Bhutan has relied on India to meet its energy deficits during the lean months but imports were short term and only took place during exigencies, powerhouse shutdowns or an outage of a transmission system and imports were netted off against exports.

However, in January this year, the Druk Green Power Corporation (DGPC) started importing power from the Indian Energy Exchange after a power sale agreement was signed with the Power Trading Corporation of India (PTC) for a maximum of 400 megawatt (MW) for import during the lean season.

DGPC’s managing director Dasho Chhewang Rinzin said this requirement to import power is driven by the narrowing margin between demand and supply over the years. “Growth in demand has been outpacing capacity addition,” he said.

While Industrial development that has hinged on the target of 10,000MW of hydropower by 2020 has pushed local demand, capacity addition has not taken place from the supply side.

According to figures available with DGPC, domestic peak demand has already crossed 450MW while generation capacity is only about 400MW in the lean season. The need for additional import this winter was also due to the shutdown of the 1020 MW Tala hydropower plant for three months for inspection and rectification of its headrace tunnel.

Besides Bhutan, other grid-connected countries like Nepal also participate in the exchange to meet their domestic requirement. Called the Day-Ahead Power Market, it functions similar to a stock exchange where a bid for electricity purchase is submitted to the exchange one day in advance. Once the bid is confirmed, payments are made based on the market-clearing price discovered through the platform.

While importing from the exchange, Bhutan has to follow the Deviation Settlement Mechanism under which importers may be penalized or rewarded based on any deviation from their bid amount. Any imbalances due to over withdrawal or under withdrawal are subject to penalties.

For Bhutan, the options available for cross border trade of electricity are through long term power purchase agreements as with the existing power plants, purchase of power from the Day-Ahead market and bilateral trades routed through the energy markets.

Dasho Chhewang Rinzin said, after a thorough consultation, it was decided that the best option for Bhutan for the moment is to meet the energy deficits through the purchase of power from the day-ahead market. Such energy sales and purchases through the energy market are becoming a market norm and over time, India is also expected to open up other market mechanisms for neighbouring countries including Real-Time market.

“We must explore all this as and when they become available to us,” he said.

Participation in the power exchange also allows hydropower plants in Bhutan to take advantage of their flexibilities in generation for purchases to be made when the exchange prices are lower.

Dasho Chhewang said, “Bhutan could potentially gain from participation in the power exchange provided we are also able to sell some of our uncontracted surplus in the market. It is important to remain vigilant and understand the evolving market situation in India and the region.”

Besides, the advantage of purchasing from the exchange also enables Bhutan to amend imports based on a day to day requirement basis. Therefore, in absence of the ability to accurately predict domestic demand, imports from the exchange provide a more flexible option.

To avoid high volatility of the price of electricity in the exchange, and to keep the import tariffs low,  Dasho Chhewang Rinzin said purchases are usually made during low tariff periods in the exchange. This is done by ramping up generation to meet up domestic demand by storing water in small reservoirs in the dam when the prices are lower in the exchange.

Besides the energy exchange, Bhutan has also explored the option of energy banking, where electricity is exchanged for electricity. For instance, any amount of energy imported by Bhutan during the lean winter months is netted off by exporting the same amount of energy during the surplus season. Initially, this arrangement was in favour of Bhutan, as it did not involve any major financial transaction. However, the new guidelines issued by the Central Electricity Authority of India on Cross Border Electricity Trade did not include any provisions for energy banking, and the option was left.

Dasho Chhewang Rinzin said Bhutan has explored energy banking as an option and had even concluded the negotiations of a draft agreement with our Indian counterpart, but it never materialized as Bhutan remains a net exporter of electricity.

It is estimated that energy imports for Bhutan will be required during the lean periods for some years. While the long term solution for Bhutan is to add more generation capacity by building more hydropower projects, there are equal concerns about marketing the overcapacity during the surplus months. Storage generating plants that can address supply shortages in the lean months are being considered as well as other storage sources such as hydrogen fuel.

For the foreseeable future, Bhutan will have to participate in the energy exchange market in India to meet its lean season deficit. “It is the best possible option for Bhutan and we need to do a lot more in forecasting demand and supply and implement grid discipline with the generator, the transmission entity and the consumers, Dasho Chhewang Rinzin said.

Contributed by 

Nidup Gyeltshen

The story is being covered by the Institute of Happiness for a research conducted on the effects of the cross border energy trade.