of ongoing projects including non-delivery of large hydro, imported coal and natural gas projects by 2021, then total costs of power system expansion would increase by more than 15%. Finally, imposition of a hypothetical carbon price across the region acts as a major additional stimulus to hydro development as well as non-hydro renewables. Electricity costs rise in that case due to greater use of costlier and lower-capacity-factor generation sources as well as some additional increase in transmission interconnections.

Several important extensions of this analysis remain to be carried out. Aside from impacts on the local environment, already noted, it would be useful to identify the potential ways that regional gains could be distributed across different countries in the region. The optimization model generates shadow prices for constraints on both total generation capacity and transmission capacities along different interconnections. In principle we could use the shadow prices as busbar prices for generation and nodal prices for transmission in a perfectly competitive integrated regional power market. These prices in turn could be used to calculate total payments and receipts for power for the different countries, and thus the net gains from trade. We have not pursued that in this paper in part because the transmission system in the model is fairly simplified, and also because the assumption of perfectly competitive pricing in generation and transmission is a strong one. While it seems clear from the results that there exist multiple outcomes in which all countries are better off with regional cooperation and trade than without it, additional investigation of the sizes of these gains is warranted.

Another important and related question is the potential distributional impact of regional electricity cooperation and trade within countries. Suppose, for example, that Nepal were to apply marginal-cost pricing to power generation. With expanded production for exports, marginal costs and thus prices for generated electricity for domestic customers could rise, depending on how quickly up-front capital costs are rolled into rates and how strong are the economies of scale in hydro expansion. Further work on how rates can be designed to more broadly share the benefits of expanded export opportunities has a high priority.

# **References**

- Ali, Muhammad, Muhammad Jawed Iqbal and Muhammad Sharif, 2013, Relationship between extreme temperature and electricity demand in Pakistan,  International Journal of Energy and Environmental Engineering 4:36.

- Asian Development Bank (ADB), 2013a. Islamic Republic of Afghanistan: Power Sector Master Plan: Technical Assistance Consultant’s Report, # 43497, ADB, Manila.

- Asian Development Bank (ADB), 2013b. Islamic Republic of Afghanistan: Gas Development Master Plan, Technical Assistance Report, # 47018-001, ADB, Manila.

- Bangladesh Oil, Gas & Mineral Corporation (Petrobangla), 2012.  Consulting Services for Preparation of Implementation and Financing Plan for Gas Sector Development, Final Report, Petrobangla, Dhaka.

- Bangladesh Power Development Board (BPDB), 2013. Key Statistics, http://www.bpdb.gov.bd/bpdb/

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