Cross-border power trading can help South Asian countries meet their demand for electricity and save billions of dollars, the Asian Development Bank has said.
India, Bangladesh, Nepal, Bhutan, Pakistan and Sri Lanka will enjoy a total benefit of over $4 billion annually from just six interconnections between them, for a cost less than one tenth of that amount, the ADB found in a study that analysed six projects.
The savings make a compelling case for the near-term interconnection projects, all of which have large benefit-cost ratios, to be fast-tracked so that necessary measures can be put in place to realise the benefits.
“A market-driven process for cross-border power trading together with a regulatory framework across the region that enforces a strong economic discipline would maximise the benefits from the development of interconnection projects among South Asian countries,” said the report.
Study authors Priyantha Wijayatunga, D Chattopadhyay and PN Fernando analysed six interconnection projects focusing on benefits that could be delivered by these projects in 2016/17.
The projects are: India-Bhutan grid reinforcement; Nepal-India 400 kV link; India-Sri Lanka high voltage direct current (HVDC) link; India-Bangladesh HVDC link; India-Pakistan 220/400 kV link; and CASA (Central Asia-South Asia) 1000 and India-Pakistan 400 kV link.
The projects will cost some $229-243 million annually whereas their total benefit would amount to $3.86-4.13 billion, according to the report.
The analysis of the India-Bangladesh HVDC link found that in the most likely scenario or base-case demand projection, where peak demand in 2016/17 is closer to the lower end, around 9,000MW, the supply capacity is in excess of this demand, but will leave little unserved energy in the system.
In the second case, if demand growth is stronger, peak demand may be around 11,000MW by 2016, or even higher--in excess of 12,000MW--in the third case.
The first case will yield an average net annual benefit of $145 million resulting primarily from export of less expensive base-load gas based power from Bangladesh to India.
In the second case, benefits are much higher, at $234 million, due to the interconnector largely importing power to meet peak demand in Bangladesh.
The third case sees the interconnector being used to import power to eliminate part of the unserved energy. It therefore renders the interconnector to have the highest net benefit at $389 million.
“The benefit of the link clearly exceeds the cost of the link for all three cases,” said the report.
It said on average the benefit-to-cost ratio of the link is in the range of 5.8 to 15.5.
It is a very healthy ratio that makes the link attractive by any standard. If Bangladesh were to find itself in a state of tight demand-supply condition, the benefits are high enough to recover the entire investment in a single year,” the report said.
The relative size of the Indian power system, its high growth rate of demand and location relative to other countries, suggest that India has to assume the role of a central hub in driving cross-border power trading to a greater height, at least in the initial stages.
It said the successful development of power exchanges in India has laid a strong platform for cross-border power trading to be operationalised.
The ADB report said with a strongly interconnected power system in the India-Bangladesh-Bhutan-Nepal sub-region, the large hydropower potential in Bhutan and Nepal can be developed and transmitted to load centres to meet the exponentially increasing electricity demand in Bangladesh and India.
Bhutan's estimated hydropower stands at 11GW by 2020 and for Nepal it is 42GW.
There are large capacity interconnections between Bhutan and India already, and the annual power transfer between the two countries has grown considerably over the recent years, standing at around 6,000GWh in 2011-12.
However, the construction of the first large capacity interconnection between India and Nepal has only just started, limiting power transfer between them to about 400GWh, where Nepal is importing power from India, particularly during the dry season.
The first interconnection between India and Bangladesh of 500MW capacity was built with ADB's assistance and was commissioned in October 2013.
The interconnection allowed Bangladesh to access the power market in India for a capacity of 250MW through a commercial agreement while the remaining 250MW is supplied through a set of government-owned power plants.
Bangladesh's installed power generation capacity now stands at 11,683MW with daily production hovering around 6,500MW, according to Bangladesh Power Development Board.
A development which enables the environment towards a regional power market is the introduction of power exchanges in India--such as the Indian Energy Exchange and Power Exchange India Ltd.
Such power exchanges would provide space for a market place allowing the transactions to be based on demand and supply between buyers and sellers.
“Extension of these exchanges to encompass the interconnected South Asia region would present a good market place for producers and buyers in neighbouring countries to sell and buy power anywhere in the region. Such exchanges would naturally improve investor confidence in the power sector in the region.”
It said most countries in South Asia experience exponentially growing demand coupled with power shortages.
For instance, Bangladesh and Nepal have significant energy shortages at present and could have benefited immensely if all the power systems were connected and operated through a regional power exchange where surplus power from other countries can be traded.
“Such operation through a power exchange will help the development of the Nepal hydropower sector in the long term since transactions under such operation will be equitable and transparent based on the power exchange operational rules.”
“This will take away one of the major concerns of Nepal where there is doubt on equitable treatment of power traded when the trade occurs based on bilateral agreements.”
Further, India has large power needs with rapidly increasing demand for its fast growing economy and increasing rural electrification.
In the case of Sri Lanka, in the future it is likely to face peak-load generation shortages while its base-load generation will be in excess. At the same time Bangladesh will also experience both peak and base-load generation shortages in the future.
“Therefore any interconnection with India will be able to ease this situation in Bangladesh and Sri Lanka with long term access to Indian power market.”