South Asia’s crucial need for improved electricity supply
The electricity sector plays a critical role in the sustainable energy transition in South Asia. The region confronts significant challenges in ramping up electricity production to cater to the requirements of a rapidly expanding population and economy. Ensuring sufficient and high-quality power supply is imperative, and doing so can spur economic growth and help lift more than 200 million people out of poverty.
South Asian countries are transitioning to a more sustainable energy sector, aiming to significantly increase the proportion of renewable energy in their energy mix by 2030. Bangladesh aims to reach 15%, Pakistan 30%, India 50%, and Sri Lanka 70% of renewable energy.
Despite increasing fuel imports for fuel-based power plants, these countries face an energy supply deficit during peak demand periods and significant losses in their power grids. South Asia must enhance its electricity supply in terms of quantity and quality (reliability and efficiency). Interconnection, already implemented in several parts of the world, could be a valuable asset for the region.
Interconnection optimisation and increased resilience in the use of regional resources
The significant costs incurred from high fuel imports in South Asia cannot be overlooked. According to the World Bank, about two-thirds of the energy used in the region is imported, with fossil fuels making up approximately 80 per cent of energy production. The impact of these imports is evident in the strain they place on the countries’ balance of payments. Sri Lanka, for example, faced a complete fuel shortage in 2022 due to a depleted foreign currency reserve, resulting in a temporary immobilisation of the country.
The optimisation potential through complementary supply and demand at the regional level is significant. Nepal and Bhutan, which have up to 40 GW and 24 GW of hydropower potential, are reliant on highly seasonal hydropower. During the wet season, they can sell surplus production to regions facing demand challenges. Conversely, during the dry season, shortages in Nepal and Bhutan can be addressed by importing power from neighbouring countries.
An interconnected market brings numerous benefits:
- Cost reduction by replacing expensive fossil fuel imports with cheaper hydroelectricity, estimated around US$5-9 billion yearly;
- Lower dependency on imported fuels and sensibility to price volatility;
- Increased generation capacity incentives for Bhutan and Nepal to invest in hydroelectricity generation capacity, although their national electric demand is limited;
- And the ability to integrate intermittent renewable energies (solar and wind) at the regional level since a larger grid with multiple energy sources has greater stability. There is enormous untapped potential for solar and wind energy, for instance, a total of 120 GW in Sri Lanka and India for wind-power.
Implementation still needs to catch up: what are the next steps?
There is a strong and unwavering political commitment to promoting interconnectedness within the region. Several treaties have been implemented to reinforce regional integration, starting with the establishment of the South Asian Association for Regional Cooperation (SAARC) in 1985, as well as the founding of the SAARC Energy Centre in Islamabad, Pakistan, in 2006. The South Asian Free Trade Area (SAFTA) was officially ratified in 2004 to progress towards a unified market. Additionally, the South Asia Regional Energy Coalition (SAREC) was established in 2006 to lead advocacy efforts by influential policy-focused business associations in the region.
It is crucial to note that significant progress has been made in implementing interconnections between India and its neighbouring countries, Nepal, Bhutan, and, more recently, Bangladesh. The undersea interconnection between Sri Lanka and India is under study. Additionally, the World Bank and the Asian Development Bank are deeply involved in supporting the initiative. However, the level of trade isnot taking off and remains insufficient to realise the anticipated benefits fully.
Electricity trade between India and its neighbours
The primary barriers include the lack of a governing body and non-enabling domestic policies. Establishing a multi-country governing body is essential to prioritise interconnections, set completion timelines, and devise an implementation strategy. Furthermore, the implementation of a dispute settlement mechanism is critical. In addition, enhancing domestic grid efficiency by reforming inefficient state-owned enterprises (SOEs) is vital to promote competition, technical proficiency, and financial efficiency and bolster the opportunity for interconnection. India has taken a significant step in this direction, while many of its neighbouring countries have lagged despite having legal provisions in place. It is important to note that most of the barriers have been well identified for a long time: in 2014, SAARC member states signed a “framework agreement” which contains such provisions.
Implementing the interconnection is being significantly delayed in contrast with political commitments. South Asia is characterized by a lack of mutual trust among the countries within the region. The primary challenge lies in India’s dominance in terms of the size and location of its grid. Nonetheless, successful implementation would lead to improved regional cooperation and open up opportunities in various other sectors.
