Energy Security in South Asia: Towards a Regional Energy Market

1. Energy Security in South Asia: Towards a Regional Energy Market Kaushik Ranjan Bandyopadhyay Asian Institute of Transport Development

2. Energy and Development Concerns in South Asia: Some Essential Facts • Burgeoning growth in population ( currently stands at 1359 million, 20 % of World Population) • High income and capability poverty (Income poverty varies from 39.7 for Srilanka to 85.7 Bangladesh; HDI rank varies from 95 for Maldives to 146 for Bangladesh) • High dependence on imported oil (varies from around 25 % for Bhutan to 100% for the Maldives) • High energy poverty among the rural masses (completely isolated from modern commercial sources of energy for cooking and lighting) • Traditional fuel i.e. biomass and firewood consumption as per cent of total energy requirement is very high • Per capita commercial energy consumption is at abysmally low level but energy intensity (energy consumption per unit of GDP) is considerably higher- hints towards inefficient energy utilization

3. Key Vulnerabilities in SA at the country level • Low resilience to oil price volatility for each country (oil demand is inelastic to price rise in short to medium run) • Limited reserves and major dependence on imported oil from a clumsy non-cohesive cartel OPEC with a very low historical compliance with the quota coupled with geopolitical uncertainties, erosion of spare capacity, influx of speculative elements. • Limited scope of changing the existing energy resource base or achieving technological breakthrough(in the short to medium run) due to cost considerations

4. Key Vulnerabilities (continued) • Daunting challenge of ensuring universal electrification especially providing access to rapidly growing poor rural masses coupled with massive power outages, T&D losses and power theft in each country • Deforestation, environment degradation and high morbidity and mortality of rural children and women (due to exposure to indoor smoke) on account of using biomass and firewood in inefficient traditional oven for combustion. • High energy subsidy (including considerable high subsidy on fossil fuels) • Institutional, capacity, regulatory and financial barriers

5. Addressing the vulnerabilities: Broad Strategies • Developing a regional risk pooling mechanism by making inter-governmental and institutional arrangement for jointly procuring oil and natural gas • Developing Strategic Reserves as oil shock contingencies • Diversifying the sources of fuel supply by developing an efficient regional market for trading especially in electricity and gas via interconnected electricity networks or gas grid • Developing amechanism for RD&D and sharing geological and other relevant data, knowledge, expertise, technology and promoting capacity building at the regional level especially in energy demand management measures (conservation and energy efficiency), improving energy sector governance and in developing alternate sources like renewable (hydro, solar, biofuel etc.) • Encouraging initiativesat all level for developing energy technology and charting out a broad technology perspective for the region • Facilitating in development and harmonization of regional infrastructure, financial mechanism, and regulatory mechanism

6. Mapping the Commercial Energy Resource Base of SA • Afghanistan: Moderate gas/hydro power potential, but large solar and wind potential • Bangladesh: Large gas, coal and solar resource; low hydro power • Bhutan: Large hydro power, solar and wind potential • India: Large coal, hydro, wind and solar; but moderate gas/oil • Maldives: Moderate wind but high solar potential • Nepal: Large hydro potential and solar potential and moderate wind • Pakistan: High coal, gas, hydro, Low oil; but rich solar and wind potential • Sri Lanka: Moderate hydro, but large wind and solar resources

7. Key Potential for Regional Energy Trading • Intra-regional trade in electricity • Hydro electricity exports from Nepal and Bhutan to India or through India to Bangladesh, Pakistan and Srilanka • Potential for increasing grid interconnections • Inter-regional trade in oil • Scope for regional cooperation for routing oil imports into the region from far off countries like Venezuela in VLCC • Transit trade in natural gas • Trading gas between Central Asia and Middle East and India would require pipeline transit through Pakistan and Afghanistan. Importing gas from Myanmar to India would require pipeline transit through Bangladesh. Countries providing transit could also access gas for their own use. Pipelines for transit trade under exploration- IPI ; TAPI ; MBI and QIPI

8. Potential Benefits of Energy Trading in SA • Immense scope for innovation and achieving economies of scale in energy production • Improved energy security and reliability • Reduced costs and prices through scale effects • Optimal utilization of huge hydro-resources in the region • Institutional capacity building in the electricity sector of the region • Reduced impact on the environment • Possibility of earning substantial export revenues especially from electricity trade • Eventual multiplier effects in terms of faster economic growth

9. Existing Regional Electricity Trading Infrastructures in SA • Bhutan-India: Bulk of power generated at Hydro Electric Projects at Chukha (336MW), Kurichu (60MW) and Tala (1020MW) in Bhutan, which have been implemented with technical and financial assistance of India, is exported to India after meeting the internal demand of Bhutan. India also exports power to Bhutan during winter period when there is reduced hydro generation in Bhutan. The cooperation between Bhutan and India in hydropower is documented as a successful model energy trading in the region. • Nepal-India: The power exchange takes place between Nepal Electricity Authority and utilities on the Indian side namely Bihar State Electricity Board (BSEB),Uttar Pradesh Power Corporation Limited (UPPCL) and Uttaranchal Power Corporation Ltd. (UPCL) India. India also supplies 70MW from Tanakpur HEP (120MW) to Nepal under the Mahakali Treaty. Under the bilateral power exchange, BSEB exports/imports power to and from Nepal where as, UPPCL and UPCL only export power to Nepal. 21 interconnections facilities for power exchange through 11kV, 33kV, 132kV transmission lines, out of which the 132KV transmission lines are only utilised . Possibilities are also being explored in both countries for bulk power transfer through HVDC

10. Other Potential Regional Electricity Trading Possibilities under consideration • Bangladesh-India: Possibilities are being explored for establishing the electrical grid interconnection between the two countries between Eastern region of India and Western Grid of Bangladesh which could amount to a cross-border power transfer of around 500MW across the two countries through HVDC. • Srilanka-India: Possibilities arealsobeing exploredfor establishing a HVDC transmission system of about 1000 MW capacity using overhead lines and undersea cables from Madurai in India up to Anuradhapura in Sri Lanka

11. Some Notable Initiatives for Tapping the Potential Energy Cooperation and Energy Trade under the Aegis of SAARC • In 2005 the SAARC energy ministers agreed to cooperate in harnessing all forms of energy in order to achieve the objective of creating an ‘Energy Ring’ in South Asia. A special purpose vehicle called SAARC Energy Centre was eventually created in order to facilitate the process. • In January 2007 The SAARC Secretariat finalised the terms of reference of SAARC Regional Energy Trade Study (SRETS). The ToR , includes , among others, analysing the prevailing trade regimes, the regulatory and legal frameworks of the Member States; examining the international and regional best practices and their relevance as well as applicability to the region; analysing various technological, financial and commercial options for promoting trade and related projects; examining the viability and modalities for development of trans-national energy lines (electricity, gas and oil) keeping in view the broader concept of the ‘Energy Ring’.

12. Some Notable Initiatives (continued) • At the 15th SAARC Summit in August 2008 it was decided to develop and conserve conventional sources of energy along with a strong focus on alternate and renewable energy sources, energy reforms, energy efficiency, transfer of technology and energy trading • In November 2008 in an expert group meeting, the concept paper on SAARC Energy Ring had been finalised. The meeting also decided that the member states would develop common regional highways of energy within and across region for movement of energy commodities and services in a market-based environment. The meeting also discussed the possibilities of harnessing hydro-potential in Bhutan and Nepal; getting natural gas from West, Central and East Asia; sharing expertise of India in wind and solar energy and of Nepal in micro-hydro and the successful experience of CNG technology in Bangladesh, India and Pakistan

13. Some Notable Initiatives (continued) • In December 2008 a task force was constituted to evolve a Common Template of Technical and Commercial aspects of Electricity Grid Inter-connections among SAARC Member States in order to have better understanding of the power system of each country • In January 2009 the SAARC Energy Ministers’ meeting underscored on regional energy trade study, setting an action plan on energy conservation and efficiency, discussed the concept of the South Asian Energy Ring and the common template on technical and commercial aspects of electricity grid interconnections among SAARC member countries and a concept paper on joint import of crude oil

14. Some Notable Initiatives (continued) • All these issues received a renewed emphasis in the 16th SAARC Summit held in April, 2010 at Thimpu, Bhutan. In the Summit the state leaders emphasized the need to undertake studies to develop regional energy projects, promote regional power trade, efficiency, conservation and development of labelling and standardization of appliances, and sharing of knowledge and technologies. Although the power trading in South Asia is still at its nascent stage, the leaders recognised the importance of facilitating the same on a priority basis in order to meet the electricity deficits in the region. In this context, a proposal submitted by India on preparing a roadmap for SAARC market for electricity (SAME) on a regional basis supported by an enabling market in the region has been well received. The proposal’s main emphasis is on coupling the independent electricity grids of different countries through HVDC (High Voltage Direct Current) links.

15. Some Critical Steps in Promoting Regional Energy Trade Continue to recognising the immense potential benefit of energy trade and remove any roadblocks (institutional, political, financial or otherwise)towards exploiting efficiently the vast energy resources of the region . Some essential steps are: • Facilitating the process of an Intergovernmental agreement for making appropriate assessment of trade potential and facilitation of cross-border trade in electricity in a phased manner through • formulation of coordinated scheduling and dispatch procedures • facilitating open access for cross-country transmission • facilitating congestion management procedures for cross-country electricity transactions, • facilitating in coordination among the national grid operators through agreement on handling grid emergencies and financial settlement system. • Promoting restructuring and reforms in the electricity sector of all the SAARC countries for cross-country electricity transactions on commercial basis just like any other commodity. The experience of India in restructuring of electricity sector could provides a case in point.

16. Some Critical Steps (continued) • Exploring avenues for expanding the electricity market window already created in India to include the SAARC member countries in generating a larger market place for buying and selling entities of each country to participate voluntarily on the basis of their own needs and perceived benefits. • Facilitate in creating SAARC regulatory forum as a dispute settlement mechanism for cross-border trading that is acceptable and binding to all the participants for which a may have to be created. • Promoting region procurement mechanism for fossil fuel imports and Strategic Hydrocarbon Reserve that would insulate the economies in SA from large price fluctuations • Establish a corpus in the form of South Asia Regional Energy fund in order to finance regional energy projects • Facilitate in undertaking a detailed assessment of the energy technology perspective of the region that includes developing technologies for exploitation of large reserves of hydrates along south Asia’s coastline and development of new technologies for generating Hydrogen, Bio-diesel, and fuel cells in order to reduce reliance on energy imports especially by the transport sector.