Road Map for Cross Border Electricity Trade/Power Trading & Development of Exchanges –
Bhutan’s Perspective
55thth October 2013, New DelhiOctober 2013, New DelhiDHPS/MoEADHPS/MoEA
BhutanBhutan
• South Asia Energy Context
• Opportunities and Challenges - SAEM
• Laws and Policies of Bhutan
• 10,000 MW Hydropower Development Plan
• Grid Interconnection with India
• Options for market participation
• Proposed road map to market entry
Presentation Outline
Sub-region has over 1.3 billion (21% of the total world population)
Wide variation in abundant resource endowments in form of
hydropower, coal, natural gas and other renewable energy resources
Dominance of single fuel in energy mix
0%
10%
20%
30%
40%
50%
60%
70%
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90%
100%
Afg
han
ista
n
Ban
gla
de
sh
Bh
uta
n
Ind
ia
Mal
div
es
Ne
pal
Pak
ista
n
Sri
Lan
ka
Electricity Natural Gas Oil Coal
South Asia Energy Context
Cross Border Energy Trade
Opportunities
– Energy resource diversification and energy security
– Sharing of low cost energy resources
– Optimal utilization of resources & transmission networks
– Economic opportunities for energy exporting countries
– Enhanced opportunities for climate change mitigation
Cross Border Electricity Trade
challenges
– Lack of funds (inadequate internal financial resources) & huge investment
– constraints in transmission corridor
– absence of competitive power market (Only India – IEX & PEX)
– Lack of harmonious legal & regulatory framework (essential criterion for cross border trade!)
– limited institutional and manpower capacity
REGIONAL
ENERGY
COOPERATION
BIMSTEC
- Energy Trade(Electricity & gas), Technology
Transfer etc
SARI/E
Capacity Development, Cross
border Energy Trade, Energy
market formation, regional
clean energy development etc
SASEC
- Regional Energy connectivity, Technic
al Assistance and Investment Projects
etc
SAARC
- Energy Trade studies, Technology Transfer, Renewable
Energy studies, Energy
Efficiency studies etc
Regional Energy players
Initiatives for Regional Power Trade-The critical step towards enabling exchange of power in the region is the establishment of bilateral grid connectivity between member nations. Initiatives underway between India and neighboring countries.
- SAEM – should complement and be in line with the broader understandings and agreements arrived under SAARC Energy Cooperation.
-Need to work on policy environment that permits conducive cross-border investment flows – Public-Private Partnership & other investment models.
- Harmonization of power systems requirements to allow cross border trade, analysis of institutional, regulatory and commercial requirements – SASEC, BIMSTEC, SAARC etc.
- Commercial mechanism for treatment of system imbalances – grid discipline and reduce incentive for gaming (Bhutan’s grid code is based on non-commercial regulatory mechanism to regulate the grid discipline)
- Energy accounting/clearing/settlement mechanism
- Open access , taxation regulations and dispute settlement mechanism
- Based on market assessment and evaluation of entry strategy models, what could be the most appropriate and practical route to pursue
- Investment in cross border generation and transmission infrastructure
- Facilitating establishment of regional power market (bilateral to multilateral approach)
- Need for strong political commitments of the member states to implement the recommendations of the studies in a time bound manner
ELECTRICITY ACT 2001
8
Section 22.1 ( vi) – Trading is covered as a distinct license activity
Section 11.1 (b) – Tariff setting including tariff for generation not regulatedby PPA
BEA not mandated to regulate tariff for power export/import throughpower exchange but if power procured through exchange is to be sold tothe internal customers by the Licensees, BEA will required to regulate theprices as per Section 11.1(b).
** It is observed that transaction procedure of Power Exchange is regulated by CERC , hence if powerexchange materializes, what will be roles and responsibilities of regulators of individual countryrelating to price determination and approval of power sold through the exchange ?
The Act does not mandate BEA to look at dispute resolution of cross borderpower trade. Regulatory framework/Agreement required amongregulators, Forums like SAFIR etc.
SUSTAINABLE HYDROPOWER DEVELOPMENT POLICY
9
Investment model and period – BOOT & 30 years ( Above 25 MW HEPs)
Project Ownership – Public-Public, Public-Private, IPP, Strategic Partnership
Bidding based on Upfront Premium (fixed) and Royalty Energy (min 12% for 12 yrs and 18% thereafter)
Certified Emission Reduction (CER) or any other credits will be the property of the Project Proponents.
Social consideration –
Land acquisition as per Land Act (land compensation in cash/substitution)
10,000 Units per acre per year (Perpetual)
1% of project cost for R&R
Basic infrastructure as part of project (local area development)
Employment (1 member of PAFs)
Economic Development Policy -2010
Objective:
Achieve economic self reliance by the year 2020
Full employment (97.5%)
7.2 Energy
Electricity for all by 2013 ( 90% as of March 2013 ) 10,000 MW by 2020 (to be developed in line with SHDP) Maximize export opportunities and at the same time ensure energy security through capacity
allocation, development of storage hydro electric projects and other renewable energy. Remove subsidies gradually from HV by 2011 and MV by 2020 Royalty Energy to be used for providing subsidy to low voltage and other consumers
Priority List of Activities under Production and Manufacturing under FDI 2010
Alternative Renewable Energy Policy 2013
– hydropower <25MW
-Solar, Wind, Biomass/Biogas & Waste to Energy (WTE) ~ Renewable Purchase Obligations!
-REDF - to promote RE ( financial assistance for creating conducive investment climate)
Energy efficiency and conservation measures policy under formulation!
Context
1 Total Potential 30 GW
2 Installed Capacity (MW) 1,480
3 Generation (MU) 6,897
4 Export to India (% of Generation)
79
5 Revenue contribution (%) 45
6 Electricity Sector (% of GDP) 20
7 Per capita consumption of electricity (Units)
2,100
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1000.00
2000.00
3000.00
4000.00
5000.00
6000.00
7000.00
8000.00
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86
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88
1990
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98
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00
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02
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06
20
08
En
erg
y (G
Wh
)Generation Export to India Sale to BPC
Installed Capacity & Generation
5-Oct-13 12
Modalities of Implementation were agreed - 6 projects under IG mode & 4 projects under JV mode.
- 3 under construction (Puna-I, Puna-II & Mangdechhu)
-Awaiting GOI clearance for construction of 6 (2 IG & 4 JV)
-1 DPR yet to be carried out
JV Mode:
As per SHDP (concession terms, reversion of plant, royalty energy & JVC to be registered under Companies Act 2000 of Bhutan)
Agreed to implement 4 JV projects with 70% debt and 30% equity with each JV partner holding equal equity shareholdings.
The equity of the RGoB PSU will be funded by the GoI as grant.
The 70% debt will be raised by the JV Company where the GoI PSUs will take the lead role.
10,000 MW Hydropower Development by 2020
Inter-Governmental Projects Joint- Venture Projects
Project Name: Puna-I Puna-II Mangdechhu
SankoshAmochhu
Kuri-Gongri
Chamkharchhu-I
Bunakha Wangchhu
Kholongchhu
TOTAL
Installed Capacity (MW)
1,200 1,020 720 2,560 540 2,640 770 180 570 600 10,800
90% dependable year generation
(MU)5670.78 4357.36 2923.70 6267.00 1835.00 13855.00 3252.92 1669.27 2526.38 2592.83 45,000.00
Domestic Demand and Supply – Energy Security
Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Demand (MW)
256.95 276.24 282.4 309.5 314.5 346.66 376.393 386.504 407.425 440.019 475.220
Firm Power (MW)
293.51 293.51 293.51 293.51 293.51 293.51 293.51 553.51 751.51 751.51 751.51
Shortage/ Excess (MW)
36.56 17.27 11.11 -15.99 -20.99 -53.15 -82.883 167.006 344.085 311.491 276.290
0
100
200
300
400
500
600
700
800
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
MW
Firm Power
Demand
Energy Banking Options being explored to meet the gap
Cross border interconnections- NTGMP
4 pooling stations planned & investment plan over Rs. 50 billion
● 7 medium and large projects ranging from 50 to 500 MW under PFS by DHPS
● 5 Projects by DGPC under various stages of studies (as part of capacity building)
i) Dagachhu 125 MW, 515 MU under PPP mode (DGPC, NPPF & Tata)
- TPTCL (Off taker)
- Tariff (Guaranteed plus upside sharing market based)
- CDM Benefits
ii) Nikachhu 118 MW, 500 MUs
- DPR almost finalized
-Project structuring underway including offtaker identification
Plans outside 10,000 MW
5-Oct-13 16
Inter-Connections in future (by 2020) as per National Transmission Grid Master Plan
400kV D/C Quad moose line Lhamoizingkha – Alipurduar (India)
400kV D/C Quad moose line Jigmeling – Alipurduar (India)
400kV D/C Quad moose line Sankosh – Alipurduar (India)
400kV D/C Quad moose lines from Yangbari - Baranagar (India)
Power Interconnection with India
Bhutan-India Power Trade & Cooperation
– cooperation with GoI initiated since 1961
– Indo-Bhutan cooperation on cross-border energy cooperation startedwith jaldahka hydroelectric project development
– Cooperation from GoI gained momentum in the micro hydropowerdevelopment, rural electrification & large hydropower development(Chukha 336 MW in 1988, Kurichhu 2002, and Tala in 2006 )
– In 2008, Protocol to the 2006 Agreement:
- enhanced target of development of a minimum of 10,000 MW and import ofsurplus electricity from this to India by 2020,
- addresses the modalities of implementation of projects and cross bordertrading of power
● Available power trading volume from Bhutan will be dependent on royalties, development of newprojects outside the purview of bilateral cooperation and short term power allocations available tothe country
● Two scenarios determine the volume of power available for trade:
– 12% power to be given to Bhutan, as royalty over the project life
– 12% royalty PLUS 30% short term power allocation new capacities
Project (JV Projects)Estimated Generation
In MUs
Scenario 112% royalty
In MUs
Scenario 212% royalty + 30% ST
PowerIn MUs
Chamkarchhu-I 3,253 351 1,124
Bunakha 1,669 180 577
Wangchhu 2,526 273 873
Kholongchu 2,593 280 896
Total 10,041 1,084 3,470
Power Trading Volume available in Bhutan
Extant FDI Guidelines for Market Entry
● FDI in the power trading business in India ispermitted under the automatic route
● FDI in sectors/activities to the extent permittedunder automatic route does not require any priorapproval either by the Government or RBI
● The investors are only required to notify theRegional office concerned of RBI within 30 days ofreceipt of inward remittances
● The Company has to file the required documentswith that office within 30 days of issue of shares toforeign investors.
● Foreigners can directly invest in India either ontheir own or as a joint venture
● Use of foreign brands names/trademarks ispermitted for sales in India
● Foreign investments are freely repatriable,subject to sectoral policies; dividends on foreigninvestments can be remitted freely through anauthorized dealers
● Non-residents can sell shares on the stockexchange without prior approval of the RBI andrepatriate the sale proceeds through a bank
Automatic Route Prior Permission (FIPB)
Investing in India
General rule
• No prior permission required
• Intimate RBI within 30 days of inflow/issue of shares
By exception
• Prior approval needed
• Decision generally in 4-6 weeks
Slide No. 19
Courtesy: Finnacle Capital Advisor & AF Mercados
Market Dynamics: Trade Products Available in the Indian Market
Long Term
(RTC)
• Tenure – greater than 7 years to up to 35 years in case
of hydro
• Prices – Two part; with/without scope of price
escalation
Medium Term
(RTC)
• Tenure – 3 to 5 years
• Prices – usually single part, no scope of price escalation
Short Term
(RTC, Peak,
Off-Peak)
• Tenure – less than one year
• Prices – single part, no scope of price escalation
• Contract effective only on obtaining Short Term Open
Access
Historically governed by long term PPA under bilateral discussions or under Case I Bidding, which does not apply to hydro projects
A new market product, introduced 2010-11, and hence trend data is not reliable for trade forecasting
Governed under day-ahead, week-ahead and month-ahead trading guidelines with adequate data for market forecasting
Slide No. 20
Courtesy: Finnacle Capital Advisor & AF Mercados
Options for Market Participation
Slide No. 21
Option I Option II Option III
New Indian Trading Entity
Bhutan Bhutan Bhutan
India India India
Hydro
Genco
PPA
Thermal
Genco
PPA
Trading Business through Bilateral Sale and Medium/Short
Term Contract in India and Bhutan
Existing Indian
Licencee
FDI compliant
joint venture investment
Hydro
Genco
PPA
Captive
Genco
PPA
Trading Business through Bilateral Sale and Medium/Short
Term Contract in India and Bhutan
Bhutanese Entity
Hydro
Genco
PPA
Existing Indian
Licencee
Counterparty Trade
Captive
Genco
PPA
Sale of Indian Power
in Bhutan
Selling mixed energy through existing channels in India
FDI compliant
joint venture investment
22
Power Sector at Glance
DHPS/DRE/DHMSPlanning, policy, coordination,
specialist functions
BPC CHP
BHPKHP
MINISTRY OF ECONOMIC AFFAIRS
DoT
Fossil fuels
DHIPHPA-I & II
MHPA
DGPC
DHPC (SPV)
Ministry
of
Finance
Other
Shareholders
THP
BEA
Power
sector
regulatory
functions
4 JV Projects under
10000 MW (SPV)
Other 3 PAs
NHPC/THDC/
SJVNL
Proposed Road Map to Market Entry
Slide No. 23
Review and prepare way
forward for Market Entry - Planning
Regulatory reforms/by
laws etc including approvals
Commence application process
including access and compliance
Formalize and participate in limited
trades
Introduce surplus power from new
facilities, as commissioned
Target achieving a stable and sustainable portfolio of electricity
procurement from Bhutan and India for
trading in India
2013 through 2020 Beyond 2020
SAEM
Investment plans and development including
identification of available exportable
volumes
Thank You
24
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