From Bilateral to Binding Accelerating Nepal’s Electricity Export Growth Through a BBIN Energy Treaty (2024)

Nepal has a 42,000 MW potential capacity for electricity generation and has been able to explore only 3,157 MW, which is 7.5% of its hydropower potential; however, this sector contributes 3% of national revenues and 1.6% of the national economy in 2023/24 (NEA 2024). In contrast, Bhutan has developed 2,334 MW (Green Hydrogen Organization n.d.), which is 7.16% of its hydropower potential, which impressively accounts for 40 % of national revenues and 20% of the national economy, despite having only 32,600 MW of hydropower capacity (OPEC Fund 2023)

Why Does This Problem Matter to Resolve?

• South Asia is one of the most vulnerable regions to climate shocks (World Bank)
• BBIN could reduce emissions by 15% through hydropower and regional cooperation. (CUTS CITEE)
• Nepal generated a surplus of 500 MW of energy per day between June and October in 2023 that it was not able to sell, equivalent to $90 million in total. (Reuters)
• Hydroelectricity accounts for just 1% of Bangladesh’s total generation of 24,911 MW. Renewable energy accounts for only 2% (459 MW) of this. This suggests the urgent need for renewable energy in Bangladesh.
• India’s coal imports cost $20B/year (IEA 2023), importing 1000 MW of clean energy would cost $264 million a year, accounting for 10-5% of demand.
• Savings from power connectivity between Afghanistan, Bangladesh, Bhutan, India, Nepal, Pakistan, and Sri Lanka at $3,861 million to $4,127 million, outpacing construction and operation costs of $229 million to $243 million. (ADB, Wijayatunga et al., 2015)
• Regional electricity cooperation in South Asia could provide direct savings of $9 billion annually. (UNESCAP, 2018)
• Full energy market integration in Southeast Asia could decrease total energy supply costs by 3-4% and increase GDP by 1-3%. (ASEAN Studies Center, 2013)
• Cross-border electricity trade in Southeast Asia may reduce supply costs by $1–3 per MWh, potentially saving the region $1–3 billion per year in total operating cost. (IEA, 2019b)
• The Cross-Border Electricity Market (CBEM) could increase Nepal’s GDP by as much as 39%. India would also benefit from this energy trading mechanism, as it could decrease the country’s power generation needs by 2% and reduce CO2 emissions by 5.6% by the year 2045. (Borge-Diez, et al. 2024)

The energy landscape has seen significant changes over the past decade. From SDGs goals to the Paris Agreement, various international initiatives and frameworks like the 2030 Strategy of the Asian Development Bank set ambitious targets for providing reliable energy access to everyone, promoting action towards climate change, and encouraging innovation in renewable energy uses in South Asia. Although developing countries in Asia and the Pacific have made substantial progress in economic development and energy modernization, there is still much work to be done to achieve these goals (Asian Development Bank 2023). Achieving universal energy access to a reliable and affordable energy supply across the region and supporting a low-carbon transition still requires mobilizing substantial efforts and resources. The transition to better access to cleaner energy must accelerate. (Asian Development Bank 2023).

South Asia’s energy landscape is characterized by fragmented bilateral agreements, regulatory inconsistencies, and technical barriers that hinder cross-border electricity trade. Despite abundant hydropower potential in Nepal and Bhutan, and growing demand in Bangladesh and India, regional integration remains underdeveloped.

One of the most significant challenges is the lack of policy harmonisation among all countries involved (SAARC Energy Centre 2022). The analysis in one source explicitly states that “despite these associated benefits, there is a major risk in the lack of policy harmonization among all countries involved. This is further emphasized by the assertion that ‘poor or uncoordinated regulation can suppress cross-border electricity trade’ and ‘jeopardize potential public benefits’ (Borge-Diez et al. 2024). The absence of a trilateral framework between Nepal, India, and Bangladesh forces each transaction into complex, case-by-case negotiations. Therefore, the development of a coordinated regulation strategy is identified as one of the most important key aspects for success.

The objective of this Article is to analyze how growth can be achieved through harmonization of the coordinated regulatory system to govern the BBIN region, first as a pilot and eventually to all SAARC members. So, Nepal’s export of hydropower can increase, benefiting all the BBIN countries. This policy intervention aims to provide the BBIN sub-region with reliable and affordable energy access while supporting a low-carbon transition in BBIN countries.

To improve Nepal’s export share, I recommend creating a SAARC Energy Regulatory Commission (SERC) with enforcement powers in the BBIN region to regulate with a regulatory framework to govern BBIN energy market. Additionally, develop and integrate a Regional Power Exchange (RPX) platform as a key component of SERC, leveraging the Indian Energy Exchange (IEX) as an interim platform between BBIN countries, which is a key component of the SERC, at an approximate cost of 3 billion dollars over the next 10 years.