Building an Integrated South Asian Regional Power Market

In a remarkable development following the notification of Cross Border Electricity Trade (CBET) Rules in March’21 by the Central Electricity Authority (CEA), the Indian Energy Exchange commenced the Cross Border Electricity Trade (CBET) on its platform. This first-of-its-kind initiative is aimed at expanding power markets beyond the Indian geography, and towards building an integrated South Asian regional power market. Previously, IEX had commenced cross-border electricity trade in the day-ahead market on the Exchange with the participation of Nepal. IEX is now pro-actively collaborating with other South Asian countries including Bhutan and Bangladesh which are connected through the grid to further expand and build on its cross-border offering. The CBET  also plans to include countries such as Myanmar and Sri Lanka, in the future, once grid connectivity is successfully established. At present, India’s electricity trade with the neighboring countries stands at about 18 billion units (~3500 MW) that are conducted through medium to long-term bilateral contracts. The power transfer potential of CBET is estimated to increase to 100 billion units by 2030, and the competitive, transparent, efficient and flexible power procurement through the Exchange market, thus, has an immense opportunity in the cross-border electricity space.

Enhancing Energy Security & Access

While the macro-economic growth prospects of the countries in the South Asian region have been the strongest in the world, they continue to face challenges in terms of energy access, low per capita consumption, energy pricing, and maintaining power demand supply balance. India has per a capita electricity consumption of around 1200 units – about a third of the global average of about 3200 units, while for other countries, it stands at 350 units for Bangladesh, 270 units for Nepal, and 650 units for Sri Lanka, translating into much lower energy access and consumption, comparatively. . India shares geographic boundaries with almost all the South Asian countries. With almost 384 GW of total installed capacity and over 97 GW of renewable capacity, India is endowed with ample generation capacity to meet both, its domestic energy supply requirements as well as export its surplus power. With a robust policy and regulatory framework and a competitive Exchange-based spot market built over the last decade, India is well-positioned to lead the energy cooperation and development initiatives in the South Asian regional power market.

Reducing Imports and Promoting Clean Energy

South-Asian countries remain heavily dependent on expensive oil and gas imports and spend a major chunk of their foreign exchange reserves to meet their energy needs.  Data reveals that India’s consumption of petroleum products grew 4.5% to 213.69 MMT in FY20. India is today the world’s third-largest crude oil importer and imports 84% of its oil requirements. India’s oil import bill in FY20 and FY19 was $101 billion and $111.9 billion, respectively.  Bangladesh in FY19 imported around 75 lakh tonnes of oil for $4.85 billion, with the situation being similar for other South Asian countries. The resource base in South Asia remains highly diverse, including the large untapped hydro-power capacity in Bhutan and Nepal against a small local demand, a huge base of thermal plants, and coal reserves in India and Bangladesh. This diversity can be optimally utilized as per the varying seasonal and peak demand of the countries to enhance their energy access, and serve the regional requirements for the growing energy needs in a competitive, just, and reliable manner. I Co-development of the hydro-power infrastructure of Bhutan and Nepal, including the pumped storage facility, will enhance regional cooperation in electricity supply and generate income and revenue for the people besides supporting the integration of renewable energy. Also, trading with Bhutan and Nepal could help India in meeting its renewable energy goals by increasing the share of hydropower in the energy mix.

Global energy markets are pivoted on robust grid infrastructure.

The importance of regional cooperation in the power sector is reflected in various initiatives across the globe to strengthen cross-border cooperation for electricity. In Europe, Scandinavian countries have established a common power pool forming part of the integrated European electricity market. In Europe, the wholesale electricity market relies on large bidding zones to create a reliable and transparent price signal. A maximum of liquidity is pooled in all market areas and electricity flows according to the price signal, from the cheaper to the more expensive region. This way interconnectors are used effectively, and price peaks are attenuated to ensure the security of supply. European countries, thus, trade cross-border electricity most extensively as compared with the other regions – with imports accounting for 9.1% of total electricity supplied in 2018, compared to 4.5% in Africa, 2.2% in the Middle East, 1.9% in the Americas, and a mere 0.6% in Asia.

The United Nations Sustainable Development Goal (SDG) 7 encourages cross-border grid connections, on-grid renewable energy solutions, and decentralized options that are required to respond to the differing needs of countries and regions. To harness these complementarities in the power systems of the South Asian countries, cross-border trade of electricity and cross-border transmission capacities need to be further strengthened. The advances in the cost-effectiveness of high voltage direct current (HVDC) power transmission technology open up immense possibilities for long-distance power transmission, with benefits such as better control of power flow, reactive power management, and allowing interconnected grids to work in an asynchronous manner. Currently, India and Bhutan have existing arrangements for the import of about 1350 MW power through 400kV, 220kV, and 132kV transmission lines and for evacuation of power from various upcoming hydro-electric power projects in Bhutan. Similarly, a high-capacity interconnection between India and Bangladesh exists through two 400kV interconnection lines which cumulatively facilitate the transfer of power of the order of 1200 MW to Bangladesh. Two more 400kV operational lines along with a 500 MW HVDC Back-to-Back terminal are under implementation. With the commissioning of these links, the power transfer capacity between Bangladesh and India would be enhanced to about 1540 MW. An interconnection from Madurai (India) to New Habarana (Sri Lanka) is also under discussion.

Way forward

Over the past decade, power exchanges in India have become key players in supporting generators, power utilities, and industrial and commercial consumers in transparent, competitive, and flexible procurement of power through diverse market-based segments and contracts to help the distribution utilities save millions while also contributing significantly to efficient power plant operations at the national, regional and state level. The competitive power price discovery on the exchange markets ensures a merit order despatch supporting efficient power plants. With the coming on board of Nepal, a solid beginning has been made, and other countries in the region are expected to join soon. With a potential to trade about 100 billion units by end of this decade, the Exchange-led CBET can create a lot of economic security, access, and sustainability value for the South Asian countries.

This Has Been Co-authored by Rohit Bajaj (Head and Senior Vice President -Business Development, IEX Limited), Shruti Bhatia (Head – Corporate Communications, IEX Limited), and Anshul Joshi (Senior Executive, IEX Limited)