benefits measured in this study. iv This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications. This analysis was funded by the U.S. Department of State's Bureau of South and Central Asian Affairs Regional Connectivity Program.Although the study identifies many previously unconsidered impacts on CBET between India, Nepal, Bhutan, and Bangladesh, including local impacts in different Indian states and regions and intertemporal operational constraints, it does not provide a complete characterization of system operations within the entire region. Future work could include detailed modeling of the Bhutan and Bangladesh power systems to examine the impact of CBET on these systems in greater detail. Complementary analysis could identify policy and regulatory pathways to remove nontechnical barriers to CBET and capture the benefits identified in this study.viii This report is available at no cos...

Cross-Border Interconnectors in South Asia: Market-Oriented Dispatch and Planning

“…Recent findings from SARI/EI [7] confirms significant long-term benefits of such integration including large capital expense (capex) savings for the region of $17b as well as cumulative CO2 savings of 120 mt by 2045. More recently, NREL conducted two studies for India-Nepal [8] and India-Sri Lanka [9]. The first study [8] was conducted for 2022 and estimated a savings of $359 million for the year from 4.5 GW hydro development in Nepal.…”

“…More recently, NREL conducted two studies for India-Nepal [8] and India-Sri Lanka [9]. The first study [8] was conducted for 2022 and estimated a savings of $359 million for the year from 4.5 GW hydro development in Nepal. The second study [9] conducted for 2025 estimated savings from India-Sri Lanka line at $180 million (for one year).…”

“…On the other hand, flexible storage hydro development in Nepal/Bhutan may also complement variable RE in India. Since the bulk of CBET benefits rest on India (and to a lesser extent Bangladesh) importing hydro power [4][5][6][7][8], it is an important test to see if the benefits remain as India embarks on a path of high variable renewable electricity (VRE) growth. This issue has not been addressed in the previous analyses.…”

“…The significance of short-term benefits, notwithstanding the fact that these are based on historic rather than forward looking prices, provides a high degree of comfort and alignment with views expressed for at least a decade [2][3][4][5][6][7][8][9]. Analysis for India-Sri Lanka adds a further impetus in light of the fact that annual benefit estimates reported in [4, p.10] was $186 pa which has now more than doubled to $383 million (Table 2), as planned generation capacity additions in SRI have not eventuated.…”

Regulatory Foundations for Cross-Border Electricity Trading: Bangladesh

“…An analysis of South Asia CBET scenarios conducted by the National Renewable Energy Laboratory (NREL) found that increasing market integration among India, Nepal, and Bangladesh would tend to reduce the overall cost of generation and potentially provide savings benefits to ratepayers (McBennett et al 2019). One scenario in that analysis tested a fully integrated market comprising Nepal, Bangladesh, and the Indian states of Bihar, West Bengal, Jharkand, and Odisha; and in that scenario, cost per megawatt-hour (MWh) fell by more than 6% inside the integrated market, and costs for the rest of India fell slightly as net transfers from Bangladesh, Bhutan, India, and Nepal to the rest of India increased more than 4%.…”