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CBET in South Asia: Key to enhancing regional energy security [free access]

June 3, 2022

South Asia is one of the fastest growing regions in the world, and energy plays a significant role in its socio-economic development. Ensuring access to and availability of energy, especially in the form of electricity, is central to sustaining the region’s expanding economies and its people’s aspirations. South Asia has both resource and demand diversity, which presents immense potential for regional cooperation. Several studies have established the benefits of cross-border power trade including optimised investment cost and reduced carbon emissions, making it a win-win for all regional partners. As its economies recover from the impact of the Covid-19 pandemic, South Asia will play a vital role in building a more sustainable future with greater access to affordable, reliable and clean energy.


At a recent webinar on ‘Cross-Border Energy Trade and Energy Security for 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, and Power Line, a sister division of Global Transmission Report, key benefits and the potential for cross-border electricity trade (CBET), its issues and challenges, and the next steps were discussed. Excerpts from the discussion follow below.


Current status and potential

The South Asian region currently trades around 3,800 MW of power. However, this is just a fraction of the vast potential that the region has to offer. As per a SARI/EI study, the cross-border power trade in South Asia could reach up to 60,000 MW by 2045. The countries in the region are recognising the benefits of power trade and taking positive steps to foster it. For instance, in 2018, the Government of India issued guidelines on CBET, which allowed trilateral trade. More recently, the Central Electricity Authority of India notified the procedures for approval of CBET, including for neighbouring countries to participate in power exchanges. The Government of Bangladesh is also investing in hydropower development projects in Nepal and Bhutan to further diversify energy resources. To this end, the Bangladesh Power Development Board has entered into an agreement with a private power producer in Nepal to import hydropower.


In April 2021, Nepal joined the energy exchange market in India. As of July 2021, the CBET with Nepal under the day-ahead market at the power exchanges stood at 72 MUs, recording a nearly 78 per cent increase month over month. Further, discussions are underway to include Bangladesh and Bhutan. This will be a significant step towards the development of regional markets in South Asia. This clearly indicates India’s willingness to provide an enabling environment for CBET at a regional level. The only issue now is operationalising it at a regional power trade level. All these developments are expected to accelerate CBET, which will enhance economic development and lower the carbon footprint of the region. But it is important to leverage this with necessary infrastructure, progressive policies and enabling regulatory frameworks.


From the climate change point of view, mutual cooperation on a regional basis can help replace fossil fuels in the energy mix. Of India’s total installed capacity of over 383 GW, about 200 GW is coal-based. With the emergence of solar power and greater hydro support from Bhutan and Nepal, the energy mix of the Indian power sector is set to see a big change.


Benefits and the potential for CBET

Each country in the South Asian region is making an effort to meet domestic energy demand and foster economic development. There is a compelling rationale and political will among the countries to foster mutually beneficial solutions through greater integration and innovative power trading mechanisms. Electricity trading through a common power pool will not only help the region in making the cost of supply competitive, but also address the larger concerns of climate change by accelerating the adoption of clean and sustainable energy resources. An interconnected, integrated grid will pave the way for an open, efficient, rule-based transparent energy market. CBET will also enhance the energy security of the region, besides improving bilateral relationships and improving the accessibility, reliability and affordability of electricity supply arising out of economies of scale.


There are areas in which regional cooperation is imperative, especially if one looks at the complementarities. For instance, the abundant hydropower resources in Bhutan and Nepal can help meet the peak summer demand and enhance regional grid stability by providing balancing power. This will help manage energy resources in an optimal manner and enhance grid security. Bhutan’s current generation capacity is over 2.3 GW. The India-Bhutan agreement with regard to trade in hydropower has been a success story, representing the benefits of mutually beneficial cooperation in the South Asian region. The CBET between India and Bhutan has been going on seamlessly for many decades and is expected to expand further, with more projects currently in advanced stages of completion.


Key issues and challenges

While significant progress has been made, the major concern in CBET is the limited cross-border electricity trading infrastructure. For instance, India and Bhutan have synchronous transmission integration. A capacity in excess of 5,000 MW has already been built and made operational, but there are constraints in fully utilising this infrastructure and making the investment bankable. Moreover, if Bhutan or Nepal want to export surplus electricity directly to Bangladesh, then they would need transit rights from India, which would require changing certain rules.


Besides this, a strong political consensus is required to formulate conducive legal frameworks to enhance CBET. There is also a need to harmonise the grid codes so that reliable power can be traded across the region. Further, countries can look at signing long-term power purchase agreements to further increase CBET. Institutional and technical capacity should also be enhanced in the region. There is a need to step up investments for construction of cross-border transmission lines. The governments in the region should be motivated to revise their energy mix and energy action policies for promoting CBET. The other major issue that needs to be addressed is the establishment of operations and maintenance protocols, which the countries can follow in case of a grid failure or lack of grid synchronisation.


When it comes to CBET, Sri Lanka is an outlier as it does not have transmission interconnections with any country. Having cross-border connections has been a difficult task for the island nation. Although discussions have been ongoing with India for quite some time regarding setting up a high voltage direct current (HVDC) link between Sri Lanka and India, plans are still in the initial stages. As most of Sri Lanka’s energy generation comes from thermal sources, which has a high cost of generation, power trade with other countries will give it access to cheaper power. Earlier, an interconnection between India and Sri Lanka was envisaged through an undersea cable connection, but it entailed a significantly high investment. Now, the Power Grid Corporation of India has come up with the idea of overhead transmission, which may be more affordable. Once interconnections are established, they will immensely benefit both India and Sri Lanka. However, till then, difficulties in construction and civil engineering works, technology of connectivity, and cost of connectivity remain.


There are also concerns among countries regarding developing power projects for export purposes. However, a case study on the India-Bhutan relationship indicates how such projects can be mutually beneficial. The South Asian countries should recognise that power export does not lead to over-dependence; rather, it is a respectful mutual interdependence that can be harnessed. Given how natural resources are located in different parts of the region, this mutual interdependence will become inevitable.


CBET can reduce the region’s dependence on high-cost dollar-denominated crude and crude derivatives for diesel-based generation. Further, to get more power, the countries also need to have robust internal intra-country transmission systems, intra-country sub-transmission systems and distribution infrastructure.


The way ahead

Besides bilateral cooperation between the governments, discussions and cooperation between countries at different levels are also important. For instance, round tables of the power secretaries of these countries can be an informal setting to discuss and provide some impetus to CBET by resolving the issues faced by the countries. Various forums, such as the forum of electricity regulators, the forum of transmission utilities, the forum of system operators and energy market forums, are building blocks for solving the technical, policy and regulatory challenges. The governments will have to play a bigger role in terms of harmonising, synthesising and creating a seamless regional power market.


Although the countries are moving in the right direction, the bilateral trading mechanism needs to be expanded to a trilateral one, and gradually to the regional level. There is a need to create regional institutions that can help in regional planning of transmission line projects. Further, there is a need to harmonise the rules for power trading. An independent institution that could enable and regulate transparent power trading in the region would be essential, going forward.


There is an immense potential of almost 48,000 MW to be utilised in the next 10 to 20 years. About 14,000 MW of interconnections have been identified for harnessing over the next five years. This can only be harnessed if the confidence and mutual cooperation among the region’s nations improves continuously. The benefits, both economic and non-economic, will be enormous. Net net, regional cooperation is the answer to achieving regional energy security and combating climate change in a collective manner.