# **Figure 1: Seasonal complementarity in power systems in South Asia – Monthly Electricity** **<u>Load Profiles across South Asian Grids</u>**

<!-- Start of picture text --> January February March April May June July August September October November December<br>Bangladesh<br>India ‐ North East<br>Bhutan<br>India ‐ East<br>Nepal<br>India ‐ North<br>India ‐ West<br>Pakistan<br>India ‐ South<br>Low Medium High<br><!-- End of picture text --> Sources: Authors’ calculation based on CEA (2014) (India); Ali, Iqbal and Sharif (2013) (Pakistan); Kunwar (2014) (Nepal); Bangladesh Power Development Board (2013) (Bangladesh).

Despite these potential benefits, the South Asia region is lagging behind other regions that have established expanded cross-border interconnections and regional power exchange. These include the Greater Mekong Regional electricity interconnection,<sup>4</sup> the Southern African Power Pool (SAPP),<sup>5</sup> and the Central American Electrical Interconnection System (SIEPAC).<sup>6</sup> Major barriers in SAR have included limited cross-border transmission links; the presence of bottlenecks in the domestic energy infrastructure; poor operational efficiency, financial performance and creditworthiness of the utilities in the individual countries; and long standing political disputes (Singh et al, 2015). Regulatory reform and harmonization, reduction of trade-distorting inefficient national regulations, and cooperation to overcome domestic limits on institutional capacity are additional important components for more fully realizing the benefits of regionalizing electricity markets.

In this paper we assess the potential economic benefits of cross-border electricity cooperation and trade in South Asia over the longer-term, 2015 – 2040. We focus particularly on the possibilities with unlimited flow of power across borders in response to regional demands and investments in generation and transmission to cost-effectively meet those demands. To our knowledge, this is the first study that quantifies the benefits of full regional electricity trading in South Asia. Existing studies tend to qualitatively highlight the importance of regional electricity cooperation (Srivastava and Misra, 2007; SAARC, 2010; IRADe, 2013 and Rahman et al. 2013). Rahman et al. (2013) presents some quantitative analysis, but it focusses on already committed cross-border transmission links at sub-regional levels (Bangladesh, Bhutan, India, Nepal and Sri Lanka) and the analysis has a short-term perspective (until 2017).

The study uses a mixed-integer-programming based optimization approach that simulates least-cost plant dispatching and least-cost investments in generation capacity and interconnections to meet projected load in the region while satisfying technical, resource and other constraints. We first use the model to simulate expansion plans for each country separately, incorporating only existing as well as currently committed transmission interconnections. We compare this base case

> 4 The Greater Mekong Sub-Region (GMS) was established in 1992 and its members include Cambodia, PDR Lao, Myanmar, Thailand, Vietnam, and the Yunnan Province of China. GMS relies mostly on bilateral trade agreements. 5 Established in 1995, the members of SAPP include Angola, Botswana, Democratic Republic of the Congo, Lesotho, Mozambique, Malawi, Namibia, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. It manages energy trade within the umbrella of the Southern Africa Development Community (SADC).

> 6 SIEPAC was set up in 1987, and its members include Panama, Costa Rica, Honduras, Nicaragua, El Salvador, and Guatemala.

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