Integrating Power Markets: Enabling energy security for a sustainable South Asia

By S.N. Goel, Chairman and Managing Director, Indian Energy Exchange

South Asia is among the fastest growing regions in the world, with an estimated growth rate of about 8 per cent. Rapid electrification and urba­nisation have resulted in surging electricity demand in the region. In Bangla­desh, Bhutan, India, Nepal and Sri Lan­ka, in particular, electricity demand has grown on average by over 5 per cent an­nually over the past two decades. Uni­versal access to cheap, reliable and 24×7 energy is a prerequisite to sustain and even accelerate this commendable economic growth of the region. This ne­ed is compounded by the fact that most South Asian nations have proposed am­bi­tious climate action targets, in line with the Paris Agreement. India has set itself the target to achieve 50 per cent installed capacity from non-fossil fuel sources by 2030 and become net zero by 2070. Bangladesh has unveiled a draft National Solar Energy Action Plan, which envisages achieving almost 40 GW of solar capacity by 2041. Bhutan, which is the world’s first carbon-negative country, has committed to remain carbon neutral. The Maldives has made ambitious plans to reduce 26 per cent of its emissions by 2030. Nepal has targeted to ex­pand clean energy generation to 15,000 MW by 2030, of which 5-10 per cent will be generated from mini- and micro-hydropower, solar, wind and bioenergy. Meanwhile, Sri Lanka has set a target to achieve 70 per cent power generation from renewable energy by 2030.

This transition to a carbon-neutral, in­clusive and prosperous region can be accelerated by a vibrant South Asian po­wer market. An integrated regional po­wer market can help provide universal access to cheap, reliable, and clean energy to its almost 1.5 billion population. It will also lead to better resource utilisation and enhance renewable energy generation in the region, while ensuring a robust and integrated electricity grid.

Diversity-driven opportunities

The South Asia region is endowed with significant renewable energy resource potential. In fact, studies have indicated that South Asia possesses about 350 GW of hydropower, of which less than 20 per cent is utilised. Thus, the region has a massive untapped hydropower potenti­al that can be harnessed to provide clean energy to its remotest parts.

Bhutan and Nepal have vast hydro pot­en­tial, which is seasonal and depends on water inflows, and have huge opportunities for setting up hydro generation capacities. Meanwhile, India and Bang­ladesh predominantly have thermal-based power. Additionally, India has good wind and solar power potential. Sri Lanka has offshore wind potential but de­pends primarily on fuel imports for power generation.

Apart from diversity in resources, the region is characterised by comple­men­ta­rities in demand patterns. While Bangla­desh has low electricity demand during winters, Bhutan has low demand during the monsoon. Bhutan exports 70 per cent of the total power generated to India. In In­dia, the demand typically varies across di­fferent regions as per the season.

This diversity in resources and demand-supply patterns in the region can be op­timally utilised to enhance energy acce­ss in an efficient and reliable manner. Further, the variation in weekly demand patterns due to differing off-days – Fri­days in Bangladesh, Saturdays in Nepal, and Sundays in India – can complement the power demand and supply gap bet­ween these countries.

Cross-border electricity trade for an energy-secure and prosperous region

The existing transmission interconnecti­on of India with Bangladesh, Bhutan and Nepal can be leveraged to benefit the region from these demand-supply co­­mplementarities.

Nepal imports electricity from India to meet the demand-supply gap during the dry season, sourcing about 700 MW of po­wer through interconnections. While Nepal was a net importer of electricity in 2020-21, it became energy surplus in 2021-22, after the operationalisation of several transmission lines such as the Up­per Tamakoshi hydropower project. The country exports electricity to India to optimally utilise its surplus power du­ring monsoon.

Sri Lanka has a huge wind potential that can help the island nation meet its clean energy target of 70 per cent renewable energy by 2030. As per World Bank estimates, the country has an offshore wind potential of 92 GW, which could support its economic recovery by replacing costly fuel imports.

Cross-border electricity trade (CBET) presents an opportunity to South Asian countries to integrate with their neigh­bo­urs and tap into the region’s substantial renewable energy potential.

Both Bhutan and Nepal have significant quantities of hydropower that can be exported to other countries in the region to meet their renewable energy requirements. Bangladesh has natural gas and thermal reserves which can be exported to India, Bhutan and Nepal. Sri Lanka can provide peak power support to India through its wind and solar power re­so­urces, and, in turn, import power support from neighbouring countries during the dry season. This integration can efficiently be conducted through power exchanges, which enable competitive and transparent price discovery, thereby benefiting all participating nations.

So far, CBET in the South Asian region has been predominantly unidirectional in the form of bilateral agreements bet­we­en India and Nepal, Bhutan and India and India-Bangladesh. The BBIN countries (Ban­gla­desh, Bhutan, India, Nepal) traded about 3.7 GW per annum during 2019-20. About 17 BUs was traded during financial year 2021-22, as per Grid Controller of India Ltd.

Empowering beyond borders – Opportunity for India to play a leadership role

With an inter-regional transmission ca­pacity of 112 GW, India has the single largest integrated grid in the world. With a total capacity of 410 GW, India comprises approximately 80 per cent of the total installed capacity of the South Asia region. Of this, about 168 GW is contributed by green energy.

This robust power grid, combined with its geographical advantage and a conducive policy and regulatory environment, provides India the unique opportunity to lead the regional power market development and shape the pathway for enhancing energy access and security among the neighbouring countries.

The Cross Border Guidelines issued by the Government of India, followed by the Central Electricity Regulatory Com­mission CBET Regulations, 2019, have fa­cilitated CBET through the efficient route of energy exchange platforms.

Pursuant to the notification of the CBET Rules in 2021 by India’s Central Electri­city Authority, Nepal and Bhutan commenced power trading with India throu­gh its power exchange in April 2021 and January 2022 respectively.

Nepal has been importing power th­rough the Indian Energy Exchange platform since April 2021 through the Muza­ffar­pur (India)-Dhalkebar (Nepal) line. The country has now started selling its surplus electricity generated during the rainy season through competitive bidding in the day-ahead market at the ex­ch­ange. As per the Nepal Electricity Au­thority (NEA), the country exported around 1.36 BUs of power to India from June till December last year, generating a revenue of Nepali Rupee 7.93 billion for the country. It imported electricity fr­om India in the dry season when the domestic demand rises while hydro­power production declines. The NEA purchased 0.5 BUs from India’s power exchange during financial year 2022-23 (till mid-January 2023). With its huge hydro potential, Bhutan is the largest ex­porter of electricity to India. It curre­ntly exports 8.7 BUs power to India un­der bilateral arrangements. It is interesting to note that many of these hydroel­ectric power plant agreements will end in the next few years, resulting in more power being available for selling throu­gh the po­wer exchange. This will allow the co­untry to also import power when the exchange prices are lower.

CBET across the South Asian region is slated to grow to 35-45 GW by 2036, ac­cording to estimates. This growth will be enabled by the robust development of internal and sub-transmission infrastructure, along with the proliferation of new cross-border links across the re­gi­on. The transmission project under pl­an­ning between Bangladesh and India, for a new 415 km 765 kV D/C transmission line between Katihar and Parboti­pur, will result in almost 1,000 MW additional capacity. Similarly, 1,800 MW transmission links between Nepal and India are under construction and about 4670 MW capacity is in the planning phase. Further, the HVDC transmission link to connect India and Sri Lanka whi­ch is under consideration can en­able the integration of renewables between the two countries.

These interconnections, once implemented, will provide the much-needed impetus to CBET within the region.

CBET to benefit participating nations

Nepal has the potential to earn significant revenue by selling its surplus hydro potential to India. This will correct its trade deficit with India and also bring in significant investments to develop its hydro infrastructure. Nepal also imports power from India to meet its domestic demand during the winter season when the hydro potential is low.

Participating in India’s power market th­rough CBET will also benefit Bangla­de­sh, where the generation costs from heavy fuel oil (HFO), diesel and naphtha can go as high as Taka 17 per unit. This can be optimally replaced with cheaper green power from India or other neighbouring countries procured through India’s spot markets. Over time, this can reduce Bangladesh’s reliance on fossil fuels, helping the country meet its re­ne­wable energy commitments, while optimising power costs.

Bhutan has significant hydropower and exports power to utilities in India. It, however, imports power from India during the lean hydro season. Currently, Bh­utan exports 70 per cent of the total po­wer generation to India.

CBET with India can help Sri Lanka reduce investment requirements in new th­ermal power generation capacity. Th­rough CBET, the two countries can uti­lise balancing resources and renewable energy variations with greater efficiency. On its part, India can explore utili­sing the renewable energy sourced from nei­gh­bouring countries to meet the green requirements of its obligated entities, su­­­ch as discoms, captive power plants and open access consumers.

Role of power exchanges

Globally, power exchanges have worked towards increasing liquidity and providing power at transparent and competitive prices to its buyers. Further, power markets are key to managing intermittencies by efficient integration with conventional power and enabling the most efficient ma­tching of demand and supply.

In India too, power exchanges have off­ered a fair, transparent and neutral plat­form, resulting in efficient price discovery of electricity. With innovative regi­onal market products, such as the real-time ma­rket, a South Asia regional en­er­gy ma­rket can improve the overall vi­ability of renewable energy investment in the region. Once South Asian countries form an interconnected system, a re­liable and transparent marketplace would hugely benefit CBET to facilitate competitive price discovery. It would also boost investor confidence in developing generation and transmission projects in the region.

With a potential to trade about 100 BUs by the end of this decade from around 18 BUs at present, exchange-led CBET can create significant economic and en­ergy security, energy access and sustainable growth for the South Asian countries and the region as a whole.

Efficiencies in power generation can be achieved by enabling trade on the day-ahead market (DAM) and real-time market (RTM) through power exchan­g­es. A mock exercise conducted by an in­dependent research organisation in In­dia has demonstrated that a regional po­­wer exchange based on DAM captu­res the demand and supply complementarities of the South Asian countries for eff­ectively utilising the available po­wer ge­neration, and dynamic and transparent buy and sell price for the entire region. Under DAM, power ex­changes offer tra­ding of 96 separate electricity co­ntracts of 15-minute-long blocks ea­ch for the next day.  In the RTM seg­m­e­­nt, introdu­ced on India’s power exch­an­ges in 2020, new auction sessions take place every 30 minutes. This segment is hu­gely beneficial for market participan­ts to manage variability in generati­on from renewable energy sou­rces. Neigh­b­o­u­ring countries can leverage the In­dia’s RTM to manage the im­balances and intermittencies arising from high re­­newable dependency.

Taking a cue from global experiences

Globally, various regional power marke­ts have emerged with structures varying as per market size, maturity, fuel do­mi­nance, etc. Almost all these power ma­­­r­kets have gradually transitioned from a bilateral trade route to multilateral and eventually to power pool or power ex­change modes.

In Europe, Scandinavian countries ha­ve established a common power pool fo­rming part of the integrated Euro­pean el­ectricity market. The wholesale electricity market in Europe relies on large bidding zones to create a reliable and transparent price signal. It started with Norway and Sweden coupling the­ir market through day-ahead auctions in 1994. Europe initiated integrating mar­kets in 1996 with its first energy pa­ckage. The wholesale power markets of Norway and Sweden were amalgamated in 1996, and in October 2000, all four Nordic countri­es of Norway, Sweden, Finland and Den­mark formed a common wholesale electricity market, with power exchange be­ing the channel for trading.

Electricity is now traded among about 20 European countries, representing al­most 85 per cent of Europe’s electricity co­­nsumption. Power exchanges have en­­ab­l­ed efficient integration of varying re­newable energy sources in the region. For ex­ample, in the Nordic countries, No­­rd Po­ol Spot has been successful in in­­tegrating different renewable energy te­chnologies in member states with a high share of renewable electricity from hydropower, wind, sun and biomass. It is estimated that an integrated European power market can offer savings of app­roximately 1 billion per year, just by participating in the DAMs.

Emergence of a vibrant South Asian power market

Going forward, CBET in South Asia is set to increase with the strengthening of in­ternal transmission and sub-transmission systems and the development of new cross-border links in the region, in­cluding the proposed link between India and Sri Lanka.

As more countries begin to actively participate in CBET, an integrated South Asian regional power market will begin to flourish. The discovered prices in this market would be unique for the region, and largely insulated from the global price shocks, such as those caused by the current geopolitical disruptions. The pooling of resources amongst the participating countries will also optimise the usage of the existing infrastructure within the region, which could also help benefit the lesser developed nations with im­proved access to power to fulfil their energy requirements.

Interregional trade with South Asia co­uld be expanded further to implement the Hon’ble Indian Prime Minis­ter’s vision of “One Sun One World One Grid”. Under this initiative, the ministry is pre­paring a roadmap for initially in­ter­con­necting Africa through the Middle East, South Asia to Southeast Asia, follo­wed by global interconnections, to ut­ilise the renewable energy potential to take care of the future energy needs of an increasingly connected world.

The global experiences of integrated power pools, as well as the recent CBET mi­lestones in South Asia, will pave the way for a robust and integrated regional po­wer market that will promote sustainable and universal energy access to all.