Improving Regulatory Environment for a Regional Power Market in South Asia

Abstract

South Asian countries continue to face challenges such as poor access to energy, energy shortages, and concerns for energy security. The availability of primary sources for generating electricity vary across the region, and the potential for operational synergy provide room for cross-border electricity trade cooperation in the region. The economic and environmental benefits of such cooperation can be harnessed to its full potential if the existing barriers to enhance power marketing and barriers to cross- border trade of electricity can be reduced. For trade of electricity to be smooth across the region, policy and regulatory environments governing the power sector need to be harmonized. The adoption of the South Asian Association for Regional Cooperation (SAARC) Framework Agreement for Energy Cooperation (Electricity) during the 5th SAARC Energy Ministers’ Meeting and the 18th SAARC declaration in Kathmandu in November 2014 is a step toward achieving this harmonization. This paper examines the power sector regulatory and policy environment in the South Asian countries in the context of cross-border power trade. It identifies key issues influencing rapid development of cross-border power trade and provides specific recommendations to address these. Among others, some of the key areas that need attention are providing trading licenses, allowing open access transmission and distribution networks, coordinating transmission planning and power system operation, forming a nodal agency for cross-border power trading, and resolving disputes. The paper provides recommendations to improve policy and regulatory environment in the short, medium, and long term. These include, among others, identifying a nodal agency for cross-border trade until it is opened for wider participation; harmonizing key rules governing access to transmission, including cross-border interconnections and pricing; reducing commercial barriers for electricity trade; developing a framework to address system imbalances related to cross-border trade; establishing bilateral mechanisms and a regional framework to resolve disputes; allowing open access initially for transmission network and later for distribution network; and developing a regional transmission plan and a harmonized grid code in the medium to long term. The paper also suggests possible changes required to the existing electricity legislations in individual countries to accommodate and enhance regional electricity trade. The paper concludes that economic power exchange would not happen without the appropriate policies and without harmonizing legal and regulatory frameworks in all the necessary systems. If left to bilateral trading, the status quo of a limited trading regime will leave the vast economic, reliability, and environmental benefits unrealized. Experience across the world shows that such legal and regulatory changes can be accomplished successfully.