Regional Power Trade Is Critical for India’s Energy Security: Alok Kumar

Regional power trade has a strong economic rationale and should be encouraged. However, countries cannot completely ignore geopolitical risks. While deeper energy integration can help strengthen regional relationships over time, political shifts or changes in government can still create uncertainties.

That said, stronger regional energy trade can mitigate some of these risks. Take the example of India and Bangladesh. Even during periods when bilateral relations were not as smooth as before, energy trade continued because it serves the interests of both countries. If a country depends on electricity imports, that interdependence can act as a stabilising factor and discourage extreme policy positions. Overall, expanding regional energy trade is beneficial not only from an economic perspective but also for fostering stronger political ties.

Regional power trade can play an important role in managing the challenges associated with a renewable-heavy grid. Instead of relying solely on battery storage for surplus solar generation, some of that electricity can be exported to neighbouring countries during the day, while India can import hydropower during evening peak hours. This creates a strong economic case for regional energy integration.

The rationale is driven by two factors. First, countries in South Asia have different demand patterns, which creates opportunities for mutually beneficial electricity trade. Second, India's power system is increasingly dominated by solar energy, making cross-border exchanges a cost-effective way to balance supply and demand. However, not all renewable energy sources should be viewed in the same way. Hydropower, while renewable, is also a highly flexible source of generation.

There are certain short-term fluctuations that every grid must manage on its own, but the predictable daily cycle of solar generation can be handled more efficiently through regional trade. In effect, an integrated regional grid can function like a large virtual battery.

Europe is a useful example. The integration of electricity markets across European countries, combined with diverse renewable resources and varying demand patterns, has demonstrated the benefits of regional cooperation. Greater grid integration lowers flexibility costs and allows larger volumes of low-cost renewable power to be absorbed into the system.

While several cross-border energy projects involving Bangladesh, Bhutan, Nepal and Sri Lanka have been discussed for years, the pace of expansion has been slower than it should be. There has been some encouraging progress with Nepal, where projects are increasingly being developed on commercial principles. Bhutan also made significant early progress, although growth slowed because the government-to-government model has limitations in terms of scalability.

There is now a shift towards commercially driven project development, with private-sector players participating in hydropower projects in Bhutan. This approach could accelerate future growth. One of the challenges with purely government-led frameworks is that tariff negotiations often become prolonged and complex, slowing down project execution. Commercial models can help overcome some of these bottlenecks and support faster expansion of regional energy trade.

One of the key challenges in expanding regional hydropower trade is pricing. A flat tariff structure is often not sufficiently attractive for the exporting country. Hydropower, particularly peaking power, has a higher value because it can be supplied when demand is at its highest. Therefore, tariff structures should reflect the time value of electricity and provide adequate incentives for project developers and exporting nations.

For this reason, more projects should be developed on commercial principles. Countries that benefit from importing peaking hydropower should be willing to share a portion of the gains generated from that flexibility. It is unrealistic to expect large-scale cross-border hydropower trade to expand if tariffs remain fixed at very low levels. Sustainable growth will require pricing mechanisms that fairly balance the interests of both buyers and sellers.

Political factors have also affected progress. In the case of Bangladesh, political sensitivities and attempts to link energy cooperation with broader bilateral issues have slowed the expansion of electricity trade. Sri Lanka presents a different challenge. Discussions on grid interconnection between India and Sri Lanka have been ongoing for more than two decades, but progress has been limited because key policy decisions are yet to be taken. Advancing such initiatives requires political maturity, long-term thinking and a willingness to look beyond short-term domestic considerations.

The private-sector model can certainly play a role. Commercial arrangements naturally involve negotiations over value and price. In any market, sellers seek fair returns while buyers seek affordable power, and the final outcome is usually a balance between the two. Market development cannot be driven solely by cost considerations; policymakers must also recognise the broader value that reliable and flexible power supplies bring to the system.

The biggest bottlenecks are often political rather than technical. Governments must be strong and forward-looking enough to manage domestic opposition and communicate the long-term benefits of regional energy integration. Every country has political groups that may resist such cooperation, but effective leadership requires building consensus around projects that serve the national interest.

Sri Lanka is a good example. The country has significant renewable energy potential, particularly in offshore wind. However, fully utilising those resources would be difficult without a larger interconnected grid. Linking with India could provide the scale and flexibility needed to integrate large volumes of renewable energy. Yet despite discussions spanning nearly three decades, progress has remained slow.

Similarly, India has already developed transmission infrastructure and corridors to support greater electricity trade with Bangladesh. However, domestic political considerations within partner countries have often delayed decision-making and slowed implementation. Ultimately, the pace of regional power integration will depend on the willingness of governments to take long-term strategic decisions and move beyond short-term political constraints.

Funding is not the primary obstacle to regional power integration. The countries of South Asia are all developing economies with growing energy demand, which makes these projects commercially viable and attractive to financiers. When demand growth is clear and long term, access to capital is generally not a major concern.

Moreover, multilateral development institutions such as the Asian Development Bank and the World Bank have both the resources and the mandate to support regional infrastructure projects. These institutions can play a facilitative role in several ways. They can provide technical assistance, share international best practices, help governments prepare project reports and feasibility studies, and support the development of bankable proposals.

They also play an important financing role. Cross-border transmission lines and hydropower projects are long-life infrastructure assets, often designed to operate for 50 to 60 years. Such projects require patient, long-term capital, which institutions like the World Bank and ADB are well-positioned to provide. However, while these organisations can support and accelerate projects, the key decisions must ultimately be taken by the governments involved.

From India's perspective, deeper regional power connectivity offers both economic and strategic benefits. Economically, it can lower system costs by taking advantage of complementary demand patterns and resource diversity across countries. A more integrated grid reduces flexibility costs and enables a more efficient supply of electricity, benefiting industries, businesses and consumers.

There is also a broader political dividend. Economic interdependence tends to encourage more stable and pragmatic relationships between countries. As energy trade expands and economies become more integrated, the incentives for cooperation increase and the costs of political disruption become higher.

First, energy cooperation should receive greater attention at the highest political levels. Regional summits often focus on a wide range of issues, causing energy trade to lose momentum. More frequent and focused political engagement is needed to keep these initiatives moving forward.

Second, negotiations should be guided by a spirit of partnership and mutual benefit. Given India's size and influence in the region, it is important to balance commercial interests with a degree of flexibility and goodwill when dealing with neighbouring countries. Such an approach can help build trust and create a stronger foundation for long-term cooperation.

Third, project execution should not be viewed as a major constraint. The region already possesses the technical expertise and capability required to build transmission infrastructure and energy projects. The bigger challenge lies in political commitment and sustained policy support. Once that is in place, implementation can move much more rapidly.

Ultimately, the future of regional power integration in South Asia depends less on technology or financing and more on political vision, trust and a shared commitment to long-term economic cooperation.