Nepal's electricity export potential are harmed by India's stance.
India's power ministry reduced the inter-state transmission fees for new Indian hydropower projects earlier this month, making the hydroelectricity supplied by Indian projects less expensive than that produced by Nepal.
On December 2, the ministry gave the go-ahead to exclude new hydropower projects from paying Inter-State Transmission System (ISTS) fees for the transmission of energy. The waiver is now offered to wind and solar energy projects.
The concession will not apply to the hydroelectricity exported by Nepal, which would cause Nepali power providers to lose their competitive edge in the Indian power market. This has nonetheless incensed Nepali officials and the business sector.
Representatives of the Nepali government and the corporate sector expressed worries about the potential impact of Indian policies on Nepali hydropower export during the South Asia (BBIN) Power Summit, which the Confederation of Indian Industries (CII) organized earlier this month.
The power summit was attended by the energy secretary, Dinesh Ghimire, the managing director of the Nepal Electricity Authority, Kul Man Ghising, the chief executive of Rastriya Prasaran Grid Company, Netra Prasad Gyawali, and members of the private sector.
According to Ghimire, they expressed worry about the competitive disadvantage that India's protectionist policies might cause Nepal's electricity producers.
Ghimire stated, "We will also discuss the matter in the upcoming Joint Working Group and the Steering Committee Meeting on Energy Cooperation."
The following meeting of these joint secretary and secretary-level mechanisms is slated to take place in New Delhi before the end of January.
The ambitious goal of the Indian government is to create 500 GW from non-fossil energy sources by 2030. "Hydropower projects will be of utmost importance in our transition to renewable energy since they are clean, green, and sustainable. According to India's power ministry, they are also crucial for the integration of intermittent energy sources like solar and wind.
In March 2019, the Indian government designated hydropower projects to be a renewable source of energy. However, hydropower projects have not received the same waiver of interstate transmission fees as solar and wind projects.
"The Ministry of Power, Government of India has now decided to extend the waiver of charges on the transmission of power from new hydropower projects, for which construction work is awarded and PPA is signed on or before June 30, 2025," India's Power Ministry said. "This will remove this discrepancy and to provide a level playing field to hydropower projects." Up to June 2026, there will be a 25% fee waiver; by the end of June 2028, there will be a 100% fee waiver.
The Ministry further stated that the waiver or reduced fees will be valid for 18 years following the hydro power facilities' commissioning.
The decision, according to Nepali stakeholders, will tilt the playing field against Nepal's hydropower.
The transmission charges for the Indian businesses will be waived, according to Kul Man Ghising, managing director of the Nepal Electricity Authority, who was also present at the summit, in the range of 35 to 50 paisa (Indian currency) per unit. "Since Nepal is not able to use this facility, it is detrimental for Nepal to sell hydropower in the Indian market."
Nepal is now able to sell 452.6MW of power produced by eight hydropower projects on the Indian energy market thanks to permission from India. Only the NEA is currently selling electricity on the Indian market because there aren't enough legislative protections for the private sector in Nepal to receive a license. However, a number of private sector businesses have already requested official approval to conduct power exchange both domestically and abroad.
In reality, a memorandum of understanding on energy trading was inked in January of this year between India's Manikaran Power Limited and Nepal Power Exchange Limited, a private sector power trading organization in Nepal.
Manikaran also consented, in accordance with the MoU, to buy 500 MW of electricity from Nepal Power Exchange Limited, in which the Indian business will also have a part.
The NEA began selling electricity worth Rs11.16 billion to India in June and continued doing so till it stopped in the third week of December due to declining output as the private sector sought licenses for the trading of power. The latest Indian decision has drawn strong criticism from the Nepali government and the corporate sector.
After starting exports again in June of next year, the NEA plans to sell power worth Rs 16 billion during the current fiscal year. The idea of exporting power to India for more than Rs70 billion over the next five years, according to departing Energy Minister Pampha Bhusal, was raised in front of the legislature in June.
It will be challenging for Nepal to sell power in the Indian market without being price competitive. The Indian Power Ministry's letter to the power distribution firms requiring them to purchase a specific amount of hydropower has also caused alarm in Nepal.
Distribution firms are required by a notification that was first published in January of last year and updated in July of this year to purchase a specific amount of hydropower from domestic hydropower projects; this requirement does not apply to power that is imported.
A distribution company is required by the notification to have acquired 0.35 percent of the total electricity it distributes from hydropower projects in the fiscal year 2022–2023; this percentage should rise to 2.82 percent in the following year, when India hopes to add 30,000 MW of hydropower capacity by complying with the notification.
The notification said that hydropower purchased from outside of India "will not be considered for meeting hydropower Purchase Obligation (HPO)".
According to Ashish Garg, vice-president of the Independent Power Producers Association of Nepal (IPPAN), Nepal's hydropower might be sold on a greater scale if India also permitted distribution companies to buy imported hydropower to satisfy the HPO criteria.
"Nepal's power exports would see a notable boost if India offered a waiver of inter-state transmission charges to imported hydropower as well," he continued.