Nepal to become first country to trade power from IEX

Photo: energy.gov

Indian power exchanges may soon host buyers and sellers from neighbouring countries as India looks to operationalise cross-border sale and purchase of electricity for which regulations were finalised last year.

The country’s largest power exchange, India Energy Exchange (IEX) proposes to host buyers and sellers from countries such as Nepal, Bhutan and Bangladesh to participate in power trading with both buy and sell calls initially. The process would be operationalised with Nepal first. 

As per the plan, power producers from neighbouring Nepal would be the first to get access to Indian power exchanges through a power trader to undertake both short term and long term power sale contracts. 

Sources said that initial talks for cross border participation of Nepalese power producers on Indian exchanges has already been concluded and the Joint Steering Committee (JSC) on cooperation in the power sector between the two countries will finalise the details of participation with regard to rules and regulations and creation of infrastructure to support the initiative. 

The JSC is an apex bilateral mechanism set up by both nations to enhance and coordinating various government-to-government led initiatives in the power sector.

The Nepal experience is expected to lead to opening up of Indian power exchanges to other neighbouring countries such as Bhutan, Bangladesh and even Sri Lanka. There is no plan as of now to ripe in Pakistan into the cross border power trading framework. 

Such participation from overseas entities on Indian exchanges would not be direct but through any electricity trading licensee of India. Trading will be through bilateral agreement between two countries, bidding route or through mutual agreements between entities.

“We have recently created a framework on how cross-border power trading can be initiated on the exchange. The CERC has already come out with regulations in this respect. Now we expect that this should begin in next few months ,” said a senior official of IEX. 

While cross border transactions in TAM (Term Ahead Market) segment is currently operation with India exporting power Bangladesh, the same is yet to pick up for short-term power purchase through exchanges. The CERC regulations allows power producers to offer electricity directly to distribution entities in neighbouring countries through Indian power exchanges. 

Besides allowing sale of surplus power by some of the neighbouring countries, the operationalisation of cross-border trade in short term market would also provide Indian generators additional market access for sale of their own surplus power. Also, trading with Bhutan could also help India increase the share of renewable power in its generation mix.

India already has transmission links with Nepal, Bhutan and Bangladesh so power trading through exchanges could be started with them quickly. The facility could be extended to other neighbouring markets such as Myanmar and Sri Lanka once necessary infrastructure is created.

The JSC has also suggested looking at more transmission lines between India and Nepal and development of an integrated grid that will also help develop a seamless power market between the two countries. 

Experts point out that cross border transactions would only be successful once the monopoly of state distribution entities is broken and a multi-buyer- multi-seller market is developed for trading for efficient price discovery.

Though correct estimates are yet to be made, industry sources said that there could be demand for 300 to 400 MW from cross border trade in spot market initially.

Currently, just about 3,000 MW of power is traded in the South Asia region among seven countries including India, Bhutan, Bangladesh, Nepal, Pakistan, Sri Lanka and Myanmar. India annually imports about 1,200 – 1,500 MW power from Bhutan and exports about 1,200 MW to Bangladesh, 500 MW to Nepal and 3 MW to Myanmar.

A vibrant power exchange market with ability to trade in spot market for consumers in domestic as well as overseas market would also be good news for power generators as they could tide over any situation of low demand in domestic market to transfer capacities overseas.

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