SARI/Energy Integration South Asia Regional Initiatives for Energy Integration (SARI/EI) Shanker Khagi USAID/Nepal March 7, 2013 Kathmandu, Nepal Supporting Cross Border Energy Trade in South Asia

SARI/Energy Good Reasons for Cross Border Energy Trade Continued power shortages hamper growth prospects Regional complementarity Seasonal Imbalances Daily Imbalances Strengthen economic environments Provide for an improved quality of life Energy security = Security

SARI/Energy Integration Change Good reasons for change aren’t enough. There must be the political will for change. Political will reflects stakeholder expectations… – but also stakeholder concerns about the future – and how best to meet the challenges of the future Concerns are generational Change is generational

SARI/Energy Integration SARI/E Past USAID’s South Asia Regional Initiative for Energy (SARI/E) – Launched in 2000 – Completed its 3rd Phase in 2012 – Having successfully helped position stakeholders for the future – Looking to leveraging its success in a 4th Phase

SARI/Energy Integration NEPAL Expert review of Transmission Service Agreements and Key Issues.. SARI/E Past. INDIA Bilateral Electricity links to Bangladesh, Sri Lanka and Nepal Spread energyexchange models & training B Senior Level Exchange Program to Indian Energy Exchange, PTC and CERC PAKISTAN CASA 1000 Advisory Services B SRI LANKA India-Sri Lanka Submarine Power Transmission Interconnection- Interconnection Reliability and Stability Studyfor CEB, Sri Lanka Wind power development HVDC Hands-on training at PGCIL sub- station B MALDIVES Maldives Submarine Cable Interconnection Study Workshop on Advancing Low Carbon Growth Through Regional Cooperation and Cross-Border Energy Trade REGIONAL SATURN Network formation and Induction of POWERGRID as SATURN member M BHUTAN Executive Exchange to BhutanPower Corp. BANGLADESH HVDC training at PGCIL sub-station BMBM = Bilateraltrade = Multi-lateraltrade

SARI/Energy Integration Findings of a Political Economy Study There are 2 Distinct Sub- Regions in South Asia i.Eastern Sub-region (Bangladesh + Bhutan + India + Nepal + Sri Lanka) ii.Western Sub-region (Afghanistan + Pakistan) and 2. The concept of a Regional Energy Grid across South Asia is being superseded by a “Virtual Energy Grid” West East

SARI/Energy Integration Sub-regions East Strong interest in developing energy markets Indian market is economic engine for Sub-Region Growing number of interconnections with India On track for “Virtual Energy Grid” West No Markets … but represents important vision for trade Ongoing of conflict and worsening political uncertainty (instability) Several project opportunities – high risk / high reward

SARI/Energy Integration A Regional Energy Grid A “Regional Energy Grid” – a transmission infrastructure linking the continental countries of South Asia – has been a long sought but unfulfilled objective. Existing, Developing, Prospective connections between India and neighboring states: – Are they the beginnings of the “Regional Energy Grid”?

SARI/Energy Integration Cross Border Energy Trade

Complexity 1 SARI/Energy Integration We see three emerging interconnection business models under development…. Bilateral Trade between neighboring countries Smaller scope, easier to develop Can use power market driven model for facilitatingtrade through trader or national energy exchange Regional bilateral trade via transit Regional energy market trade South Asia Regional Trade - between neighboring or non- neighboring countries via regional grid through regional market mechanisms, Trade with Other Regions - including Central Asia, S.E. Asia Time SARI/E Emphasis country 2 Bilateral trade between non- neighboring countries via transit country CASA 1000 Tajikistan and Pakistan via Afghanistan 3

SARI/Energy Integration Regional Energy Trading 2007 – Guidelines for power exchanges in India 2008 – Indian Energy Exchange – first ever power exchange in India With unification of India’s grids it will be possible for energy transactions between any two points in India Subsequently - With connections to India, it will be also be possible for energy transactions between any two points in countries connected to India. Without the requirement of building extensive international transmission networks, the Virtual Energy Grid can be used as soon as bi-lateral connections with India are in place.

SARI/Energy Integration Developing the Virtual Energy Grid “Hardware” Interconnections: Technical challenges are manageable but get most of sector’s attention “Software” is critical to enable interconnections to happen, and needs more focused attention: – Commercial trading arrangements –Legal and Regulatory issues –Media issues and public outreach

SARI/Energy Integration Priorities 1.Political consensus – legislation to permit cross border energy trade 2.Encouraging Public-Private Partnerships for cross border energy projects 3.Completing the interconnections between India and its neighboring countries 4.Harmonizing laws governing commercial energy trade among the countries 5.Establishing independent regulatory regimes in each South Asian country and harmonizing regulations governing cross border energy trade 6.Functionally restructuring the energy utility sector in each country. 7.Ensuring that retail energy tariffs are cost reflective in each of the countries.

SARI/Energy Integration SARI/EI Forward Project Steering Committee formed – meeting on March 12 Task Forces to be formed on – Policy, Legal, Regulatory – Generation & Transmission Infrastructure Planning – Energy Trading/Exchanges and markets Coordinating with Supporting Institutions like SAARC, MDBs Promoting Public-Private Partnerships

SARI/Energy 34 Thank You!