USAID’s URJA NEPAL PROGRAM CROSS BORDER ELECTRICITY TRADE (CBET) REPORT

The Government of Nepal (GoN) has estimated that there are approximately 42 Gigawatts (GW) of hydropower potential for Nepal. To date, however, Nepal has only exploited approximately 2.5% of its total hydropower potential for power generation. The present hydropower installed capacity of 1.3 GW is the mainstay of the country's installed generation capacity mix and contributes nearly one hundred percent to Nepal's overall energy mix. These facts underline the importance of hydropower in Nepal's power sector. Nepal's peak power demand has grown at a Compound Annual Growth Rate (CAGR) of 7% from Financial Year (FY) 2010 to 2018, before dropping to 1,320 MW in FY19 and increasing again to 1,407.94 MW in FY20. To meet the demand, the domestic installed capacity has also increased at a CAGR of 6% from FY10 to FY20. However, the continually expanding domestic generation capacity has not been sufficient to meet the ever-expanding domestic demand. Today, Nepal is experiencing a demand-supply gap, as illustrated in Figure 4. This gap is currently being managed, at least in part, by importing power from India. In FY20, these imports have been in the range of 300 to 500 MW. Nepal also exports power to India during the wet season, when more water translates to more hydro generation. Nepal's peak generation period matches nicely with the peak demand season of India, and other South Asian countries. Nepal's peak exports were 29.57 GW, recorded between September and October of 2020. According to NEA's load forecast data, the outlook of Surplus Generation Capacity, Nepal's peak power demand is projected to increase to approximately 3,703 MW by the end of FY24. NEA has also projected that Nepal will have a high surplus power in the near-term under all scenarios – winter peak load (dry peak), summer peak load (wet peak), and summer off-peak load (wet off-peak). According to NEA's estimates, Nepal is expected to have enough capacity to meet its domestic demand from FY21 (amounting to approximately 700 MW) thereafter, and by FY24, the surplus is expected to reach 3,014 MW. According to another set of projections made by the Independent Power Producers Association of Nepal (IPPAN), surplus capacity is expected to reach 3,947 MW by FY24. This projection exceeds NEA's forecasts by nearly 25%. Whichever estimate is correct, it is clear that in the near-term Nepal's generation will exceed domestic demands, thereby providing an opportunity to export surplus hydropower to neighboring countries by FY24.