Cross-Border Power Trading Can be the New Frontier for Solar Growth

New government guidelines issued for import and export of power with neighboring countries


In the last month of 2018, the Ministry of Power (MoP) issued new guidelines for the import and export of electricity and power trading with neighboring countries, replacing its previous guidelines issued in 2016.

Though the objectives of the new guidelines remain the same – to facilitate and promote cross-border trade of electricity, develop a dynamic and robust electricity infrastructure for import and export of electricity, and develop reliable grid operations and transmission of power – there has been a considerable shift in the intent to realize these objectives.

For example, new guidelines allow the power generating or distribution companies of India to export electricity to neighboring countries directly, whereas earlier guidelines restricted the cross-border power trade to bilateral agreements between two countries.

Commenting on how the new guidelines will affect power trading with neighboring countries, S.N. Goyal, CEO of India Energy Exchange said, “As far as trade with neighboring countries is concerned, it is already happening; however this is on a bilateral basis. We have asked the Central Electricity Regulatory Commission to allow power trading on the exchange platforms. The new guidelines say that power trading with neighboring countries can also happen through the power exchange.”

“After the guidelines, the CERC will have to issue regulations for cross-border power exchanges. It is in the process of preparing the guidelines, and it may be issued soon. It is expected that we will be able to start the transaction by April 1, 2019.”

The Central Electricity Regulatory Commission (CERC) issued new regulations for the cross-border trade of electricity in March 2019. According to the regulations, “any electricity trading licensee of India can trade in the Indian power exchanges on behalf of any participating entity from other countries after obtaining approval from the designated authority.”

On the question, if the cross-border transactions can be successful without a multi-seller, multi-buyer market and when there is a monopoly of state DISCOMs, Goyal added, “In India, we already have multiple buyers and many state distribution companies and others. Therefore, there is no monopoly of a single state distribution company. We also have enough number of buyers in the international market like Bangladesh Power Development Board (BPDP), Bhutan Power Corporation Limited, Nepal Electricity Authority. Trade can only happen when there is a transmission line with the neighboring countries. We also have a small transmission line of 33 kV with Myanmar.”

He clarified that under the new guidelines, short-term power purchase agreements through exchanges will also be allowed for cross-border transactions and will not be restricted to the term-ahead market.

The government has also done away with the preferential treatment to projects with government investments of respective countries. Earlier, the guidelines prohibited private companies from selling power to India and only companies wholly owned by the governments of the concerned countries or those having a 51 percent equity investment in an Indian public or private company could export power to the Indian market. The newer framework makes it easier for private companies to trade with neighboring countries.

Mercom has reported that cross-border trade in power could be a tremendous opportunity for Indian solar developers and implementing agencies. There will be no dearth of off-takers for cheaper solar energy based on the current solar tariffs in India. The government is recognizing this and working toward removing restrictive policies.

The Central Electricity Authority (CEA) recently published in its National Electricity Plan (NEP) a blueprint to develop the transmission systems in the country.

In the plan, cross border power exchanges with neighboring countries considered for the plan period (2017-22) include about 4,500 MW to be imported from Bhutan. The plan also covers 1,500 MW and 950 MW of power exports to Bangladesh and Nepal respectively.  Also, in December 2018, the Ministry of Power issued new guidelines for the import and export of electricity and power trading with neighboring countries, replacing its previous guidelines issued in 2016.

Tim Buckley, Director of the Institute for Energy Economics and Financial Analysis, believes that greater international grid connectivity enhances the grid’s ability to better manage the variability of renewable energy and facilitate lower cost management of peak demand.

He added, “If Bangladesh’s Power Development Board signs PPA with solar and wind project developers in resource-rich Gujarat, it locks in deflationary electricity access, given the zero indexation over 25 years and significantly lower cost of these ₹2.5-3.00 (~$0.036- 0.043)/kWh tariffs (with transmission costs added of ₹1-2 (~$0.014-0.029/kWh)), in comparison to tariffs in Bangladesh at ₹5-6 (~$0.072-0.086 )/kWh when using imported fossil fuels, with all their currency and commodity inflation risk. It also facilitates foreign investment into India, leveraging a growing new market and driving further deflation of Indian renewable energy project costs.”

India’s neighboring countries do not have the resources to fund massive power projects, but they are all developing countries with promising economies. All emerging economies have an increasing demand for power and India can utilize that demand to propel its power sector.

“If the Indian Exim Bank can fund renewable energy export projects rather than imported coal-fired power projects such as Rampal in Bangladesh, it will lower cost and enable greater availability of long-term finance coupled with the government-backed BPDB as off-taker, then renewable energy export projects can be rapidly built in less developed areas of India rather than on prime agricultural land in environmentally sensitive areas like the Sundarbans, ” Tim Buckley suggested.

South Asia is among the least integrated regions in the world. According to the World Bank, intra-regional trade accounts for only 5 percent of South Asia’s total trade, compared to 25 percent in ASEAN.

India is gradually strengthening its position as an electricity exporting nation and has been exporting power to Bangladesh, Nepal, and Myanmar. In September 2018, replying to a question in Lok Sabha, the minister for Power, R.K. Singh, stated, “India is currently supplying around 660 MW of power to Bangladesh, and it would increase by 840 MW after the completion of additional transmission links.”

“Forward-looking regulations are sorely needed to open up the Indian power sector and tap the full potential of renewables, not just within India but also in neighboring countries. Enabling private energy companies to trade and compete can facilitate much-needed investments into the sector, said Raj Prabhu, CEO of Mercom Capital Group.