Gains from Nepal-India CBET

IRADe Study for SARISouth Asia Regional Initiative for Energy Integration(SARI/EI)

Nov, 2016 | New Delhi

Integrated Research and Action for Development (IRADe) 1

• Assess Techno economic Feasibility of CBET

• What are the economic gains to NEPAL and INDIA of such trade taking in to account earnings from export and its macro-economic impact on the economy

The Objective

• Power sector development strategies from 2012 to 2047

• Technology Model solved for every 5th year simultaneously

• Detailed Technology model with 288 time slices per year

• For each time slice demand must equal supply

• Technology model for each country has detailed plant wise data and options of different types of new plants

• Solution minimizes cost to meet specified demand and provides optimal solution and trade levels and prices for each 288 time slices for all the years

Approach

• However, trade will affect economic development and level of demand particularly true for NEPAL

• A macro- economic SAM based model covers the whole economy balances supply and demand for each sector, also investment and savings, balance of payment for each year, etc.

• So earnings from electricity export increases flexibility to import and resources to invest

• Higher Growth and higher domestic demand for electricity

• Iterate between the two models to get economically viable and technically feasible scenarios.

Approach (Continued)

INHET Model

INTec Model

INMac Model

IITec Model

IIMac Model

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Macro Model Names:IIMac- IRADe India MacroINMac- IRADe Nepal Macro

Technology Model Names:IITec- IRADe India TechnologyINTec- IRADe Nepal TechnologyINHET- India-Nepal Hourly Electricity Trade Model

Nepal India

Impact of Electricity Trade on

Nepal

Nepal’s Imports/ Exports

190

22 60 100

212 465701

0 0 0 0 0

1018 1

582

0 0 0 0

0

500

1000

1500

2000

2020 2025 2030 2035 2040 2045

MkW

h

Nepal's Imports/ India's Exports (in MkWh)

BASE APT DCA

0 0 0.0

04

0.0

04

0.0

04

0.0

04

0

18

65

93

113

115

0 0.6

49

74 9

3 104

0

50

100

150

2020 2025 2030 2035 2040 2045

BkW

h

Nepal's Exports / India's Imports (in BkWh)

BASE APT DCA

Selected Years Nepal’s Imports/ Exports in APT

-1.0

-0.5

0.0

0.5

1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319

April May June July Aug Sept Oct Nov Dec Jan Feb March

GW

Hours of the day

2020 Imports Exports

05

10152025

1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319

April May June July Aug Sept Oct Nov Dec Jan Feb March

GW

Hours of the day

2025

05

10152025

1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319 1 7 1319

April May June July Aug Sept Oct Nov Dec Jan Feb March

GW

Hours of the day

2045

Change in Nepal’s Per Capita Electricity Demand

172259

366525

740

1010

251

476

736 796934

1500

174299

415551

776

1112

0

200

400

600

800

1000

1200

1400

1600

2020 2025 2030 2035 2040 2045

kW

h p

er

capita

Nepal's Per Capita Electricity Demand

BASE APT DCA

Year Base APT DPT

kWh per

capita

Change over

Base

% Change Change over

Base

% Change

2030 366 369 101% 49 13%

2045 1010 490 49% 102 10%

Gains over BASE in Per Capita Electricity Demand

Developmental Impact

6 10 14 2131

43

9.1

3341 47

58

88

6.3 1126 34

47

69

0

20

40

60

80

100

2020 2025 2030 2035 2040 2045

BkW

h

Total Electricity Use

BASE APT DCA

172 259 366525

7401010

251476

736 796934

1500

174299 415

551776

1112

0

500

1000

1500

2000

2020 2025 2030 2035 2040 2045

kW

h p

er

capita

Per Capita Electricity Demand

BASE APT DCA

Economy wide Impact

1 23

47

9

23

46

8

13

2 23

5

7

11

0

5

10

15

2020 2025 2030 2035 2040 2045

Tri

llions

NPR

BASE APT DCA

4057

80113

161

230

5070

98

139

198

284

4563

88

125

177

255

0

50

100

150

200

250

300

2020 2025 2030 2035 2040 2045

Thousa

nd N

PR

per

pers

on

BASE APT DCA

GDP

Private Consumption

BASE

APT

DCA

BASE

APT

DCA

Gains over BASE in GDP at Constant Prices

Year Base APT DCA

billion NPR Change over Base % Change Change over Base % Change

2020 1432 406 28% 136 10%

2025 2109 593 28% 222 11%

2030 3082 995 32% 414 13%

2035 4490 1297 29% 590 13%

2040 6537 1741 27% 733 11%

2045 9484 3666 39% 1328 14%

Cumulative

2012-2045

121589 35347 29% 14098 12%

Key Findings for NepalNepal’s hydro potential could be a source of large economically feasible electricity

export to India.

Earlier development of trade infrastructure necessary for Nepal to satisfy its internaldemand in the short or medium term during the construction of hydro projects and usethe same infrastructure for export when hydro plants are ready.

APT leads to significant step up of growth of household per capita consumption, anindicator of improvement in well-being, which increases by 23% over the BASEscenario.

Per capita electricity consumption, traditionally strongly correlated with humandevelopment, increases by 50% in 2045 in APT scenario;

In APT scenario, net annual export revenue from the electricity trade is NPR 310 billionin 2030, which jumps by two and half time to NPR 840 billion in 2040, rises further toNPR 1069 billion in 2045. Delayed capacity addition reduces earnings.

GDP in 2045 with trade in APT is 39% higher than in the BASE scenario.

Investments in 2045 with APT becomes 33% of GDP, suggesting even more robusteconomic growth in the future.

Trade promotes industrialisation in the country as the share of industry in GDP becomes30% compared to 21% in BASE and since GDP is 39% larger, the level of industrialGDP doubles in APT. Industrialisation can create better paying employment.

Key Findings for NepalThe power capacity increases to 34.4 GW in 2045 with APT compared to

only 8.9 GW without trade

In the APT scenario, substantial power capacity is built through foreigndirect investment. The value of foreign inflow over 2012 to 2045 is 28931billion NPR. Of this 4649 billion NPR is used to fund investment in powercapacity this amounts to 51% of the total investment in power sectorthrough outside support.

Even a five-year delay in capacity creation in DCA reduces these benefitssubstantially compared to APT. In 2045 GDP is higher compared to BASEby only 14% (39 % in APT) and per capita consumption by only 10% (23%in APT).

Without electricity trade in the BASE scenario a number of storage typehydro projects are required to meet domestic demand.

With trade in APT, exploitation of hydro potential is through run of theriver (ROR) type plants, which are the cheapest and easiest to construct.In addition, ROR plants cause less environmental externality and humandisplacement compared to storage type plants.

Impact of Electricity Trade on

India

Economy wide Impact Compared to Base

-3861

-195338

-10941

-235475

2030 2045

BIL

LIO

N I

NR

APT DCA

Cumulated GDP Gains

Cumulated Consumption Gains

4124

29581

2526

18645

2030 2045

BIL

LIO

NS

IN

R

APT DCA

India's Cumulated Total Investment

670

2308

656

2113

655

2102

0

500

1000

1500

2000

2500

2012- 30 2012-45

Tri

llion IN

R

BASE APT DCA

India's Cumulated CO2 Emissions- Economy Wide

41

128

40

122

40

122

0

20

40

60

80

100

120

140

2012-30 2012-45

GT

BASE APT DCA

Key Findings for IndiaElectricity supply cost is lower as imported electricity is cheaper

than domestically produced one.

The domestic generation, capacity creation, and investment in thepower sector are reduced.

More importantly, as India plans to have large solar capacity as partof its ambitious renewable target, and peak in the system occurs inthe evening, available imported capacity in the evening helps toencounter solar intermittency and meeting peak.

It may be noted that India imports electricity from Nepal even whenits own hydro potential of 145 GW is fully utilized.

In APT per capita consumption in 2045 increases by 1.7% thoughGDP reduces by 6.33% compared to BASE.

In absolute terms however, the gain in cumulated consumption over2012 to 2045 is larger for India than in Nepal.

Key Findings for IndiaUse of energy commodities (coal and gas) for power

generation is lower, therefore their production and importneeds are lower.

Reduced use of fossil fuels reduces pollution and bringsenvironmental benefits.

As import is sourced from hydro plants with their flexibility ingeneration, it helps India to meet its renewable target byproviding balancing power.

The cumulated CO2 emission from 2012 to 2045 reduces by5.6% and 5.4% respectively compared to BASE scenario. This isimportant for India, which is increasingly playing a leadershiprole on climate change issues.

With reduced CO2 emissions by India, the world also gains.

The Way Forward

• Both Nepal and India gain significantly in economic and environmental terms

• To make CBET a reality – Many steps are needed

• Task Force reports have worked out the nitty-gritty of some 20 points in the SAARC agreement

• The Mock Trading will show how trading can be done easily

• This study has shown its desirability

• We need to build a larger consensus for which this study should help

• We are carrying out a similar study for India-Bangladesh trade

• Hopefully we can extend it to multilateral trade – Nepal-Bhutan-Bangladesh-India

• And hopefully to BIMSTEC countries

Thank you