Advancing South Asia's Energy Security through Efficiency and Regional Cooperation

The 2012 Pacific Energy Summit brings power generation to the fore among a number of competing energy issues. Why is power generation of critical importance now?

The need to ensure energy security in today’s economic climate is imperative and urgent. Energy security is a critical component of regional stability and plays a key role in supporting economic development and national security. Recent events, such as the uprisings in the Middle East and Africa; the 2011 Japan earthquake and tsunami, which led to the crisis at the Fukushima Daiichi Nuclear Power Plant; and the instability in the eurozone, have enlarged the risks and compounded the uncertainties related to energy supply and demand. The net result of these global impacts on the energy security of nations and regions has highlighted the importance of the stable provision of affordable and environmentally sound power supplies.

Policymakers can choose from a wide array of fuel choices, all with varying price points and environmental impacts. How do you suggest they prioritize these options when seeking to advance energy security?

The future supply and demand balance in global energy markets will be determined by many factors: the pace of economic growth and its structure; energy efficiency and efforts to minimize local and global environmental impacts; market and technological innovations that drive deployment at scale of new and renewable energy technologies; and the rapid use of liquefied natural gas (LNG) as a global commodity.

LNG provides a case in point. It is linked to both availability and changing price points—gas is no longer limited as a regional or continental resource. In 1990, there were just 8 LNG exporters, 30 terminals, and 61 ships worldwide, and LNG accounted for less than 3% of global fuel consumption. By way of contrast, in 2010 the figures jumped to 20 exporters, 90 terminals, and 300 ships worldwide, and LNG accounted for 10% of global demand—a threefold increase across the LNG value chain!

What are the main energy challenges facing Asia today, and what is the magnitude of severity of each? What is the role of the electric power sector in constructing sustainable solutions to these challenges?

The fundamental energy challenges that individual countries face are energy security, climate change, and energy access. Electricity access in India, for instance, is only 67% of the population. This means that there are almost 400 million people who are without service or underserved. In addition to these three challenges, the fourth major obstacle is capital mobilization for energy infrastructure investments. Climate change could be seen as an opportunity for resource mobilization, development, and growth and for countries to move from an economy dominated by fossil fuels to one dominated by renewable energy. So there are a lot of business, trade, economic growth, and science and technological development opportunities out there.

Ultimately, the problem boils down to this simple question: How can countries grow their economies without increasing their carbon emissions? Nowhere do these challenges converge as they do in the electricity sector and all strategies—short-, medium-, or long-term—must address this question.

The electric power sectors in Asia are largely managed by governments and by the public sector, although there are certain countries where the private sector plays a very important role. I think this makes a very good case for a public-private partnership: to champion sustainable clean-energy business solutions. The private sector, on its own, may not have the resources, and clearly cannot raise the resources required for the dramatic need for energy supply growth. Therefore these projects will depend on institutional and government financing. But having said that, the private sector has a much stronger track record in operations and delivery of efficient services, and it can definitely improve the quality and reliability of energy supply by providing better management. Finally, the private sector also brings innovation, better governance, and superior management, technology, and financing.

How would you define robust, cross-border energy trade and energy security in a regional context? What is your assessment of the political and institutional responses to manage risks and threats to energy security? Are they adequate for both the short and long term?

In a South Asian regional context, I find that the risks associated with forging an intraregional, cross-border energy cooperation—which include policy, legal, institutional, regulatory, and infrastructural barriers—would be greatly minimized if the economic and environmental benefits were better understood. Other barriers to robust trade include the lack of trans-regional energy infrastructures, such as transmission networks and gas pipelines; inconsistent regulatory framework for regional planning; weak contract enforcement and payment risks; riparian rights and water-sharing issues; incongruent pricing policies and access regulations; differences in energy subsidization policies; and the lack of coordination and communication among regional transmission utilities.

Balanced against these risks and barriers are several benefits of regional energy cooperation. In theory, cross-border trade among India and its South Asian neighbors could lead to lower relative prices and the improved welfare of participating countries, because nations would enjoy the comparative advantage of their neighbors’ relative energy-resource endowments and technologies. For example, India could fuel its growing economy through imported clean-energy options, such as hydro power from Bhutan and Nepal, thereby avoiding additional reliance on its low-quality coal.

Differences in production costs will encourage cross-border trade as long as the price differentials are sufficient to repay the investment and operations and management costs of interconnecting the grids. Power-grid interconnections enhance supply reliability, peak load control, and opportunities for capturing economies of scale. The extreme seasonality of both power generation and demand among South Asian countries increases these potential benefits.

Given that volatile energy prices are a threat to energy security in South Asia, how might cross-border projects play a role in alleviating this uncertainty? What would be the best way to engage all stakeholders to fully analyze this option as part of the sector power-planning process?

The development of cross-border project infrastructure, or “hardware,” and the facilitation of cross-border trading through regulatory, policy, and pricing mechanisms, or “software,” are the key building blocks to meeting the larger goals of capturing the efficiencies and synergies of regional energy collaboration. By capturing such synergies and the natural-resource advantage that each participating nation brings to the table, we can advance regional energy security in the face of price and supply volatility. Both the development of cross-border transmission infrastructure and the efficient utilization of that infrastructure can be best realized by engaging regional stakeholders to harmonize policies and regulations and by reducing tariff barriers. It also requires developing a cross-border grid code, effective governance structures, and legally binding contracts that support the long-term financing of new generation as well as transmission infrastructure.

At least three South Asian countries—Bangladesh, India, and Pakistan—face a perennial energy shortage on account of the gap between energy supply and demand. What is the scale of this problem, and is there the potential for regional cooperation to address it?

The gap between the latent demand and supply of energy is a major energy security issue for the region. Over the last two decades, South Asia has been one of the fastest-growing regions in the world, with an average annual growth rate of 6% as measured by GDP per capita. The International Energy Agency (IEA) has projected that South Asia could have the highest growth rate of energy consumption in the world by 2020. Yet despite this impressive macroeconomic growth, the energy sector in the region has not been able to keep pace, and South Asia continues to experience chronic supply shortages and poor quality of service. With a regional population of nearly 1.5 billion, more than half do not have access to commercial energy sources. It is estimated that the regional average economic growth rate of 6% per year is constrained by 2%–3% annually due to the lack of energy resources.

In order to meet rising energy demands, South Asian governments have increased their reliance on oil imports. As a result, each country, without exception, depends on these imported supplies to meet more than a quarter of their commercial energy needs. The energy shortage among Bangladesh, India, and Pakistan is 15%–35%, and the capacity shortage is 10%–40%. Bangladesh has a peak deficit of 1,200 megawatts (MW), and Pakistan’s deficit is more than 5,000 MW. India’s capacity deficit is nearly 20,000 MW, or approximately 12% of its total capacity. Intraregional energy trade has the potential to address this problem by ensuring that these countries build upon the complementarities in energy demand and supply as well as drive the formation of competitive energy markets. As an example of complementarity, we can look at the different time zones between the three countries, which reflect varying times of peak demand.

What is the way forward for electricity trading and market development in South Asia, given the political and economic realities of the region?

The overall context for regional energy cooperation has undergone a change in the past few years. A window of opportunity has opened due to a shift in the regional political and policy mindset that has caused countries to look outward for advancing their energy security needs. There is broader recognition that energy trade is better for energy security and helps diversify a country’s energy base through mutual dependence.

In countries like Bangladesh, India, and Pakistan, the energy sector reforms of the past two decades have created a new dynamic for trade through the creation of national transmission grid companies. In the case of India, there is the emergence of an open, market-driven, private-sector energy market, which is aggressively looking for opportunities outside the country. If we combine these developments—which are reinforced by experience worldwide proving that regional energy cooperation can help countries meet energy demand at lower costs and achieve higher GDP growth rates—with global drivers such as climate change, we find that cross-border energy trade is an increasingly important game changer.

What are the most cost-competitive clean energy programs in terms of addressing energy security? How can regional cooperation advance the role of such programs?

Energy efficiency is probably the most cost-competitive alongside a number of renewable energy programs, which are beginning to make the grade. The cost of saved energy through end-use efficiency measures in industry, homes, buildings, and farms is a fraction of the cost of purchased electricity, generally one-half to one-fifth. With time, the cost differential between the two will widen further. The economic case for energy efficiency is quite convincing in many instances, with the exception perhaps of certain transformational technologies, where capital costs are rather high. Regional cooperation in alternative energy technologies represents the flow of ideas across borders as compared to regional energy trade in electrons and/or molecules. Such outreach of ideas—the best energy-efficiency practices in policy, management, technologies, and financing—can play a vital role in building trust and confidence between nations and prepare them for undertaking the more difficult task ahead: cross-border energy trade.

A vehicle to advance regional collaboration is the establishment of centers of excellence in energy efficiency to serve as platforms for business and market transformation. Such a center might serve as a hub for information, capacity building, and business incubation, while also bringing together regional stakeholders to discuss and plan market transformational strategies and programs. The USAID SARI/E program, for instance, has helped establish the Regional Center for Lighting in Sri Lanka, as well as a Regional Center of Excellence on Micro Hydro in Nepal. These centers provide leadership in the design and deployment of energy-efficient and renewable-energy technologies and programs in South Asia.

One of the many potential strategies for reducing global greenhouse gas emissions is through end-use efficiency in the electric power sector. Can you highlight where the biggest improvements can be made most economically in the residential, commercial, and industrial sectors? What role can standards, regulations, and price-driven incentives play, and what evidence can you cite for their effectiveness?

There is significant potential for energy efficiency in all sectors—residential, commercial, and industrial. Industry has been at the forefront of energy conservation programs with a savings potential of 20%–30%. In South Asia, the green building movement has resulted in several commercial and residential projects, which have achieved more than 50% energy savings over conventional buildings. This is realized through improved building envelope design; day-lighting; the use of efficient heating, ventilation, and air conditioning (HVAC) systems; and harnessing supplementary renewable energy. It is important to recognize that while efficiency improvements have the potential to boost economic growth, they can also result in higher tax revenue for the government. An analysis of macroeconomic benefits for India’s Maharashtra state illustrates this point: redirecting electricity saved through efficiency improvements to electricity-deprived businesses has the potential to increase economic output and therefore tax revenue. This measure has the potential to reduce the state government’s fiscal deficit by 15%–30%, depending on the size of backup power generation. An analysis of India’s electricity efficiency potential shows that efficiency improvement, in combination with new supply, can eliminate electricity shortages at the same investment level as a “business-as-usual” electricity supply scenario.

The vision of energy efficiency as a cost-effective, environmentally sound complement to capacity-addition strategies in power and energy is beginning to emerge. In several South Asian countries, for instance, legislation in energy conservation has raised immeasurably the profile of energy efficiency and its importance to the national development agenda. This legislation provides a strategic framework for the formulation and development of energy conservation policies such as standards and appliance labeling, as well as mandatory energy audits. It also attempts to strike a balance between regulatory enforcement and voluntary participation, and between market-driven methods and government mandates. In India specifically, energy conservation has been further enhanced by the National Mission on Enhanced Energy Efficiency (NMEEE) under the government’s National Action Plan on Climate Change (NAPCC), and it is designed to be implemented through market-based instruments such as the Perform, Achieve, and Trade (PAT) scheme.

What are the options for cleaner and more efficient coal combustion in both the Asia-Pacific and internationally over the next fifteen to twenty years? What would be the drivers and the contours of a regional clean coal partnership in South Asia? Which policy options would most significantly reduce emissions from the region’s coal fleet over the next fifteen years, while still meeting the increased demand for electricity?

Coal is the mainstay and key primary energy resource for India—the region’s fastest growing economy—and it will likely continue to be the dominant resource for approximately the next 30 years. While India accounts for about 10% of global reserves and approximately 7% of the annual world production, other South Asian countries currently have very limited coal consumption. Yet this might change. Sri Lanka is planning two coal-fired power plants with imported coal; Pakistan is beginning to show interest in exploiting its lignite coal reserves in Sindh Province; and Afghanistan and Bangladesh are also beginning to signal a shift toward exploiting their limited coal reserves.

Given these trends, coal has emerged as a fuel with significant energy security and climate change implications for South Asia. We are beginning to see that cleaner-coal technologies—pre- and post-combustion—are inducted along the entire coal power cycle, from mining and transportation to storage and conversion stages. In India, the use of beneficiated coal, as an alternative to run-of-mine and high-ash coals, has helped reduce transportation costs and storage space, while improving the conversion efficiency or heat rate of coal-fired thermal power plants.

Together with front-line technologies such as super-critical boilers and the improved operation and maintenance of power plants, countries have the potential for significant improvements in thermal efficiency and commensurate reduction in greenhouse gases, notably CO2. Further improvements are also possible through the introduction of transformational technologies, such as integrated coal gasification combined cycle (IGCC) and carbon capture and storage (CCS). The region is today poised to draw advantages from a clean coal technology partnership that would enable the sharing of experiences and the transfer of best practices in the efficient management and operation of coal-fired utilities. India, as the region’s largest producer and consumer of coal and possessing over 97% of the coal fleet, could play a central role in leading and facilitating this partnership.

Endnotes

[1] The views expressed in this interview are the author’s own and do not necessarily reflect those of USAID.

This interview was conducted by Jacqueline Koch, Senior Media Relations Coordinator at NBR. As the leading media liaison for NBR’s Centers for Health and Aging and Trade, Economics, and Energy Affairs Outreach, Ms. Koch works closely with NBR advisors, sponsors and partners to raise the profile of NBR Summit events. She also is the author of Summit summary reports and has extensive experience in the global health sector, media development and, more recently, energy issues in the Asia-Pacific.