Nepal will have a chance to export more hydroelectricity to India as the southern neighbour introduces a new rule allowing Indian distributors to incorporate imported hydropower into the renewable energy quota set for them.

In a new notification issued last week, India’s power ministry set a new quota of renewable energy that distribution companies should meet starting from the fiscal year 2024-25.

Minimum quotas related to wind energy, hydro renewable energy, distributed renewable energy and other renewables have been set. While setting the quota, the ministry also told the distribution companies that they can also meet the quota by importing hydropower.

The hydro renewable energy component may also be met from hydropower projects located outside India, as approved by the central government on a case-to-case basis, the notification states.

Earlier, they were told to fulfil the quota by buying only the power produced domestically.

The notification issued in January 2021 and modified in July last year forced distribution companies to buy a specified percentage of hydropower from domestic projects, not from foreign producers, in a policy called Hydropower Purchase Obligation (HPO).

According to a statement issued by Kul Man Ghising, managing director of the NEA, Nepal and Bhutan could benefit from the new rule—if it is implemented. The new rule is said to come into force on April 1, 2024.

“Nepal had long been requesting the Indian government to incorporate hydroelectricity from outside India into the HPO, which now has been done,” said Ghising. “It will allow India’s distribution companies to buy hydropower, and Nepal’s hydropower can get a greater market in India.”

In bilateral meetings, Nepal had been requesting the Indian side to include Nepal’s hydropower in HPO. The issue was raised during the energy secretary-level—ninth and 10th Joint Steering Committee (JSC) —meetings between the two sides, according to Prabal Adhikari, power trade director at the NEA. The 10th meeting was held in February in Jaipur, India.

“It is a welcome initiative by the Indian government for cross-border trading of power,” said Adhikari. “It will help Nepal promote hydropower development by ensuring its market in India and encourage the Indian entities concerned to import more and more hydropower from neighbouring countries like the hydropower-rich Nepal in the coming years.”

For the past few years, the southern neighbour has been fixing the quota of renewable energy for its distribution companies as it aims to grow the share of renewable energy in its total energy mix.

As per the latest notification, it aims to maintain the share of renewable energy to a minimum 29.91 percent in fiscal 2024-25 and increase it to 43.33 percent by the fiscal 2029. The quota of hydroelectricity has been fixed at 0.38 percent for the fiscal 2024-25. This must be jacked up to 1.33 percent by fiscal 2029-30.

Any shortfall in specified renewable energy consumption targets will be treated as non-compliance and a penalty imposed, the notice states. The Energy Conservation Act, 2001 specifies the rate of penalty.

Currently, India allows Nepal to sell 632MW of electricity in its market. As much as 522MW has been cleared for sale in India’s exchange market—both day-ahead and real-time markets. Nepal has been selling 44MW in the real-time market after the southern neighbour opened the door for competition in July.

Under a five-year agreement, the NEA has been selling 110MW of power to the NTPC Vidyut Vyapar Nigam Limited, India’s nodal agency for bilateral electricity trade with its neighbours, and the electricity is being sold in India’s Haryana state.

Nepal’s power developers are yet to get the licence to export electricity but they see prospects of them selling power in India in the future. As there is no legislation allowing the private sector in the trade, they cannot trade power in or outside the country.

“Once the private sector can trade power legally, Nepal’s private actors can also take advantage of the new rules introduced by the Indian government,” said Ananda Chaudhary, vice-president of the Independent Power Producers’ Association, Nepal (IPPAN). “Nepal’s private sector has long been lobbying with the Indian authorities to include Nepal’s hydropower into the HPO.”

Even though the southern neighbour has not been quick enough to open its market to Nepal’s power sector, it is doing so gradually. Nepal still has concerns over another policy of the Indian government—its order of December 2 last year to waive Inter-State Transmission System (ISTS) charges for electricity generated by new projects.

The waiver, already available to solar and wind power projects, will not apply to the hydroelectricity Nepal exports. This, according to Nepali officials and private sector developers, results in Nepali producers losing the competitive edge in the Indian power market.

“We want India to waive ISTS charges, which will help Nepal’s power to be competitive in the Indian market,” said Chaudhary. “We have raised this issue at various forums with Indian authorities too.”