MoENR Yet to Finalize Export Tariff for PHPA-II
The 1,020 MW Punatsangchhu-II Hydroelectric Project (PHPA-II) is poised to generate approximately 4,357 gigawatt-hours (GWh) of electricity annually. This significant addition to Bhutan’s clean energy portfolio will enhance the country’s export revenue while supporting domestic economic growth.
An official from the Ministry of Energy and Natural Resources (MoENR) highlighted the project’s dual benefits: strengthening Bhutan’s energy supply reliability and grid stability to meet both domestic and export demands.
“The project reinforces Bhutan’s commitment to sustainable development by tapping into its vast hydropower potential as a renewable energy source,” the official stated. “By supplying energy to the region, PHPA-II positions Bhutan as a key player in regional energy markets, advancing its aspiration to become a clean energy hub.”
PHPA-II marked a significant milestone in Bhutan’s hydropower sector by beginning power generation with two of its units synchronized to the national grid on December 17, 2024. This synchronization was followed by rigorous mandatory testing to ensure safety, reliability, and operational efficiency. Upon successful completion of these tests, the Commercial Operation Date (COD) for the two units was officially declared on December 27, 2024, signifying that they were fully functional and ready for continuous operation.
Despite this progress, Bhutan’s domestic electricity demand has been on the rise, surpassing generation capabilities since November 2024. However, the operationalization of PHPA-II has significantly alleviated this dependency. The project’s current generation capacity, although limited to one unit during the lean season due to reduced river discharge, has already made a noticeable impact by offsetting a portion of the imported electricity. With PHPA-II online, Bhutan has been able to partially bridge the gap between supply and demand, ensuring a more stable and reliable energy supply for domestic consumption while reducing the economic burden of importing power.
Despite the successful commissioning of two units of the 1,020 MW PHPA-II, Bhutan’s power generation remains heavily influenced by seasonal variations in river discharge. The official highlighted that the current lean season has significantly limited water flow, allowing only one unit to operate at a time.
From December 17 to December 26, 2024, the plant managed to generate 2.5 million units of electricity. After achieving the Commercial Operation Date (COD) on December 27, 2024, the plant has since produced a total of 26.9 million units of power as of January 5, 2025, averaging 170 MW of daily generation.
While PHPA-II’s contribution has reduced Bhutan’s dependence on power imports, the official pointed out that it still falls significantly short of the country’s escalating demand. Bhutan’s current daily electricity requirement stands at 1,026 MW, far exceeding the combined firm generation capacity of its operational plants, which is approximately 434 MW. As a result, the country continues to rely on imports from India to bridge this substantial gap in supply.
The official emphasized that addressing this shortfall requires both immediate and long-term strategies. The immediate focus remains on optimizing PHPA-II’s output and operational efficiency, particularly during periods of higher river discharge. Meanwhile, as additional units of PHPA-II and other planned hydropower projects come online, Bhutan aims to not only meet domestic needs but also regain its position as a net exporter of clean energy to the region.
This situation underscores the importance of strategic planning in Bhutan’s energy sector to balance seasonal generation constraints, growing domestic demand, and the long-term vision of leveraging hydropower as a pillar of economic growth and regional cooperation.
The Ministry of Energy and Natural Resources is still in the process of finalizing the export tariff for the 1,020 MW PHPA-II), a crucial element in unlocking its full revenue potential. The official underscored the importance of expediting this process, as the determination of a competitive yet fair tariff will directly impact Bhutan’s ability to capitalize on the surplus energy generated by the project.
Export tariffs serve as a bridge between Bhutan’s clean energy supply and regional energy markets, particularly in India, which is the primary importer of Bhutanese hydropower. The absence of an agreed tariff structure not only delays the export of surplus energy but also hinders the project’s ability to contribute meaningfully to Bhutan’s economic growth. The official emphasized that timely resolution of this matter is critical for ensuring the financial viability of PHPA-II and for sustaining Bhutan’s hydropower export strategy.
A well-negotiated export tariff will determine the extent of revenue inflows from PHPA-II and its contribution to national development. It will also reflect Bhutan’s commitment to fostering regional energy partnerships while maintaining the competitiveness of its hydropower exports. Moreover, the tariff’s finalization will provide clarity to both domestic stakeholders and international buyers, establishing a solid foundation for long-term energy trade agreements.
Given the delays and cost overruns associated with PHPA-II, securing an optimal export tariff is even more crucial. The tariff must strike a balance between covering operational costs, servicing the project’s debt, and providing a fair return on investment. Furthermore, the official highlighted that a favorable export tariff will enhance Bhutan’s reputation as a reliable supplier of renewable energy, strengthening its position in regional markets and supporting its vision of becoming a clean energy hub.
The Ministry is reportedly engaging with relevant stakeholders, including Indian authorities, to negotiate and finalize the tariff. The official expressed hope that this critical issue will be resolved soon, paving the way for PHPA-II to contribute significantly to Bhutan’s hydropower export portfolio and broader economic aspirations.
The project has seen a reduction in seepage levels from 1,000 liters per minute to 500 liters per minute, a manageable figure compared to the lean season’s river discharge of 4.9 million liters per minute. The seepage rate currently accounts for only 0.012% of total discharge.
Additionally, the erection of the remaining four generating units has commenced and is expected to be completed before the onset of the next monsoon, significantly boosting the plant’s capacity.
Sherab Dorji from Thimphu