Saturday, 2 March, 2024

Power Trade: A Means Of Prosperity

Krishna Adhikari

With a moderate start of 500-KW electricity generation from Pharping Hydroelectric Power Plant in 1911, some 2100-MW electricity is now generated and connected to the Integrated Nepali Power System (INPS). Similarly, projects with a total power generation capacity of 5000-MW are under construction while projects with an aggregate capacity of around 9000-MW are set to start construction soon. These encouraging trends in hydropower generation in the country are sure to open doors of economic growth as electricity is not only a basic infrastructure for development but also a base for prosperity. The level of use of electricity in industries, transport, commercial activities and households is also a yardstick to measure the country’s development phase. 

Enhanced in-country generation of electricity brings us to a state of self-sufficiency in electricity. This will contribute to prosperity in many ways.  First of all, availability of electricity in adequate quantity will enhance its consumption in industries, transport and commercial activities. Electricity is an important input of production and the increased availability and consumption may contribute to increasing the gross domestic product (GDP). It needs no mention that the GDP of a country is correlated with its per capita electricity consumption. But this correlation is different for countries at different stages of development. For an underdeveloped country like ours, this correlation is very high. Few studies have indicated that about 1.9 per cent growth in demand of electricity might generate 1 per cent economic growth additionally.

Availability of electricity
So, if Nepal targets for 7.5 per cent economic growth at this stage, the demand for electricity should rise by around 14.25 per cent. Establishment and operation of a large-scale production and process industry can generate 1 per cent growth in GDP. Such industries consume enough electricity. Unless we ensure round-the-year quality electricity, domestic as well as foreign investors may not be interested in investing in industries. But the year-round supply of quality electricity can be ensured by domestic production as well as trading in cross-border markets. Availability of electricity supply in required amount can encourage small and medium-scale industries to be modernised.

With the availability of electricity in adequate quantity on a regular basis, the country is likely to witness a rise in the use of electric vehicles, irrigation systems and establishment of large-scale industries. And this change will help increase the GDP. Secondly, increase in power generation may be instrumental in minimising the trade deficit with other countries. Figures published by Nepal Rastra Bank (NRB) indicate that the country’s trade deficit on goods surged by 46.6 per cent to Rs. 880.49 billion in the first six months of the current fiscal year.

This clearly points to excessive import of goods compared to export. Import of energy related goods such as fossil fuels and electricity formed the lion’s share of import. Since Nepal imports all of its fuels from India, it has largest trade deficit with the southern neighbour. Balance of trade is important not only for economic prosperity but for the overall stability of country’s economy. Abundant hydro-potential is Nepal’s comparative advantage. Generating the large amount of electricity can substitute the import of fossil fuels and control the outflow of cash, thereby contributing to balance the trade.

The adequate availability of electricity not only checks the import of fuel related goods but also other consumable commodities as it can  boost the industry and industrial production, substituting related imports to control the cash outflow and promoting export of domestically produced goods. This spurs cash inflows to minimise the trade deficit. However, seasonal deficit of electricity supply due to high seasonality of Himalayan rivers will have to be availed through import by trading in the cross-border markets of electricity.

Thirdly, the surplus electricity generated in the country can be exported to cross-border markets resulting in cash inflows. This might make balance of trade in favour of Nepal. The country is exploring crossborder markets to export its surplus generation. Currently, the nation generates surplus power only during the wet season. Bangladesh is interested in importing thousands of megawatt of electricity from neighboring countries. India has also agreed for 750-MW possible import from our country. We have been importing electricity worth Rs. 20 billion annually, which may be offset by seasonal export.

The COP-26 held in Glasgow has igiven definitive directions for clean and environment-friendly energy. Obligation under COP commitments may encourage and force neighbouring countries to import hydro-electricity from Nepal in a huge quantity. Nepal’s hydropower potential and accessibility in the cross-border markets can turn it into power house of South Asia. Thus, the hydroelectricity generated in the country can be a foundation of prosperity not only for us but also for the whole of South Asia region. It could be a blessing for countries of South Asia that are left behind in the race of development. Better coordination and understanding among the South Asian countries for regional market of electricity is the key to their prosperity.

National prosperity
The national dream of prosperity is directly linked with self-sufficiency of electricity, substitution of traditional and modern imported fuels by electricity generated in the country, development of domestic market of electricity as well as access in the cross-border market. 

Electricity is perceived as a pillar for achieving the government’s target of accelerated economic growth in double digits. Sufficiency of electricity to meet the internal demand and export of surplus in the cross-border market not only requires a huge financial investment but the overall environment positive for development of electricity in the country, too. This calls for policy, legal, regulatory, institutional reforms and creating the requisites supporting infrastructure. The reforms should also be targeted to facilitate the private sector for playing significant role in this process. Greater coordination and cooperation among the countries in the region enables to create a vibrant regional market of electricity and transmission connectivity, thereby promoting power trade in higher volumes.

(Adhikari is a journalist.)