Punatsangchhu-II Hydroelectric Project: Strengthening India-Bhutan Energy Partnership
On 3 February 2026, senior leaders from India and Bhutan met in New Delhi to reinforce their enduring energy cooperation, particularly around the Punatsangchhu-II Hydroelectric Project (PHEP-II) and future cross-border power infrastructure. The discussions underscored the strategic significance of hydropower in bilateral ties, with a focus on commercial optimisation, upstream projects, and long-term transmission planning.
The Punatsangchhu-II project — a 1,020 MW run-of-the-river hydroelectric facility on the Punatsangchhu River in western Bhutan — has emerged as a cornerstone of this partnership. Its commissioning marks a significant milestone in enhancing Bhutan’s power generation capacity and deepening the economic linkages between the two countries.
India-Bhutan Hydropower Cooperation: A Strategic Overview
Energy cooperation between India and Bhutan traces its roots to the early 1960s. It was formally institutionalised through the 2006 Agreement on Cooperation in the Field of Hydroelectric Power, which provided a framework for joint development, financing, construction, and operation of hydropower projects in Bhutan, with India as a key partner in planning and funding.
Hydropower is central to Bhutan’s economic development strategy, given its abundant river resources and topography suited for high-head run-of-the-river projects. For India, reliable access to clean hydroelectric power supports energy security and regional integration objectives.
Punatsangchhu-II: Project Profile and Operational Milestone
Project Type and Capacity
The Punatsangchhu-II Hydroelectric Project is a run-of-the-river facility with a total installed capacity of 1,020 MW, comprised of six generating units of 170 MW each. Unlike large reservoir projects that inundate vast areas, run-of-the-river systems leverage the natural flow of rivers, minimising environmental footprint and displacement.
Commercial Commissioning
The project achieved full operational capacity on 27 August 2025, with the synchronization of the final (sixth) 170 MW unit to Bhutan’s national grid. This brought the entire capacity online and marked a historic achievement in the India-Bhutan energy partnership.
Electricity Generation and Economic Impact
Since commissioning, PHEP-II has contributed over 1.3 billion units (BU) of electricity to Bhutan’s grid. Its addition increased the country’s total installed power capacity by approximately 40 percent, raising it to over 3,500 MW.
This enhanced capacity supports domestic electrification, reduces dependence on fossil fuels, and strengthens Bhutan’s position as a net electricity exporter, particularly to India.
Funding Model and Financial Framework
The Government of India fully funded the construction of PHEP-II through a 30 percent grant and 70 percent loan mix. The loan carries an annual interest rate of 10 percent, reflecting a concessional financing structure aimed at making hydropower development financially viable for Bhutan.
This model — combining grant aid with long-term loans — has been a hallmark of India’s development assistance to Bhutan, particularly in infrastructure and power sectors. It allows Bhutan to build large-scale energy assets while managing external debt responsibly.
February 2026 Energy Talks: Key Strategic Priorities
During the February 2026 meeting in New Delhi, led by Bhutan’s Minister of Energy Lyonpo Gem Tshering and India’s Union Power Minister, several strategic priorities were discussed:
1. Commercial Optimisation of PHEP-II
With the full commissioning of PHEP-II, discussions focused on maximising the economic benefits of the project through commercial optimisation of power output. This involves fine-tuning scheduling, dispatch, tariff structures, and cross-border transaction frameworks to ensure predictable returns for both countries.
2. Punatsangchhu-I Project
The Punatsangchhu-I Hydroelectric Project (1,200 MW), upstream from PHEP-II, was emphasised as a critical next step. Its early commissioning is seen as essential for stabilising regional power availability and further strengthening the India-Bhutan electricity grid linkage.
3. Long-Term Transmission Planning (to 2040)
Officials reviewed plans for cross-border transmission infrastructure through 2040, recognising that robust transmission planning is vital to integrate future hydropower capacity, manage seasonal variability, and ensure efficient power flows.
4. Sankosh Hydropower Project
The Sankosh Hydropower Project, envisioned as another major collaborative facility, was also part of roadmap consultations. Though still in planning stages, it represents the next frontier in bilateral hydropower cooperation.
5. Lean Season Management
To address periods of low generation (typically winter or dry months), both sides discussed streamlining approval procedures for power scheduling and imports during lean seasons — a step aimed at ensuring uninterrupted grid stability.
Broader Significance in Bilateral Relations
Economic Integration and Development Aid
Hydropower has been a central pillar of India-Bhutan economic integration. In the Union Budget 2026-27, Bhutan received the largest share of India’s development aid, with ₹2,288 crore allocated primarily for infrastructure and hydroelectric projects — an affirmation of the strategic importance New Delhi places on its Himalayan neighbour.
Clean Energy and Sustainability
Given global commitments to climate change mitigation and clean energy transitions, hydropower’s role as a renewable resource has added importance. Run-of-the-river projects like PHEP-II minimise land submergence and environmental disruption, aligning with sustainable development principles.
Energy Security and Regional Cooperation
For India, reliable access to Bhutanese hydropower assists in diversifying its energy mix, reducing dependence on fossil fuels, and supporting peak load requirements. For Bhutan, hydropower exports contribute significantly to national GDP and foreign exchange earnings.
Technological and Environmental Considerations
Run-of-the-River Model
PHEP-II utilises a run-of-the-river approach, which employs the natural flow and topography of the Punatsangchhu River to generate electricity without creating large storage reservoirs. This:
- Reduces environmental and social displacement impacts
- Minimises disruption to river ecosystems
- Lowers greenhouse gas emissions compared to fossil fuel plants
Eco-hydrology and Local Communities
Project planners incorporate eco-hydrological assessments to ensure river health and downstream water availability. Cooperation with local stakeholders and environmental impact mitigation remain part of operational monitoring.
Challenges and Future Pathways
Seasonal Variability
Hydropower generation fluctuates with seasons. Monsoon months typically yield high flow, while lean seasons can see reduced output. Strategic scheduling and grid integration protocols are essential to manage this variability.
Cross-Border Regulatory Harmonisation
Operational efficiency requires alignment of regulatory standards, grid codes, and commercial arrangements between India and Bhutan.
Financing Future Projects
While the current India funding model has been effective, sustainable financing for future projects like Sankosh will need innovative structures, including multilateral participation, public-private partnerships, and climate finance instruments.
Relevance for UPSC Aspirants
The Punatsangchhu-II Hydroelectric Project touches upon multiple UPSC syllabus areas:
- GS Paper 2 (International Relations & Bilateral Agreements): India-Bhutan strategic partnership, economic cooperation frameworks
- GS Paper 3 (Energy, Infrastructure, Environment): Renewable energy, hydropower technology, transmission planning
- Prelims Current Affairs: Key infrastructure projects, budget allocations, international collaborations
Understanding the technical, economic, and diplomatic context of such projects helps aspirants frame multidimensional answers that integrate polity, geography, and economics.
Conclusion
The full commissioning of the Punatsangchhu-II Hydroelectric Project and the subsequent India-Bhutan discussions in February 2026 reflect a deepening of one of South Asia’s most enduring bilateral partnerships. Beyond electricity generation, the project represents shared commitments to sustainable development, economic integration, and long-term regional cooperation.
For both India and Bhutan, the energy corridor created by hydropower projects like PHEP-II signifies not just megawatts of power, but megatons of trust, collaboration, and mutual progress.
FAQs
Q1. What is the Punatsangchhu-II Hydroelectric Project (PHEP-II)?
It is a 1,020 MW run-of-the-river hydropower project on Bhutan’s Punatsangchhu River, developed under India–Bhutan energy cooperation.
Q2. Why is Punatsangchhu-II important for Bhutan?
It significantly boosted Bhutan’s power capacity by around 40%, strengthening its electricity exports and national revenue.
Q3. When did Punatsangchhu-II achieve full operational capacity?
The project reached full capacity on 27 August 2025 after synchronization of its sixth unit.
Q4. What is the unit configuration of PHEP-II?
It has 6 units of 170 MW each, totaling 1,020 MW.
Q5. What does “run-of-the-river” mean in hydropower?
It means power generation is based mainly on the river’s natural flow with minimal water storage, reducing large-scale displacement.
Q6. How was Punatsangchhu-II funded?
India funded it with a 30% grant and 70% loan model, making it a major development assistance project.
Q7. Which ministers met on 3 February 2026 regarding this project?
Bhutan’s Energy Minister Lyonpo Gem Tshering met India’s Power Minister Manohar Lal in New Delhi.
Q8. What were the main outcomes of the February 2026 India–Bhutan meeting?
Focus was on:
- Commercial optimisation of PHEP-II
- Early commissioning of Punatsangchhu-I
- Transmission planning up to 2040
- Sankosh Hydropower roadmap
- Lean season power scheduling
Q9. Which agreement institutionalised India–Bhutan hydropower cooperation?
The 2006 Agreement on Cooperation in the Field of Hydroelectric Power.
Q10. How is this topic relevant for UPSC GS papers?
- GS2: India–Bhutan relations, development diplomacy
- GS3: renewable energy, hydropower, infrastructure, environment
