India-Nepal Power Exchange Agreement

The India‑Nepal Power Exchange Agreement, signed on 23 June 2016 in Kathmandu, is a bilateral treaty that creates a dedicated cross‑border electricity corridor for the sale of Nepal‑generated hydroelectric power to India. By linking Nepal’s high‑altitude, water‑rich basins with India’s expanding demand for clean energy, the pact uniquely combines trans‑Himalayan resource mobilisation with a long‑term commercial framework, marking the first formalized, large‑scale power trade mechanism between the two nations.

Historical Background

Negotiations for the agreement began in earnest after Nepal’s 2015 constitution enshrined the right to develop its hydro‑resources, prompting the government to seek export markets for the anticipated surge in capacity. In 2014, India’s Ministry of Power and Nepal’s Ministry of Energy signed a Memorandum of Understanding that laid the groundwork for a 500 MW export corridor, a step that followed earlier informal power swaps during the 2005‑2006 monsoon crises. The 2016 treaty was concluded under the broader “India‑South Asia Energy Cooperation” initiative, which also envisaged future interconnections with Bangladesh and Bhutan.

Mechanism of Power Trade

The agreement designates the 400‑kV Biratnagar–Raxaul transmission line as the physical conduit for electricity flow, with a contractual export capacity of 500 MW. Power generated at Nepal’s Upper Tamakoshi plant—rated at 456 MW and commissioned in 2021—is injected into the line at Biratnagar, then dispatched to the Indian grid via POSOCO’s (Power System Operation Corporation) scheduling platform. Settlement is conducted on a monthly basis, using a tariff formula that references the prevailing Central Electricity Regulatory Commission (CERC) rates plus a negotiated premium for cross‑border transmission losses. Both NEA (Nepal Electricity Authority) and POSOCO share real‑time data through a SCADA interface to ensure synchronized dispatch and grid stability.

Key Provisions of the 2016 Agreement

Article 3 of the treaty caps annual export at 500 MW, with a provision for incremental increases subject to mutual technical assessment. Article 5 obliges each party to maintain the transmission infrastructure at “no‑less‑than‑99 % availability” and to bear the cost of line‑loss compensation. Article 7 establishes a joint steering committee, chaired alternately by senior officials from the Ministry of Power (India) and the Ministry of Energy (Nepal), to resolve disputes and review performance every twelve months. The pact also includes a 25‑year term, renewable upon joint consent, and a force‑majeure clause that was invoked during the 2023 monsoon floods that damaged the Raxaul substation.

Current Implementation and Challenges

Upper Tamakoshi began exporting power to India in August 2022, initially delivering around 300 MW and scaling up to 400 MW by early 2024 as line‑loss mitigation measures took effect. The 2023 floods temporarily reduced the corridor’s capacity by roughly 150 MW, contributing to a reported 550 MW shortfall in the combined India‑Nepal supply chain during the peak summer demand period. Restoration work, completed by March 2024, involved the replacement of 12 km of insulated conductors and the installation of a new series capacitor bank, restoring the line to its contractual 500 MW rating. As of September 2026, cumulative exports have exceeded 2.1 TWh, generating approximately US$150 million in foreign exchange for Nepal.

Regional Significance

Beyond the immediate commercial benefits, the agreement serves as a template for South Asian energy integration, demonstrating how geographically disparate grids can be harmonised through shared technical standards and joint institutional mechanisms. For India, the imported hydroelectricity diversifies its generation mix, reducing reliance on coal and supporting its 2030 renewable‑energy target of 500 GW. For Nepal, the steady revenue stream underwrites debt service on hydro‑project loans and incentivises further investment in the 23 GW of untapped hydro potential. The treaty also reinforces diplomatic ties, positioning energy trade as a pillar of “disaster diplomacy” that can endure even when flood‑induced emergencies strain bilateral relations.