The management of Bhutan’s electricity export to India is carried out through a variety of Power Purchase Agreements (PPA). Inter-Government (IG) produced power plants are exported through cost-plus-based tariffs and long-term PPAs signed between the two governments, with imports into India being made by a company in India that has been designated by the Indian government.
According to the Bhutan’s Rich Experiences in Cross Border Electricity Trade, 2022 authored by Dorji Pavo Phuntshok, Hydropower Specialist with Institute of Happiness and presented the report during South Asia Think Tank Forum, Seminar on Cross Border Energy Trade on 10 August, he said that India has benefited from its cooperation in development of hydropower projects with Bhutan.
According to the IG agreement since Tala Hydroelectric Project, all contain similar provision as in the Punatshangchhu-I IG agreement which reproduce that “The rate at which this power will be sold by Bhutan to India at the Bhutan-India border, shall be mutually determined by the two government at the time of commissioning of the projects. This shall be done by considering the cost of project, its financing costs, operation and maintenance charges, depreciation at rate applicable to similar projects in India and prevalent market conditions.”
It also reproduces, “To ensure predictability, this rate of power shall, thereafter, be reviewed by the two governments, at the end of every three years, who shall be guided by the principles agreed upon for the Tala Hydroelectric Project in this regard.”
According to the report, when deciding on a tariff and finalizing PPAs, number of factors are considered, including the project completion costs, financing costs, depreciation rates that apply to projects of a similar nature in India, operation and maintenance fees, and a 15% energy royalty, among others.
Dorji Pavo Phuntsho said that the tariff mechanism is firm only for 15 years and the parties are to mutually discuss and review the tariff for the balance years of PPA. The current tariff structure also provides for a rebate of two percent on the monthly bills if the payment is made within ten days of presentation of the bill.
The energy can also be exported beyond India, according to the SAARC Framework Agreement for Energy Cooperation (Electricity), it stipulates that “Member States may enable cross-border trade of electricity on voluntary basis subject to the laws, rules and regulations of the respective member states and based on bilateral or trilateral or mutual agreements between concerned states,” however, the report states that this hardly facilitates multi-lateral trade in electricity within SAARC.
Meanwhile, Bhutan has had a rewarding and varied experiences in electricity trade with India. As of end of 2021, Bhutan had exported 117,715.31 GWh of electricity to India of the total generation of 155,925.81 GWh comprising 75.5 percent of the generation.
The electricity export has comprised a minimum of 23.2 percent of the total volume of export to India in 1996 to as high as 63.3 percent of the export to India in 2020.
It says that of the total export value of Nu 43.51 billion (B) in 2020, electricity export amounted to Nu 27.52-B.
Besides providing crucial energy for social, commercial, and industrial needs, export of electricity from hydropower project provides substantial revenues, mostly in Indian Rupee (INR) to the country. Electricity continues to be one of the larger contributors to Gross Domestic Product (GDP) of the country.
From just eight percent of the GDP in 1993, electricity has comprised as high as 20.4 percent in 2007, with electricity being in double digits since 2007.
And from exporting to India alone, the county received Nu 39,809 million (m) in 2019 to Nu 43,513.40-m in 2020.