A South Asian power trade deal is poised to reshape the region’s energy landscape, allowing Bangladesh to import hydroelectricity from Nepal through India’s grid.

The proposed three-way pact is expected to be signed within the next month or so, after authorities from Bangladesh and Nepal recently finalized a deal with the Indian side on the use of a high-voltage transmission line, according to officials from Bangladesh’s Ministry of Power, Energy and Mineral Resources.

Indian Prime Minister Narendra Modi on June 1 informed his visiting Nepali counterpart, Pushpa Kamal Dahal, that New Delhi would allow use of the line to forge greater energy connectivity across the region.

“We were waiting for this nod from India,” Nasrul Hamid, Bangladesh’s state minister for power and energy, told Nikkei Asia. “Things will move very fast now as both Bangladesh and Nepal have already agreed on the various aspects of the deal.”

The move comes as Bangladesh struggles with frequent blackouts, amid a foreign currency crunch that has squeezed fuel imports. Nepal, meanwhile, produces nearly 30% more hydroelectricity than it needs during its wet season, and has long wanted to export some of the surplus to Bangladesh.

Dinesh Kumar Ghimire, Nepal’s energy secretary, told Nikkei, “If all goes well, the tripartite deal is likely to be inked by the third week of July.”

The state-owned Bangladesh Power Development Board and the Nepal Electricity Authority recently hammered out plans with India’s agency for cross-border power trading, NTPC Vidyut Vyapar Nigam (NVVN), to use the Bahrampur-Bheramara high-voltage line.

The $193 million line funded by the Asian Development Bank connects Bangladesh’s western electrical grid at Bheramara with India’s eastern grid at Baharampur, paving the way for bilateral electricity trade.

Sealing the agreement with India to use the line will be an “ice breaker” toward greater regional power connectivity, Nepal’s Ghimire said.

“At first we are planning to export just 50 megawatts of electricity to Bangladesh, but we have signed contracts to [export] 500 MW within a year,” he said.

Aside from using the existing high-voltage Indian line, Nepal and Bangladesh are considering a dedicated transmission line through India. They have already identified two potential routes, although multiple Bangladeshi Power Ministry officials told Nikkei that nothing has been finalized in this regard.

The current proposed 500 MW export deal would be a much-needed supplement to Bangladesh’s existing generation capacity of over 25,000 MW — of which more than 40% is not operational. The country’s power utilities have to resort to about 2,000 MW worth of daily load shedding, or planned blackouts, under a rationing system due to fuel shortages.

In mid-May, at a secretary-level joint steering committee meeting on energy cooperation between Bangladesh and Nepal, the two sides sought to reach a consensus on tariffs, an official present at the talks confirmed.

Mohammad Hossain, director general of Power Cell, a regulatory agency under Bangladesh’s Power Ministry, said that ensuring a steady supply of renewable power like hydroelectricity is obviously a good policy step. “It insulates the power supply from external fuel shocks from which Bangladesh is currently suffering now.”

Hossain added, “I would term this proposed tripartite deal a significant milestone for South Asia, as strengthening of regional interconnections is a big step forward for our energy sustainability.”

For Nepal, Ghimire called the arrangement “very symbolic and important,” as it will be Nepal’s first electricity export beyond India.

Nepal has a total installed capacity of around 2,600 MW, of which over 97% is produced by hydropower. At present, the country exports around 450 MW of its electricity to India. But its increasing hydro output — which it needs to meet demand during the dry season — has created excess supply during the wet season.

“In order to avoid waste of excess power, we obviously need to find [foreign] markets. Our most feasible target markets are obviously India and Bangladesh,” Ghimire said.

Both India and Bangladesh intend to significantly boost their use of renewable energy in the coming years. By 2030, the Indian government aims to generate 500 gigawatts from nonfossil sources and use 50% renewable energy. Bangladesh plans to expand the role of renewable energy in its power mix to 40% by 2050, from a paltry 3% at present.

Nepal, with its abundant water resources, could help both South Asian neighbors to achieve their respective targets, observers said.

Bangladeshi energy expert M. Tamim noted that cross-border electricity trade is already happening at the bilateral level in South Asia. “The time has come to move it one step forward,” he said.

Tamim said that countries like Nepal, as well as Bhutan, have huge hydropower potential. “Their feasible hydropower generation capacity hovers around 50,000 MW, of which they are only using less than 10%,” he said. “Through regional grid connectivity, the whole of South Asia can benefit from this clean form of energy.”