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The Consultant’s final report is a document of a team of consultants. The views expressed herein do not necessarily represent those of ADB's Board of Directors, Management, or staff, and may be preliminary in nature. Your attention
is directed to the “Terms of Use” section of this website.
Consultant’s Final Report Project No. 43224 Final Report Jun 2013
RETA 7529- Study on South Asia Regional Power Exchange Prepared with the Assistance from Asian Development Bank
ADB RDTA 7529: South Asia Regional Power Exchange Study Page ii
Study on a South Asia Regional Power Exchange
Prepared with assistance from
Asian Development Bank
June 2013
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 3
Disclaimer
The views expressed in this publication are those of the RDTA 7529 Project Team consisting of
external consultants appointed by the Asian Development Bank (ADB), and do not necessarily
reflect the views and policies of South Asia Association for Regional Cooperation (SAARC), ADB,
its Board of Governors, or the governments they represent.
This Final Report (“Report) is prepared for the purpose of disseminating findings under the RDTA.
The project team incorporated feedback from representatives of the SAARC Member States and
the SAARC Energy Centre to finalise the report.
By making any designation of or reference to a particular territory or geographic area, or by using
the term “country”in this document, SAARC or ADB does not intend to make any judgments as to
the legal or other status of any territory or area.
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 4
Preface
Since the 12th SAARC Summit in 2004, the political leadership in SAARC Member States has put Energy Cooperation on top of its agenda. The SAARC Heads of States have emphasized that for accelerated and balanced economic growth, it is essential to strengthen energy cooperation in the South Asia region.
The SAARC Regional Energy Trade Study (SRETS), carried out with the
assistance of Asian Development Bank (ADB) and published in March 2010, recognized the benefits of establishing a regional power market for enhancing regional energy trade in the SAARC region. Upon SAARC Secretariat’s request, ADB submitted a Concept Paper for Technical Assistance (TA) to undertake a study on a Regional Power Exchange. The 37th session of the Standing Committee, held in Thimphu in April 2010 approved ADB’s proposal to undertake this study.
The SAARC Regional Power Exchange Study (SARPES) has thus been carried out with the assistance of the Asian Development Bank (ADB). The SARPES Report analyzes the mutually beneficial economics of a SAARC-wide interconnected ‘power system’ towards the utilization of the vast hydro-electric potential in Nepal, Bhutan, and Central Asia to meet growing demand in other parts of the system. The Study has conducted a thorough techno-economic analysis of cross-border power trading around six proposed interconnection and grid reinforcement projects covering almost all SAARC Member States. Given the huge potential of enhancing cooperation within the region through SAARC’s platform, I believe that implementation of the recommendations contained in this Study, will be a big step forward in bringing the Member States further closer together and reaping the economic benefits of such a collaboration. I commend the consultants for their efforts in collecting and analyzing the relevant data and finalization of the draft. Especially, I would like to commend the Energy Experts from SAARC Member States for their inputs and invaluable comments, and the Lead Consultants for playing a vital role in preparing this Study. We have always received all-out support and cooperation of the ADB, which I fully appreciate, and believe that this cooperation will continue in the future as well, towards a more developed South Asian Region.
Ahmed Saleem Secretary General of SAARC
June 2013
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 5
Acknowledgement
The South Asia Regional Power Exchange Study (SARPES) was conducted and
the final report was prepared under the overall guidance of Asian Development Bank
(ADB) team led by Dr. Priyantha Wijayatunga, Unit Head, Portfolio Management Unit,
Nepal Resident Mission (formerly with the South Asia Energy Division) supported by
Dr. P. N. Fernando (Senior Advisor to ADB on the study) who provided overall guidance
and valuable inputs on technical matters.
The team of experts led by Dr. Debabrata Chattopadhyay (Team Leader and
Power System Economist) and consisted of Dr. Anoop Singh (Power Sector Legal and
Regulatory Specialist) and Mr. Ricardo Austria (Power System Planning and Control
Specialist) conducted the study. Mr. Ravinder (Chief Engineer, Central Electricity
Authority, India) made available the load flow and planning data for the Indian power
system which were central to the analysis carried out in the study. Mr. S.K. Soonee (Power
Grid Cooperation Limited, India) provided extremely useful insights on the Draft Final
Report.
The administrative support from ADB was coordinated by Ms. Carmencita Roque,
Project Officer, South Asia Energy Division along with Ms. Annie Vizcarra (Consultant)
during all the activities of the technical assistance project.
Officials, individuals and organizations of the SAARC Member States, SAARC
Energy Centre led by Mr. Hilal Raza provided their support in different forms in carrying
out this study. Their critique, as well as endorsement, assisted in better articulation of the
analysis, conclusions and recommendations presented in this report. The overall
coordination on behalf of the SAARC Secretariat was carried out at the initial stages of the
study by Mr. Ghulam Dastgir (former Director Pakistan) and later by Mr. Ahmar Ismail
(Director Pakistan) with the support of Mr. Shabbir Ahmad.
South Asia Energy Division of the Asian Development Bank (ADB) extended the
required financial and coordination support for undertaking and successfully completing
this study.
SAARC Secretariat gratefully acknowledges the support extended by all these
individuals and institutions for their respective inputs in finalising the SARPES report.
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 6
List of Abbreviations AERA Afghanistan Electricity Regulatory Authority ATE Appellate Tribunal for Electricity BEA Bhutan Electricity Authority BERC Bangladesh Energy Regulatory Commission BPC Bhutan Power Corporation BPDB Bangladesh Power Development Board CEA Central Electricity Authority CEB Ceylon Electricity Board CERC Central Electricity Regulatory Commission CPGCL Central Power Generation Company Limited DABM Da Afghanistan Breshna Moassessa DABS Da Afghanistan Breshna Sherkat DVC Damodar Valley Corporation ETFC Electricity Tariff Fixation Commission USE Expected Unserved Energy (or USE – unserved enrgy) GJ Giga Joule GW Giga Watt IEX Indian Energy Exchange IGCs Isolated Generation Companies IPP Independent Power Producer JPCL Jamshoro Power Company Limited KESC Karachi Electric Supply Company Limited LECO Lanka Electricity Company (Pvt) Ltd LPGCL Lakhra Power Generation Company Limited MW Mega Watt NEA Nepal Electricity Authority NEEPCO North Eastern Electric Power Corporation NEPRA National Electric Power Regulatory Authority NHPC National Hydro Power Corporation NLDC National Load Despatch Centre NPC Nuclear Power Corporation NPGCL Northern Power Generation Company Limited NPPs Nuclear Power Producers NTDC National Transmission and Dispatch Company PGCB Power Grid Corporation of Bangladesh PGCIL Power Grid Corporation of India Limited PPA Power Purchase Agreement PSS/E Power System Simulator for Engineers PUCSL Public Utilities Commission, Sri Lanka PXIL Power Exchange India Ltd. RLDC Regional Load Despatch Centre SAARC South Asian Association for Regional Cooperation SAME SAARC Market for Electricity SEB State Electricity Board SERCs State Electricity Regulatory Commissions SHYDO Sarhad Hydel Development Organization SLDC State Load Despatch Centre SLEA Sri Lanka Electricity Act, No. 20 of 2009 TWh Terra (Trillion or 10
12) Watt hours
WAPDA Water and Power Development Authority
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 7
Executive Summary
This Final Report (FR) summarises the findings of the RDTA 7529: South Asian Regional
Power Exchange Study by refining and enhancing the analysis given in our Draft Final
Report based on the comments received on it at the Inter-governmental Meeting held in
Manila on 1-2 November, 2012. The study focuses on cross-border power trading among
the Member States in the SAARC region to efficiently balance available resources and
demand throughout the region. It also considers the possibility of the SAARC region
benefitting from power trade with Central Asia through the proposed Central Asia-South
Asia (CASA 1000) transmission development. We have analysed the economics of a
SAARC-wide interconnected power system to utilise major hydro potential in Nepal,
Bhutan, and Central Asia to meet growing demand in other parts of the system including
India and Pakistan. We have conducted a techno-economic analysis of cross-border
power trading for 2016/17 around six proposed interconnection and grid reinforcement
projects covering all SAARC Member States except Maldives, which is unlikely to be
connected to other power systems given its low load (below 100 MW) and remote location.
Our analysis includes power flow studies to establish power transfer limits among India
and its neighbouring countries. We have relied on the CASA 1000 study to define power
transfer capability between Afghanistan and its neighbouring countries including Pakistan.
Cost-benefit analysis of the proposed interconnection and grid reinforcement projects
forms the core of the study. The study concludes with identification of areas where the
legal and regulatory frameworks of the seven SAARC member countries involved need to
change to facilitate large-scale cross-border power trading in future.
Interconnected power systems can deliver significant economic, reliability and
environmental benefits for all sub-systems. Interconnection among SAARC country power
systems presents a potent opportunity given the proximity of the transmission networks of
its Member States in many cases, and the significant variation in natural resources and
demand across the regions. The power systems of India, Bhutan and Nepal are already
interconnected, but have so far elicited only a small part of the potential benefits. If we
consider a closely interconnected India-Bhutan-Nepal system, for instance, it would help to
unleash the significant hydro potential that exists in Bhutan (10 Giga Watts or GW in this
decade) and Nepal (42GW of hydro potential) to meet rapidly escalating demand in India.
Cross-border power trading can even extend beyond the SAARC region. For instance, if
we consider the proposed Central Asia-South Asia power transmission development
(CASA 1000) in conjunction with the proposed transmission link between India and
Pakistan, it is possible for surplus hydro from Tajikstan, Afghanistan and Kyrgyz Republic
to feed rising demand for power in Pakistan and India. Power exports from the hydro-rich
regions can not only reduce growing power shortages in India/Pakistan due to coal/gas
supply constraints, but also contribute to a significant reduction in environmental
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 8
emissions. Interconnectors also provide a cost effective way to enhance reliability for all
sub-systems, and delay, or reduce,the longer term need for capacity to maintain reliability
standard for individual sub-systems.
The present study is a continuation of ADB’s efforts to encourage an interconnected
SAARC grid that started with its South Asia Regional Cooperation Strategy Program in late
2006. The high voltage transmission networks among some of the SAARC countries are
already interconnected. Additional high capacity lines and grid reinforcement projects are
in various stages of development. However, these developments have come about in a
sporadic fashion. A well-orchestrated effort to maximise economic, reliability and
environmental benefits for the overall system is lacking. With the exception of India-
Bhutan, rest of the interconnection opportunities have at best been ad-hoc arrangements
with a short-term focus, or projects in concept stage for many years. There have been
limited efforts to develop an interconnected SAARC grid that offers significant benefits to
all participating countries/regions, and augment wider transmission developments such as
CASA 1000.
There are indeed technical, commercial, economic and regulatory/legal issues that need to
be addressed to support the development of an interconnected SAARC grid. Nonetheless,
as the limited interconnection experience between India and Bhutan/Nepal shows, it is
certainly feasible to tackle these issues. If an interconnected mode of operation
endangers system security because of frequency problems in one or more sub-systems,
there are established technology options, such as asynchronous HVDC links, to enable
such systems to exchange power. Development of independent power producers in all
countries and power trading firms in India provides a supporting mechanism to achieve the
economic benefits. These developments have already shown that given the abundance of
relatively inexpensive power in one region and demand in the other, commercial
arrangements can be put in place for both sides to enjoy the gains of trade in a mutually
acceptable manner. Regulatory processes and legal frameworks would also need to
embrace these developments to ensure that the regulatory/legal regimes can co-exist and
be harmonised to form a common framework that supports interconnected operation and
significant investment that would go in enhancing such interconnections in future.
A promising development that has taken place in recent years is the introduction of Power
Exchanges in India including the Indian Energy Exchange (IEX) and Power Exchange
India Limited (PXIL). These developments go some way in addressing the commercial and
regulatory/legal issues, albeit the operation of those exchanges currently deal with inter-
regional/state issues within India, rather than at an international level. Nevertheless, a
modern power exchange framework provides a “fair, efficient, robust and quick” price
discovery process creating an orderly market place for all buyers and sellers. Extension of
existing Power Exchanges is considered a feasible option to deal with cross-border power
trades. Assuming that the regulatory/legal developments would allow such trades, it would
immediately present producers/buyers in other countries to sell/buy power through an
open and competitive market.
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 9
The long-term prospect of large-scale power trading among SAARC countries would,
however, ultimately be driven by sound economics that would in turn depend on the
demand-supply balance in each of these countries. Hydro resource development in
Bhutan, Afghanistan and Nepal would, for instance, be an attractive proposition only if
demand in India is sufficiently high and the delivered cost of power is economic relative to
India’s own (predominantly thermal) resources. The economic rationale would differ from
country to country. For instance, power exchange prospect between India and Pakistan
have been officially revisited since April 2012 in light of significant power shortage in
Pakistan. There is a proposal for transfer of power in the short term driven primarily by the
need to improve supply reliability in Pakistan. Power exchange between Sri Lanka and
India may involve more of a “two-way” exchange with India providing peaking support to
Sri Lanka. On the other hand, Sri Lanka may have surplus off-peak power that may
economically be utilised to displace thermal generation in India. While some analyses
have been undertaken in the past to quantify economic benefits, including a Pre-feasibility
Study for a India Sri Lanka HVDC Link in 2006, the full extent of benefits from cross-border
trading has not been comprehensively studied to the best of our knowledge. Also, factoring
in the increased hydro power export opportunities for Bhutan and Nepal, as well as
possible two-way power flow between India and Bangladesh in the longer term, we note
the importance of a holistic consideration of power trading among all SAARC regions, with
the exception of Maldives due to its location and very small load. In fact, cross-border
power trading in the SAARC region can complement other developments in Central and
West Asia. To this end, it is also useful to consider the possibility of surplus hydro from
Tajisktan and Kyrgyzstan during summer to augment peaking supply in Pakistan and
India.
In the context of the current nascent state of cross-border power trading among the
SAARC nations, and the development of Power Exchanges in India, the RDTA 7529 study
has addressed a key set of economic/commercial, technical and legal/regulatory issues.
The study included extensive data collection, load flow modelling, economic analysis and a
review of the legal/regulatory framework. We have focused on the potential development
of a “Regional Power Exchange” that would facilitate cross-border power trading through a
market driven process. In particular, the scope of the study included six core tasks that are
addressed in this Final Report as shown in Table 1.
In the remainder of this Executive Summary, we have summarised five key questions and
answers below that also directly represent the structure of the main report, and summarise
our key conclusions and recommendations.
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 10
Table 1: Coverage of six tasks in the report Task Coverage in this report
Task 1: An overview of each of the SAARC
country power systems from technical,
economic, regulatory, legal and
organisational perspective. This will also
include development of a roadmap of
power system interconnection
development based on a high level power
system and economic modelling.
Chapter 1 and Appendix A covers an overview of
SAARC country power systems including a roadmap of
power system interconnection development. We have
discussed the hydro potential in the region, including
untapped hydro resources in Nepal, Bhutan and
Afghanistan, which can be a major economic driver
behind large-scale cross-border power trading. Surplus
capacity including new hydro projects can support
deficient Member States that currently include
Pakistan, India and Bangladesh. Chapter 1 also
includes an introductory discussion on the Power
Exchanges in India that Chapter 2 expands on, to
develop the discussion on a common template for
cross-border power trading. The first half of Chapter 5
extensively discusses the legal, organisation and
regulatory aspects for each Member State. Chapter 3
includes a discussion on technical aspects of each
power system.
Task 2: Developing a model structure of
the cross-border electricity trade that will
involve distilling the core power system
economic dispatch data, economic benefits
and costs into a common template.
Chapter 2 expands on the SRETS recommendation to
extend the existing power exchange model in India to
include cross-border power trading. We have first
reviewed the features of power exchange including
bidding, dispatch, market clearing and congestion
management schemes. We have then drawn
conclusions on relevance of this model as a common
template for the SAARC region to deal with power
trading among Member States.
Task 3: Benefit of interconnection among
SAARC countries using a suitable power
system planning model.
Chapter 4, in conjunction with Chapter 3, of the report
discusses the methodology to assess economic benefit
of interconnection, following the international regulatory
best practices. The chapter then discusses a detailed
cost-benefit anlysis for six major interconnection
projects across all SAARC Member States, barring
Maldives for reasons discussed in subsection Error!
Reference source not found..
Task 4: Technical studies on the power
systems to develop an understanding of
the compatibility of power system reliability
and security standards across the power
systems of SAARC Member States.
Depending on the availability of power flow
database, this may include load flow
studies for reduced power systems in
some or all SAARC regions, where the
economic benefits are significant.
Chapter 3 presents a technical study on transfer
capability between India and its neighbouring
countries. It is developed around a set of detailed load
flow databases. We have also drawn from existing
studies such as CASA 1000 for relevant flow limits in
Central Asia and Pakistan. Transfer capabilities
developed in this chapter are an input to the economic
benefit assessment presented in Chapter 4.
Task 5: Analyse the legal and regulatory
environments of the Member States with
respect to the power system structures and
in relation to existing cross-border power
trade. It will also examine the legal and
Chapter 5 first discusses the legal and regulatory
environment for each of the Member State. We have
then identified specific areas in relevant electricity laws
and regulatory proviso to accommodate cross-border
power trading.
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 11
regulatory requirements and procedures
needed for proposed cross-border power
trade enhancement.
Task 6: The final task would be to collate
findings of the five tasks and the Interim
Report into a final report and proceedings
of the dissemination seminar.
This Final Report refines and extends the analyses
presented in the Draft Final Report and the Interim
Report. In addition to Chapters 1-5 that address Tasks
1-5, we have discussed our conclusions and way
forward to give shape to a SAARC-wide grid that was
envisioned in SRETS.
Why should one consider a South Asian Regional Power Exchange to enhance the present status of cross-border power trading and what would be the key drivers for such enhancement?
• An overall reduction in UnServed (electrical) Energy, or USE, in the SAARC region can
potentially avoid economic loss worth billions of dollars every year. At present, some of
the countries experience significant power shortages. As the demand for power is likely
to rise significantly over the years, it would immensely help to harness economic power
generation potential (including mega hydropower projects) and develop “scale-efficient”
transmission to bring the generated power to major load centres. The extent to which
USE benefits are recognised, however, is a policy decision in the hands of policy
makers in individual countries.
• Nepal, for instance, faces significant peak and energy shortages at present and could
benefit from access to surplus power if there were a Regional Power Exchange already
in operation. Also, the development of its significant hydro potential in future could be
supported through such a Power Exchange for other countries to buy power on a fair,
transparent and equitable basis.
• Power exchange between India and Bhutan, currently at around 5,600 GWh pa, is far
in excess of Bhutan’s own electricity requirements,and provides an indication of the
potential for large-scale power transfers. It also demonstrates the technical and
commercial feasibility of such power trade.
• Although Bhutan has already commenced the process of tapping its excellent hydro
potential in joint collaboration with the Indian authorities, the current capacity
represents a fraction of what can be achieved in the long run. The National
Transmission Master Plan for Bhutan prepared by Central Electricity Authority (India),
for instance, identified more than 10,000 MW of new hydro potential that can be
delivered through a large grid reinforcement project by 2020, as part of a larger
development for the period leading up to 2030. An efficient multilateral trading platform
such as a Regional Power Exchange would facilitate the commercial transactions and
support such development to its fullest potential. A Regional Power Exchange would
facilitate a natural progression of bilateral power trading arrangements, such as the
India-Bhutan trade, to a multilateral trading environment through proven market-based
efficient price discovery processes, to the benefit of all buyers and sellers in the region.
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 12
• Indian power demand is anticipated to grow from the FY 2011 level of 933 TWh pa to
1,390 TWh pa in about five years, i.e., an increase that would require the addition of
nearly 100,000 MW of new capacity. Two-third of India’s electricity generation comes
from thermal resources predominantly in the form of coal. There is already a significant
gap between demand for coal and what Coal India Limited (CIL) can provide. This is
likely to lead to a situation where part of the coal-based generation capacity is partly, or
fully, stranded. In fact, it has been estimated that up to 42,000 MW of coal-based
capacity may face coal shortage by 2016/17. If this leads to a supply shortfall, the cost
to the economy can be very high and cross-border power import can be very
beneficial. Eliminating an unserved demand of just 0.1% of the total electricity demand
in 2016/17, translates into 1,390 GWh. Valued conservatively at USD 555 per MWh
(or Indian Rs 25 per unit), this equates to an annual benefit of USD 771 million.1
• Although Pakistan and Bangladesh at present have no interconnection with India, or
other SAARC countries, these countries have relatively limited local generation
development potential. Pakistan and Bangladesh currently face severe peak and
energy shortages. Sri Lanka does not have any major shortage at present, but it has to
rely on imported coal to meet its future demand growth. Electrical interconnection with
India can provide relief for these countries. There have been policy discussions
underway to support the development of a regional power exchange.The SAARC
Regional Energy Trade Study (SRETS) had, for instance, identified the options,
benefits and constraints of increased energy trade in South Asia that included the
potential for cross-border power trading to, inter alia, reduce unserved energy.2 One of
the specific recommendations of the March 2010 SRETS Report included fast-tracking
of cross-border interconnection projects that had already been identified.
• Major transmission infrastructure that exists today for cross-border power trading is
limited to India-Bhutan interconnectors that consists of three 220 kV lines for the
Chukha hydro project, and two 400 kV double-circuit lines that connect the Tala hydro
project with India (West Bengal). There are also three 132 kV lines between Nepal and
India.
• There are several major interconnection projects that are in different stages of
development from a conceptual stage to pre-feasibility/feasibility, and construction. All
these (proposed) projects are being developed around the major power market in India
connecting India with Bhutan, Nepal, Bangladesh, Pakistan and Sri Lanka. An HVDC
back-to-back asynchronous link between India and Bangladesh is currently under
construction and is scheduled to be commissioned in July, 2013. There are extensive
1 Tata Energy Research Institiute, Cost of Unserved Energy, prepared for the World Bank, TERI Report #98PG42.
Chattopadhyay and Schnittger (2008) present a wider review of cost of unserved energy that is specifically used for transmission planning in different countries. It shows even in developing nations such as Thailand, the value of USE/USE is higher, e.g., around USD 1500 per MWh in Thailand in 2001. Developed nations use much higher value of unserved energy in several thousand dollars per MWh. See Investigation of Value of Unserved Energy, prepared for the Electricity Commission of New Zealand, http://www.ea.govt.nz/.../our.../investigation-of-the-value-of-unserved-energy/ 2 SAARC Secretariat, SAARC Regional Energy Trade Study, March 2010, Kathmandu, Nepal.
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 13
grid reinforcement projects currently underway to allow greater transfer between India
and Bhutan. There are also proposals to develop a HVDC link with Sri Lanka and 400
kV AC links with Nepal. Discussions on power trading between India and Pakistan
have resumed in April 2012 after the initial discussions in the late nineties had stalled
due to a disagreement over tariff. There is currently a proposal for India to export up to
500 MW power over a proposed 220/400 kV HVDC transmission line. Pakistan is also
expected to be interconnected with Afghanistan, Tajikistan and Kyrgyzstan by 2016/17
through the CASA 1000 project that would give it access to as much as 1,300 MW of
peaking power during summer months.
• As part of our present analysis, we have focused on the near term opportunities for six
interconnection projects around demand-supply scenarios for 2016/17. Table 2 lists
these projects that form our basis for technical and economic assessment.
Table 2: Interconnection projects selected for case studies
No. Interconnection Description Capacity (MW) Cost (USD
million)
1 India-Bhutan Grid reinforcement to evacuate power from Punatsangchhu I & II
Total grid reinforcement of 2,100 MW
140-160 (2010 estimate)
2 India-Nepal Dhalkebar-Muazaffarpur 400 kV line
1,000 MW 186 (2010 estimate) including internal transmission upgrade
3 India- Sri Lanka HVDC line with sub-sea cable
500 MW in the short-term
339 (2006 estimate) 600 (current)
4 India-Bangladesh HVDC back-to-back asynchronous link
500 MW 192-250 million (2011 estimate)
5 India-Pakistan 220 kV in the short term, 400 kV/HVDC in the long term
250-500 MW 50-150 million (2012 estimate)
6 CASA 1000 and India-Pakistan interconnection
HVDC and 500 kV HVAC for CASA
1300 MW Approx 1 billion (2011 estimate)
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 14
What are the salient features of the current power exchanges in India and can these be generalised to form the basis of a Regional Power Exchange to support cross-border power trading?
• Once the SAARC Member States form an interconnected system, cross-border power
trading would benefit immensely from an open market place that facilitates efficient,
close to real time, transparent and reliable prices. It would also boost investor
confidence to develop generation projects. In fact, one could argue that the price
discovery mechanism may even virtually precede the physical interconnection to pre-
emptively develop an idea of what prices in neighbouring systems may eventually
transpire. Even the mere presence of a price for a commodity sends useful signals to
prospective buyers and sellers who can make informed business decisions to engage
in a trade once the physical interconnection is put in place. There is little doubt that a
SAARC-wide system would benefit from having power traded through some form of
market mechanism. It however raises the question on the form of market mechanism
that is suited for the region. As the SRETS had envisioned, SAARC Regional Power
Exchange in all probability is likely to be an extension of the current Indian Power
Exchange model including one, or more, of the current Exchanges extending its
function to include cross-border power trading. Our own review of the power markets
also suggest there are two broad paradigms, namely a pool model and a power
exchange/contract trading model. Although they differ to some degree, they both
ultimately serve the purpose of efficient price setting and both have demonstrably been
successful models. We have also noted that in a vast majority of the cases, countries
have adhered to a single model because, as the example of Great Britain showed, a
switch can be a rather expensive affair. Given that India has already embarked on
developing an internal power market, and that there are successfully operating Power
Exchanges for more than three years, it is prudent to explore how/whether cross-
border power trading can develop around the existing Power Exchanges in India.
• A SAARC-wide Regional Power Exchange would ultimately need to serve two main
objectives, namely:
o Short term day-to-day dispatch and pricing functions. We need to know what is
the form of data that participating Member State power system bodies need to
furnish and how the market clearing process works. We have reviewed below
the existing Power Exchanges in India in order to address these issues and
further explored how these Power Exchanges can provide a common template
for economic dispatch and associated cross-border power trading; and
o The longer term economic regulatory framework to identify and encourage
efficient investment in new interconnection. While the short-term processes of
setting efficient locational prices in real-time in itself paves the way for new
interconnection, there are often explicit regulatory mechanisms to test the
efficacy of specific investment proposals. Developing a template for
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 15
interconnectors to continue and enhance cross-border power trading going
forward is, therefore, an important aspect of the current work. The following two
sub-sections in this Executive Summary addresses the economic cost-benefit
analysis for a set of proposed/anticipated cross-border transmission projects.
• Power Exchanges in India represent one of the two mainstream electricity market
models around the world. There are two Power Exchanges in India that act as clearing
houses for a range of electricity contracts including day-ahead, term-ahead and
renewable energy certificates. Participation in the exchanges is voluntary. A third
Power Exchange is being set up.
• Basic objectives of a power exchange that are enshrined in the Regulatory Framework
under the Electricity Act, 2003 are as follows:
1) Ensure fair, neutral and robust price discovery;
2) Provide extensive and quick price dissemination; and
3) Design standardized contracts and work towards increasing liquidity in such
contracts
These objectives mark an improvement over the efficacy of a bilateral trading
arrangement between two parties, although Power Exchanges also retain the flexibility
to engage into such trades. Nevertheless, the full potential of a Power Exchange does
involve striking a trading deal that is highly transparent to the market with a dynamic
discovery of price, subject to a set of rules of the game that applies to all players in the
market. These are indeed very attractive features for both buyers and sellers of power
that sets apart an electricity market from purely bilateral contracts. Market
arrangements and prices provide a level playing field and a useful benchmark for
investors, generators and purchasers. An extension of Power Exchanges to deal with
cross-border trading has its attractions because the vast potential for such trading
could only be unleashed if developers of generation and buyers of power could both
have confidence in a system that is fair, transparent, reliable and represents the state-
of-the-art technology.
• The operations of power exchanges are segregated into Day Ahead Markets (DAM),
Term Ahead Markets (TAM) and Renewable Energy Contracts (REC) Market. The
exchanges provide automated trading facility to all their members. A trading session in
the day-ahead market typically involves the following steps:
1) Order accumulation: The trading platform receives buy and sell bids from
members/traders.
2) Provisional bid matching process: The received bids are then matched in
accordance with the “order matching algorithm” that is governed by the market
rules.
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 16
3) Accounting for constraints in transmission infrastructure: All trades are adjusted
as per the requisition submitted by the exchange and scheduled by the National
Load Dispatch Centre (NLDC)/Regional LDCs/State LDCs.
4) Final bid matching process: The final trades are determined and sanctioned
after transmission constraints are accounted for.
• There are three main segments of the market, namely:
o The Day Ahead Market (DAM) deals with daily contracts;
o Term Ahead Markets (TAM) include day ahead contingency, intraday, daily and
weekly contracts. The market clearing process for each of these contracts differs
as defined in the detailed market rules set by the Central Electricity Regulatory
Commission (CERC, India). There are also provisions for introducing new products
within the parameters of the rules which offer additional flexibility; and
o Renewable Energy Certificates (REC) market allows for trades in renewable
certificates.These certificates are introduced to support the renewable energy
target in India. Operations in this market commenced in July 2011. The rules in the
REC market are different from DAM and TAM. The presence of a market for
renewable is an encouraging development for small hydro, solar and wind
generation developers in the region.
• The bids or orders that can be placed by the traders/members on the automated
trading facility of the exchanges can be classified into the following categories:
o Single/Normal Bid: Single or normal bids specify multiple sequences of price and
quantity pairs to form a portfolio.
o Block Bid: Block bids specify one price and one quantity for a combination of
continuous hourly time blocks i.e., same quantity, at one particular price for multiple
time slots.
o Other Bids: The exchanges can, and do, introduce other types of bids as per the
requirement of the market. These are often driven by the need to distinguish
between the priority of orders (e.g., fixed and optional orders at PXIL), or orders
restricted by time and execution (e.g., in Term Ahead Markets of IEX).
• The trading mechanisms available in the existing power exchanges are summarised
below:
o Uniform price auction: All buy bids are summed at each price point and similarly for
the sell bids to obtain the aggregate demand and supply curves.
o Continuous bidding: Participants submit buy and sale offers on a continuous basis
during the trading period and they are matched on immediately with
price/time/volume priority, or on a pro-rata basis.
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 17
o Discriminatory price-double sided auction: Buyers place orders by specifying their
priority. High priority buy orders are considered first and the matching proceeds in
that order from high to low priority buy orders.
• As the discussion above suggests, the existing Power Exchanges offer considerable
flexibility in product offering, timeframe and auctioning modes. Given the nascent
nature of trading among the states/regions in India, such flexibility is highly desirable to
ensure greater participation and increasing the liquidity in the market over time. The
experience to date suggests both exchanges are functioning well to this end.
• The potential for current power exchanges to take regional power trading to the next
level was noted in the SRETS – for instance: “In the case of SAARC, bilateral trade
arrangements, though limited to a few Member States, already exist. Applying the
same approach in the region, the Member States may consider graduating these
bilateral trade arrangements to multilateral trade arrangements. For instance, in case
of electricity, interconnections already exist between India-Bhutan and India-Nepal.
Further, India already has two working level exchanges namely Indian Energy
Exchange (IEX) and Power Exchange India Limited (PXIL). Various power producers
and buyers in all the Member States within SAARC may consider participating in these
exchanges for promoting regional electricity trade”.
• However, a power trading platform is only one of the components necessary for
regional cooperation. As developments in other parts of the world have demonstrated,
the need for targeted policy formulation to eventually drive institutional developments
such as transmission system operators, streamlining the regulatory and legal
framework for rules to be uniformly applicable across all jurisdictions and coordination
of planning to ensure efficient investment, are important issues that need to precede a
successful integration. The technical feasibility, i.e., adequate transfer capability in the
high voltage (HV) network, and economic desirability are also paramount.
Is cross-border trading feasible given the demand-supply balance in India and the transfer capability among states and at the borders?
Power transfer capabilities are a measure of the ability of the transmission system to
support power exchanges. For this reason, determining the transmission grid’s power
transfer capacity is important to establish viability of a market framework. Power transfer
limits function like traffic signals that identify whether transactions are supported by the
transmission system infrastructure, or not. Unsupported transactions may lead to
uneconomic alternative transactions, or unserved load.
For our present assessment, transfer capacities are calculated for 2016/17, with a grid that
interconnects India, Bhutan, Bangladesh, Nepal and Sri Lanka. We have derived a load
flow dataset in PSS/E© (Power System Simulator for Engineers – a proprietary software of
Siemens Power Transmission and Distribution, USA) format to undertake our analysis.
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 18
The load flow data has been primarily sourced from the Central Electricity Authority (CEA)
in India. This “future system” features a combined grid which is more than double the size
of the individual grids of 2009. A major effort is involved in the development of an
appropriate model that incorporates projections for future generation and transmission
expansion of all sub-systems.
This composite model is organised into nodes that represent states, territories and
countries in the future Exchange market. Each node may undertake power exchange with
any other node if there is sufficient power transfer capability to render such transfers both
economic and secure. An analytical method determines the transfer capacity of all
possible transactions. The methodology involves a two-step technical process. First, the
thermal transfer capability limit dependency is checked using a technique that increases
the flow on an interchange, while holding all other interchanges constant, until the
operating limit for thermal loading for any link of the whole transmission system is reached.
Second, “loadability curves” are applied to account for the effects of transmission distance,
voltage level and use of technology such as, static VAr compensators (SVC) and
series/shunt compensation on the transfer capability limit. Finally, a reduced equivalent of
the composite grid is developed to support the economic cost-benefit analysis (using the
NATGRID, an optimisation-based planning model, as discussed later).
The power transfer limits for the cross-border trading are summarised in Table 3. This list
includes only those maximum transfers that may occur between neighbouring
countries/sub-regions. Table 3: Summary of transfer limits for 2016/17 system model
FROM Zone (A) TO Zone (B) A����B B����A
Zone # Name Zone # Name MW MW
65 Bhutan 43 India (Sikim) 4200 5300
65 Bhutan 51 India (Assam) 2100 2600
65 Bhutan 52 India (Northeast India) 1800 1500
70 Bangladesh 41 India (West Bengal) 500 500
90 Sri Lanka 34 India (Tamil Nadu) 500 500
40 India (Bihar) 80 Nepal 1000 1000
12 India (Punjab) 100 Pakistan 250/500 250/500
100 Pakistan 101 Afghanistan 1300 1300
The next step in the analysis is to incorporate the power transfer limits into a reduced
equivalent power system model for the NATGRID model to undertake an economic
analysis of new cross-border interconnectors.
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 19
What are the economic benefits of cross-border trading in the near term?
As discussed at the outset, merely ensuring technical feasibility or having a trading
platform ready, does not provide sufficient rationale for cross-border trading. Economics of
cross-border trades need to be understood taking into account demand-supply scenarios
and cost of generation in each region. We have undertaken a detailed modeling study to
assess economic benefits that provides the basis for a cost-benefit analysis of
interconnection projects.
Methodology for Economic Benefit Assessment
There are two main analytical components underlying the economic analysis:
1) An AC load flow analysis undertaken using PSS/E that considers the power flows
in India with its neighbouring countries including Sri Lanka, Nepal, Bhutan and
Bangladesh represented as external nodes. We obtained the PSS/E database for
2016/17 from CEA, India and used it to develop an equivalent network for the
Indian power system. We have added Pakistan and Afghanistan as additional
external nodes for our case studies on Pakistan and CASA, respectively; and
2) An investment planning model (NATGRID) that also simulates the optimal
operation of the system. We have run the transmission constrained NATGRID
investment/dispatch optimisation for 2016/17 with and without each of the six
interconnection projects. The benefit of each project is calculated as the reduction
in system cost, i.e., the difference in system cost between these two scenarios.
We have considered each interconnector as a stand-alone development, i.e., we do not
consider the combination of interconnector projects, except for India-Pakistan together
with CASA 1000. The latter case study shows the potential for significant hydro from
Afghanistan, Tajikstan and Kyrgyzstan to meet demand not only in Pakistan but also in
India. While it would indeed make sense to consider additional combinations, , e.g.,
Bangladesh-India-Nepal and Bangladesh-India-Bhutan because there may be some
interaction among these projects, the time and effort involved would be very significant for
the incremental knowledge sought. We also note that in comparison to the size of the
Indian power system, each of these projects is relatively small (by almost two orders of
magnitude). Any inaccuracy introduced in the benefit due to a lack of consideration of
multiple interconnection benefits is therefore unlikely to be material to invalidate the broad
outcomes.
The NATGRID model is chosen because the model has been deployed in the past for cost-
benefit analysis of an Indian national grid in the nineties and the project team has ready access
to the model. NATGRID uses a linear programming model for investment and dispatch with a
DC approximation of load flow constraints embedded in the optimisation model. The
methodology used in NATGRID has been peer reviewed and well documented in leading
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 20
power system journals. We have also provided an extensive discussion on the mathematical
details of the model and a comparison with commercially available software so that individual
Member States may employ suitable models for their own analysis.
A power system interconnection asset would ultimately deliver benefits in one or more of
three major forms, that we have assessed using NATGRID, namely:
1) Reliability benefit: Avoided unserved energy costs to the extent the new
transmission asset lowers peak and energy curtailment in the importing region;
2) Operating cost benefits: Avoided cost of expensive fuel and operation and
maintenance (O&M) costs that the flows on the new line may displace in the
importing region; and
3) Capacity benefits: Any avoided cost of new capacity that the line renders
unnecessary that may include capacity needed to produce energy in the importing
region, or reserve capacity needed.
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 21
Estimates of Economic Benefits
Table 4 presents a summary of the most significant assumption and benefit/cost
estimates.
Table 4: Summary of all six case studies Case study Key assumption Total and annualised cost of
transmission
(USD million)
Annual benefit in 2016/17
(USD million)
India-Bhutan
grid
reinforcement
Puna I & II,
Mangdechhu and
Dagachhu (3,066
MW) power
evacuation to India
Total cost USD 140-160 million.
Annualised cost USD 18-20
million pa
Up to USD 1,840 million pa
including USD 336 million in
opex benefit and USD
1,504 million in unserved
energy reduction benefit
Nepal-India400
kV link
Two scenarios: (1)
Nepal builds all
planned projects
(2000 MW) to reach
surplus state; and
(2) 650 MW of
planned capacity
addition is delayed
i.e., deficit state
Total cost USD 186 million
including internal transmission
upgrade costs
Annualised cost USD 20 million
pa
Surplus state benefit of
USD 105 million pa(71
million in unserved energy
reduction and 34 million in
opex benefits)
Deficit state benefit of USD
215 million (173 million in
unserved energy reduction
and 42 million in opex
benefits)
India-Sri Lanka
HVDC link
Puttalam Stage 2
and 400 MW in new
hydro is added by
2016. But Trinco
(1,000 MW) coal
station is not
considered
Total cost USD 339 million (2006
estimate)
Annualised cost USD 50 million
pa (2010 estimate)
USD 186 million pa
comprising 96 million in
unserved energy reduction,
and 90 million in
fuel/capacity benefits
India-
Bangladesh
HVDC link
Three scenarios
around demand
growth in
Bangladesh that
range between
9,000 MW to 12,000
MW in 2016/17
Total cost range between USD
192 million to USD 250 million
Annualised cost of USD 25
million pa assumed for
cost/benefit analysis
Annual benefits range
between USD 145 million to
USD 389 million, depending
upon demand-supply
assumptions
India-Pakistan
220/400 kV
Link
Two scenarios both
using HVDC
technology: (a) Short
term 250 MW
transfer at 220 kV
(b) Medium/long
term 400 kV transfer
of 500 MW
Total cost of option (a) max USD
50 million for 220 kV option (45
km); and (b) Maximum USD 150
million for 400 kV option (similar
to Bangladesh line)Annualised
cost of (a) USD 6 million for 220
kV (b) USD 18 million for 400 kV
Annual benefit for 220 kV
transfer is USD 335 million
including USD 122 million in
fuel cost savings
Higher transfer via 400 kV
increases benefits to USD
491 million including USD
163 million in fuel cost
savings
CASA 1000 and
India-Pakistan
400 kV link
Two scenarios (a)
Base Case CASA
1000; and (b)
Additional 850 MW
hydro in Afghanistan
Cost of CASA project is USD 893
million and that for India-Pakistan
link max USD 195 million
Annualised cost of two projects
USD 110 million
Annual combined benefit of
two projects is USD 1,250
million for Base Case
including USD 906 in USE
cost reduction and USD 306
million in fuel cost savings
Annual benefit increases to
USD 1,340 million for
additional hydro scenario.
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 22
Note: Annualised cost includes capital cost of transmission projects calculated using a Weighted Average Cost of Capital of 7.5% and life of 30 years, and operation and maintenance costs (O&M) costs. We have also used annualised cost estimates directly for (a) India-Sri Lanka line based on PGCIL pre-feasibility study (2006); (b) CASA project cost estimates based on SNC Lavalin (2011); and part of the India-Nepal costs based on NEA (2011)
All six interconnection/grid reinforcement projects have significantly higher annual benefits
compared to the (annualised) costs of these projects. The India-Bhutan grid reinforcement
stands out as the most beneficial of the six projects mainly because it facilitates as much
as 2,100 MW of hydro capacity to become available at a modest (annualised cost of
transmission) of USD 20 million pa. Since the grid reinforcement actually allows for
additional surplus hydro energy from Western Bhutan, the project has the potential to
achieve USD 336 million pa in opex savings alone, even before we consider the enormous
savings that may result from a reduction in unserved energy. High benefits of India-Bhutan
interconnection amply demonstrate the ability of a Regional Power Exchange to unleash
the vast potential in the region. Short term power transfers between India and Pakistan
also has significant economic potential. In partcular, we have noted that the fuel cost
savings for a single year alone may pay for the transmission development. The CASA
1000 project in conjunction with an India-Pakistan 400 kV/HVDC link can also yield very
substantial savings exceeding USD 1 billion, primarily through a reduction in unserved
energy in Afghanistan, Pakistan and India. The other three projects also have very
attractive benefit-to-cost ratio, if USE benefits are included.
However, if USE benefits are not considered as part of overall benefits, the latter would be
confined largely to fuel (or “dispatch”) related cost savings. Then the break-even utilisation
level for a high cost link to recover an acceptable return on the investment may potentially
be very high. For example, if the India – Sri Lanka link costs USD 600 million and a pre-
tax real return of 8.5% is needed, the link will need to achieve an average utilisation in
excess of 80% for an average power generating cost differential of USD 15 per MWh
between the two countries. Since both systems will become pre-dominantly thermal over
the medium term with relatively expensive peaking generation on both sides, an average
price differential of USD 15 per MWh may not necessarily occur. In other words, absent
some way of recognising the USE benefits, the economics of the link are unlikely to be
favourable for the HVDC link connecting India and Sri Lanka, unless of course design
changes bring down the cost. The extent to which USE benefits are recognised is basically
a policy decision in the hands of the two countries.
What are the required changes to the regulatory and legal framework for the Regional Power Exchange to function?
Most of the countries in South Asia have a similar legacy as far as the power sector is
concerned. The power sector has historically been dominated by public ownership with
greater relevance for vertically integrated monopolies that generate, transmit and distribute
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 23
electricity to consumers. Changes in the policy and regulatory environment have led to
restructuring and reforms in the sector. These were aimed at improving the sectoral
performance and creating a space for private investment. While this has been more or less
a common feature across most of the South Asian countries, there is a mixed experience
as far as approach to introducing competition is concerned. Opening up of the sector to
competition in India has led to increased trading activities. This was supported with
significant policy and regulatory reforms that reduced entry barriers and, enabled open
access of transmission and distribution network. Recognition and licensing for trading
activities, and setting up Power Exchanges have led to the creation of a competitive
environment.
Given the difference in the stage of market reform across South Asian countries, the
approach to develop a regional market could begin by identifying a nodal agency to
engage in cross border trade to be followed by enhanced participation by identified
deemed licensees till the licensing is opened up. Given that participation on a Power
Exchange is feasible without a trading license as well, access to Power Exchanges in India
would accelerate regional power trading activity through such a competitive platform.
Given disparity in geenration profile, and load profile across the time of the day, day of the
week, season of the year as well as festivities, there is ample scope for trading of
electricity even in the presence of overall power shortages to ensure optimal utilisation of
existing generation resources. Development of cross-border transmission interlinakges
with adequate margin capacity to accommodate such trade beyond the bilateral
agreements would play a very instrumental role in this context.
Development of a regional power market in South Asia would enable optimal utilisation of
the region’s resources and help attract greater private investment in the power sector in
the region. The development of a Regional Power Exchange is dependent on a number of
legal and regulatory prerequisites. We have identified nine specific legal/regulatory
provisions to be added/ modified in the existing framework, or to be presented as a part of
new legislative initiatives in respective countries. Our views are summarised in Table 5
including merits/opportunities and demerits/challenges for priority areas.
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 24
Table 5: Important Regulatory/Legal Changes: Merits and Demerits/Challenges
Regulatory/Legal
changes
Merits / Opportunities Demerits / Challenges
1 Nodal Agency to
engage in cross-
border trading
An early takeoff for regional trade
possible.
Reduce shortage of electricity.
Help optimal use of idle/excess
generation capacity in the region.
Limited market access and
competition till
deemed/trading licenses
enhances participation.
2 Trading License
and Generation
De-licensing
Generation de-licensing would bring
greater investment.
Trading license would open avenues
to use unutilised generation capacity.
Reduce shortage of electricity.
Enhance competition in power
markets.
Scheduling trading
transactions would need
improvement in system
operation procedure and
energy accounting.
3 Open Access of
Transmission
Network
This would truly operationalise
competition and access to electricity.
Need to develop transparent
regulations for granting open
access.
System operation to take care
of open access customers.
4 Coordinated
System Operation
and Treatment of
System
Imbalances
Improved grid discipline.
Low equipment failure due to grid
stability.
Adoption of region’s best practices and
experience sharing.
Metering and IT integration
5 Regulatory
Framework and
Transmission
Planning
Improvement in system reliability due
to system integration including support
during power crisis.
Bilateral transmission linkages to have
excess capacity to support cross-
border trade.
Investment in transmission
interconnections and system
strengthening.
Land acquisition.
6 Energy
Accounting,
Clearing and
Settlement
Advantage of improved system for
domestic energy accounting and
settlement as well.
Adoption of region’s best practices and
experience sharing.
IT integration, training and
migration to improved system.
7 Policy for Regional
Electricity Trade
Better economic development of South
Asian region.
Improved access to power in South
Asian region.
Better utilisation of region’s resources.
Increased investment in power sector
in the region.
Graduation from bilateral to
regional agreement.
8 Import Duty, Export
Tax and Transit
Enhanced energy trade across region. Expected loss in tax revenue
could be offset by economic
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 25
Regulatory/Legal
changes
Merits / Opportunities Demerits / Challenges
Tax gains due to higher economic
growth, better electricity
access and greater
investment in the sector.
9 Dispute Resolution Overall improvement in investment
climate in the power sector as
investors’ risk perception would
reduce.
Graduation from bilateral to
regional agreement.
Based on identified pre-requisites, a number of specific legal/regulatory changes in the existing/proposed laws/regulations are proposed for Afghanistan, Bangladesh, Bhutan, India, Nepal, Pakistan and Sri Lanka. These have been further classified as short-term, medium-term and long-term. The key priority areas are highlighted below.
Afghanistan
• Draft Law on Electricity should recognise electricity trading and provide for
trading license, and provide for deemed trading licensee status for generation
and distribution licensees.Da Afghanistan Breshna Sherkat (DABS) may be
identified as a nodal agency to engage in cross-border trade in the short-run till
trading licenses are issued.
• Draft Law on Electricity should provide for non-discriminatory open access for
transmission. DABS needs to develop a grid code for coordinated system
operation with neighbouring countries. Afghanistan Electricity Regulatory
Authority (AERA), the proposed regulator, to establish transmission charges for
access to the transmission network for electricity trading.
• Procurement/sale of electricity through a regional power exchange to be
exempted from prior-approval and price determination by the proposed
regulator.
• Trade Policy should exempt cross-border electricity trade including that through
a power exchange from custom duty, export tax or transit tax. Export, import
and transit of electricity should be exempted from licensing from relevant
commerce ministry/department.
• DABS should initially develop cross-border interlinkages with excess capacity
to facilitate electricity trading. Later, it should develop a plan for cross-border
transmission linkages (including transit of electricity) in coordination with
entities in participating countries.
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 26
Bangladesh
• Electricity Act 1910 (or a new legislation) should provide for trading license,
non-discriminatory open access for transmission, and bilateral resolution of
dispute in case of cross-border power trades and strive towards a regional
mechanism.
• Bangladesh Energy Regulatory Commission (BERC) Act, 2003 should enable
BERC to issue trading license and formulate regulations for non-discriminatory
open access to transmission. BERC should develop a mechanism to deal with
any system imbalances from scheduled transactions.
• BPDB may be identified as a nodal agency to engage in cross-border trade until
trading is licensed.
• Procurement/sale of electricity through a regional power exchange to be
exempted from prior-approval and price determination by the BERC.
• BERC should develop a regionally coherent commercial mechanism to treat
system imbalances.
• Amendment in BERC Act (Sec. 22(f)) for development of a grid code should
allow the national load dispatch agency to coordinate system operation with
cross-border entities.
• Power Grid Corporation of Bangladesh, the transmission licensee, should
develop cross-border linkages with excess capacity and a plan for cross-border
transmission linkages in coordination with entities in participating countries.
• Trade Policy should exempt cross-border electricity trade including that through
a power exchange from custom duty, export tax or transit tax. Export, import
and transit of electricity should be exempted from licensing from relevant
commerce ministry/department. Bhutan
• The BPC owns and operates the transmission network in the country under
license from BEA. BPC is responsible for distribution of electricity in the
country. As per the Electricity Act of Bhutan 2001, BPC is also designated to be
the system operator, although BPC has not yet received the license to be the
system operator.
• Generation licensees are already permitted to engage in export and import of
electricity as per the comprehensive license issues by BEA. Electricity Act of
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 27
Bhutan, 2001 provides for a trading (i.e., import/export) license (Sec. 22.1).
However, BEA is authorised to designate a single “bulk supplier” for
import/export of electricity (Sec. 40). This significantly limits market
participation. Amendment to Section 40 should limit the role of the designated
“bulk supplier” only in the context of generation plants owned by the Royal
Government of Bhutan.
• Section 38.1, which enables open access, should be amended to introduce
“non-discrimination”.
• Sections 11.1 (i) (b) and 14.1 (iv) should explicitly exempt determination of tariff
for electricity sold through a Power Exchange. Procurement/sale of electricity
through a Regional Power Exchange to be exempted from prior-approval and
price determination by the BEA.
• There should be a provision for bilateral dispute resolution for cross-border
trade. There is also a need to work towards a regional mechanism for dispute
resolution in future.
• Bhutan Electricity Authority (BEA) should formulate a regionally coherent
commercial mechanism for treatment of system imbalances.
• Bhutan Sustainable Hydropower Development Policy (BSHDP) 2008 - As per
Section 5.2 of the policy, the Royal Government of Bhutan (RGoB) has the
option to avail the royalty energy either as energy, or as cash in lieu thereof,
based on the highest off-take rate at which the power/energy from the plant is
sold by the developer to its buyers. The above mentioned proviso should
exclude power sold through a regional power exchange. It should be suitably
amended to consider higher of the ‘average’ price of sale of electricity through a
power exchange and the maximum off-take rate for rest of the power sold. This
would make the mechanism fair to a generator in case a small quantum of
electricity is sold at a very high price on a power exchange.
• The trade policy should also provide for exemption from export tax/import
duty/transit tax for cross-border trade of electricity including that through a
power exchange. Export, import and transit of electricity should be exempted
from licensing from relevant commerce ministry/department.
India
• The Power Exchanges in India to be allowed to accept/and allow participation
by entities located and registered in the participating SAARC countries. This will
need amendment to respective By-laws/Rules of each exchange and be
approved by the CERC.
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 28
• There should be a mechanism for bilateral resolution of dispute in the case of
cross-border power trade. In particular, imbalance settlement is an essential
prerequisite. A regional dispute resolution mechanism should subsequently be
developed in cooperation with participating member countries.
• As a central policy, National Electricity Policy (NEP) should highlight
development of a competitive market in South Asia through cross-border trade
as an integral part of the development of the national energy scene.
• The trade policy should grant exemption from export tax, import duty and transit
tax to cross-border trade of electricity including that through power
exchange(s). Export, import and transit of electricity should be exempted from
licensing from relevant commerce ministry/department. Repeal/modification of
DGFT Notification No 09/2009-2014 (dated 10 September 2009) which restricts
import of electricity.
• National Transmission Plan should seek coordination with entities in
participating countries for developing cross-border transmission linkages.
Nepal
• Electricity Act 2049 (1992) (or a new legislation) should recognise electricity
trading and provide for trading license, non-discriminatory open access for
transmission and appropriate mechanism for bilateral resolution of dispute in
case of cross-border power trades with an aim to develop a regional
mechanism.
• Nepal Electricity Authority (NEA) Act , 2041 (1984)) and/or Nepal Electricity
Regulatory Commission Bill 2065 (2008) should empower the proposed
regulator, NERC, to issue license for trading including terms and conditions for
the same, and introduce provision for deemed trading licensee status for
generation and distribution licensees. Electricity Tariff Fixation Commission
(ETFC)/proposed regulator should not determine tariff for electricity sold
through a Power Exchange. Procurement/sale of electricity through a regional
power exchange to be exempted from prior-approval and price determination
by the proposed regulator, although this could be avoided with appropriate
guidelines and procedures.3 Further, special provision may be needed for
cases where the Regulatory Commission shall not determine the tariff, as per
the current legal provision, where royalty is also associated with tariff of
electricity.
3Based on comments made by the Nepal delegates at the Final Meeting in Manila, November, 2012.
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 29
• The Government of Nepal (GON) should develop a plan for cross-border
transmission linkages in coordination with entities in participating countries. The
Nepal Electricity Regulatory Commission Bill 2065 (2008) should account for
the proposed changes suggested.
• GON/proposed regulator to develop a regionally coherent commercial
mechanism to treat system imbalances. The commercial mechanism needs to
address how under and overdrawn by one, or more, jurisdictions would be
handled. The Unscheduled Interchange (UI) mechanism in India is one such
mechanism that penalises any deviation from scheduled interchange. The
significance of the UI mechanism is explained in good detail by Soonee et al
(2006).4
• Trade policy should exempt from export tax/import duty/transit tax for cross-
border trade of electricity including that through a power exchange. Export,
import and transit of electricity should be exempted from licensing from relevant
commerce ministry/department.
4S. Soonee et al, Significance of Unscheduled Interchange Mechanism in the IndianElectricity Supply Industry, ICPSODR-
2006, Available online: http://www.nrldc.in/docs/documents/Papers/Significance_of_UI.pdf
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 30
Pakistan
• Regulation of Generation, Transmission and Distribution of Electric Power Act
1997 should be amended to recognise trading as a distinct activity and
licensing for trading by the National Electric Power Regulatory Authority
(NEPRA). These license provisions should enable cross-border electricity trade
including that through a Power Exchange. This should provide for deemed
licensee status for generation and distribution licensees.
• Karachi Electric Supply Company Limited (KESC) and the eight distribution
companies of erstwhile Water and Power Development Authority (WAPDA)
should be allowed to exchange power through cross-border trade. Price of
power determined competitively through a Power Exchange should not be
regulated by NEPRA. National Transmission and Dispatch Company (NTDC)
should develop a plan for cross-border transmission linkages in coordination
with other participating countries. In the interim, develop cross-border links with
excess capacity to accommodate trade of electricity.
• Procurement/sale of electricity through a Regional Power Exchange to be
exempted from prior-approval and price determination by the NEPRA (Section
32).
• Policy for Power Generation Projects (last issued in 2002) should provide for
export of power.
• Cross-border trade of electricity including that through a Power Exchange
should be exempted from export tax, import duty or transit tax by the trade
policy. Export, import and transit of electricity should be exempted from
licensing from relevant commerce ministry/department.
• NTDC is currently empowered as the Central Power Purchasing Agency
(CPPA) to procure power on behalf of the eight distribution companies of
erstwhile WAPDA. The independence of distribution companies is a critical
element. Until such independence is allowed, NTDC’s mandate, as a identified
nodal agency, should account for power procurement under cross-border trade
including through a regional power exchange.
• NEPRA should develop a regionally coherent commercial mechanism to treat
system imbalances.
• Incorporate a mechanism for bilateral dispute resolution for cross-border trade.
Later, to work towards a regional mechanism for the same.
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 31
• NEPRA should determine a separate price for use of transmission assets of a
transmission licensee for electricity trade and procedure for determination of
transmission loss associated with power exchanges.
Sri Lanka
• Sri Lanka Electricity Act (SLEA), No. 20 of 2009 and Public Utilities
Commission of Sri Lanka (PUCSL) Act 2002 should be suitably amended to
provide for trading license (including amendment in Section 17 of PUCSL Act),
non-discriminatory open access for transmission (Section 23 of PUCSL Act),
and bilateral resolution of disputes in case of cross-border power trades while
working to develop a regional mechanism. Amendment to Section 16 (b) of
(SLEA, 2009), which obligates a generation licensee to sell all electricity
generated to a transmission licensee, should allow a generation licensee to sell
electricity through a competitive platform such as a power exchange.
• Amendment to Section 43.2 (SLEA, 2009), which allows the Transmission and
Bulk Supply Licensee to procure electricity only through a competitive tendering
process, is required to include power procurement from a regional power
exchange as a means of competitive power procurement. Procurement/sale of
electricity through a regional power exchange to be exempted from prior-
approval and price determination by the PUSCL.
• PUSCL to develop a regionally coherent commercial mechanism to treat
system imbalances.
• Trade Policy should exempt cross-border electricity trade including that through
a Power Exchange from custom duty, export tax or transit tax. Export, import
and transit of electricity should be exempted from licensing from relevant
commerce ministry/department. Ceylon Electricity Board (CEB) should be
mandated to develop a plan for cross-border transmission linkages in
coordination with entities in participating countries.
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 32
Concluding Remarks and Recommendations
The present study followed on the theme set in the SAARC Regional Energy Trade Study
to explore the efficacy of cross-border trading in more detail. We have constructed an
analysis that essentially mimics market clearing and price setting processes that would
occur on a Regional Power Exchange. That said, we have effectively considered a much
wider definition of cross-border trading that would take place whenever economic drivers
would warrant such trade to take place.
One of the core areas we have emphasised is the ability of a SAARC-wide interconnected
power system to exploit the significant hydro potential that exists in countries like Nepal
and Bhutan to support high load growth in other countries including India. We have also
considered power trading prospects from Central Asian countries to Afghanistan, Pakistan
and India, i.e., the possibility for the SAARC region to benefit from surplus hydro power in
Tajikistan, Kyrgyzstan, and potentially Afghanistan, in the future.
The most significant benefits of cross-border trading include harnessing significant hydro
potential that exists in the region to reduce power shortage in India and Pakistan among
other countries. However, it has to be formally realized and legislated. Such benefits
feature prominently in regulatory analysis in developed countries that form part of their
regulatory framework. In line with international best practice, a regulatory cost-benefit
determination mechanism should be implemented to formally recognise these benefits for
cross-border interconnectors in the SAARC region and develop a way to allocate costs
and benefits.
An orderly development of both the physical power system, and the regulatory economic
framework, is needed to achieve the longer term gains from cross-border power trade. The
present study gives us good insights into some of the near term tasks that must be
accomplished to pave the way for the cross-border transmission infrastructure and
legal/regulatory framework necessary. Our specific recommendations for such near term
tasks include the following:
1) Detailed Scenario Analysis to Identify Additional Interconnection
Opportunities: It is recommended that an extension of the present study is
taken up to study additional interconnection possibilities for the entire SAARC
region. Such a study should take a longer term view at least until 2020, if not
longer, and consider “green-field” transmission interconnection opportunities to
develop a pathway for a substantially more interconnected SAARC grid.
2) SAARC Electricity Transmission Master Plan: At present, each of the
Member States undertakes its own planning with limited recognition of cross-
border power trading opportunities although in some cases such trade can be a
significant resource. It is recommended that a SAARC-wide “Electricity
ADB RDTA 7529: South Asia Regional Power Exchange Study Page 33
Transmission Master Plan” is developed to fully integrate the economic cross-
border transmission opportunities into the detailed regional transmission plan.
3) Draft Market Rules to Accommodate Cross-border Power Trade: It is
recommended that the current Market Rules used in Indian Power Exchanges
are extended to deal with relevant Bid Areas in other Member States, formation
of prices, recognition of transmission losses, frequency of bidding, and market
clearing algorithm, so that a proper stakeholder consultation could proceed to
debate and discuss these issues.
4) Regulatory Regimes for Cross-border Power Trade: The regulatory
framework throughout the SAARC region must be made compatible to (a)
seamlessly integrate a Regional Power Exchange in the existing regulatory
frameworks; and (b) to sustain and guide further investment in cross-border
infrastructure. It is recommended that objective (a) is achieved by developing a
detailed implementation plan for the nine focus areas identified in this study (as
noted in Table 5). It is also recommended that a Regulatory Investment Test
(RIT) or a similar mechanism is devised to formally test any new cross-border
transmission proposal and allocate its costs among various jurisdictions. This,
in conjunction with the Electricity Transmission Master Plan exercise, will
ensure that objective (b) is achieved.