A severe dearth in energy supply has been, and continues to be, a major constraint for the region’s economic growth, even though the region boasts of a combined installed electricity generation capacity of 360GW, forming the third-largest combined electricity market in the world.
There are many lessons to be learned from the recently concluded conference of the International Solar Alliance. The most significant of which is that, emerging economies realise they will have to work together if they want to be energy-secure. This is particularly interesting in the context of the SAARC. The SAARC union, formed and nurtured by India since 1985, has been steadily losing steam and significance because of the many geopolitical shifts in the region. There have been debates around the significance of SARRC with Pakistan and without Pakistan, but to assume that an answer to this question will alone bring the bloc out of stasis is overstating.
However, an opportunity in the form of electricity diplomacy does present itself as a tool to bring the bloc together under the umbrella of economic regionalism, and rebuild the trust deficit that plagues the region. India should take the lead in fast-tracking the cross-border electricity trade negotiations already in advanced stages and help in creating a common electricity pool for the entire region.
A severe dearth in energy supply has been, and continues to be, a major constraint for the region’s economic growth, even though the region boasts of a combined installed electricity generation capacity of 360GW, forming the third-largest combined electricity market in the world. The South Asian region is also blessed with very high renewable energy potential. It has a combined hydropower potential of 349.33GW, wind energy potential of 2,08,743MW and 30Kwh/sq-m per day of solar energy potential. The Brahmaputra sub-basin has one of the largest hydro-power potentials (296.8TWh) in the region. According to a working paper by Asian Development Bank, South Asia could save almost $100 billion during 2015-40 from energy and power trade given a social discount rate of 5%. Yet, the per capita electricity consumption of South Asian countries is ironically low at 563kWh; India’s is approximately 1,000kWh.
The demand-supply dynamics of the Indian electricity market have undergone many changes in the last couple of years. The incentives provided by the Indian government for renewables to take a centre-stage in the power sector have indeed created a strong renewable electricity market. As a result, the cost of producing electricity through renewables has, at times, been cheaper than conventional coal-based sources of electricity. An auction conducted by the Solar Energy Corporation of India, in February, saw bids as low as Rs 2.44 per unit for 2GW of wind energy, and Rs 2.43 per unit for solar. The corresponding prices for producing power using coal at the same time, according to NTPC, stood at Rs 3.2 per unit. If India can account for seasonal dependence, electricity storage and increasing the pool of electricity generation, it will not be long before the electricity demand of the country is met through renewables.
Hence, integrating the electricity markets of the South Asian region will help in utilising the vast source of renewables by forming a common electricity pool, and allowing each nation to tap into their needs efficiently. A production glut during a particular season in one country could easily be used by other nations, if the markets are interconnected. Similarly, differences in peak-time demand requirements in the region also present a strong case for increased electricity trading and enhanced energy cooperation in the region. Since India is geographically placed at the centre of the SAARC region, she could also be the epicentre for a common electricity market for the entire region.
Notwithstanding geopolitical considerations, energy security has assumed paramount significance for India, even from an economic point of view. Existing cross-border electricity treaties between India-Bhutan, India-Nepal and even India- Pakistan, have been bilateral in nature, largely driven by diplomacy rather than economic considerations. In fact, chances are that cross-border electricity trade agreements that might come about because of the SAARC framework for energy cooperation in the near future, may most also be bilateral in nature to begin with. However, the institutions that will be created to regulate and manage the growth of electricity trade can be quickly scaled and transitioned, which could potentially pave the way for a multilateral (electricity) trade body to emerge in the region.
Increasing demand for electricity because of increasing levels of industrialisation, abundant availability of renewable energy sources, rising concerns over the ill-effects of global warming, and rising international obligations to reduce carbon emissions have all been drivers for enhanced energy cooperation in the region. However, diplomatic considerations have often taken precedence over economic considerations and hence, even existing bilateral electricity trade appears to be more of a statement than one that could create economic value. This must change. The economic earnings of an integrated SAARC electricity market will only complement diplomatic considerations for the region.
The West African Power Pool managed to integrate the markets of 14 countries despite security and political conditions. SAARC is just eight countries. India has the chance to step up and help this reach its natural conclusion. The Indian ministry of power had released its guidelines regarding cross-border electricity trade in 2016, along with the Indian Central Electricity Regulatory Commission, which released its draft policies to oversee cross-border electricity trade in 2017. It is now time for India to put her weight behind the agreed framework and ensure that it comes to fruition, and the key may lie in driving this institutionally and economically, rather than diplomatically.
By Nirupama Soundararajan & Kannan Kumar
(Soundararajan is senior fellow and Kumar is associate fellow, Pahle India Foundation)