An integrated electricity market in South Asia is key to energy security

South Asia has witnessed a growth in energy demand over the past two decades, increasing by over 50 percent since 2000. Rising demand has been driven by factors such as an increasing population and growth in the manufacturing sector. In Bangladesh, Bhutan, India, Nepal and Sri Lanka in particular, electricity demand has grown on average by more than five percent annually over the past two decades and is expected to more than double by 2050.

However, approximately two-thirds of the energy use in South Asia is imported. As a result, the volatility of oil and gas prices particularly affects the countries that rely heavily on imported fuel for power generation. This leads to higher cost recovery requirements for electricity. Furthermore, more work needs to be done to transition power generation in the region to more sustainable, greener technologies. It is still heavily dependent on fossil fuels, which account for about 80 percent of total primary energy production in the region. Unsurprisingly, greenhouse gas (GHG) emissions from power generation in South Asia are the largest (68 percent) compared to emissions from other sectors. 

In South Asia, like other advanced markets, current energy market disruptions due to conflict, soaring demand for natural gas and insufficient supply are adversely impacting fuel imports and putting greater pressure on governments to ensure the security of their energy supply. The current global energy crisis is intensifying the tension between ensuring energy security and committing to energy transition policies that are better for the planet in the long run.

Such tension demands greater diversity of energy resources as well as a shift from independence to interdependence for secure access to such resources. Regional cooperation and integration can help accelerate the diversification of electricity supply resources across South Asia while enabling a greater role for renewable energy resources.  

Cross-border electricity trade in the region has improved markedly in recent years. Since 2015, with the World Bank support, countries in South Asia have substantially increased cross-border power transmission — from 2.1 gigawatts (GW) to 6.4 GW — mainly driven by projects connecting India with Nepal, Bhutan, and Bangladesh. However, cross-border power trade has been largely limited to bilateral agreements such as an agreement facilitating hydropower export from Bhutan to India. Deeper integration of South Asia’s power systems would allow countries in the region to leverage significant untapped hydropower potential and accelerate the deployment of solar and wind resources. 

A more deeply integrated power system in South Asia positions electricity trade as a new driver for socioeconomic benefits.  It could result in scaled up investments in renewables, more jobs, as well as electricity trade savings for importers and revenues for exporters. 

It is, therefore, important for energy policy makers in the region to have a shared vision for a South Asia Regional Electricity Market that prioritizes diversifying energy sources and a transition to renewable energy. This shared vision will need to be supported by a commitment to developing priority regional power trade and transmission projects, improving the enabling environment and infrastructure and streamlining processes to facilitate cross-border power exchange that can make a concrete difference on the ground. This will enable countries to address electricity shortages, lower energy costs, reduce carbon emissions, and increase the resilience of their power systems.

A South Asia Regional Electricity Market would also play a central role in the One Sun One World One Grid Initiative, launched by the governments of India and the United Kingdom at COP26 in Glasgow in November 2021, and is getting more traction as over 80 countries have backed the initiative. This initiative envisages the interconnection of all forms of renewable energy across continents via a trans-continental power transmission grid. 

The World Bank is committed to supporting South Asian countries in building a regional power market and facilitating greater integration through cross-border transmission infrastructure . A more integrated power market is not just good for energy security. It is also an important step towards green, inclusive and resilient development in South Asia’s energy sector that will benefit future generations.