Nepal is all set to sell 200 megawatts of electricity to India under a five-year deal in what would be the first-ever longer-term trading of power between the two countries, according to a senior official of the Nepal Electricity Authority (NEA).

“The state-owned power utility and NTPC Vidyut Vyapar Nigam Limited (NVVN) of India signed an agreement on May 23, paving the way for the Indian company to purchase 200MW of electricity from Nepal for five years,” said Prabal Adhikari, power trade director of the NEA.

The agreement was reached between the two sides just ahead of Prime Minister Pushpa Kamal Dahal’s state visit to the southern neighbour from May 31 to June 3.

Even though Nepal and India initiated a 25-year inter-governmental agreement on power trade during Dahal’s visit, paving the way for long-term power sale deals, the NEA officials say the state-owned power utility body could now also sign Power Purchase Agreements (PPAs) with Indian companies.

Nepal has been selling its excess power in India’s day-ahead market since November 2021. The prices in the market fluctuates on a daily basis so the NEA’s sales income changes accordingly. The southern neighbour has so far allowed Nepal to sell 452.6MW of power in the Indian market.

The five-year agreement which the authority describes as a ‘medium-term’ power sale deal, means that the power utility will be securing the market for its 200MW of power. “This deal is outside the existing quota of 452.6MW,” said Adhikari, who oversees power-trading at the NEA.

“After the Indian government approves a list of hydropower projects that Nepal has forwarded for exporting electricity under this mechanism, the selling will begin,” said Adhikari.

The list includes five projects—Solukhhola (Dudhkoshi), Super Madi, Upper Balephi ‘A’, Dordi Khola and Upper Chaku ‘A’. These projects were proposed when the agreement was signed on May 23, according to Adhikari.

As part of its strategy of diversifying risks, the NEA sought to sell a portion of excess power generated under the five-year power purchase agreement signed with NVVN, according to the power utility. While selling power in the day-ahead market, the NEA has to face price volatility, meaning it may not get the desired rate every time.

Based on an agreement reached with NVVN, the prices the authority will be receiving will be modest. According to Adhikari, the NEA will receive a net tariff of INR 5.25 (Rs8.40) per unit after trade margin, transmission losses and transmission charges.

“The NEA would not bear the cost of transmission and trade margin [service charge],” he added.

With the authority buying power from Nepali developers at Rs4.80 a unit in the wet season, it will be making handsome returns by selling the same for INR5.25 per unit.

The wet season begins in June and lasts till November when Nepal’s hydropower projects generate excess electricity due to increased water levels in rivers.

Adhikari said that power under the five-year deal would be sold only during the wet season.

According to the NEA, it reached a power sale agreement with the NVVN without competitive bidding.

Last year, the authority tried to sell 200MW of electricity to India through a competitive bidding process. In early May of 2022, it had invited bids from Indian companies to sell a total of 200MW, for five months in what was the first-ever effort to sell power under a relatively longer-term mechanism.

But saying that the prices quoted by bidders were less than satisfactory and with one company making two separate bids, the state-owned power utility had abandoned the plan of selling electricity under a six-month deal.

Projects whose electricity NEA wants to sell under its five-year deal

Solukhhola (Dudhkoshi)83.42MW

Super Madi42.68MW

Upper Balephi ‘A’34.92MW

Dordi Khola26.19MW

Upper Chaku ‘A’12.79MW

Total 200MW

Source: Nepal Electricity Authority