# Presentation: 342287

## Electricity Trade Potential in Nepal and Bhutan

- Greg Priddy
- May 2004
- South Asian Regional Initiative – Energy
- Kathmandu, Nepal

## Nepal - Immense Potential

- Nepal has an estimated 83,000 megawatts (MW) of theoretical hydropower capacity, with an estimated 43,000 MW economically feasible.
- Even with domestic demand growth projected at an average of nearly 8% through 2020, peak demand still under 1.7 GW in 2020

## Nepal’s Existing Capacity

- Hydropower in Nepal has a long history, beginning with the Pharping dam in 1911 and the Sundarijal dam in 1936.
- First major project was the 24-MW Trishuli dam, completed in 1968
- Almost entirely donor-funded through early 1990s
- Policy decision in 1992 to allow private investment in dams, both Nepali and foreign

## Nepal’s Existing Capacity –cont’d

## Nepal – Current Expansion

- Rapid expansion of capacity since 2000
- Current hydro capacity of about 500 MW, which includes about 30 MW of “micro hydro” dams.
- Main near –term project is the 750-MW West Seti complex, which will export about 90% of its output under a PPA with Power Trading Corporation (PTC) of India.
- Private investor SMEC of Australia is backing the West Seti project.  PTC may take an equity stake as well.
- Middle Marsyangdi – 61 MW NEA project.

## Possible Future Expansion

- Focused on both large export-oriented projects and small local projects.
- “Limitless potential” is only a slight exaggeration.
- Most of the potential dam sites already studied in a good deal of detail.
- Main limits to expansion are attracting capital and developing markets.

## Possible Future Expansion – Primarily Export-Oriented

- Arun-3 – 400 MW
- Budhi Gandaki – 600 MW
- Kali Gandaki 2 – 660 MW
- Lower Arun – 308 MW
- Upper Arun – 335 MW

## Possible Future Expansion – Export “Mega Projects”

- Karnali (Chisapani) – 10,800 MW complex
- Pancheswar (Mahakali) – 6,480 MW complex

## Data Requirements - Costs

- Need estimates for electricity costs / terms of sale.
- Evaluation of delivered costs against alternative sources of supply
- Historically, costs in Nepal have covered a wide range, largely due to “tied aid” financing, as opposed to competitive bidding by suppliers of major components and services.

## Data Requirements – Transmission Infrastructure

- Development of the larger projects, particularly the largest, would require major improvements in transmission infrastructure to major markets.
- Necessary to evaluation of delivered costs against alternative sources of supply
- Demand potential in India is such that markets need not necessarily be very distant

## Other Issues – Positive and Negative Externalities

- Flooded areas – relocation costs
- Water-management benefits downstream
- Issue of whether, and to what extent, the international balance of externalities should affect pricing for export-oriented projects

## Bhutan – Large Potential

- Bhutan has an estimated 30,000 MW of economically hydropower capacity resources, of which about 16,000 MW is economically feasible.
- Small population (under 1 million) means very small domestic demand, even as per capita demand increases.

## Bhutan’s Existing Capacity

- Slightly over 400 MW of current capacity.
- First major project was the 336 MW Chukha dam, built in the 1980s for both domestic and export markets
- Significant micro-hydro contribution to domestic needs
- Contributes major share of Bhutanese government revenue

## Bhutan – Current Expansion

- 1,020-MW Tala project, under construction and set to begin operation in 2005, export-oriented
- Basochu II – 40 MW, near existing 23 MW facility
- Several micro-hydro projects for domestic demand

## Possible Future Expansion

- Punatsangchu – 870 MW – MOU signed in 2003
- Mangde Chu – 360 MW
- Sunkosh Multipurpose Project (SMP) – 4,060 MW, potential to supply most of the power demand in northeast India, as well as safe drinking water in parts of West Bengal and Bihar

## Data Requirements - Costs

- Need estimates for electricity costs / terms of sale.
- Evaluation of delivered costs against alternative sources of supply

## Data Requirements – Transmission Infrastructure

- Development of the larger projects, particularly the largest, would require major improvements in transmission infrastructure to major markets.
- Bhutan is some distance from the larger power demand centers in India, which raises transmission costs.
- Transmission corridor under construction linking Tala to the Delhi area.

## Other Issues – Positive and Negative Externalities

- Flooded areas – relocation costs for most projects in Bhutan are quite low, due to sparse population in those areas.
- Water-management benefits downstream
- Issue of whether, and to what extent, the international balance of externalities should affect pricing for export-oriented projects

## Nepal, India, Bangladesh, Bhutan “Crossroads”

- Power interconnections in the area where Bangladesh, India, and Nepal (and the transmission corridor for power from Bhutan) intersect
- Trading hub could eventually promote a more integrated power market, which would aid overall efficiency

## Conclusion

- The potential is there, and the market is there, but unlocking it will involve overcoming some significant obstacles in terms of attracting the necessary capital.