“South Asia is one of the least economically integrated regions. The most obvious gain you can make is with the energy sector”: These were the opening remarks from Dr. Bindu Lohani – former Vice President of the Asian Development Bank for Knowledge Management and Sustainable Development and Distinguished Fellow at the Centennial Group – at EEG’s South Asia Policy Workshop in Kathmandu in 2016.

Despite unanimous agreement amongst the workshop delegates that power trade presents great opportunities for the region, they concluded that there is an acute need for research and evidence to build consensus and cooperation. To this end, Professor Shobhakar Dhakal produced a report exploring the opportunities and barriers to regional power trade, and how EEG research can most strategically inform policy discussions.

Regional electricity trade promises to be a game changer in South Asia, the report concluded. South Asian countries are currently constrained by a lack of adequate, reliable and clean power supply. Rapid growth in demand is outpacing additions to supply. Power shortages are rampant.

Thermal power – coal and gas – dominates the electricity mix in India and Bangladesh. There is a real danger that coal power will expand even further, increasing local air pollution and jeopardising the Paris Agreement commitment on climate change mitigation.

Regional electricity integration would help to unlock the region’s plentiful renewables. Nepal and Bhutan, both rich in hydro resources, are in close proximity to North and Eastern India and Bangladesh – two large markets with significant prevailing and projected power shortages. Myanmar, which also has large hydropower potential and projected growth in demand, could potentially be part of this market too (see figure 1).

Figure 1: Peculiarities of Eastern South Asia

Increased regional trade can help to match supply and demand, because there is diversity in energy demand - from seasonal variations (wet and dry season), different holidays and festival seasons, time difference, etc. – as well as supply diversity of hydro, solar, wind and fossil fuels.

Trade also has the power to transform economies, such as Bhutan, which can benefit from the income generated through hydropower exports.

Despite these potential benefits, regional power trade is minimal. To date, there has only been small-scale and bilateral power trade between countries, notably Nepal-India, Bhutan-India and lately India-Bangladesh.

Recently, Eastern South Asian governments at the highest political levels have taken various steps in the right direction. India, for example, has issued guidelines for cross border trade of electricity. However, these policy initiatives are focused mainly on bilateral trade.

A wide spectrum of barriers to regional power trade exists, argued Professor Dhakal, including geo-political, economic and regulatory challenges, and an existing ‘trust deficit’ between countries. Understanding these barriers in depth is crucial to unlocking the existing potential for regional electricity cooperation.

Professor Dhakal also pointed to a lack of evidence and knowledge of the benefits and operational aspects of power trade. He identified three research gaps, in particular:

1. A country-by-country analysis of regulatory barriers to regional electricity trade, and options to address them  

2. Identification of the specific transmission infrastructure bottlenecks inhibiting trade

3. Modelling of the implications of declining cost of solar, on-shore wind and storage technologies on regional electricity cooperation   

On behalf of EEG, Dr. Duncan Overfield, the Acting Head of DFID’s Asia Regional operations, pitched these three research gaps to the quarterly South Asia Power Secretaries Forum. The feedback from the Power Secretaries was that EEG should prioritise research on the third gap.

The implications of the rapidly falling costs of wind and solar have not yet been adequately considered on a regional scale. On the one hand, lower-cost domestic sources of renewable energy may reduce the need for cross-border power trade. On the other, South Asia’s abundant but variable solar and wind resources may be harnessed more easily in regional power grids that have flexible hydropower capacity.

The density and cost of power storage are also expected to improve. Storage improvements will have implications for the power trade, explained Professor Dhakal; not only for supply and trade volume, but also for regulation, dispatching and transmission infrastructure.

In late 2018 EEG published a call for research proposals on the implications of the declining costs of solar, wind and storage technologies on regional power trade. This call is now closed.