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.
