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
Disclaimer
The results are preliminary and presented for the
purpose of discussion only.
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Why the interest in regional power
integration?
• 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
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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,
Nepal)
• Qualitative analysis of institutional and policy
issues
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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)
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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
interconnection
– Allows more short-term capacity sharing as well as
transmission capacity for major new hydro
capacity
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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)
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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)
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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
attenuated
– In work still to be done we are going to attempt to
quantify the benefit of improved domestic sector
performance relative to current BAU
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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
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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
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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
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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
hydro
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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
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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
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A Regional Power Market Master Plan?
• Commercial provisions for contracting, dispute
resolution
• 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
regulators
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Thank you for your kind attention; I look
forward to your questions and comments
mtoman@worldbank.org
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