Implications of declining costs of solar, wind, and storage technologies on regional power trade in South Asia (BBIN countries)

Background, challenges and context

Bhutan and Nepal have high, untapped hydro potential compared to their own demand, and it was expected that they could dramatically change their economies by selling hydropower to India and Bangladesh. 

However, the price of renewable energy, particularly solar, is falling dramatically. In India, the solar PV levelized tariff dropped from INR 12 per unit in 2010 to INR 2.44 per unit in 2018, and the wind tariff reached lower than the solar tariff in 2017 (INR 2.43 per unit). These are lower than the tariffs for coal-based thermal power plants seen in recent biddings (ranging between INR 4 to 5 per unit). This could reduce the appetite for hydropower in South Asian countries such as India and Bangladesh – especially as in India the solar PV potential alone is around 749GW.

The implications of the rapidly falling costs of solar and wind have not been adequately considered on a regional scale. On one hand, lower-cost domestic sources of renewable energy may reduce the need for cross-border power trade. On the other, South Asia’s abundant but variable solar and wind resources may be harnessed more easily in regional power grids that have flexible hydropower capacity.

The density and cost of power storage are also expected to improve. This has implications for power trade too – not only for supply and trade volume, but also for regulation, dispatching, and transmission infrastructure.

Research overview and objectives

This project aimed to capture the impacts of declining solar, wind, and storage technology costs on power trade in the South Asia region. It addressed challenges and knowledge gaps surrounding renewable energy and storage technologies (RE&S), asking:

• How much renewable energy can be developed and absorbed by each country grid, and under what conditions?

• Will hydropower at a levelized tariff of INR 5 per unit have a market when solar is available at INR 2.44 per unit and coal at a similar or slightly higher price range? Can hydropower play a new role as a balancing power for greening the grid in the region? What are the complications and challenges?

• While government consent opens up trade, how can we speed up trade and markets following supply and demand logic?

The team focused on Bangladesh, Bhutan, India, and Nepal (the BBIN region); while the South Asian Association for Regional Cooperation (SAARC) Framework Agreement for Energy Cooperation (Electricity) among the SAARC Member States has not led to any major cross-border trade in the western South Asia region, particularly due to political differences between India and Pakistan, this has not hindered trade in the eastern region, especially between Bangladesh, Bhutan, India, and Nepal.

Research methodology

A literature review of global trends and future scenarios in RE&S was undertaken to ascertain the cost declines for solar, wind, and storage technologies expected in the short, medium, and long term. Various scenarios were then developed in consultation with key stakeholders and experts in each country to assess the impact of cost declines on the potential for cross-border electricity trade among the BBIN countries:

• Base – assumes power trade among the BBIN nations will be restricted to 2017 volumes from 2017 to 2050

• No Cost Decline Scenario (NC) – assumes no cost decline for RE&S and the cost is fixed to the year 2015 throughout the model horizon

• Lower Cost Decline Scenario (LCD) – assumes a lower cost decline for RE&S

• Higher Cost Decline Scenario (HCD) – assumes a higher cost decline for RE&S

Sensitivity analysis was also undertaken by layering the following additional considerations onto the above themes:

• Political Energy Security (PES) – assumes the maximum electricity import volume for each year is capped at 20% of domestic demand for Bangladesh, Bhutan, and Nepal

• Higher Renewable Energy Potential (HiRePo) – assumes a higher renewable energy potential for BBIN countries that is currently assumed in national plans (around twice the potential compared to that considered in the other scenarios)

• Carbon Emission Reduction of 50% (CO-50) – assumes a cumulative reduction of CO2 emissions from the power sector of 50% of the Base scenario for Bangladesh and India i.e. limiting power sector emissions for India to 31 MT and for Bangladesh to 5 MT for the period 2012 to 2050 (no emission reduction targets are assumed for the Bhutan and Nepal power sectors given that they are largely dependent on hydropower)

The finalised scenarios were analysed through an Integrated South Asia Regional Electricity Model, which uses the bottom-up technology-based TIMES (The Integrated MARKAL-EFOM System) model generator. The modelling framework for Bangladesh, India, and Nepal was taken from previous studies conducted by IRADe and updated for this study for the base year 2015. A new, fully functional Bhutan electricity model was developed.

BBIN country models were integrated to form the regional model, which helped the team to predict regional power trade among different trading partners.

The model covered alternative technologies for power generation, including sub-critical coal, supercritical coal, nuclear, gas, and hydro and other renewables such as solar and wind. The model provided the least-cost solution for meeting the required electricity demand for each sub-period of a year, taking into account potential supply options (resource, technology, various costs, etc) in each country. Since electricity demand varies from hour to hour and month to month, and the electricity available from hydro, wind, and solar plants also has seasonal and hourly variation, sub-periods were taken as hours of an average day for each month to balance supply, demand, and trade.

The scenario-based assessment helped to answer questions on the impact of the declining cost of solar, wind, and storage technologies on regional power trade; the implications for regional hydro potential; the impact on capacity requirements; the possible capacity mix in the region; and environmental benefits in terms of lower CO2 emissions.

Research results, key messages, and recommendations

The study has multiple key messages for the region as a whole and for the individual countries:

• With cost decline in RE&S, regional electricity trade can grow from 13 TWh in 2019 to as high as 986 TWh by 2050. Even with a PES constraint, regional trade reaches 416 TWh by 2050.

• With higher renewable energy capacities in the BBIN region, the time at which electricity trade is required will change (for instance, the hydro exporting nations such as Bhutan and Nepal will be able to supply more electricity to the region in non-solar hours).

• The share of renewable energy capacities in the total installed capacities can reach as high as 75% by 2050 under the HCD+HiRePo scenario. It reaches only 55% in the Base scenario. This increase will help in reducing installed coal capacities in the region in the range of 33 to 45% compared to the Base scenario.

• To support the above trade numbers, the regional transmission capacity needs to increase from 3.8 GW in 2020 to as high as 174 GW by 2050 under the HCD+HiRePo scenario.

• With RE&S cost decline, on the total discounted system cost (2015 to 2050), the region can save around 227 billion USD at 2015 prices in the HCD scenario and close to 312 billion USD at 2015 prices in the HCD+HiRePo scenario compared to the Base scenario.

• Both Bhutan and Nepal will gain from RE&S cost decline in the region as net trade increases from both the countries under various scenarios.

• RE&S cost decline will also support the higher installation of both hydropower as well as renewable energy capacities in both Bhutan and Nepal.

• Under most of the scenarios, the total discounted system cost for Bhutan and Nepal is negative, indicating that their export earnings will be higher than total system costs.

• Bangladesh has to choose between regional power imports versus domestic generation using imported fuels, as domestic fuel availability is limited. Therefore, under the RE&S cost decline scenarios, Bangladesh electricity imports can be as high as 93% of its domestic demand by 2050. Electricity imports from the BBIN region can help Bangladesh in reducing its total system costs by 20% (61 billion USD at 2015 prices) and 25% (75 billion USD at 2015 prices) under the HCD and HCD+HiRePo scenarios respectively compared to the Base scenario.

• The RE&S cost decline will help India in achieving higher renewable energy installed capacity (it has the highest potential within the BBIN region). With higher renewable energy, the requirement for flexible hydropower generation will also increase. India can be a net exporter of power if power imports by Bangladesh are not restricted.

• With RE&S cost decline, on the total discounted system cost (2015 to 2050), India can save around 117 billion USD at 2015 prices in the HCD scenario and 194 billion USD at 2015 prices in the HCD+HiRePo scenario compared to the Base scenario.

This study demonstrates that the declining costs of RE&S leads to increased regional electricity trade among BBIN nations, including increased trade in hydroelectricity. It also leads to a declining share of coal as a proportion of total regional installed capacity, delivering environmental benefits in terms of lower CO2 emissions, and results in huge system cost savings.

To harness the full potential of electricity trade, the trade partners in the region need to develop harmonising policies and trust among themselves to further accept their dependence on each other. The decision for electricity trade needs to be analysed from the economic and system planning level, and not just from the geopolitical level.

The findings are being shared with policy makers, power system planners, and civil society through stakeholder meetings and workshops.