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South Asia Regional Initiative for Energy Integration (SARI/EI) Theme Presentation Session-2 “Policies/Regulations and Institutional Mechanisms for Promoting Energy Cooperation & Cross Border Electricity Trade in South Asia”

Presented by Rajiv Ratna Panda and V. K.Kharbanda Regional Conference on Energy cooperation & Integration in South Asia 30th-31st August’2018, Hotel Le Meridien, New Delhi

Theme Presentation/Session-2/ “Policies/Regulations and Institutional Mechanisms for Promoting Energy Cooperation & Cross Border Electricity Trade in South Asia”/ Regional Conference on Energy cooperation & Integration in South Asia-30th-31st August’2018Rajiv/Head-Technical/SARI/EI/IRADE

Outline

❑ Key Policy, Regulatory Challenges & Risks for CBET. ❑ Need for Policy, Regulatory Coordination /harmonisation. ❑ SARI/EI Work on Policy, Regulatory aspects of CBET. ❑ International experiences on regional electricity regulatory Agencies/Associations/Forums. ❑ Points for Discussions.

Theme Presentation/Session-2/ “Policies/Regulations and Institutional Mechanisms for Promoting Energy Cooperation & Cross Border Electricity Trade in South Asia”/ Regional Conference on Energy cooperation & Integration in South Asia-30th-31st August’2018Rajiv/Head-Technical/SARI/EI/IRADE

History of evolution of Energy Cooperation, CBET- Key Policy & Regulatory Development

52 Years 8 Years

Theme Presentation/Session-2/ “Policies/Regulations and Institutional Mechanisms for Promoting Energy Cooperation & Cross Border Electricity Trade in South Asia”/ Regional Conference on Energy cooperation & Integration in South Asia-30th-31st August’2018Rajiv/Head-Technical/SARI/EI/IRADE Above time line graphics has been developed based on the information available in public domain from various sources by Rajiv Panda

Why Cross-border Electricity Trade are Risky

▪ Project risks in general tend to be high without a comprehensive Policy, Regulatory framework for large CBET project development. ▪ Cross-border element greatly amplifies the risks due to geopolitical, economic and trade related factors. ▪ Even projects that appear to have feasible , rationale, economical in practice struggle to get it financed and built. ▪ Project risks in general tend to be high in countries without wide experience on large project development.

Trade Barrier: What happens if a tax or duty that affects the economic fundamentals is imposed ? Economic: What happens if the economic assumptions on the project changes? What is the protection available to buyers and sellers ? Socio Political: What happens if for socio- political reasons the flow is prevented in the exporting, intermediary (if relevant) or importing country ? Infrastructure: What happens if the infrastructure to transfer the energy is not built

• r is not available when needed ?

Regulatory: What happens if the domestic Policy, regulatory framework changes which impacts CBETproject/Investment ? What is the protection available to buyers/sellers/Investor ?

Key Risk/Perceived Risks of Cross Border Electricity Trade Projects

Theme Presentation/Session-2/ “Policies/Regulations and Institutional Mechanisms for Promoting Energy Cooperation & Cross Border Electricity Trade in South Asia”/ Regional Conference on Energy cooperation & Integration in South Asia-30th-31st August’2018Rajiv/Head-Technical/SARI/EI/IRADE

SARI Assessment -Key Policy ,Regulatory Challenges & Risks for CBET

• 1. Political Conesus: Need of Bilateral Treaties, Regional

Cooperation Treaties/Agreements and Recognition of CBET/Trade in the National Policy, Law etc.

• 2. Government Commitment & Policy Coordination
• 3. Financial Challenges, Investment, Technical and Financial

Viability

• 4. Mechanism of Inter-connection
• 5. Market form of Trade
• 6. Regional Cooperation on Regulatory and Contractual Aspects
• 7. Open Access in Transmission
• 8. Transmission Charges/Pricing
• 9. Transmission Plan

10.Commercial Mechanisms to Settle Imbalances

• 11. Dispute Resolution

Theme Presentation/Session-2/ “Policies/Regulations and Institutional Mechanisms for Promoting Energy Cooperation & Cross Border Electricity Trade in South Asia”/ Regional Conference on Energy cooperation & Integration in South Asia-30th-31st August’2018Rajiv/Head-Technical/SARI/EI/IRADE

Motivation behind these Challenges are the typical Risks in Cross-Border Projects.

Funding Risk Financial Risk Exchange Rate Risk Financing Risk Legal & Regulatory Risk Security Risk Currency Transfer Restriction Risk Dispute Resolution Risk

Political and Regulatory Risk

Expropriation and Breach of Contract Planning & Construction Risk Commercial Risk Pricing and Payment Risk Supply Risk

Cross Border Electricity Trade

Challenges at Initial Stages

Country Risks

Policy & Regul atory Risk Challenges during the Transition towards higher level of CBET and when it reaches the Mature Stages

Why the Need for Policy & Regulatory Coordination/Harmonization ?

❖Power and energy sector are highly regulated in South Asia. ❖SA countries have different stage of evolution in terms of legal, regulatory and Policy Framework. ❖ Strong Political –Economy of the Power/Energy Sector, Strategic nature. ❖ Development of Cross border projects ,mitigation of Investment risks requires a robust legal, regulatory and Policy Framework. ❖While each country is sovereign by itself, there is a need to coordinate/ harmonise the laws/ rules/ regulations related to Cross-Border Electricity Trade (CBET) in order to facilitate Power Trade. ❖ Harmonised policy and regulatory framework for CBET brings consistency , predictability and Minimise perception of regulatory and Policy risks.

SAARC Framework agreement for energy cooperation (Electricity)and CBTE guidelines issued by MoP, GoI recognizes the need to harmonize regulations/rules governing CBET

CBTE: Cross Border Trade of Electricity

Theme Presentation/Session-2/ “Policies/Regulations and Institutional Mechanisms for Promoting Energy Cooperation & Cross Border Electricity Trade in South Asia”/ Regional Conference on Energy cooperation & Integration in South Asia-30th-31st August’2018Rajiv/Head-Technical/SARI/EI/IRADE

SARI-EI Work on Policy, Regulatory Coordination & Harmonization

Regional Regulatory Guidelines and Suggested Changes, amendments in electricity laws, regulations and policies are

the outcome of the TF -1 study on Review of Electricity Laws, Regulation and Policies (ELRP) framework of SAC for CBET

Review of Existing Studies/ Literature/ Reports Review & Analysis of EL&R&P in SAC and identification

• f key

ingredients of CBET

Development

• f Regional

Regulatory Guidelines for CBET

Steps for the Study

Review of International Power Pools and Identification

• f Best

practices w.r.t CBET

Recommend clause/section changes/ amendments in the EL&R&P of SAC to promote CBET

1 2

3

5

Current status in member countries w.r.t identified ingredients Recommendations for SAC based on best practices identified & Risk Analysis

Country Wise Roadmap for development of a harmonized framework for CBET , Regional Regulatory Institutional Mechanism

6 7 4

Europe, Nord Pool,SAAP, West Africa, GCC, Georgia-Turkey, SEIPAC,GMS, Central Asia- South Asia( CASA) EL&R&P- Electricity Laws, Regulations and Policies

Theme Presentation/Session-2/ “Policies/Regulations and Institutional Mechanisms for Promoting Energy Cooperation & Cross Border Electricity Trade in South Asia”/ Regional Conference on Energy cooperation & Integration in South Asia-30th-31st August’2018Rajiv/Head-Technical/SARI/EI/IRADE

Brief Regional Regulatory Guidelines (RRGs)

• 1. Licensing for cross border trading (important regulatory

tool for trading)

• 2. Open access to Tx network (for competitive power market)
• 3. Transmission pricing regime (cost reflective & efficient)
• 4. Transmission planning (coordinated regional planning)
• 5. Imbalance settlement mechanism (transparent common

procedure)

• 6. Harmonization of Codes (safe, secure system integration)
• 7. Dispute Resolution (transparent and fair legal framework)
• 8. Duties and tax regimes ( zero tax, no tariff & non tariff

barriers )

RRG provides Regulatory measures in 8 areas required for Harmonization/Coordination for Facilitating CBET

Establish clear regulatory environment for cross-border trading Provide roadmap for action and decision making in respective country

Purpose of the guidelines

The flexible nature of the guidelines and focus

• n specific aspects of CBET, would permit

both the guidelines and the national regulatory framework to co-exist for a reasonable period

• f time.

Provides consistency in CBET transactions and certainty to stakeholders

Regional Regulatory Guidelines

Theme Presentation/Session-2/ “Policies/Regulations and Institutional Mechanisms for Promoting Energy Cooperation & Cross Border Electricity Trade in South Asia”/ Regional Conference on Energy cooperation & Integration in South Asia-30th-31st August’2018Rajiv/Head-Technical/SARI/EI/IRADE

RERA in Southern Africa ( SAAP)

• Responsible

for Cooperation on regulatory & contractual aspects through common set

• f

regulatory guidelines

ACER in European Union Issues non-binding opinions and recommendations to national energy regulators, transmission system operators Ensure the regulation of interstate electricity exchanges and to give appropriate support to national regulatory bodies

• r entities of the Member

States. RPTCC in Greater Mekong Subregion High level body responsible for coordinating and guiding the market development

RPTCC

(Regional Power Trade Coordination Committee) ECOWAS Regional Electricity Regulatory Authority (ERERA)

• Fosters cooperation among

European energy regulators,

• Ensures market integration

and harmonisation of regulatory frameworks.

• Formulates Framework

Guidelines related to regulation on System

• peration, connection,capacity

allocation, network codes.

• Harmonization of

Transmission tariff

• Specifying basic rules

and guidelines for power trading among Parties

• Providing

recommendation for the overall policy and day-to-day management

• f regional power trade;
• Framework

for cross Border Electricity trade.

• Regulatory

coordination and harmonization

• f

regulations.

• Various

regulation and guidelines related to the system

• peration,

transmission tariff etc.

• Regional

Guidelines for regulating cross- border power trading.

• Making

Compatible regulatory decisions

• Approving

cross- border agreements in transit countries

• Promoting

transparency in the regulation

• f

cross- border trading

International Best Practices on Regional Regulatory Institutional Mechanism

28 Countries 6 Countries 13 Countries 14 Countries West Africa

Theme Presentation/Session-2/ “Policies/Regulations and Institutional Mechanisms for Promoting Energy Cooperation & Cross Border Electricity Trade in South Asia”/ Regional Conference on Energy cooperation & Integration in South Asia-30th-31st August’2018Rajiv/Head-Technical/SARI/EI/IRADE

Examples from the SA Region (India) on Institutional Mechanism for Regulatory coordination /Harmonisation

❑ Electricity in the Concurrent List.

❑ Both Centre and State have power to legislate, regulate and Govern. ❑ State & Centre's policy, regulation coexist (29 states). ❑ Once Central Regulator, 27* State Regulator , Two JERC**. ❑ The Forum of Regulators (FOR) was constituted vide Notification dated 16th February, 2005 in pursuance of the provision under section 166 (2)

• f the Electricity Act, 2003.

❑ The Forum consists of Chairperson of Central Electricity Regulatory Commission (CERC) and Chairpersons of State Electricity Regulatory Commissions (SERCs) and JERCs

* Including Delhi, ** Joint electricity regulatory commission (JERC) for state of GOA & Union Territories

Theme Presentation/Session-2/ “Policies/Regulations and Institutional Mechanisms for Promoting Energy Cooperation & Cross Border Electricity Trade in South Asia”/ Regional Conference on Energy cooperation & Integration in South Asia-30th-31st August’2018Rajiv/Head-Technical/SARI/EI/IRADE

Some Points for Discussion

• 1. What are the Country perspectives on policy, regulatory coordination to promote CBET ?
• 2. How to move towards a common and coordinated regional regulatory template for

Energy Cooperation & Cross Border Electricity Trade in South Asia ?

• 3. Strategy and Approach for developing effective Institutional mechanisms such as

Association/Forum/working group of Electricity Regulators of SA to support coordination of regulations, building capacity and knowledge sharing ?

• 4. Role of coordinated/harmonized policy, regulatory framework in promoting Investment

and development of South Asia Power Market ?

• 5. How to move from bilateral to regional energy integration ?

Theme Presentation/Session-2/ “Policies/Regulations and Institutional Mechanisms for Promoting Energy Cooperation & Cross Border Electricity Trade in South Asia”/ Regional Conference on Energy cooperation & Integration in South Asia-30th-31st August’2018Rajiv/Head-Technical/SARI/EI/IRADE

Thank You

“There is lots to gain from enhanced regional energy integration. By matching the sources of energy production and its demand centers, it will synergize the economies of the region. India has a special role to play in helping the region to realize this shared destiny of prosperity”

Quote from the Message of Hon’ble Prime Minister of India , Shri Narendra Modi for the Regional Conference

• n Energy cooperation & Integration in South Asia

30th-31st August’2018, Hotel Le Meridien, New Delhi

Theme Presentation/Session-2/ “Policies/Regulations and Institutional Mechanisms for Promoting Energy Cooperation & Cross Border Electricity Trade in South Asia”/ Regional Conference on Energy cooperation & Integration in South Asia-30th-31st August’2018Rajiv/Head-Technical/SARI/EI/IRADE

Region EUROPE Greater Mekong Sub-region (GMS) Western Africa Southern Africa Name of Institution Agency for Cooperation of Energy Regulators (ACER) Regional Power Trade Coordination Committee(RPTCC) ECOWAS Regional Electricity Regulatory Authority (ERERA) Regional Electricity Regulators Association of SA(RERA) Geographical area 28 - Countries Community body for integration of EU markets in electricity and natural gas 6 –Countries Responsible for establishment

• f Greater Mekong Sub-region

(GMS) regional power market. 14- Countries Independent electricity regulator in Western Africa 13- Countries Association of electricity regulators, for politico- economic integration of SADC states Organization Structure Director supported by Working and Expert Groups. Director- Manages and represents Agency. Board of Regulators, Administrative Board, Board of Appeal. Five Departments- Director

• ffice, Admin, Electricity,

Gas & Market Monitoring Two Groups: The Focal Group( FW)- Coordination & implementation activities. The Planning Working Group( PWG)- Identify priority connection, standards etc. FG and PWG representative of

• Govt. utilities

Regulatory Council supported by a pool of

• experts. Council supported

by Technical unit & HR/Admin/Finance. Regulatory Council- Three members headed by Chairman & two members. Fixed term of 5 years. RERA reports to SADC Directorate of Infrastructure Services. Governed by Regulatory Council consists of three members. Technical unit-deals with Regulatory activities ; HR, Admin and Finance unit.

A snapshot of international experiences

13

Theme Presentation/Session-2/ “Policies/Regulations and Institutional Mechanisms for Promoting Energy Cooperation & Cross Border Electricity Trade in South Asia”/ Regional Conference on Energy cooperation & Integration in South Asia-30th-31st August’2018Rajiv/Head-Technical/SARI/EI/IRADE

International Experiences: key focus areas of electricity regulatory forums/Associations

Area ACER RPTCC ERERA RERA key focus areas Foster cooperation among National Regulatory Agencies (NRAs), Ensure market integration, Harmonisation of regulatory frameworks, Issues non-binding

• pinions to NRAs

Basic rules for bilateral trading, Overall policy

• n day-to-day

management of power trade Regulations of Cross Border Electricity exchange, Monitor regional market; Assist NRs on capacity building & technical issues. Regulatory Guidelines, Regulatory cooperation, Capacity building & information sharing on Cross Border Electricity Exchanges System operation framework, frame guidelines , Harmonisation of transmission tariff Structures Establish short, medium, long term initiatives for Cross border Energy Exchanges Tariff setting methodology for regional power pool Transmission pricing,

• perating agreements,

Balancing market

• perations;

Ancillary services System operation, connectivity, capacity allocation, network codes Identify steps for expansion Technical regulation of regional power pooling, effective DR methods Grid codes Procedures Funding Support EU Multilateral support, WB/ADB support Member states Multilateral support, USAID

14

Theme Presentation/Session-2/ “Policies/Regulations and Institutional Mechanisms for Promoting Energy Cooperation & Cross Border Electricity Trade in South Asia”/ Regional Conference on Energy cooperation & Integration in South Asia-30th-31st August’2018Rajiv/Head-Technical/SARI/EI/IRADE