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

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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

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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

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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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)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

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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

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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

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