Beyond Borders

Road map for energy collaboration and cooperation in Asia Pacific

Vijay Kumar Kharbanda, Former Project Director, IRADe, USAID and Former Executive Director, PFC

The Asia-Pacific region is the fastest growing region in the world, with an average GDP growth rate of 5.7 per cent (2017). Asia contributes about 60 per cent of the global growth, of which three-fourths comes from China and India. About 60 per cent of the world’s population (4.3 billion) lives in the Asia-Pacific region and it includes the most populous countries in the world – China and India. Further, a maximum number of poor people in the world live in this region (about 17 per cent alone live in South and Southwest Asia).

The Asia-Pacific region is blessed with huge and diverse natural energy resources such as coal, hydro, gas, oil, solar and wind. Of the estimated total global coal reserves of 892 billion tonnes, about 55 per cent are available within this region whereas oil reserves constitute about 20 per cent of the international reserves (1,700 billion barrels). Natural gas is evenly distributed, but the bulk of the proven reserves are concentrated in the Middle East. This region has abundant renewable reserves such as hydro, solar and wind. However, about 85 per cent of the total Asia-Pacific energy resources are concentrated in a few countries such as China, Russia, India, Iran and Turkey; other countries in the region have limited energy resources. In such a scenario, interconnectivity and trade of energy is a key driver of economic growth and social development in the region.

Electricity demand in the Asia-Pacific region is projected to more than double between 2010 and 2035, increasing from 7,010.4 TWh in 2010 to 16,169.2 TWh in 2035. The annual demand growth rate will be 3.4 per cent over the outlook period (through 2035), which is slower than the historical trend of 6 per cent between 1990 and 2010. The electricity demand of the developing members will grow slightly faster, at an average annual rate of 3.8 per cent, through 2035, and increase their share in the total electricity demand of Asia and the Pacific from 82.3 per cent in 2010 to 91.1 per cent in 2035. As energy demand is expected to rise exponentially in the future, the region needs to take the necessary steps to enhance capacity addition, including development of renewable energy resources and interconnectivity among countries, for optimal utilisation of energy resources and climate change mitigation to achieve the SDG7 goal.

Status of grid connectivity in Asia Pacific

South and Southwest Asia (S-SWA): India and Pakistan have diverse energy resources such as coal, hydro and renewables, whereas Iran and Turkey have huge oil and gas reserves. Nepal, Bhutan and Bangladesh have limited energy resources. Generation capacity in S-SWA has grown from 203 GW in 2000 to more than 569 GW in 2018. As of 2018, major economies such as India, the Islamic Republic of Iran and Turkey contribute to 90 per cent of the total installed capacity of the subregion. Currently, on the eastern side of the S-SWA subregion, Bangladesh, Bhutan, India and Nepal are interconnected and trade of electricity (bilateral) of more than 3,000 MW is taking place, which is expected to increase substantially in the future once the hydro projects under construction in Bhutan and Nepal are commissioned. On the western side, Pakistan and Afghanistan are interconnected with Turkey and Iran and are importing electricity from them. Pakistan and Afghanistan are also making efforts to connect to Central Asia through the CASA 1000 project. Sri Lanka and the Maldives are yet to be interconnected. The South Asian Association for Regional Cooperation (SAARC), an intergovernmental organisation, has been created by eight South Asian countries for the welfare of the people, including promoting energy cooperation and connectivity.

Northeast Asia (NEA): This region constitutes about 21.5 per cent of the world’s population. NEA has the largest density of population, as it includes China with a population of more than 1.3 billion. China and Russia have huge energy resources, whereas Japan and the Republic of Korea have limited natural energy resources. China is rich in hydro, whereas Russia is abundant in natural gas reserves, besides many minerals such as uranium. The NEA subregion currently has a few cross-border transmission interconnections although the first interconnection between the erstwhile USSR and Mongolia was put in place in the 1970s. The most developed cross-border transmission systems are between the Russian Far East and Northeast China. Electricity trading in 2017 was nearly 5 TWh. However, there is no intergovernmental body or association to support or enhance cross-border grid connectivity in the subregion.

Southeast Asia (SEA): The Association of Southeast Asian Nations (ASEAN) and China have been long connected through cross-border power grids in the Greater Mekong subregion (GMS). The cross-border capacity under the ASEAN APG interconnections has increased to 5,212 MW from 3,489 MW in 2015. As per projections, ASEAN expects the power exchange to increase to 10,800 MW in 2020. In the SEA subregion, three intergovernmental institutions are working to promote energy cooperation and connectivity – ASEAN, the GMS and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). Five ASEAN countries – Cambodia, Laos, Myanmar, Thailand and Vietnam – are members of the GMS. Two ASEAN members, Myanmar and Thailand, and five members of South Asia – India, Nepal, Bhutan, Bangladesh and Sri Lanka – are members of the BIMSTEC group.

North Central Asia: Electricity trade volume between the countries reduced significantly, from 25 GW in 1990 to 7.6 GW in 1995, due to various factors. However, in 2017, Uzbekistan made changes in its banking sector and radically changed its relationship with its neighbouring countries, which resulted in an increase of cheap hydropower imports by Uzbekistan from Tajikistan and Kyrgyzstan in 2018. In 2018, electricity import/export increased to 4,313 million kWh as compared to 2,080 million kWh in 2016.

Challenges in promoting cross-border grid connectivity

The challenges and risks associated with cross-border grid connectivity in the Asia-Pacific region can be broadly classified as…

Lack of trust, difficult geopolitical relationships and political uncertainty: Lack of stable governments, trust deficit among countries, political uncertainty, intra-regional boundary issues, political governance challenges, security threat, etc.

Lack of a common policy, regulatory and legal framework: Lack of policy/regulatory coordination,  transmission planning and system operation, and harmonisation of grid codes, as well as the absence of institutionalisation, viz. forming an association/forum of regulators for coordination of regulations and coordinated transmission planning, etc.

Financial and commercial risks: These relate to financial closures of cross-border power projects, taxes/duties, common currency, tariff framework, offtake risks associated with power purchase agreements and transmission service agreements, open access and trans-country transmission wheeling framework and transparent dispute resolution mechanism.

Cross-border project implementation challenges: Lack of transparent policies on land acquisition, right of way, environmental clearances and contract enforcement.

Role of intergovernmental institutions, multilateral development banks and regional/global institutions

To facilitate collective economic growth and social development, governments in each subregion have taken initiatives and created intergovernmental institutions such as SAARC, BIMSTEC, ASEAN, GMS, the Economic Cooperation Organisation, Shanghai Cooperation Organisation, the Central Asia Regional Economic Cooperation and Bangladesh-China-India-Myanmar. These intergovernmental institutions have created working groups, expert groups, ministerial groups and energy centres to promote energy cooperation and process the signing of intergovernmental energy treaties. They have created the necessary funding mechanisms to support the construction of viable infrastructure projects as a part of their commitment to enhance energy cooperation. However, the prevailing geopolitics, and the lack of a relationship and trust among the countries have  inhibited these intergovernmental institutions from playing an effective role in enhancing energy cooperation and connectivity in each sub-region. Meanwhile, multilateral development institutions such as the World Bank, the Asian Development Bank (ADB) and the US Agency for International Development (USAID) are playing an active role in promoting grid connectivity on a multilateral basis.

On the global/regional level, the Economic Social Commission for Asia Pacific (ESCAP), an arm of the  United Nations, is playing an important role in promoting connectivity in the Asia-Pacific region. ESCAP has constituted a country nominated expert working group (EWG) for enhancing energy cooperation and grid connectivity in the region. The EWG has developed a draft road map, which identifies critical areas such as developing a cross-border electricity grid master plan, and implementing intergovernmental agreements on energy cooperation and interconnection. It is important for ESCAP to convert this road map into a time-bound action plan to achieve the goal of grid connectivity in the Asia-Pacific region.

Similarly, the Global Energy Interconnection Development and Cooperation Organization (GEIDCO), a non-profit international organisation established in 2016 in Beijing, also promotes global energy interconnection and the meeting of global demand through clean and green energy to serve the sustainable development of humanity. Recently, the Indian government, through its tender for “One Sun, One World and One Grid”, has also shown its interest in promoting the development of renewable energy and grid connectivity at the global level.

The way forward

Adequate supply of energy/electricity is critical for all segments of life whether it is industry, agriculture, research, commercial, education or health. Cross-border trade of electricity has enormous benefits such as optimal utilisation of resources, power availability at competitive prices, reduced dependency on fossil fuel imports, development of clean renewable energy to mitigate climate change, enhanced access to electricity, a better energy mix and economic growth.

Cross-border energy trade is a win-win situation for all countries as it optimises their energy resources for economic growth and development of the region. For example, at present, in the South Asia subregion, four out of eight countries – India, Nepal, Bhutan and Bangladesh – are interconnected and more than 3,000 MW of electricity is being traded. Bhutan, by selling its surplus hydropower to India, is earning more than 40 per cent of its revenues (25 per cent of its GDP), which helped it increase its electricity access and develop new industries such as cement and steel. Further, the import of 1,100 MW of electricity by Bangladesh from India has helped reduce load shedding (from 1,048 MW of load shedding in 2012-13 to 307 MW in 2014-15) and achieve annual savings of an estimated Taka 40 billion ($500 million). Similarly, the import of 300-500 MW of electricity by Nepal from India has helped the former meet its energy shortfall and start-up power/auxiliary consumption for new hydropower projects, which are under construction. India, being a net exporter of electricity at present, is benefiting from the optimum utilisation of generation assets and revenue earnings. This shows that cross-border energy trade is beneficial for all countries in the region.

Successful power pools/power exchange markets in the world such as the Nord Pool, South African Power Pool, Western African Power Pool and PJM the Pennsylvania-New Jersey-Maryland Interconnection have also faced such challenges in achieving grid connectivity in their regions, including lack of political commitment. However, they have been able to separate their political interests from their economic interests. They have also taken a substantial amount of time to overcome these challenges to enhance grid connectivity, and create regional institutional structures such as a forum/association of regulators and transmission and power system operators in their region.

Based on the learnings of successful power pools/power exchanges, the Asia-Pacific region needs to draw an effective road map and a time-bound action plan, with the commitment of each country to enhancing energy cooperation and grid connectivity for optimum utilisation of energy resources, development of renewable energy, and economic growth and development for the welfare of the people and to address the issue of climate change to achieve SDG7. For this, it is important that regional intergovernmental institutions, large countries in the subregion, the World Bank, ADB, ESCAP and GEIDCO unite and align their goals to promote energy cooperation and integration in the region. ESCAP, being a neutral agency, can play a vital role in enhancing political consensus. The signing of treaties/agreements as a commitment of the countries and establishing regional institutions for coordination of regulations, transmission planning and system operations to enhance cooperation and connectivity can be followed up in line with successful examples of power pools/power exchanges. To promote investment, besides developing favourable investment guidelines, selling and buying countries can stake a claim by forming joint ventures/consortiums for the development of such common power generation projects. Multilateral development banks and financial institutions will be more comfortable to fund such projects where more than two to three countries jointly stake a claim for developing power projects, including the associated transmission system for power evacuation. As energy trade in each subregion of Asia Pacific is primarily bilateral and limited, it is important to focus on each sub-region, first to enhance energy cooperation and grid connectivity on a multilateral basis in the medium term and then, it should be extended to the entire Asia-Pacific region in the long term.

 

 

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