Trans-Boundary Cooperation in the South Asia Power

Trans-Boundary Cooperation in the
South Asia Power Sector:
Opportunities and Challenges
Mike Toman
Manager, Environment and Energy Team
Development Research Group, World Bank
CUTS Regional Event, Kolkata, 7 August 2014
The results are preliminary and presented for the
purpose of discussion only.
Why the interest in regional power
• Short-term gains from ability of trade to
relieve shortages
• Long-term gains from opportunity to utilize
lower-cost generation at regional level
• Potential environmental gains – to the extent
trade facilitates greater utilization of cleaner
generation technologies
What is our approach?
• Quantitative analysis with long-term
electricity planning model to simulate
impacts, potential gains of cooperation
– Full regional cooperation
– Partial cooperation (Bangladesh, Bhutan, India,
• Qualitative analysis of institutional and policy
Summary of baseline scenario
• Regionally capacity grows by a factor of 4
• Baseline capacity growth is very coal-intensive
in Bangladesh, India, Pakistan
– Least-cost technology
– CO2 emissions also grow (4X regionally)
Regional cooperation/trade
• Major increases in hydro (~30GW with full
regional cooperation), displacing significant
additions to coal capacity
– But still a lot of coal – drop in CO2 emissions
relative to baseline is ~3%
• Significant additional investments in
– Allows more short-term capacity sharing as well as
transmission capacity for major new hydro
Gains from cooperation/trade
• Direct gains from trade are moderate in present
value terms – ~US$20B over 2015-2040,
discounted at 8% (real rate – fairly high)
• About 80% of this still is achieved with
cooperation just among Bangladesh, Bhutan,
India, Nepal
• Higher coal prices => significant additions to
hydro capacity and trade, higher power costs
• Lower gas prices => some increase in domestic
capacity and reduction in trade (in relative terms)
Why are the gains seemingly so modest?
• Trade is an incremental effect to the huge
growth of regional capacity going forward
– All the increased hydro export to India in the
analysis is ~5% of its total electricity use in 2040
• Lying behind these discounted net benefit
figures are some large positive impacts
– ~US$11B in additional generation and
transmission CAPEX for trade facilitates ~US$28B
in OPEX savings (undiscounted figures)
Why are the gains seemingly so modest?
• The baseline definition also matters
– We assume that current inefficiencies in domestic
power sectors cannot be sustained; in particular,
even without trade, persistent shortages are
– In work still to be done we are going to attempt to
quantify the benefit of improved domestic sector
performance relative to current BAU
So what about all this market
efficiency business?
• Increases economic value in its own right
• But in addition, why interconnect very
inefficient domestic power systems/markets?
– Longer-term cooperation and trade benefits
would be even lower because regulatory
distortions reduce value of investment, create
risks that raise financing costs
– Conversely, improved domestic sector
performance is a key part of reaping full gains
from regional cooperation and trade
What are possibilities for achieving
regional power cooperation and trade
agreement in SAR?
• Experiences from many other regional
arrangements with varying degrees of
prescriptiveness are generally positive
– Even with country size asymmetries
– Even with disputes/conflicts among countries
– Can proceed in steps/gradually increasing
number of participants and requirements
– But broader-scale, more formally organized
coordination can yield considerably more benefit
– It takes time and serious dialogue
There are synergies between regional
cooperation agreements and domestic
policy reforms
• Broader success in regional agreements
depends on significant power market
liberalization, especially in pricing and access
– Want prices to reflect opportunity costs, provide
effective signals for regional investments
• Prospects of increased gains from regional
coordination may help strengthen case for
admittedly difficult domestic reforms
How are gains from regional power
cooperation and trade shared?
• No simple or unique answer
• If markets have been liberalized with competition
among buyers and sellers (“B2B”), price =
marginal cost will determine a sharing of gains
• If decision making is concentrated in relatively
few hands such that market power can be
exercised, importers are likely to capture more of
the gains from trade
– They have more options than exporters, especially
To summarize…
• Increased regional power cooperation and trade
can provide a valuable addition to broader efforts
to improve sector performance
• Experience suggests agreement on (sub)regional
power cooperation and trade is institutionally
feasible for SAR, and can build incrementally
• The efficiency of domestic power
systems/markets will have substantial influence
on size and distribution of benefits from
cooperation and trade – as well as being
important in its own right
A Regional Power Market Master Plan?
• Necessary technical requirements for high
level of inter-operability
• Institutional structures for nondiscriminatory
cross-border transmission access, loss sharing
– Including provision for equitable and transparent
cross-border transmission siting and land access
– Also provision for efficient, non-predatory
transmission pricing
• Further developed regional transmission plan
– Priority capacity expansions for increasing trade
A Regional Power Market Master Plan?
• Commercial provisions for contracting, dispute
• Addition of electricity to the South Asian Free
Trade Area agreement
• Plans for developing more elaborate regional
power trading mechanisms
– Can build on positive experience with power
trading in India, e.g. IEX
– Utilize regional dialogue among SAARC energy
Thank you for your kind attention; I look
forward to your questions and comments
[email protected]

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