7 September 2022, NIICE Commentary 8245
Priyanshi Chauhan
The electricity demand in the BBIN countries has been growing by more than 5 percent annually over the past two decades and is expected to be more than double by 2050. On the supply side, the energy mix of the BBIN countries is characterized by single-source dependence. Fuels like coal and natural gas, the primary source of electricity for India and Bangladesh respectively, are rapidly depleting. The seasonal variations in the use of hydropower resources in Nepal and Bhutan result in electricity shortages during the lean winter season. Electricity trade in the BBIN sub-region offers opportunities to address the electricity demand of the respective states and promote their socio-economic development. However, it is impeded by political challenges in the sub-region where the neo-realist threat perceptions continue to dominate the economic benefits of such cooperation.
The Rationale for the BBIN Electricity Trade
In contrast to the single source dependence in the BBIN countries, the sub-region is endowed with diverse and complementary energy resources. The electricity demand patterns of the countries are also complementary due to intra-seasonal differences, peak-time differences, daily load curves, etc. This allows for the pooling of energy resources for optimal allocation leading to a reduction in costs of production and a reduction in capital investments. A study by IRADe shows that the multilateral electricity trade in the BBIN will reduce India’s capital investment in the electricity sector by USD48 billion.
The sub-region also has abundant and unused renewable energy sources. For instance, a study by UNESCAP shows that for both Nepal and Bangladesh electricity production using hydropower and solar energy respectively remains below potential. Simultaneously, India has achieved the lowest average installed cost for PV and wind power. As such, the electricity trade offers an opportunity to utilize the renewable energy potential with competitive costs, leading to a cost-effective transition to sustainable development.
Status of Electricity Trade
Since the conceptualization of SAARC in 1985 energy cooperation has been touted as one of the low-hanging fruits for promoting regional cooperation in South Asia. Various policy advocacy initiatives like the South Asian Energy Centre (SEC), and South Asia Regional Energy Coalition (SAREC) were undertaken. In 2014, the SAARC member states signed the Framework Agreement for Energy Cooperation (Electricity). Despite these initiatives, the regional electricity cooperation remains below potential because of the political challenges in the South Asian region.
Over the years, the electricity trade among the BBIN countries has shown an increasing trend. As shared by the World Bank, the electricity transmission in the BBIN has increased from 2.1 gigawatts (GW) in 2015 to 6.4 GW in 2022. Presently, only bilateral electricity interconnections exist between the BBIN countries, namely, India-Nepal, India-Bhutan, and more recently India-Bangladesh. In 2018, the Government of India laid down the “Guidelines for the import/export of cross border electricity”. The guidelines emphasize facilitating a multilateral power trading arrangement by allowing Bangladesh, Nepal, and Bhutan to sign tripartite for electricity trade with the transmission corridor through the Indian territory. This is indicative of the political will of the BBIN countries to go beyond the bilateral electricity trade and support the evolution of multilateral electricity trading arrangements.
Challenges to Electricity Trade: The Neo-Realist Threat Perception
Despite the economic viability, electricity trade in the BBIN remains low with a preference for bilateral arrangements over multilateral or sub-regional arrangements. This is because of the political dynamics of the sub-region where neorealist threat perceptions take precedence over the economic viability of the electricity trade.
Though the countries have historical, political, and cultural commonalities, their political relations are characterized by mistrust and suspicion. This is evident in unresolved disputes like border issues, water-sharing, ethnic and religious strife, and populist nationalism among others. While such challenges are comparatively lesser in the BBIN as compared to South Asia because of the absence of Pakistan, they nonetheless continue to exist. The absence of Pakistan from the BBIN also means that India’s hegemony becomes more predominant compared to SAARC. As such, the economic benefits from the proposed multilateral and regional electricity cooperation are constrained by the inevitable concern of the states with relative gains from such cooperation. In other words, the neorealist threat perception of the regional hegemon gaining more political power through strengthening the economy in general, and energy security, in particular, remains a challenge.
This was most strikingly evident in the cancellation of the Myanmar-Bangladesh-India (MBI) pipeline in 2005, where political mistrust and the national security issue dominated the negotiations. MBI pipeline was an economically viable energy project for all three countries with expected benefits in enhancing India’s energy security, providing an export market for Myanmar, and allowing Bangladesh to earn forex for allowing trade through its territory. However, Bangladesh put three conditions on India to go ahead with the project implementation. These conditions included free movement through the Siliguri corridor to Nepal and Bhutan, access to India’s hydroelectricity transmission lines to trade electricity with Nepal and Bhutan, and India taking responsibility for Bangladesh’s trade deficit. India did not accept these conditions and the project could not be implemented. In other words, the quest for higher relative gains and the regional dynamics of India’s power as a hegemon disrupted the economically viable MBI project.
Similar concerns are also present in the electricity trading arrangements. As electricity networks are one of the most critical infrastructures for national security and economic security, interconnecting national grids would require sharing sensitive information with countries. Further, electricity networks are also at risk of emerging security threats like cybersecurity.
In this context, it is imperative that the countries vigorously undertake confidence-building measures to bridge the trust deficit. One of the examples of such an exercise was undertaken in the early months of 2020. The peak electricity demand in the BBIN countries fell due to the lockdown restrictions. During that time, the demand was already low due to favourable weather conditions. The lockdown and the consequent shutting down of all non-essential commercial and industrial activities further resulted in an abnormally large decrease in electricity demand. In the worst-case scenario, such large reductions in electricity demand can lead to power grid failure. The Indian electricity grid facilitated the neighbouring BBIN countries to address these demand reductions. Due to the large size of the Indian power grid, its capacity to absorb large variations in demand is relatively higher. Specifically, India facilitated the reduced imports of electricity to Nepal and Bangladesh, and surplus electricity export from Bhutan. Such confidence-building exercises can go a long way in building trust among each other and facilitating cooperation in the electricity sector.
Priyanshi Chauhan is a Sylff Fellow for Doctoral Research at the Centre for South Asian Studies, School of International Studies, Jawaharlal Nehru University, India.
