A number of developments over the past several months indicate the strengthening of cross-border el­ec­tricity trade (CBET) in South Asia, wi­th India playing a pivotal role in it. CBET in South Asia is mostly being un­der­taken through the bilateral route and the share of the power exchanges is gra­du­a­lly inching up. Nepal and Bhutan are already participating in the day-ahead market (DAM) of India’s power exchange, and Bangla­desh is likely to soon follow suit. In another development, in August 2022, NHPC Li­mited signed an agreeme­nt with the In­vestment Board Nepal (IBN) to develop two hydroelectric plan­ts (HEPs) (aggrega­ting 1,200 MW) in Nepal for sale of electri­city to India and other nei­ghbouring countries through PTC India.

CBET is crucial from the viewpoint of en­ergy security in the South Asian re­gi­on, especially in light of the current geo­poli­tical scenario. Following Russia’s invasion of Ukraine, global prices of fu­els such as gas and coal have surged, adversely im­pa­cting the energy security in countries he­a­vily dependent on imported fossil fu­els for electricity. A case in point is Bang­la­desh, which has been suffering energy sh­ortages for the past several months. Be­­sides this, several other factors make CBET attractive in South Asia. These in­clude complementarities in electricity demand and supply across the countries on account of varying primary sources of electricity supply, and the large un­ta­pped hydro potential in Nepal and Bhu­tan, which is significantly greater th­an the do­mestic power demand in these co­untries. CBET in South Asia will also lead to better resource utilisation and en­hance renewable energy generation in the region, while facilitating a robust and reliable el­ectricity grid.

Current scenario

In 2021-22, total energy transacted bet­ween India and the South Asian co­untries stood at 16,828 MUs as against 18,744 MUs in the previous year.

In 2021-22, India imported 7,597 MUs from Bhutan, while it exported 7,302 MUs to Bangladesh, 1,921 MUs to Ne­pal and 8.80 MUs to Myanmar. Du­ring fin­ancial year 2021-22, as compared to fin­ancial year 2020-21, In­d­ia’s imports from Bhutan dec­reased by 18 per cent, exports to Bangla­desh decrea­sed by 3 per cent, exports to My­anmar decreas­ed by 3 per cent, and ex­ports to Nepal increased by 3 per cent.

Bhutan exports its surplus power to India during the wet season, and impor­ts po­wer during the dry season. Out of the to­tal electricity generated in Bhu­tan, 70 per cent is exported to India. Bhu­tan ex­ports power from around 2,325 MW of capacity across its Tala, Chu­kha, Kurri­chhu, Daga­chhu, Mang­dechhu and Baso­ch­hu HEPs. There was a significant re­du­ction in ex­por­ts from Bhutan during 2021-22 be­cau­se of pro­blems experienced at a hy­dropower station followed by an extended shutdown for rectification work. This resulted in Bhu­tan being a net importer of power during the winter months of 2021-22 and it had to buy power from the Indian Energy Ex­change (IEX).

Nepal imports electricity from India to meet the demand-supply gap during the dry season, and exports electricity to op­timally utilise surplus power during the wet season. A total of about 700 MW of power is being supplied to Nepal th­ro­u­gh interconnections. Nepal transacts po­­­wer from India through both the bi­lateral and power exchange routes. Whi­le Nepal was a net importer of electricity in 2020-21, it beca­me a net ex­porter in 2021-22. Sustained production from one of Ne­p­al’s largest hydropower projects till date, the Upper Tamakoshi hydro­po­wer project, has help­ed the country im­prove its power supply situation. The project star­ted commercial generation of electricity in August 2021 and has pro­ved a game changer project in Nepal’s electricity production.

With regard to Bangladesh, currently, the country imports power from 1,160 MW of capacity in India. Meanwhile, India and My­anmar trade electricity, but in relatively low volumes. India transmits power fr­om 3 MW of capacity via an 11 kV transmission line.

CBET through the power exchange route

To recall, a significant development in CBET trade was the notifi­ca­tion of the CBET regulation by India’s Ce­ntral Elec­tricity Regulatory Commis­sion in 2019 and the subsequent promulgation of the CBET procedure by the Ce­ntral Elec­tricity Au­thority in February 2021. The procedure, am­ong other thin­gs, enabled cross-border entities to participate on the DAM platform of the IEX.

Nepal has been a front runner in participating in the IEX’s DAM. It started im­po­r­ting power via the ex­change platform in April 2021 through the Muzaf­farpur (In­dia)-Dhalkebar (Ne­pal) line, and has been exporting power to India from 363 MW of capacity since November 2021. Re­portedly, approval for the export of power from another 100-400 MW of capacity in Nepal is un­der consideration. Notably, till around mid-October 2022, Ne­pal had exported around 1.3 BUs of power to In­dia and the average pri­ce of supply has been NR 7.91 per unit, generating a reve­nue of NR 7.93 bi­llion for the Nepal Electricity Authority (NEA). Rising earnings from the export of electricity have helped the country maintain its foreign exchange reserves at adequate levels and reduce the trade deficit with India.

In another key development, in 2021-22, Bhutan, for the first time, imported po­wer through India’s power exchange plat­form. Bhutan obtained approval to im­po­rt up to 400 MW of power during January-March 2022 from the DAM on the power exch­ange through PTC India. The total volume transacted to date through the IEX is 135.4 MUs. Until now, Bhutan has imported po­wer from India during the dry season th­ro­ugh the bilateral route. The majority of the hydropower plants in Bhutan have been developed with Indian assistance and are currently selling power to India under bilateral arrangements. Wi­th the agreements for several HEPs ex­piring in the next few years, Bhutan will be able to sell more power through the exchan­ge platforms.

The Bangladesh government too is in the pro­cess of participating on the Indian po­wer exchange. This will help the Bang­la­­desh Power Development Board (BPDP) to either buy or sell power th­rough the po­wer ex­change platform as per the prevailing market conditions.

Recent developments

In August 2022, NHPC Limited signed an MoU with IBN to develop the 750 MW West Seti and the 450 MW Seti River-6 HEPs in Nepal. An MoU was signed bet­ween NHPC Limited and PTC India Li­mited for sale of power generated from these upcoming HEPs. As per the MoU, PTC will purchase the contracted capacity from NHPC from the date of commercial operation of the projects, for sale to state utilities, discoms and bulk power consumers on a long-term basis in India and neighbouring countries. Besides this, PTC will attempt to sell any untied capacity on a medium- and short-term ba­sis or on the power exchanges.

PTC India has approved a plan to set up a power trading company in Nepal to supply power to Bangladesh, India and beyo­nd (including Myanmar and Vietnam). This is a first-of-its-kind initiative for an Indian power company in Ne­pal and will bolster the government’s aim to build a South Asia-focused energy se­curity ar­chi­tecture. The proposed company will act as an aggregator for trading po­wer with neighbouring countries. While PTC India is expected to op­e­rate as a holding company for the Ne­pal entity, it may rope in a Nepal-based entity as a stakeholder for the new company.

In order to tackle its energy crisis, Bang­ladesh has reached an understanding with Nepal to import electricity from the la­tter’s HEPs through a trilateral agreement on power trade with India. To this end, the NEA has written to India’s NTPC Vidyut Vyapar Nigam for a trilateral en­ergy sale and purchase agreeme­nt. Un­der this arrangement, Bangladesh will be able to receive 50 MW of hy­dr­op­ower fr­om Nepal initially. Nepal and Ba­ng­la­de­sh plan to trade power using the Ba­h­a­ram­pur-Bhe­ra­mara cross-border trans­mission line th­at links India and Bang­la­desh. Mean­while, the two co­un­tries ha­ve also agreed to take initiatives to reach a tripartite ag­reement with India to set up a dedicated tra­ns­mission line bet­ween Nepal and Bang­ladesh using In­di­an territory. Ban­g­ladesh has already de­­cided to buy 500 MW of electricity from the 900 MW Upper Karnali HEP to be developed by India’s GMR Gr­oup, whi­ch has set up GMR Upper Karnali Hydro­power Limi­ted to develop the plant in Nepal. In another development, Adani Power recently stated that its upcoming ul­tra-supercritical 1,496 MW Godda coal-bas­ed power plant in Jharkhand is ex­pected to be commissioned soon. The corresponding trans­mis­sion link (dedicated 106 km long 400 kV transmission line from Godda to the interconnection point) is also ex­pected to be commissioned soon. Po­w­er from the plant will be sold to BPDP under a CBET ar­ran­gement. Once commissioned, the plant will significantly augment India’s en­ergy export to Bangladesh.

The way forward

As per the Integrated Research and Ac­tion for Development, the power transfer po­tential of CBET in South Asia is ex­pected to grow multifold, from around 18 BUs at present to about 100 BUs by 2030. Fur­th­er, around 43.2 GW of cross-border inter­co­nnection capacity is ex­pec­ted to be co­mmissioned by 2040. The share of power exchanges in CBET is li­ke­ly to grow in the future. Enabling the countries to sell and purchase electricity at the market clearing price based on prevailing demand and supply conditi­ons allows more competitive and attractive price discovery. That said, harmonising policy and regulatory frameworks and dispute resolution me­chanisms across the South Asian countries is crucial to promote CBET in the re­gion. In addition, strengthening cr­o­ss-bor­der transmission connectivity as well as domestic transmission and dis­tribution infrastructure is essential for the countries to reap the maximum be­nefits of CBET.