Trade Expansion: Creating regional-level institutions to facilitate CBET in South Asia

Creating regional-level institutions to facilitate CBET in South Asia

Cross-border electricity trade (CBET) is growing by leaps and bounds. It has doubled in the last six years from 9 BUs to 18 BUs in 2021 and continues to grow. All the South Asian nations agree in principle that such trade is beneficial to all nations and would help facilitate the process of electricity access as well as reduce the average cost of supply. This would, in turn, result in GDP growth of the countries and improve the comfort level of citizens, leading to in­creased productivity. As the region moves towards greater CBET, there is a need for regional-level institutions to deliberate on and harmonise various technical, operational, regulatory, legal and commercial aspects of CBET.

At a recent webinar on “Creating Regio­nal Level Institutions for Efficient and Sustainable Cross-Border Electricity Trade (CBET) in South Asia”, organised by USAID’s South Asia Regional Initia­tive for Energy Integration (SARI/EI) pro­­gramme, currently being impleme­n­ted by Integrated Research and Ac­ti­on for Development (IRADe), and Power Line, Pankaj Batra, project director, SARI/EI, IRADe; Kul Man Ghising, managing director, Nepal Electricity Autho­rity, Nepal; Md Abdul Jalil, chairman, Bangladesh Energy Regulatory Co­m­mission; Damitha Kumarasinghe, director general, Public Utilities Co­m­mi­ssion of Sri Lanka; Dr Subir Sen, executive di­rec­tor (TD), Power Grid Corpora­tion of In­dia Limited; Nima Tshering C., director, Bhutan Electricity Authority; Dr Pri­yantha Wijayatunga, chief, Energy Sec­tor Group, Sustainable Development and Climate Change Department, Asian Development Bank (ADB); and Monali Zeya Hazra, regional energy manager and clean energy specialist, USAID, discussed the role of regional-level institutions in promoting efficient and sustainable CBET, their objectives and responsibilities, effective financing mechani­sms as well as issues and challenges. Ex­cer­pts from the discussion…

To address the environmental concerns and mitigate climate change, countries world over are focusing on capacity addition through non-fossil fuel sour­ces such as solar, wind and hydro. Since the countries have limited renewable energy po­tential, regional integration by setting up cross-border transmission interconnections can be beneficial. Notably, In­dia has already issued guidelines for CBET in 2016, which were superseded by other guidelines in 2018, CBET regulations 2019, and the procedure for appro­­val and facilitating im­port/export (cross-bor­der) of electricity in February 2021.

Currently, India has around 4,200 MW of transfer capacity links with Bhutan, 1,160 MW with Bangladesh,  700 MW with Nepal, and small link for 3 MW with Myanmar. Bangladesh is importing a maximum of 1,000 MW from the western border and 160 MW from the eastern border. As per the new agreement bet­ween India and Bangladesh, 160 MW from the eastern border has been increased by 20 per cent, i.e. 192 MW in 2022. Currently, power transfer with all these countries is in bilateral mode only. India, in February 2021, completed the process of facilitating trade th­rough the power exchange route to nei­ghbouring countries, with the release of the Proce­dure for approval and facilitating im­port/export. This has resulted in Nepal taking part in the power exchan­ge, firstly by import of power in April 2021 and later even export of power w.e.f. Nov­ember 2021.

Besides importing electricity, Nepal has been exporting 39 MW of electricity to India through the exchange market for the past two months, which is expected to increase in the coming years. Further, Nepal and Bhutan have engaged with India for trading electricity with two new MoUs. Recently, Nepal Power Exchange Limited (NPEL) has signed a trading ag­reement with India’s Manikaran Pow­er Limited. Under the agreement, NPEL will sell electricity produced by the do­mestic private sector to India via Mani­karan Power Limited. In the initial pha­se, Nepal will sell 500 MW of electricity to India. This is the first time that the private sectors of Nepal and India have signed an agreement to facilitate power trading between the two countries.

Role and objectives of regional-level institutions

As the region moves towards greater re­gio­nal trade of power, there will be need for institutions to look at various technical, operational, regulatory, legal and commercial aspects of CBET. The role of such regional institutions would be very critical to bring together all the stakeholders on a common platform for dis­cu­ssions and deliberations. The institu­ti­ons will drive the political mandate and bring about political consensus for CBET. The specific institutions would accelerate power trade in the region in an efficient and sustainable manner.

In line with already existing forums like the South Asia Forum for Infrastructure Re­gulation (SAFIR), there is a need to create field level regional institu­tions like a forum of transmission utilities and system operators, as well as a forum for power markets. Creating formal regional-level institutions would require approval of the member countries. These can start in an informal manner, supported by multilateral funding agencies or aid agencies. The key objectives of such institutions should include creating a favou­rable atmosphere to enhance and foster CBET, harmonising codes and standards, and transmission planning to enhance CBET in South Asia. Such institutions would be expected to prepare a model mechanism for determining various charges like transmission charges and ta­xes, and formulating standard docu­men­ts for bidding and agreements. Further, they would arrange dialogues among the members, seminars and workshops on best practices, and also promote kn­ow­ledge sharing. The institutions should develop principles for cost minimisation, clean energy enhancement, energy and power system security. Further, they sh­ou­ld identify barriers and opportunities, and prepare an efficient dispute resolution mechanism.

Overall, the basic objective of these in­­stitutions will be to make a coordinated effort so that a unified approach can be adopted to accelerate the development of cross-border interconnections in order to achieve the One World, One Grid vision. Moreover, there is a need to decide on the CBET model for the region as the roles played by such regional institutions will differ depending on the market structure existing in various countries.

Financing mechanism for regional institutions

An unbiased financing mechanism for regional institutions promoting CBET is necessary. For financing the institution, a participation fee could be levied, on individual participating countries which can be determined based on the quantum of energy the participating countries mutually transfer. Further, initial support can be leveraged from multilateral and bilateral institutions such as ADB or the World Bank to support capacity development activities. USAID has been supporting and providing technical support to the South Asian Association for Regional Cooperation (SAARC), Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) as well as SAFIR. A similar mechanism could be used to provide support to such new institutions.

Areas for intervention

Broadly, there are five areas that need to be worked upon to establish new cross-border interconnections and stren­gthen and augment the existing interconnections for greater transfer of power. First, the technical areas that need attention are the type of transmission (such as synchronous, asynchrono­us) that would be established between the countries Seco­nd, the operational aspect of the gr­id needs to be looked at. Harmonised grid operation is necessary for scheduling, des­patch, energy acc­ounting, metering, etc. as well as for an-cillary services and deviation settlement. Third, the pricing mechanism or the commercial aspect of electricity needs to be uniform across countries. A case in point is Sri Lanka, which currently has an administratively determined pricing mechanism. How­ev­er, a move to market-based pricing, and overhaul of the internal systems would facilitate regional power trade once Sri Lanka is connected to the regional grid. Fourth, legal and regulatory frameworks like the dispute resolution mechanism need to be harmonised and made uniform across the countries. Fifth, institutional mechanisms are needed to coordinate regional power trading activities.

For CBET, a huge challenge lies in the all­o­cation of benefits across market participants as well as determining the allocation of investment cost and operational cost. The most important challen­ge remains the will of the people. It is im­portant that the stakeholder gro­ups have a will to promote CBET. Besi­des, the transmission systems need to be strengthened not only between the co­un­tries but also within the country.

The road ahead

The already existing regional institutions such as SAARC, South Asia Sub­re­gional Economic Cooperation (SASEC) and BIMSTEC can play a vital role in bringing together the relevant stakeholders – policymakers, financiers and regulators, among others – and provide a stage or a forum to discuss and resolve issues. Institutions such as USAID and think tanks such as IRADe should come up with studies and findings to convince the respective governments and policymakers on the integration and use of clean hydropower and energy exchange, which will boost further development in the energy market. The entire strategy for the creation of regional-level institutions for CBET needs to be revisited and re­vamped. Risk mitigation measures must be introduced, standardised and harmonised for all the member countries. Enhanced r­e­gional cooperation among participant countries may be boosted, besides deve­loping a country-specific action plan to augment and strengthen the transmission network. Since India plays a pivotal role, In­dian institutions need to be proactive as most of the issues can be discussed bi­laterally, which can then pave the way for multilateral arrangements.

Overall, more regional interconnections will facilitate the transfer of non-fossil fuel capacity power, besides promoting stable and robust grid operations. This will help in meeting the growing electricity demand through clean energy resources and reduce the energy storage requirement in the region. Moreover, the regional-level institutions will help in promoting sustainable and efficient po­wer trading in the region.