Energy security: The potential of cross-border electricity trading

Sakib Bin Amin and Muntasir Murshed | Wednesday, 19 October 2016

Electricity plays a crucial role as an input for socio-economic development of a country. It is widely recognised that no underdeveloped country has managed to achieve development beyond a subsistence economy without ensuring a minimum volume of electricity that is accessible to a broad segment of its population. Thus, the importance of electricity in an economy is undeniable and it calls for proper energy sector policy. Energy security for a country may be conceptualised as the country's access to energy sources of various types consistent with its energy needs for numerous purposes. Therefore, one of the ways of ensuring energy security is to achieve self-sufficiency in electricity generation or to engage in Cross-Border Electricity Trading (CBET) with regional neighbours. Bangladesh, like other developing countries, is forced to choose the latter option due to its inability to generate electricity on its own because of limited fuel options.
Although the country has shown some progress in achieving macroeconomic stability and has maintained an annual growth rate of 6.34 per cent on average since 2011, it continues to face challenges in the form of underdeveloped power infrastructure and energy deficits. In Bangladesh, electricity is the commonly used form of energy which is employed to facilitate most of its economic activities. The government has envisioned ensuring 100 per cent electrification by 2021, but at present about 74 per cent of the population have been blessed with access to affordable and reliable electricity supply. It is also a matter of serious concern since rural electrification rate is still around 40 per cent and has to be increased dramatically to achieve the government's stated goal.
Recent trend shows that Bangladesh has historically been facing electricity deficits. In addition, almost 62.5 per cent of total electricity in Bangladesh is produced with natural gas. Such a heavy reliance on natural gas is also an ominous sign for the country since its gas reserve, at the current rate of exploration and consumption, is expected to be exhausted by 2031. Moreover, imported oils have also been used to generate electricity mainly by quick rental companies which also exert pressure on the national exchequer. As a result of input shortage, Bangladesh was compelled to look at new avenues for boosting its generation capacities. Fuel diversification is definitely an option for Bangladesh to meet its electricity demand but the associated costs of this 'fuel mixing make it a less preferable choice and puts more weight to go for CBET.
Successful performance in CBET would definitely lead to a reduction in the cost of electricity since unit cost of imported electricity is in between locally generated gas and oil-based electricity costs. It is argued that coal-based electricity is another substitute for the expensive oil-based generation. At present, producing electricity using coal costs around Tk 5/KWH which makes it economically feasible compared to the other energy sources. However, due to environmental and other problems associated with coal-based electricity generation, CBET seems to be a safer option while coal-based electricity projects can be kept for the near future.
It is empirically revealed worldwide that the cost-benefit ratio of engaging in CBET is promising. At present, Bangladesh's CBET primarily involves India which calls for diversification among other trade partners. In January 2010, Bangladesh and India signed a 25-year memorandum of understanding (MOU) and promised to exchange electricity through a cross-border interconnection leading to development of a 400 kV, 30-km double-circuit HVDC line from Bheramara (Bangladesh) to Baharampur (India) and a 500 MW 400/230 KV back-to-back HVDC substation at Bheramara. Even though there had been a couple of similar agreements with India, considering the potential of CBET, the benefits from such regional power sharing arrangements are yet to be realised.
As part of diversifying trading partners, Bangladesh should get into favourable trade terms with Bhutan which has more than 100 Giga Watt (GW) of hydro power in reserve. Ideally, Bangladesh should focus on building up a Bhutan-Bangladesh electricity cooperation arrangement as almost 45 per cent of Bhutan's total exports are generated from electricity trade across national boundaries, primarily with India. Apart from the interconnection between the two countries, Bangladesh may also negotiate for the use of the intervening Indian corridor with Bhutan for importing cheap hydro power from the Himalayan kingdom and in exchange can allow corridor for India, after ensuring national security, to transfer its electricity power from its western region to eastern parts from Assam to Tripura.
Strengthening cross-border electricity cooperation within the South Asian region can be a revolutionary answer to ensuring adequate and reliable electricity availability within the regional countries since there are complementarities in demand for electricity and resource endowments as a result of diversity in primary energy sources and differences in seasonal patterns of electricity requirements and availabilities. Currently, arrangements for power transmission and trade are usually bilateral, mainly involving two governments with minimal involvement of the private sector. Thus, there should be urgency in encouraging private investments further in the form of multilateral public-private partnerships. CBET will not only resolve energy crisis but it will also enhance future regional cooperation among the member  states of the South Asian Association for Regional Cooperation (SAARC) in other sectors also.
Dr Sakib Bin Amin is an Assistant Professor at the School of Business and Economics at North South University and Muntasir Murshed recently completed his Bachelor's degree in  Economics  from the same university.
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