Trading Dynamics: Cross-border power market update

Cross-border power market update

The South Asian region is characterised by a huge hydropower generation potential, with many countries offering opportunities for the export and import of hydropower. While India is coal dominated at present, it is moving towards renewable power. India is a large market with a huge long-term electricity demand, involved in both import and export of power. Afghanistan is hydro dominated and is mainly an importer of electricity. Bhutan is the only country in South Asia where electricity is the main export commodity, with India being the sole importer. Meanwhile, Bangladesh is mainly gas dominated, but faces several resource constraints. It imports electricity from India and is expected to remain an importing country in the future. While Nepal has a large hydropower potential, it faces a high power deficit and imports electricity from India. Sri Lanka is currently hydro dominated, but the fuel mix in the country is undergoing a change. The country is characterised by high peak demand and no trading at present. Pakistan is largely dependent on imported oil, despite the presence of more natural gas resources in the country. The electricity demand in the country is increasing as the grid supply is being extended to remote areas. Overall, among the South Asian countries, Nepal, Bhutan, Bangladesh and India are very active in cross-border power trading and are working on several commercial and government-to-government (G2G) transactions.

A look at the regional power market in South Asia, the current status of energy trade and the issues and challenges in cross-border trading in the region…

Policy enablers for cross-border trade of electricity

The policy and regulatory framework has been an enabler of cross-border electricity trade in the South Asian region. On November 27, 2014, the Framework Agreement for Energy Cooperation was signed by the South Asian Association for Regional Cooperation (SAARC) countries. Thereafter, in August 2018, an MoU was signed for the Bay of Bengal Multi-Sectoral Technical and Economic Cooperation  Grid Interconnection.

In March 2019, the Central Electricity Regulatory Commission notified the Cross-Border Trade of Electricity (CBTE) Regulations, which specify the procedure for getting access to the network on the Indian side for cross-border trade along with other modalities. The regulations followed the revised guidelines for cross-border trading finalised by the Ministry of Power in December 2018, relaxing several clauses of the previous guidelines notified in December 2016. The draft Electricity (Amendment) Bill, 2020 has defined CBTE as transactions involving import or export of electricity between India and any other country, as well as transactions of electricity between two other countries through India.

Meanwhile, at the inauguration of the first assembly of the International Solar Alliance, the Indian prime minister called for connecting solar energy supply across borders in West Asia and Southeast Asia, under his vision for One Sun, One World, One Grid.

Current cross-border collaboration efforts in South Asia

India-Nepal: Under the Mahakali Treaty, Nepal gets 70 MUs of electricity per year from India through the 132 kV Tanakpur line. Bihar is also supplying power to Nepal under the Power Exchange Committee. Around 250 MW of power is supplied from India to the Nepal Electricity Authority (NEA) via the 220 kV Dhalkebar-Muzaffarpur transmission link. In addition, 40-70 MW is supplied to the NEA through the 132 kV Tanakpur line.

India-Bhutan: India purchases surplus power from the Chhukha hydroelectric project (HEP), Tala HEP, Kurichhu HEP and Dagachhu HEP in Bhutan. The Mangdechhu HEP (4×180 MW), which was commissioned in 2019, also exports power to India.

India-Bangladesh: India supplies around 1,160 MW to Bangladesh, of which 410 MW is via a G2G agreement and 750 MW through tariff-based bidding under a commercial arrangement.

India-Myanmar: Currently, only 3 MW of power is supplied through the 11 kV line from the 33/11 kV substation at the international border town of Moreh, in Manipur, India, to Myanmar with a dedicated transformer capacity of 5 MVA. Power supply is limited because of lack of a proper transmission infrastructure. However, it is likely to increase with the upgradation of transmission infrastructure.

India-Sri Lanka: An HVDC connection between Madurai and Anuradhapura (Sri Lanka), through the Palk Strait, is currently under consideration. It may initially transfer up to 500 MW of power and eventually be able to transfer up to 1,000 MW.

Role of trading companies

PTC India Limited is playing a pivotal role in cross-border power trade. It is the designated nodal agency appointed by the Government of India for the import of surplus power from the following projects in Bhutan: the 1,020 MW Tala HEP; the 336 MW Chhukha HEP; the 60 MW Kurichhu HEP; and the 720 MW Mangdechhu HEP. Bhutan exported 414 MUs of power in 2002-03, which has grown exponentially to stand at 8,000 MUs annually. Bhutan is highly dependent on power export revenues from India as the export of power to India contributes around 40 per cent to its total revenues.

Further, PTC has been supplying 40-70 MW of power to the NEA on commercial terms since 2008 during the dry season through the 132 kV Tanakpur-Mahendranagar transmission line. In 2011, PTC had signed a long-term power sale agreement with the NEA for the supply of 150 MW of power to Nepal through the 400 kV Dhalkebar-Muzaffarpur line. Meanwhile, PTC supplied 250 MW of power to Bangladesh from 2013 to 2018. This was the first power supply to Bangladesh based on competitive bidding. The power was supplied through an HVDC interconnection from Baharampur (West Bengal) to Bheramara (Bangladesh). Through a separate contract, PTC also supplied 40 MW of power to Bangladesh from 2016 to 2018 through an HVDC interconnection from Baharampur to Bheramara. PTC is currently supplying 200 MW of power to Bangladesh on a competitive bidding basis under a power purchase agreement valid up to 2033.

Issues and challenges

Maintaining cross-border power flow within the prescribed limits of each country is vital for system stability. However, the cross-border trade of electricity is hindered due to several challenges. There are issues related to political instability in the region. The policy, legal and regulatory differences among the countries also pose a challenge. Security considerations arise as it changes the sector structure and regulatory framework in countries, besides affecting existing diplomatic relationships. Further, there are infrastructural and technical constraints, resulting in limited transmission interconnection capacities. The diversity of electricity codes and balancing mechanisms remains a key issue. The financial constraints include lack of financial resources for setting up generation and transmission infrastructure and low creditworthiness of utilities. Apart from these, there are contract risks, financial and payment issues, commercial and legal issues, as well as dispute resolution and arbitration issues among the countries.

The way forward

Interventions are required for enhancing the South Asian power market. There is a need to have investor-friendly policies for the sustainable exploitation of the energy resources and protection of investments. The regulatory framework needs to be harmonious across participating countries. An energy charter treaty needs to be developed for greater security of cross-border energy transfer-related investments and transactions. A regional forum of regulators for framing uniform rules and regulations could help address some of these challenges. Further, a regional transmission master plan is at an advanced stage of development, which will help plan the interregional transmission network. A single window clearance mechanism and standard contracts are required to create a favourable operating environment. Going forward, the implementation of technically and economically feasible bilateral cross-border interconnections may be carried out based on a scenario analysis and possible financing options.

Net, net, cooperation in the energy sector will help SAARC countries strengthen the national energy security, reduce the costs of energy supply, and adopt clean energy sources to meet the growing electricity demand.

Based on a presentation by Harish Saran, Executive Director (Marketing), PTC India Limited