Transitioning Sustainability through Cross-border Energy Trade in South Asia
It is almost impossible to achieve low-carbon energy transition, and ensure efficient and sustainable energy integration without appreciating the blessing of energy connectivity. It, directly and indirectly, designs our economic and regional development – starting with meeting the basic need of a decent lifestyle and goes beyond connecting the avant-garde human advancements that we can ever imagine. The emergence of low-carbon energy transition is directly associated with energy-efficient solutions, such as smart and clean energy, availability of alternative fuels and energy trading options within the neighboring countries. For the emerging countries, especially the South Asian economies, the necessity of energy trading platforms is much more important.
Energy Context: South Asia
Home to around 2 billion people, South Asia comprises of more than 23% of the global population. However, this heavily populated region has an aggregated GDP of around $2.9 trillion which is only 3.8% of the world GDP ($75.642 trillion). This has resulted from weaker trade integration among the states. Although similar socio-economic background offers a further scope of deeper regional integration and stronger trade and infrastructural network, this region has only 5.58% of intra-regional trade compared to 23.56% in Southeast Asia and 62.92% in the EU. Due to the lack of proper infrastructure and logistical service, intra-regional trade is more expensive than trading with external partners. For example, it is 20% cheaper for India to trade with Brazil than with its neighbor – Pakistan. However, it is one of the fastest-growing economic regions in the world at more than 7% GDP growth.
Looking into the power & energy context, we can see that South Asia is a solid ground of one of the most diversified and proven energy fields. In terms of sharable but unexploited and underexploited energy resources, South Asian geography offers a unique blend of hydrocarbon-based energy resources, e.g., natural gas, coal, oil; and clean energy sources, e.g., wind, solar and hydropower.
However, in terms of total energy consumption, there is a huge gap in demand and supply capacity of the region. For example, the region consumed 928.4 mtoe in 2013, when the domestic production was only 641.7 mtoe. This leads to an increased dependence on import from foreign markets. In 2014, average electricity consumption in South Asia was 707 kWh, as opposed to the world average of 3,128 kWh. It has the second-lowest per capita electricity consumption in the world following Sub-Saharan Africa. Per capita CO2 emission is considerably high and cities like Dhaka and New Delhi are suffering from havoc wrecking smog – a result of increased industrialization and urbanization. Sustenance of this phenomenal economic and industrial growth is meet at the expense of environmental degradation, resulting in a 4.6% energy growth per annum – far exceeding the region’s capacity to meet.
At the Global Benchmarks
South Asia has average access to electricity of around 80%, whereas neighboring regions, such as East and Asia Pacific has 97%, and Europe, Central Asia, and North America all have 100% access to electricity. South Asia has the second-lowest per capita electricity consumption (707 kWh) in the world. In both counts, only Sub-Saharan Africa has lower performance than South Asia (access to electricity 483 kWh and access to electricity 37%). Electricity production from combustible renewable energy is negligible and average transmission and distribution loss is 18% in South Asia, whereas neighboring Southeast Asia has 10% and the EU has only 7.2%.
South Asian energy sector also falls behind the global performance when calculating economic growth and development, energy access and security, and environmental sustainability. The index shows that South Asia has an average of 0.54 (on a scale of 0 to 1) when Southeast Asia scored 0.59 and EU 0.70.
If we consider the energy trilemma index (by combining energy security, energy equity, and environmental sustainability), South Asia’s balance score is 98.25, whereas Southeast Asia and EU have respectively 53 and 21.54 (lower scores indicate higher performance).
There is an increasing concern for energy security across South Asia due to rapidly growing energy demand and import dependence. Coupled with factors such as weather-related disruptions, this region continuously performs poor in the energy trilemma dimensions. The strong demand for energy also challenges environmental sustainability performance and increases energy supply risks. In order to solve the Energy Trilemma issue in South Asia, the region needs to ensure that the ever-increasing energy demand is met while improving energy access and resilience at the same time.
Need for Energy Cooperation in South Asia
South Asia faces an energy crisis in most of its countries, with a unique need for energy cooperation – low electricity supply in Afghanistan, single fuel dominance in Bangladesh, limited electricity supply in Northern India, heavy import dependence in Maldives and Sri Lanka, seasonal blackouts in Nepal, and underdeveloped renewable energy sector in Pakistan. As a whole, the region faces a burgeoning gap in energy supply and demand and inefficiency in the domestic markets.
Afghanistan is in dire need of electricity supply. Although it has more than 70% electricity access, Afghanistan relies on 80% on imported power for almost 80% of its domestic need. Recently, the country has been connected to the CASA-1000 network to import hydroelectricity from Tajikistan and Kyrgyzstan in the winter seasons. However, the current import of 600 MW energy is not sufficient as Afghanistan will need around 3,000 MW to meet domestic demand by 2020. To meet the increasing domestic demand, Afghanistan imports additional energy from Uzbekistan, Turkmenistan, and Iran.
Bangladesh will have to look for alternative energy sources by 2025 as it is primarily dependent on natural gas which is rapidly depleting. Its heavy dependence on imported fuel is attributing to unnecessary financial burden and environmental degradation. Although the country is developing a 2.4 GW nuclear power plant, it is expected to face similar power deficit for the next 10 years due to high system loss and erratic power supply.
Bhutan has an abundant supply of seasonal hydropower generation - particularly in the months of May-September. India imports the surplus hydropower from Bhutan under the 2006 Inter-Governmental Treaty to support its energy-starved northern and northeastern parts and Bhutan imports electricity from India in the dry winters. However, this country has no oil and gas reserve.
India has several options for primary energy – coal (44%), biomass and waste (23%), petroleum products (23%), and natural gas (6%). To meet its diversified energy need, India has several bilateral and trilateral energy cooperation within the BBIN (Bangladesh, Bhutan, India, Nepal) network, i.e., Bangladesh (600 MW), Bhutan (1,450 MW) and Nepal (150 MW) to meet its rapidly booming economy. Still almost half of India’s 1.3 billion people have no/limited access to electricity.
The Maldives has no significant reserve for energy resources. For its domestic purpose, it is heavily dependent on imported oil and liquid fuel. For further sustenance, Maldives has plans to develop solar power system at large scale. The existing transmission networks are vulnerable to natural disasters as the country is frequently visited with torrential floods and wind storms from the Indian Ocean. Unfortunately, Maldives is not connected to the transmission lines with other South Asian countries. In addition, due to the difficulty in acquiring long submarine cable links, it is not physically viable to establish power interconnections between the Maldives and the rest of South Asia at the current stage.
Similar to Bhutan, Nepal has large hydropower resources but experiences severe power shortages and blackouts during the dry seasons. It is projected that the country will have exportable surplus hydropower during the monsoon seasons within the next 5 years. This will be exported to India and other BBIN states through the planned transmission lines of 1,000 MW (Currently, 400 MW).
Although Pakistan has a relatively underdeveloped renewable energy sector, it has access to large hydropower resources. However, the country has a severe power shortage and supply shortfall. Similar to Afghanistan, Pakistan has been connected to the CASA-1000 network to import surplus hydroelectric power from Central Asian countries.
Sri Lanka is heavily dependent on imported liquid fuels and has plans to develop large coal power plants. However, the domestic cost of power is extremely high due to high import. To meet rising energy crisis, the Sri Lankan government is initiating solar-based power options, which can meet around 32% of its annual domestic demand of 10,500 GW. Only 0.01% of this potential is operational and the government is aiming to feed 220 MW solar power to the national transmission grid by 2020. Alike Maldives, Sri Lanka is detached from possible power trade with other South Asian economies due to the absence of transmission network.
South Asia, in general, is crippled with an archaic power-sharing apparatus with ever-increasing energy demand. This breeds the need for public and private investment to help:
- Properly optimize existing resources and transact power through transmission lines.
- Manage daily demand variations and peak requirements through Day-Ahead Transactions.
- Move from single fuel dominant region to a highly responsive and diversified market.
- Produce standardized contracts and competitive prices module. This will eliminate the need for negotiations.
Existing Energy Trading in South Asia
South Asian countries are trading power bilaterally and regionally since the 1970s with the formulation of bilateral river treaty in 1972 and subsequently, long-term Power Purchase Agreement (PPA) between Bangladesh and India. As the post millennia energy crisis is brewing, the region’s daily and seasonal load diversity can be a good case for deeper energy integration. The region has the potential of energy sharing that can be exercised both within and outside of the neighboring regions. Currently, limited bilateral electricity trade takes place within the BBIN network (Bangladesh, Bhutan, India, and Nepal) with little/no energy trade in energy resources, i.e., coal, gas, and oil.
Intra-regional Energy Trade
Energy cooperation in South Asia is currently limited to electricity, hydropower, and petroleum trading. Government-to-government power trading with the Indian PTC consists of three long term projects at Chukka, Kurichhu, and Tala. Another commercial project with Tata Power offers 126 MW of hydropower export to India.
- Connectivity via multiple A/C links with India:
- Chukha HEP (4x84 MW) through Chukha-Birpara 220 kV line;
- Radial loads at Indian border through Bongaigaon-Geylegphug 132 kV line;
- Kurichu HEP (4x15 MW) through Geylegphug-Salakati 132 kV line;
- Export of 1,020 MW power through Tala Hydroelectric Project to India;
- Agreement between Powerlinks (India) and Power Grid (Bangladesh).
- 400 kV double circuit (D/C) line at Baharampur-Bheramara transmission line, 400 kV switching station at Baharampur which is complemented by another 500 MW HVDC line at the Bheramara sub-station (400/230kV);
- 100 MW from Tripura (India) to Comilla (Bangladesh);
- Agreement between Power Grid (India) and BPDB (Bangladesh).
- Connectivity via 3x132kV lines and 8x33kV lines;
- Development of two JVs: 400 kV Muzaffarpur (India) and Dhalkebar (Nepal);
- Agreement with India to construct a 40-kilometer pipeline to transport petroleum products from India to Nepal.
India imports grid-connected electricity to Bangladesh. Although the current trading is limited to 600 MW of electricity, these neighbors are looking for diversifying energy trading basket at different capacities. Bangladeshi state-owned BPDB is importing 250 MW of electricity to India through NTPC and another privatized 250 MW through PTC. Another G2G powered 100 MW connectivity has also been established between Tripura and Comilla.
India exports 350 MW of hydro to Nepal through cross-country lines. Among this, 25 MW is carried through Ramnagar-Gandak lines, 30 MW through Tanakpur-Mahendranagar and the remaining 120 MW through Dhalkebar-Muzaffarpur transmission line. This route is under development to house a total of 280 MW handling capacity. Recently, another 20-30 MW of electricity was extracted from the Tanakpur-Mahendranagar line to reduce constant power outage.
In addition to electricity trading, there are limited export of diesel from India to Bangladesh and trade of petroleum products at piecemeal stages between India and Bangladesh, Bhutan to Sri Lanka, and Nepal to Sri Lanka (via the northeastern regions of India.
Current and Envisaged Inter-regional Energy Trade
Although South Asia has several trans-regional power trading platforms with resource-rich Central Asia, most of these initiatives are not fully operational. Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline is being developed for many years now, Iran-Pakistan-India (IPI) gas pipeline is struggling with geopolitical dilemma, while Myanmar-Bangladesh-India gas pipeline stalls at the planning stage. The current inter-regional electricity trade is limited to Afghanistan importing power from the Central Asian Republic (CARs) and Pakistan from Iran.
TAPI Gas Pipeline: The 1,814-km Turkmenistan–Afghanistan–Pakistan–India Pipeline (TAPI) pipeline is known as the Trans-Afghanistan Pipeline and expected to be commercialized by 2019. Once commissioned, this gas pipeline will be able to siphon natural gas from the Caspian Sea and transfer from Turkmenistan to Pakistan and India via Afghanistan. Dubbed as the modern continuation of the Silk Road, TAPI gas pipeline will be able to counterbalance Russian dominance in the region and export energy to the countries in Balkan Peninsula.
Russia-China-India (RCI) Pipeline: The Russia-China-India (RCI) pipeline was introduced in 2003 for the Eurasian energy market that links Afghanistan, Ladakh (India), and Pakistan with Kazakhstan, Russia, Turkmenistan, Uzbekistan, and Xinjiang (China). In 2016, India and Russia discussed to extend the pipeline by pouring a fresh $25 billion investment.
CASA-1000: CASA-1000 is another success story that connects the Central Asian energy market with the South Asian energy deficit states. As Pakistan and Afghanistan’s domestic power outage and shortage are still unmanageable, power-sharing within the CASA-1000 network is the best viable route to tap in necessary energy resources and tackle load-shedding. This pipeline will be trading hydropower electricity through high voltage transmission infrastructure between Kyrgyzstan and Tajikistan (477 km) and from Tajikistan to Afghanistan and Pakistan (750 km). Opening in 2016, this $1.16 billion project is planned to be fully operationalized by 2018. This network is now currently focusing on providing 1,300 MW electricity in Pakistan, as Afghanistan’s demand for electricity has recently plummeted.
Iran-Pakistan (IP) Gas Pipeline: This proposed 2,775-km ‘Peace Pipeline’ will transfer natural gas from the South Pars gas field (Iran) to Multan (Pakistan). Initially, the project included India which would be a beneficiary from Iranian gas, but completion of the long-stalled project is now uncertain due to geopolitical complexity. India has backed off from the project due to overpricing and security issues, Saudi Arabia is pressurizing Pakistan to not ramp up a further tie with Iran, Iran is pushing Pakistan to put in a fresh bid, Russia is pouring infrastructure investment and US is imposing unilateral sanctions for the IP gas pipeline.
Key Developments in Cross-border Trading
Development of the BBIN network and signing of SAARC framework agreement on energy co-operation were two major milestones for energy trading that welcomed several energy sharing agreements and platforms in South Asia – the following are a few till date:
- SAARC Framework Agreement on Energy (Electricity) Co-operation: With a vision to provide non-discriminatory access to the SAARC countries, SAARC Framework Agreement for Energy cooperation (electricity) was signed in 2014. The agreement provided guidelines for institutional and regulatory mechanism for promoting CBET in the region. This framework enabled exemption of export-import and custom duties for cross-border energy trading and provision of electricity exchange between buying and selling entities.
- SARPEX Mock Exercise: SARPEX is a concept of a power exchange platform for power trade between the South Asian Nations which is currently applicable to Bangladesh, Bhutan, India, and Nepal due to existing grid connectivity among these countries. The concept was exercised at a stakeholder consultation workshop in June 2017 to substantiate the feasibility of a regional power grid.
- Framework on Inter-Governmental Agreement (Bhutan and India): The intergovernmental agreement between Bhutan and India was marked on April 2014. This agreement concentrated on the development of hydropower plants for mutual benefits with support from the public and private organizations. This framework also provided guidelines for developing four major hydropower projects in Bhutan at Bunakha, Chamkharchu, Kholongchhu, and Wangchu totaling 2,120 MW.
- Power Trade Agreement (India and Nepal): India and Nepal inked the Power Trade Agreement (PTA) in September 2014. This agreement targeted at exploring and identifying existing and new areas of cooperation in the power sector with a focus on hydropower. Under this agreement, Nepal will focus on exporting excess power in the wet season and importing during the dry season to India, as it has capacity of seasonal electricity generation.
Potential of Energy Cooperation
The hilly area extending 2-km at the Indian Meghalaya state borders with northeastern Bangladesh. Aside from having huge hydro reserve, these neighboring countries can trade the derivatives of natural gas. Recently, Indian ONGC has discovered a huge gas deposit in Tripura state, adjacent to the eastern borders of Bangladesh. Currently, the company has targeted to unearth 5 MMSCMD gas by mid-2018. This region houses the Palatana Combined Cycle Gas Turbine (CCGT) with a capacity of 726.6 MW. This gas-based power plant is adjacent to the gas fields in Tripura and complementing electricity supply to the energy-deficit seven sisters of North-Eastern India and 100 MW to Bangladesh. The current expansion plan of ONGC includes more gas mining from the Tripura reserve that can be transferred to Bangladesh. This follows the possibility of another 500-1,000 MW power exchange from 2020. Already, the two governments are in talks to finalize the 765 kV transmission capacity mounting from Assam to the northeastern part of India, crossing Bangladesh (Bornagar-Parbatipur-Katihar), which will be a beneficiary in the process. This transmission line will be far more important than electricity transmission, as it will be able to direct Bhutan’s excess hydroelectricity to India and Bangladesh.
Opportunities in Hydro Power
South Asia has several excellent options for renewable and clean energy that can be tapped or replicated into other states, especially within the BBIN network. For example, both Bhutan and Nepal can trade hydroelectricity with India and Bangladesh. As these upstream countries have surplus electricity generation in the months of May to September, downstream countries with a significant energy deficit, such as India and Bangladesh can tap into the opportunity. Similarly, India can be the hub of energy cooperation and Bhutan can export hydropower to Bangladesh via India. Installing only 1.6 GW of hydro, Bhutan has developed only 5% of its total hydropower potential of 30 GW, with 23.8 GW techno-economically exploitable. With the support of India’s technical and financial assistance programs, Bhutan has implemented several hydropower projects like Chukha (336 MW), Krichu (60 MW) and Tala (1,020 MW). Alike Bhutan, Nepal has exploitable hydropower potential of 44 GW. This surplus hydroelectricity of Bhutan and Nepal is exportable to Bangladesh, India, and Pakistan during the monsoon seasons of May-September.
India has huge potential to capitalize on its hydro potential. In fact, India has the potential to generate 84 GW (economically exploitable energy) out of the installed capacity of 150 GW from the river systems. Of this capacity, only 23% has been developed to date. In addition to rivers, Assam has a huge coal and hydro reserve in northeastern India.
Bangladesh can utilize the thermal and hydro potential from Bhutan, India, and Nepal to meet its growing electricity demand. Considering the potential interconnection with its neighboring countries, Bangladesh has incorporated a long term transmission plan in its Power System Master Plan (PSMP).
Replicable Opportunities in Small Scale Wind Energy
By 2021, 60% of the world energy will come from clean and renewable energy, and between now and then, wind turbines will go up at a rate of 2.5 every hour.
For solar power option, South Asian economies can look into Solar Home System (SHS) based applications. As the tropic of cancer directly crosses over the region, it has the potential of generating and capturing massive daylight that can be converted into solar power. In this case, SHS can be successfully replicated into other South Asian countries. Bangladesh has produced some of the best works in this case. The fastest-growing solar-based installation in the world is suitable for off-grid and inaccessible areas of the South Asian countries. This method can be used for clean cooking and solar-based irrigation in rural areas, where proper electrification is not possible.
Installation of wind turbines, usually operated in remote areas covers complex terrains such as urban and suburban areas. Small scale wind towers and turbines are ideal for disintegrated islands and unreachable hill tracts with no access to the electric grid.
The island countries, i.e., Maldives and Sri Lanka are ideal for replicating the application of small scale wind turbines in South Asia. Depending on imported liquid fuels, Sri Lanka has no power trade with any of the South Asian countries, and the government is trying to replicate a wind-based energy model. Similarly, most of the islands in the Maldives have energy demand under 500 kW – this is particularly practical to develop smaller wind turbines and hybrid plants. This is perfect for hybrid wind-diesel and wind-solar systems in the country.
The low tariff hybrid modules from Croatia and Germany can be successfully replicated in Sri Lanka and the Maldives. Moreover, the coastal areas of the Indian Ocean, i.e., India, Maldives, and Sri Lanka already have 25 GW of wind potential. The fallow lands of the coastal areas can generate 30 Kwh/m2 of solar power per day.
The cost-effective models of the small-scale wind turbines (1 kW to 100 kW) can range from USD 2,100 to USD 3,500.
Opportunities in Regional Power Grid
South Asian countries have dynamic seasonal and daily load curves. This scenario requires optimizable energy sources which can be exploited by tapping into the potential for cross border power exchanges. To minimize import dependence and optimize existing regional resources, few exploitable options for regional power grid are mentioned below:
- Due to their high domestic demand, Bangladesh and India can import power from Bhutan and Nepal as they have a surplus generation in the summer.
- Due to its geographically convenient location, India can utilize its transmission system towards proper power wheeling between BBIN countries and impose wheeling charges.
- For the same reason, India can allow transit rights for constructing a designated power trading transmission systems in the region.
- Power exchange between India and Pakistan can meet the electricity demand of the energy-starved states at borders. Such arrangements will reduce further investment requirements, improve reserve margin, lower transmission losses and enhance supply reliability.
- A central regional gas grid will help the SA countries obtain gas from Central Asia, Myanmar, and West Asia. Although in a limited application, several bilateral and multilateral gas pipelines are already in the application stage. Conceived proposals such as Iran-Pakistan-India (IPI) pipeline will be able to transport 2.8 bcf/day of gas from Iran’s South Pars natural gas fields to India across Pakistan. Similarly, Turkmenistan-Afghanistan-Pakistan-India (TAPI) will be capable of transporting natural gas from Central Asian countries to South Asia.
Roadblocks of Energy Trading in South Asia
Although South Asia has vast unexploited potential in energy, some roadblocks have been deterring the journey of energy sharing.
Lack of centralized power market, synchronized and robust interconnection facilities and proper transmission network results in poor energy transaction among the states in South Asia. For example, the required high-voltage direct current (HVDC) interconnection cost of every 500 MW bloc is around $239 million within India, Bangladesh, Nepal, and Bhutan. Other than technical challenges, the region has some unresolved policy and institutional issues. Lack of trust and cooperation generated from political and historical tussles have failed the region to offer any uniform platform that can offer adequate capacity building programs. Even the institutional bottlenecks and inter-departmental conflicts within the countries have discouraged the foreign investors to provide fund for the long term projects. Lack of intra-country coherent policy framework is another factor deterring the intra-regional energy trade.
Some of the long-standing challenges for South Asian energy cooperation are:
- Absence of proper infrastructure and adaptive power market;
- Technical barriers, i.e., synchronization of the grid system and grid codes to electric power and natural gas pipeline technology;
- Lack of funding mechanism and investment priorities;
- Lack of requisite energy infrastructure for developing hydro projects;
- Environmental issues involving the construction of multipurpose projects;
- Lack of harmonious energy policy and related framework,
- Institutional bottlenecks and lack of inter-departmental cohesion;
- Divergent political mindset to energy trade;
- History of mistrust and non-cooperation; and
- Expensive operations & maintenance (O&M) utilities.
These factors eventually impact overall regional synergy and indicators related to energy performance:
- Single fuel dominant economy;
- Rising import dependency;
- Unrealized energy potential;
- Unutilized cross-border energy trading; and
- Poor regional synergy & growth.
Forming Deeper Regional Integration through Energy Cooperation
South Asia can guarantee greater regional integration if it exploits the options of cross-border energy trading. Some of the presumed benefits of energy cooperation are:
Improved Connectivity: It may open doors for connectivity in areas like transport, cyberspace and people-to-people connectivity resulting in increased bilateral and multilateral trade. Although BBIN was institutionalized in 2015, it has failed to grab full potential of connectivity. As shown before, South Asia has the potential of augmented energy trading within the BBIN network. If properly implemented, this platform can bridge the gap in infrastructure cooperation, transport connectivity and trans-shipment of goods.
Reduced Carbon Emission: Hydropower sharing can be a suitable option for achieving carbon-free and pollution-free environment in South Asia. If Bangladesh and India can tap into the hydropower option of Bhutan and Nepal, they can drastically reduce CO2 emission and reduce dependence on rapidly depleting hydrocarbon resources, such as gas and coal.
Energy Exchange and Sharing Platform: Energy exchange and sharing platforms will reduce increased dependency on import. This liberalized power trading market will introduce synchronized power and grid connectivity – offering diversified power options and exchange platforms.
Regional Stability: Most importantly, energy cooperation will offer harmonized and cohesive intra-regional integration through hallmark platforms, such as SAARC, SAFTA, and BIMSTEC. This will promote greater stability and peaceful cooperation within the region.
‘Rely on Each Other’: With enough power options, the South Asian countries will be able to access to cheaper energy sources. Tapping into the surplus generation from the neighboring countries will enable diversification of energy sources and less dependence on primary energy source.
Cost-Benefit Values of Interconnection
If we look into the math, potential interconnectivity in the region proves much promising in every aspect. A simulation by ADB shows that if the South Asian Countries can exploit the options of bilateral trading with its neighboring countries, the annualized benefit can far exceed the investment cost of the interconnections. This can be exercised onto the near-term cross-border interconnections of most of the South Asian countries. This simulation has considered the utilizable interconnections that are already operational, yet to be commissioned, or even waiting at the planning stage. The cost-benefit analysis shows that benefit-to-cost ratios are promisingly high, with a yield ranging from 3.7 to 102.
The considered interconnections are:
- Additional grid reinforcement for hydropower evacuation from Bhutan to India;
- India-Nepal 400 kV transmission sub-stations at Dhalkebar, Butwal, and Hetauda (Nepal) are operational;
- Proposed sub-sea transmission network at India-Sri Lanka HVDC connectivity that includes a 50-km submarine cable component;
- Bangladesh-India (Baharampur-Bheramara) HVDC transmission link; and
- India-Pakistan 220 kV and 400 kV transmission link.
Capacity of each of these transmission interconnections varies from 250-2,100 MW and construction cost ranges from $140 to $1,000 million. If formulized, these interconnections will allow the candidates to optimally utilize existing utilities and resources to satisfy energy demand across the region. This is a unique illustration that shows that the South Asian landlocked countries can achieve maximum benefit through minimum interventions in energy cooperation.
Trailblazers of Energy Cooperation
South Asia has room for improvement against its minimal energy cooperation. It can take lessons from the success stories from different regions. Although South Asia is in dire need of energy for its economic growth, the region is still immature to embrace the full potential of energy cooperation. Although different regions have unique energy needs, the common practices of energy cooperation from outer regions can be customized to the South Asian context and replicated to its individual need. Such three cases are:
Exhibit A: Nord Pool Spot
This European energy exchange market is the largest electricity trading platform in the world. Nord Pool Spot started as a joint power exchange (PX) platform headed by Sweden and Norway in 1996. More than 80% of total electrical energy consumption in the Nordic market is traded through Nord Pool. Establishing in 1991, this is the world’s first multinational exchange platform for trading electric power that provides reliable power price to the customers. It has a total of 380 active members trading from 20 countries and operates Day-Ahead Markets (DAM) and Intra-day Markets (IDM) in the UK and the Nordic/Baltics countries. This platform can provide timely and accurate information to its daily liquid electricity exchange of around 1 TWh to the market. At the same time, Nord Pool brings together the energy companies & producers, brokers, TSO’s and consumers in the energy market.
Exhibit B: South African Power Pool (SAPP)
South African Power Pool (SAPP) is a power and utility trading market that provides a uniform forum for regional solutions to electric and energy problems in rural areas of the 12 Southern African countries. Most recently, the power pool is attracting foreign investments due to its resilient growth, and sound economic, environmental and social practices. With the objective of increasing power accessibility in the rural communities, this trading mechanism has recently achieved significant growth and successfully meeting most of the yearly energy consumption of 400 TWh. Recently, the market has recorded an increased trade volume in October compared to September in 2017. This has experienced a sharp 15.4% increase in the Day-Ahead Markets (DAM), and 47.7% increase in the Intra-day Market (IDM) transaction.
Exhibit C: European Power Exchange (EPEX Spot)
Dubbed as the heart of power trading in Europe, EPEX Spot covers short-term electricity trading in Austria, Belgium, France, Germany, United Kingdom, Luxembourg, Switzerland, and the Netherlands. It enables electricity producers, trading organizations and consumers to exchange power and balance their demand and supply of energy. The EPEX platform provides both day-ahead and intra-day market along with other derivatives and follows market-based integration that facilitates excellent customer service. The Paris based PX platform is now rendering modules for augmented customer support and exploring opportunities to expand beyond Europe. In 2016, the EPEX market amounted 529 TWh of electricity trading with 1,200 TWh of yearly power consumption, representing 50% of the EU’s integrated electricity market.
The CBET Roadmap
South Asia can achieve elevated regional integration and further cooperation in trade, infrastructure, and connectivity through cooperation in power and energy. The once mass-traded avenues, such as the Silk Routes and modern connectivity platforms, such as BBIN and BIMSTEC networks can utilize the existing resource pool through a well-planned energy roadmap. This roadmap can incorporate past areas of concentration, current scenario and proposed areas of cooperation. These can encompass a 360 degree of considerations ranging from policy perspective to technical parameters, soft issues such as tying the political memoranda to hard infrastructure such as focusing on grid synchronization and so on. Some of the non-exhaustive recommendations are mentioned below:
Capacity Building and Engagement: A platform for knowledge sharing, technical and instrumental training is essential in disseminating regional best practices and applications of energy trading. This platform can be the hub of interaction for local counterparts, academic, policymakers and technical institutes. Several capacity building training modules have been adopted at the institutional level in this regard. The SARPEX Mock Exercise conceived by the USAID and SARI/EI has laid the ground for power exchange platform in the region. Another similar program – SAARC Regional Energy Trade Study (SRETS) was conducted by ADB in 2010 that focused on energy trading potential in the region. The study also emphasized on conducting feasibility studies of developing transnational projects on electricity, coal, and natural gas. Although conducted at piecemeal stages, these projects lack the initiative of undertaking technology-wise study, such as lignite use and equipment manufacture for coal-based power generation plants as well as renewable energy technology.
Creation of SA Regional Electricity Market: It is highly recommended to establish a network for stable and reliable energy connectivity. The regional electricity market will have to be designed prudently, to ensure a level playing field for all nations and addressing concerns of all the participating nations including apprehension regarding the impact on the domestic market. This will provide uninterrupted power supply to the grid, prevent seasonal blackouts and provide a synchronized connectivity platform for effective electricity trading. In addition, a well-coordinated cross-border energy trading and sharing platform can help develop strategy frameworks that will be able to model scenarios and project, emulate and simulate cases for country-wise and region-wise cases. The energy exchange market can include both day-ahead and intra-day markets, which are ideal for short-term and long-term electricity trading in the region.
Coherent Policy Framework: South Asian countries are blessed with similar policy mechanisms. Especially for the trade and infrastructure frameworks, there are several institutional frameworks and policy instruments, such as BIMSTEC, SAFTA, and SAPTA. For power & energy connectivity, however, South Asia needs an intra-governmental policy framework conducive to easier energy trade and industry-friendly energy sharing environment. In this regard, a centralized regulatory authority should be adopted as early as possible.
The following regulatory issues should be covered in the policy framework:
- A single coordinated window amongst various ministries and departments;
- Synchronized grid code and operations & maintenance (O&M) procedure to operate on real-time parameters for multiple countries;
- Synchronized grids interconnection, in terms of – voltage, frequency, stability & reliability;
- Adoption of synchronized tariff mechanism.
Rebuilt Regional Dynamics: Sometimes promising not to engage further territorial conflict can be as important as avoiding one to understand mutual benefit. As much as we talk about power trading, it is not possible to share energy without sharing the common regional interests. The long-standing history of political turmoil, ethnic and religious clashes, inefficient and inadequate conjoint initiatives among the member countries kept the potential of energy sharing mostly untapped. In this regard, a better understanding of peacebuilding, respect, and mutual tolerance towards diversified regional cultural, political and ethno-sectorial background is important to promote opportunities for mutual benefits such as energy sharing, cross border electricity trading, grid sharing and so on.
Investment and Trade License Regimes: It is equally important to focus on real-time utilization of existing assets, transmission & generation and consumption framework. Each country of the region has different investment needs and priorities. However, for a synchronized cross border energy trading, a region-centric investment prioritization is needed that can provide local incentives such as financial and technical assistance, grants and loans, i.e., for hydropower potential in Nepal and Bhutan electricity. For example, it will cost $10-12 billion over 10-11 years to develop an additional 10 GW of hydro capacity by 2020. This will encourage the local counterparts and investors to reinvest in newer projects. This can be bolstered by institutionalizing trading licenses and developing an investor-friendly environment in South Asia. India has well-functioning trading license regimes, while Bhutan’s legal framework is developing its trading regime as a licensed activity. Other than Bhutan and India, no South Asian country has well-developed electricity trading regime.
South Asia cannot have tailor-made solutions for each of its states to minimize the energy crisis. This becomes even truer with its promising economic growth. To unload the huge burden on energy import and to move towards a diversified portfolio of energy options, the best approach is to share the unutilized energy resources with the neighbors. This region has limitless possibility of enjoying the development dynamics through utilizing the interconnected energy market and capitalizing on geographic proximity and shared historical ties that can be translated into inclusive development and a deeper flow of engagement and integration among the states.
Power trading and energy cooperation can be the first step to ensuring this regional integration.