Environment & energy, Trade and industry, International relations | South Asia

19 July 2022

Steps to grow the cross-border trade of electricity could play a major role in economic development and poverty reduction in South Asia, Pankaj Batra writes.

Cross-border electricity trade (CBET) in South Asia is growing in leaps and bounds and is expected to further accelerate in the next few years as demand for electricity grows as quickly as six per cent annually.

Currently, only 17 per cent of the region’s hydropower is being utilised – this could grow significantly if countries with hydropower surpluses like Bhutan and Nepal are able to efficiently export their excess electricity.

Increased CBET, especially in Bhutan, Bangladesh, India, and Nepal, but also with other South Asian countries, can assist in better utilising power resources, improving energy security for the region.

It can also enable integration of renewable energy in a cost effective manner, leading to reduced carbon emissions and bring down energy prices. There are significant opportunities for cross-border power trade to ease the region’s energy woes, and in turn, contribute to its overall socio-economic development.

India continues to be dependent on coal as its leading resource for energy generation, whereas Sri Lanka depends primarily on imports for its power generation from oil and coal. Bangladesh and Maldives have dependencies too, on imported natural gas and diesel respectively.

On the other hand, Nepal and Bhutan are hydropower rich, with excess resources that they are already exporting more of every year to the rest of South Asia.

However, with this growing potential and opportunities for cross-border electricity trade comes an urgent need for a dedicated multilateral platform that can bring all the stakeholders together to build consensus on all aspects of electricity trade.

As the number of countries involved in power trading increases, it becomes increasingly complex to accommodate their unique needs and priorities. This is why it is crucial to develop a forum with representation from across the region to help build consensus, especially towards common regulations, investment in transmission, and trading norms.

More on this: Do coal exports to India have to go up before they can come down?

While such platforms exist on a bilateral level, detailed multilateral discussions are needed for the types of market products which would be appropriate for boosting and regulating CBET to find their place in the region’s energy landscape.

Currently, the South Asia Forum of Electricity Market (SAFEM) is being proposed as such a forum, under a study carried out by USAID’s South Asia Regional Initiative in Energy Integration program, implemented by Integrated Research and Action for Development.

The governments involved should invest time and resources in this, to facilitate the eventual creation of a South Asian power market and enhance cross-border electricity trade in the region.

As a neutral body, the goal of SAFEM would be to facilitate regional electricity market development and creation.

The forum would review power market policies and rules and regulations for cross-border electricity trade in each of the South Asian countries and make recommendations based on the needs of the region overall.

SAFEM would also work towards adoption and implementation of mutually beneficial policy-making by advising South Asian countries on their power trade and market regulations.

This forum has massive potential to help member countries in developing an understanding of the various products which will be introduced in the market in coming years and assist them in efficient policy implementation.

More on this: Preparing for a global renewable energy economy

In fact, the region is already seeing benefits from work like this.

In recent months, the region’s energy landscape became more integrated. In April 2021, Nepal became the first country to reap the benefits of buying power from the Indian Energy Exchange (IEX)’s day-ahead trading platform, importing 300 megawatts of power through the Dhalkebar-Muzaffarpur transmission line, allowing the country to meet demand.

The country has also started selling its surplus electricity, particularly hydropower, on the IEX and through bilateral contracts. Within one month last year, the Nepal Electricity Authority (NEA) sold electricity worth millions of dollars to India, to the benefit of public and private Nepali providers.

With the NEA set to send yet more surplus power over the border, it is also making efforts to export power to Bangladesh.

Then, on 1 January this year, Bhutan started buying power in the Indian day-ahead market through the Indian Power Trading Corporation. Talks are now underway for Bangladesh take part in trading on Indian power exchanges as well.

To build on these achievements, SAFEM should be initially established as an informal body that in the future may be formalised with approval of the member countries. Until its scope is more clearly defined, SAFEM can act as an advisory forum which makes detailed suggestions to the member countries for achieving mutually agreed goals.

Electricity market officials from all member countries should be part of the forum, which should be able to collaborate with and engage research organisations, academic institutions, trade associations, and consumer bodies to provide its members with insight into how to meet the needs of all stakeholders.

By reducing energy prices, mitigating risks of abrupt power disruption, relieving shortages, facilitating energy transition, and incentivising efficiency, a dedicated forum for helping South Asian governments increase cross-border trade of electricity can play a major role in the region’s future. It should be seen as a key ingredient in overcoming the challenges to economic development and poverty reduction that every country in South Asia faces.

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