Policy Update
Elenora Tu’u
Introduction:
Cross border integration is a strategic imperative for regional energy security, economic growth, and climate resilience. This article argues that while the initiative has made commendable progress, emerging regulatory and infrastructural challenges must be addressed to unlock its full potential.
Background:
India and Nepal share a deep tractor of cultural, historical and economic ties. Economic cooperation has been a recent emerging space of bilateral relations. With specific note to Nepal’s hydro power potential and India’s growing energy demand. The 2022 India-Nepal Joint Vision Statement on Power Sector corporation laid the groundwork for future partnership in electricity generation, trade, and transmission (Ministry of External Affairs).Nepal’s transition to a near power surplus nation and India’s cross-border electricity trade regulations have boosted this integration in recent developments.
Function:
The cross-border energy grid integration operates through a high voltage transmission line connecting Nepal’s hydropower projects to India’s grid. Noteworthy developments include key infrastructure, this includes the 400kV Dhalkebar-Muzaffarpur transmission line and the recent initiative on the upcoming Butwal-Gorakpur corridor. These lines redefine bilateral trade – enabling bilateral electricity trade under the South Asia Regional Initiative for Energy Integration (SARI/EL) framework.Additionally, the Arun-3 Hydroelectric Project by India’s SJVN Limited,highlighting joint development and transmission planning (Press Information Bureau,2025).
Perhaps to enlighten this further of this ties – electricity trade is governed by India’s Cross Border Electricity Trade Regulations. Which allows neighboring countries like Nepal to participate in India’s power exchanges. The functioning of these relations is further strengthened by Nepal’s Electricity Authority (NEA) and India’s Power Grid Corporation ensure coordination of operations ,scheduling and pricing.
Performance:
In terms of performance,both nations integrated partnership so far has yielded tangible benefits:
| Grid Stability | The shared grid enhances reliability and reduces outages in both regions of both nations |
| Trade Volumes | So far Nepal has exported 600MW of electricity to India during peak monsoon months in 2023, earning significant revenue (NITI Aayog & IEEJ,2025) |
| Investment Flows | So far India’s public and private firms have invested in Nepal’s hydropower sector – increasing cross-border infrastructure and employment. |
Despite the progress, performance in the sector still remains uneven. One of the main factors for this is seasonal variability year round limits hydropower generations – for instance Nepal’s hydropower generation limits year round trade. Additionally, grid congestion with limited interconnection capacity constrains scalable outcomes.
Impacts:
The coordinated integration between both countries has multilayered impacts:
| Geopolitical Impact | So far energy cooperation in recent trends strengthens bilateral relations by building trust .Moreover, it counters external influence in South Asia’s energy landscape. |
| Environmental Aspect | Notably, hydropower trade does support India’s climate commitment – decarbonisation goals – under the Paris Agreement. |
| Economics Impact | Nepal so far earns foreign exchange through electricity exports, while India diversifies its energy mix and reduces resilience on fossil fuel – due to its climate commitments under Paris Agreement. |
Interestingly, the progress(socially) in strengthening electricity trade has socially enhanced rural electrification in Nepal ,due to grid expansion ,improving crucial sectors operations – education, healthcare and livelihoods.
Emerging Issues:
Despite progressive strides, notable challenges persist.
| Climate risks | It is crucial to highlight that glacial melt and erratic rainfall threaten hydropower reliability, further necessitating adaptive planning mechanisms moving forward. |
| Regulatory asymmetries | Nepal lacks a robust electricity market framework unlike India – this limits its ability to optimize exports. |
| Disputes in pricing | It clear differences in tariff structures and lack of transparent pricing mechanism further creates frictions |
| Infrastructure bottlenecks | Overall delays in construction of transmission lines and grid upgrades can hamper integration. |
So far regional integration still remains limited to bilateral arrangements, leading to missing opportunities in multilateral grid connectivity around the region.
Way Forward:
| Invest in climate resilience hydropower | Diversify Nepal’s energy portfolio and solar wind – India sofar has made progress in this areas |
| Promote multilateral cooperation | Through BIMSTEC and SAARC for regional connectivity. |
| Expand market access | By enabling Nepal to engage in India’s real time and day ahead power markets moving forward to close asymmetry in market framework. |
| Infrastructure development | Climate variability necessitates infrastructure development including, storage systems , and smart grids to manage variabilities. |
| Establish a joint regulatory body between both country’s | This further harmonizes electricity trade rules ,pricing and dispute resolution, building stability and trust among neighbors for future prospects through regional connectivity initiatives and platforms. |
Both countries progressive partnership disputes hurdles fosters mutual understanding -India and Nepal must engage in capacity building ,joint research and data sharing to strengthen ties in regional stability ,further countering external influence by driving innovation and building resilience.
Conclusion:
To conclude, both countries’ cross-border energy grid integration is a hopeful prospect for regional connectivity. A transformative initiative with strategic economic and environmental benefits.
A phase of promise times ahead. However addressing regulatory, infrastructural and climate related challenges from emerging issues and impacts is crucial. A time of turn for coordinated , and a forward looking approach not only for both countries but regional wise. India as a big brother nation has that capacity to harmonize its fraternal connections -which can turn this bilateral endeavor into a model for regional energy corporations.
References:
Ministry of External Affairs. (2022). India-Nepal Joint Vision Statement on Power Sector Cooperation.https://www.mea.gov.in/bilateral-documents.htm?dtl/35146/IndiaNepalJointVisionStatementonPowerSector_Cooperation
Press Information Bureau. (2025, April 22). Union Minister Shri Manohar Lal Visits Nepal to Strengthen India-Nepal Energy Cooperation. https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2123637
NITI Aayog & Institute of Energy Economics, Japan. (2025). Energizing India. https://www.niti.gov.in/sites/default/files/2025-07/Energising-India.pdf
Central Electricity Regulatory Commission. (2018). Cross Border Electricity Trade Regulations. https://cercind.gov.in/2018/regulation/reg20.pdf
South Asia Regional Initiative for Energy Integration (SARI/EI). (2023). Regional Energy Trade and Grid Integration Report. https://sari-energy.org
About the contributor:
Elenora Tu’u is an undergraduate student specializing in Politics and Public Policy. This article is published as part of her course work with the IMPRI Impact and Policy Research Institute.
Acknowledgement:
The author sincerely thanks Ms. Aasthaba Jadeja and the IMPRI team for their valuable support.
Disclaimer:
All views expressed in the article belong solely to the author and not necessarily to the organisation.
Read more at IMPRI:
Blurry Futures, Hidden Barriers: Uncorrected Vision in Adolescents and the Global Call for Action
Fellows List: Public Policy Qualitative Participatory Action Research Fieldwork Fellowship- Cohort 6.0
