Policy Engagements and Blogs

The Political Economy of Electricity Trade and Hydropower Development in Eastern South Asia

Pratap Bhanu Mehta

January 24, 2019


What does the next decade in South Asian electricity trade have in store? In a new article in the International Journal of Water Resources Development, Aditya Valiathan Pillai and Sagar Prasai analyse four crucial variables that will enable, and at times, constrain progress on cross-border electricity trade:

The health of distribution companies in India: India’s distribution companies are likely to shy away from relatively expensive Himalayan hydropower due to a combination of supply factors, such as a steep fall in renewable prices and the abundance of cheap thermal energy in the domestic market. These traditionally loss-making entities are also in the process of responding to incentives for financial rectitude created by new power sector reforms, namely UDAY (Ujwal Discom Assurance Yojana).
The role of hydropower in India’s ambitious transition to renewable energy: India’s much-lauded addition of renewable capacity presents a long-term opportunity for hydropower developers in Bhutan and Nepal. Meeting peak demand, particularly after the sun goes down, has long been a function well-served by hydropower. At present, however, India is leaning towards coordinating existing coal and hydropower capacity to balance the grid until the current target of 175 GW renewable capacity addition is met.
Bangladesh’s power crisis and import dependency: Bangladesh’s depleting natural gas reserves, which supply nearly two-thirds of the country’s power sector, may result in the nation steadily importing hydropower from Bhutan and Nepal to reduce dependence on expensive imported coal and gas. Importantly, the country’s master planning for the power sector indicates that power imports will play a significant role in the energy mix.
The governance of regional electricity trading arrangements: Regional politics have repeatedly disrupted progress in creating an electricity market, first under the SAARC framework (due to faltering relations between India and Pakistan), and now in the sub-region. In India, the Ministry of Power’s 2016 guidelines on cross-border electricity trade have imposed conditions on who can trade electricity across India’s borders. Increasingly, regional electricity trade is being challenged by growing geopolitical competition between India and China.
In an analysis of these factors, the authors find that progress on cross-border electricity trade and hydropower development in the region will be incremental in the next decade, hindered by mixed demand signals and the turbulence of geopolitics. They argue that in a fragmented marketplace led primarily by individually-priced bilateral agreements, dynamic political relationships in the region will continue to deter investors. They conclude that the future trajectory of cross-border electricity trade will be shaped by India’s stewardship in the region.

Read the complete article here.