Economic integration through energy exchange

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    By Pramod Rijal

    KATHMANDU: In the Nordic countries such as Norway, Sweden, Denmark and Finland there is a free flow of electricity and prices are determined by free interaction of supply and demand. Such has helped new players enter the market. These players in the market means lower prices and new innovation. Additionally, it has created energy security in the region. 

    Learning from the success of the Nordic region, countries like Rwanda, Tanzania, and Kenya which fall under the East African bloc are also reforming their energy policies so as to aid the formation of a common market for energy exchange. All this has been possible in the South Asian region because various sources of electricity are available in different countries — Nepal and Bhutan have rich hydro resources, Bangladesh has a substantial amount of gas reserve and India generates vast amounts of cheap energy from coal
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    Beneficial trade between neighbours

    Energy exchange seems much more favourable in case of India and Nepal as there exist a complementary relationship in demand and 

    supply of electricity in these neighbouring nations. Electricity production in Nepal is high during summer season due to maximum flow of water in the rivers and all hydropower projects except Kulekhani (92 MW) are run-of-the-river type that generate in full capacity only in the wet season. Majority of the projects which are under construction are also run-of-the-river as it requires low cost and has lesser environmental impacts. As a consequence, there is energy surplus in Nepal during the wet season. At the same time, demand for energy in India is high due to use of refrigerators, coolers, air conditioners, and other electrical appliances that are used for lowering temperature. 

    The hydropower potential of Nepal is more substantial than its population size and expected needs and on the other hand, energy demand in India is growing at the rate of nine per cent due to rapid economic transformation. Therefore, electricity trade between these countries can be beneficial for both countries. 

    Cost effective solutions for smooth channelling

    Nepal’s hydropower potential which is concentrated in the far western region is difficult to harness if it is used only for domestic 

    purpose because demand for electricity in that area is relatively low due to sparse population and less availability of industries. Lengthy transmission lines need to be constructed to bring power to the load centre. Building such transmission lines, however, is very costly and sometimes costs more than the construction of hydroelectric projects itself. Additionally, it significantly increases technical losses. In this case, it is beneficial to export power to various adjacent parts of India, including Uttarakhand, Uttar Pradesh and even Haryana which makes more economic sense. However, for the execution of such a plan, Nepal needs power trading companies that exchange electrical power in a commercial manner considering water as a market commodity instead of a political good. This mechanism will further facilitate buying and selling of electricity at different times of the day. Prices will be fixed according to market signals which is very essential for the development of hydropower.

    Need for implementing bodies and promoters

    Power trading companies like the Power Trading Company – India were established in India as its energy market was liberalised. It makes energy integration much easier as a power trading company is an essential body for trading power in a competitive market. Due to presence of it, power markets seek to maximise competition in generation and compete on price instead of cost. Thus, it creates value for power by discovering a market for power which is crucial for introducing innovative products according to the need of customers. Moreover, it provides a single window service to take care of all intermediate requirements like transmission agreements, metering, accounting and other necessary things.

    Furthermore, integration of energy market through formation of power trading companies helps optimise existing energy resources and provides commercial outlook to the sector by catalysing investment especially from domestic and foreign private sector. It identifies and promotes opportunities for mutually beneficial cooperation projects in the power sector. The countries of Greater Mekong Sub-region (GMS) like Cambodia, Lao PDR, Myanmar, Vietnam and two provinces of China, namely Yunnan, Guangxi Zhuang have already practiced this principle. 

    This ushered in much needed prosperity in the region through exchange of energy and further led to integration in other economic activities. 

    Coming together for growth

    Nepal also needs to initiate similar work by holding series of dialogues and discussions with the state governments of Uttarakhand, Uttar Pradesh, Haryana and Bihar which are neighbouring states of India as people living in this region have been suffering from acute shortage of power for a long time. It will surely bring higher economic growth with rapid industrialisation and modernisation in the region and remove people out of the vicious circle of poverty in massive numbers.

    The author is a research associate at Samriddhi, The Prosperity Foundation and can be reached at pramod @ samriddhi , org Samriddhi is an independent research and educational think tank based in Kathmandu. 

    Source : The Himalayan Times