Historically, similar partnerships have fostered substantial economic growth and stability
South Asia is witnessing significant advancements in grid connectivity, bolstering regional cooperation through energy diplomacy. A milestone in this initiative is the recent signing of a long-term power trade agreement between India and Nepal. 
 
The plan was unveiled during Nepal Prime Minister Pushpa Kamal Dahal’s discussions with Indian Prime Minister Narendra Modi in New Delhi in June 2023. It was formalized during the Nepal visit by India's External Affairs Minister S Jaishankar in January 2024.
 
This agreement outlines a major shift, enabling the export of 10,000 MW of electricity from Nepal to India and Bangladesh over the next decade, up from the current 450 MW.
 
Investments behind this Economic Shift
 
The agreement calls for an impressive investment of nearly USD 100 billion, covering the cost of both generating power and establishing the infrastructure required for its transmission. This endeavour not only exemplifies the pivotal role of energy diplomacy in facilitating energy transitions but also marks a significant escalation in the use of diverse tools such as technology adoption, regulatory frameworks, and pricing strategies. 
 
Funding for this ambitious project is expected to be sourced from a combination of public and private sectors in Nepal and India, along with contributions from international financial institutions like the Asian Development Bank and the World Bank.
 
Regional Integration
 
Historically, similar partnerships have fostered substantial economic growth and stability; for instance, the long-standing power trading relationship between India and Bhutan has significantly boosted Bhutan’s economy and underscored the mutual benefits of such collaborations. 
 
The substantial investment involved, particularly for Nepal— whose GDP stands at USD 40 billion— signals a transformative pathway toward sustained prosperity and peace within the region.
 
India and Sri Lanka are also advancing plans to connect their power grids via a USD 1.2 billion undersea transmission line aimed at sealing Sri Lanka's energy security. The project envisages linking Anuradhapura in north central Sri Lanka to Chennai, the capital of Tamil Nadu, through a 130-km overland line in India, extending into a submarine cable that surfaces at Thiruketheeswaram in Mannar, northeastern Sri Lanka.
 
This initiative gained momentum with the fifth meeting of the India-Sri Lanka joint working group on power sector cooperation held in February this year, attended by high-ranking officials including the High Commissioner of India to Sri Lanka. The recent agreements also include the development of a hybrid renewable energy system for several northern islands of the Jaffna peninsula in Sri Lanka.
 
Market Dynamics and Energy Trading
 
In addition to bilateral agreements, the integration of Nepal and Bhutan into India's power exchange market from 2021 marks a significant development. This pioneering initiative has opened India’s power market to other South Asian countries, allowing real-time trading and enhanced flexibility. This setup mitigates investment risks by balancing power surplus and deficits and supports the adoption of renewable energy sources by providing a more cost-effective power supply.
 
The strategic expansion of grid connectivity in South Asia through initiatives like India's "one sun, one world, one grid" demonstrates a profound shift towards optimizing the use of renewable resources across national borders.
 
These efforts facilitate significant reductions in carbon emissions and operational costs and charts the route for broader regional integration, potentially extending to Southeast Asia. The collaborative agendas of nations will widen, with the promise of sustained peace and prosperity, making shared resources and mutual benefits increasingly attainable.