How South Asia Forum of Electricity Market can create a vibrant regional power market

Author: Mr. Pankaj Batra
Designation: Project Director, SARI/EI, IRADe & Ex-Chairperson, Central Electricity Authority, India

Cross Border Electricity Trade (CBET) in South Asia is growing in leaps and bounds, doubling in the last six years, from 9 billion units to 18 billion units in 2020-21. This is expected to further accelerate in the next few years, especially since all the South Asian nations feel the necessity to do so. Increased CBET will lead to efficient utilization of the power resources, resulting in energy security for the Region. It will also enable integration of renewable sources of energy in a cost effective manner, leading to reduced carbon emissions. This will lead to reduction of average cost of electricity supply in each country. Due to resource complementarities, demand diversity, differentials in cost of power and potential synergies for renewable energy integration and grid balancing, there exists significant potential of undertaking cross border power trade to ensure overall socio-economic development of the region. India continues to be dependent on coal as the leading resource for energy generation, whereas Pakistan has high dependency on oil/diesel and natural gas. On the other hand, Nepal and Bhutan are hydropower rich and have excess resources compared to their demand. Bangladesh and Maldives are dependent on imported natural gas and diesel respectively

However, with the growing potential and opportunities for cross border electricity trade, there is urgent need for a platform that can bring all the stakeholders together to build consensus on all aspects of electricity trade. As the number of countries involved in a power trading market increases, it becomes increasingly complex to accommodate the needs and priorities of all the countries. Therefore, it becomes important to develop a forum having representation from all the member states to help build consensus towards common regulations, as agreed upon by the members. While such platforms do exist on a bilateral level between the respective governments, these are at a broader level. Detailed discussions are needed on the types of market products which would be appropriate for CBET, the market rules, etc. These ground level discussions among the relevant parties at the ground level would do innumerable good for supporting the respective Governments in taking the broader decisions. These platforms could be forums for arriving at a consensus.

There should be a forum of market players to converge on the market products suitable for cross border electricity trade, and the market rules. This would also help equalize the knowledge on the same, and act as cross learning for all the South Asian countries. South Asia Forum of Electricity Market (SAFEM) is proposed as such a forum, under a study carried out by USAID’s SARI/EI (South Asia Regional Initiative in Energy Integration) program, currently being implemented by Integrated Research and Action for Development (IRADe). Such a forum will facilitate creation of a South Asia power market and enhance cross border electricity trade in the region

The SAFEM is proposed to be formed with the objective of taking regional trade a step forward by acting as a neutral body, facilitating regional electricity market development and creation. The Forum will review the power market policies and rules/regulations for cross border electricity trade in each of the South Asian countries. SAFEM will also work towards adoption and implementation of guidelines and policies by advising the South Asian countries on power trade and markets in the region. This Forum shall help the member countries in developing an understanding of the various products which may be introduced in the market, and assist member nations towards its implementation.

Cross-border power trade currently takes place in South Asia mostly through bilateral mechanisms, confined to Bhutan-India, India-Bangladesh, and India-Nepal. These power trades are mainly negotiated between the Governments through long-term Power Purchase Agreements and few medium/short term agreements. A South Asia Forum of Energy Market can help member countries by suggesting new type of contracts, along with the rules and agreements.

Similarly, tariff determination process in each of the member nations can be a key determinant on the commercial framework under which cross border power trade takes place. While CBET continues to be mostly bilateral in South Asia wherein the tariff/other terms and conditions of power trade are primarily based on inter-government negotiations, there has been a gradual shift towards commercial form of cross border power trade with power being procured under competitive auctions. The creation of a regional market will make price more competitive and transparent.

In almost all continents such as Europe, Africa and America, there has been large scale integration of the power markets. These power markets or pools have already demonstrated the benefits of shared resources, aiding economic growth and sustaining indigenous resources.

In South Asia, the past few months saw new milestones being created towards the formation of a regional energy market. In April 2021, Nepal became the first country to avail the benefit of buying day-ahead power from Indian power exchange at economical prices. The country also started selling its surplus electricity to Indian Energy Exchange at a competitive rate since November 2021. Within just a month, the Nepal Electricity Authority sold electricity worth Rs. 139.26 million to India.

On 1st January this year, Bhutan started buying power in the Indian day-ahead market through the Indian power trader, Power Trading Corporation. Talks are now underway to have Bangladesh take part in trading on the Indian power exchanges as well. This will be beneficial to Bangladesh as it can buy power at competitive prices from the Indian exchange.

To build on these achievements, South Asian Forum for Electricity Market (SAFEM) may be initially established as an informal body and in the future may be formalized with approval of the government of member countries. SAFEM shall act as an advisory forum which makes detailed suggestions to the member countries for achieving mutually agreed goals. Officials from stakeholders participating in the electricity markets from all member countries shall be part of the forum. The forum may also form collaborations with research organizations, academic institutions, trade associations and consumer bodies for a deeper insight to the needs of all stakeholders.

Increasing cross-border trade of electricity can play a major role in overcoming the challenges to economic development and poverty reduction. Trade of power between multiple countries shall help in reducing energy prices, mitigate risks of abrupt power disruption, relieve shortages, facilitate greater use of less polluting sources of energy and provide incentive to better performers in the value chain.

(Authored by Mr. Pankaj Batra, Project Director, SARI/EI, IRADe and Ex- Chairperson, Central Electricity Authority, India)

Increasing Potential of Natural Gas for Regional Energy Cooperation in South Asia

Author: Mr. Pankaj Batra
Designation: Project Director, SARI/EI, IRADe & Ex-Chairperson, Central Electricity Authority, India

The power sector spurs the wheels of progress of a nation. Cross border energy trade helps in improving energy access to a larger number of people of the trading nations, faster and more economically. Studies have shown that Bangladesh has benefitted from the import of power from India, resulting in zero power cuts and achieving one of the fastest growth rates in South Asia, in recent times. Nepal has also benefitted by import of power from India, resulting in drastic reduction in power cuts and stable power supply in Kathmandu. Bhutan has benefitted from exporting its surplus power to India.

While electricity trading is already underway in South Asia, especially within Bangladesh, Bhutan, India and Nepal (BBIN), natural gas/ Liquefied Natural Gas (LNG) also needs to be seen as a potential area for cooperation for energy security in the region, including Sri Lanka (BBINS). Gas/ LNG consumption is expected to rise in South Asia. In Bangladesh, India and Pakistan, the industrial sector is the main contributor to growth in the gas sector.

Natural gas is less polluting than other fossil fuels for power generation, as also for transportation, household and industry sector. It also offers economic advantage as compared to other fuel options. It is also more suitable than coal for balancing the intermittencies of power generation by variable renewable energy sources and also for peaking power plants. Within the BBINS region, currently only India and Bangladesh have commercially exploitable gas reserves and produce domestic gas.

Natural Gas to fuel Indo-Bangladesh Power trade

Gas accounts for nearly 66% of the total commercial energy consumption in Bangladesh, and as such it is truly the only gas-based economy in the BBINS region. Due to the decline in production of gas and projection of demand – supply gaps, Bangladesh’s Gas Sector Master Plan 2017 (GSMP 2017) has proposed pipeline connectivity with India near Khulna to ease out the constraints in gas supply hydraulics in the short to mid-term. For meeting the long-term demand, GSMP 2017 has also recommended a large diameter 500-km long pipeline from Myanmar to India via Bangladesh.

On the other hand, at present, India consumes about 170 mmscmd of gas. The country plans to increase the share of gas in India’s primary basket from the existing 6% to 15% by 2030. There are plans to connect the whole country with one gas pipeline grid, to help bring affordable fuel to people and industry.

It is interesting to note that while India would have some surplus LNG receiving capacity after 2023-24 and a significant part of its trunk pipeline network near Bangladesh borders would be ready to receive gas by 2021-22, Bangladesh, on the other hand, faces a supply and transmission crunch to meet the demand for its consumers in the western and northern areas bordering India. It, therefore, provides an opportunity in the BBINS region for India and Bangladesh to commence trade in the short and mid-term time horizon, from as early as 2022.

On completion of the ‘Indradhanush Gas Grid’, several cities in India, including Agartala, Silchar, will be in close proximity with Bangladesh on the eastern border with India. The issue is under consideration by Bangladesh for interconnecting their gas pipeline netwok at Satkhira border point; however, an agreement is yet to be inked. With its geographical location and upcoming pipeline and RLNG infrastructure, India emerges as a potential hub for furthering intra-regional trade akin to a ‘Hub and Spoke’ supply model.

Boost to cross-border gas trading with H-Energy and Petrobangla agreement

India’s Hiranandani Energy (H-Energy), a natural gas company, recently signed a preliminary agreement with Petrobangla, a government-owned national oil company of Bangladesh, for supply of LNG to Bangladesh. Both the parties are likely to soon finalise a long term supply agreement to commence the supply of re-gasified LNG to Bangladesh through a cross border natural gas pipeline. The proposed 800 megawatt (MW) gas-fired combined cycle power plant at Rupsha in Khulna region of Bangladesh will be the major consumer of the imported re-gasified LNG (R-LNG).

This is Petrobangla’s second MOU with Indian firms to import the expensive R-LNG through cross-country pipeline. Earlier it inked a similar agreement with India’s state-owned Indian Oil Corporation Ltd (IOCL) to import R-LNG.

The Petroleum and Natural Gas Regulatory Board, the regulatory body in India, has authorised H-Energy to build, own and operate the Kanai Chhata-Shrirampur natural gas pipeline that connects its LNG terminal in West Bengal to the Bangladesh border, to enable cross border supply of re-gasified LNG into Bangladesh.

This deal is likely to spur more such collaborations between not just Bangladesh and India, but within the BBINS region as a whole.

The potential benefits of natural gas/ LNG trading in South Asia has been explored in detail in the study “Analytical Study to assess the potential of gas / LNG for Regional Energy Cooperation in BBINS region” conducted under USAID’s South Asia Regional Initiative for Energy Integration (SARI/EI).

The report analyses the issues and factors for dependability on LNG and affordability on a long-term basis; the economic value that Natural gas/ LNG offers over other fuels to the consumers in the region, and the potential and opportunities for regional cooperation.

The report will be soon launched through a webinar and will be made publicly available for the benefit of all stakeholders.

USAID’s SARI/EI program, being implemented by Integrated Research and Action for Development (IRADe) in its current phase, focuses on promoting regional energy integration through increased cross border energy trade for an energy-secure South Asia.

Ushering in an Energy Security Region through a South Asian Regional Power Exchange

Author: Mr. Pankaj Batra
Designation: Project Director, SARI/EI, IRADe & Ex-Chairperson, Central Electricity Authority, India

The date of 14^th April, considered to be auspicious in many regions across South Asia, also heralded the beginning of a new era for the region’s power market. Nepal Electricity Authority electricity, the country’s production and distribution monopoly, joined the energy exchange market through India’s power trader NTPC Vidyut Vyapar Nigam Limited (NVVN). This is a significant step towards utilizing the immense potential of cross border electricity trading in South Asia.

Till now, NEA was purchasing power from NVVNL, Power Trade Company and distribution companies under Bihar, Uttar Pradesh and Uttarakhand state governments. With it joining India’s energy exchange, it can purchase electricity directly at a competitive price.

This started after the first such approval for another country was given by the Designated Authority, Member (Power System), CEA, in accordance with the Procedure for approval by Designated Authority, was notified by the Government of India, on 26^th February, 2021. The first transaction took place on Saturday, the 17^th April, and was for about one million units, which more than doubled in the next day to 2.9 million units. This is a milestone event for both Nepal’s energy development, as well as creating a vibrant regional power market, envisioned by South Asia Regional Initiative for Energy Integration (SARI/EI) since 2016.

Since 2016, the SARI/EI program has been working closely with all South Asian countries, including the Ministry of Power, Government of India, the Central Electricity Regulatory Commission of India, Ministry of Energy, Water Resources and Irrigation, Government of Nepal, Nepal Electricity Authority (NEA), Indian Energy Exchange and NVVN for a Regional Power Market & power exchange based trade in South Asia. A mock exercise of the Day Ahead Market (which is what Nepal is presently taking part in) through a South Asia Regional Power Exchange was also carried out by SARI/EI, along with participants from Bhutan, Bangladesh and Nepal, where these countries along with India took part. A total surplus of INR 323.63 billion was seen to be generated in the BBIN (Bangladesh, Bhutan, India Nepal) Region by the addition of these three countries in the Indian Power Exchange, consisting of both producer surplus and consumer surplus.

The team held several workshops on Power Market and Power Trade through Power Exchange in Bangladesh, Bhutan and Nepal. In November 2019, a workshop was held for South Asian countries on Power System Operation, Trading & Exchange Platform, New Delhi, along with a site visit to a Power Trader, a Power Exchange and the Northern Regional System Operator in India.

It’s heartening to see these efforts fructifying in the form of NEA finally trading in electricity in India’s energy exchange market. This would likely lead to trading by other South Asian countries in an energy exchange for South Asia.

A regional power market and power exchange based trade is key to develop and sustain power integration of South Asian countries. Harmonising market rules across the countries through an appropriate market design will likely lead to efficient utilization of available resources and infrastructure in South Asia. SARI/EI will continue to work closely with Ministries and policy makers to operationalise a vibrant regional power market.