As summer approaches, the demand for power will soar once again. India’s power sector has slowly been evolving out of the loosely linked series of electric fiefdoms. The commissioning of the 765 kV transmission link between the Southern Grid and the North-East-West Grid, coupled with the new cross-border link with Bangladesh, marks a dramatic escalation of that trend and provides the subcontinent with opportunities for greater efficiency and reliability in electricity. It also means that the door has been opened to a more robust, more competitive electricity market. The challenge for policymakers and market participants is to make optimal use of the new resources.
This significant progress in energy integration in South Asia tracks similar developments in Brazil, North America and Australia. There have been no downsides to these efforts, with the possible exception of increased vulnerability to cyber attacks or human operating error. But the degree to which they have changed the electricity markets varies, and they provide India with some useful examples of how the new interconnections might be used. The North American and Australian improvements in interconnectivity have led to more efficient, highly competitive generation markets, while in Brazil, the system has become more reliable, but not necessarily more competitive.
The Brazilian electricity system, originally a state-by-state, balkanised system, much like India’s, had evolved into three sub-markets by 2000: the south-south central region, the northeast and the Amazon. The first two were interconnected, but not with each other, while the third was simply an array of isolated distribution systems. About a decade ago, the two interconnected regions were linked together (parts of the Amazon are now being connected).
The primary purpose of the link was to enhance reliability by providing transmission access to dams on multiple river valleys and to capture the value of seasonal differences between regions in order to reduce the effects of periodic droughts on a hydro-dominated power sector. Thus, while one region might have diminishing reservoirs, the risk of that shortfall would be obviated by access to regions with plenty of reservoirs. There are some parallels to India in that there are regional disparities in the availability of capacity and energy, and better interconnections help to level the access to resources.
The benefits of access to all generating resources were further assured by the creation of a single, independent system operator. In terms of overall market efficiency, what Brazil has produced is a wider area from which to draw generating capacity, but it has not turned the broader geographic scope into a more efficient energy market. Thus, while the system is more reliable and provides continued…