Current Affairs | Release Date 2021-03-24 15:01:24
Current Affairs | Release Date 2021-03-24 15:01:24


Mains Paper 3: Economy
Prelims level: Indian Energy Exchange
Mains level: Infrastructure: Energy

Context:

• India has released new rules governing the trade of electricity across its borders. They define the contours of the South Asian electricity market, placing clear limits on who can buy from and sell into India.

• Indian electricity markets have become robust enough to integrate cross-border transactions. Governments must now step out of the way.

India attempts to balance China’s:

• The World Bank estimated that between 2015 and 2040, the India savings from regional South Asian electricity trade “facilitated by expanded cross-border transmission interconnections” could be as much as $94 billion.

• Chinese companies hoping to establish plants in Nepal, Bhutan, or Bangladesh will presumably have a hard time making good on their investments with the Indian market cut off.

• China soon began to make its presence felt in the region, and India responded by walking back its free-market impulses.

• Realizing such benefits require regional electricity markets that enable cross border trade. A regional electricity market is governed by a transparent set of rules applied consistently across all participants.

• A regional Indian electricity market, on the other hand, is the expansion of the Indian electricity market to neighbouring countries where cross-border trade is dependent on the discretionary authority of Governments.

Rules on ownership:

• In masterful legalese, the rules strongly discourage the participation of plants owned by a company situated in “a third country with whom India shares a land border” and “does not have a bilateral agreement on power sector cooperation with India”.

• The rules place the same security restrictions on tripartite trade, say from Bhutan to Bangladesh through Indian Territory.

• To make things even more airtight, the rules establish elaborate surveillance procedures to detect changes in the ownership patterns of entities trading with India.

• It seems South Asia’s electricity politics has hit a holding pattern after several years of unpredictability. In the months after the government came to power in 2014.

• India used the framework of the South Asian Association for Regional Cooperation (SAARC) to make historical moves towards liberalising electricity trade.
• It imposed stringent restrictions that dissuaded everyone other than Indian and government entities from participating. That threatened to undermine private sector participation and promising joint ventures across the region.

• Nepal and Bhutan protested for years, leading to new guidelines in 2018 that tried to find a middle ground; these rules formalise that balancing act. They allow private sector participation but exclude Chinese investments.

Vibrant Indian electricity markets:

• Earlier draft amendment to India’s Electricity Act 2003 was released for public comment. In the 17 intervening years, India has evolved a robust and multi-faceted electricity market: perhaps not perfect, but true to the vision of a liberalized license-free competitive market promoting private participation.

• Between 2008-09 and 2019-19, the share of private sector generation capacity has increased from 15 percent to 46 percent.

• Two electricity exchange platforms, Indian Energy Exchange (IEX) and Power Exchange India Limited (PXIL), have emerged and are providing a wide range of energy trading products.

• Securities and Exchange Board of India (SEBI) is likely to authorize introduction of forward and derivate contracts for electricity within the next 6-12 months.

• This would allow power distribution companies to use financial instruments, such as futures, forwards, swaps, and options to hedge risks, reduce costs and better manage long term power purchase contracts.

India-centricity no advantage:

• The institutional structure that has emerged through this churn over the last decade is India-centric. The Government of India, through ministries, regulators, planning bodies and utilities, determines the rules of the road.

• India’s geographic centrality combines with its economic heft to give it a natural advantage in determining the shape of the market; all electrons must pass through it and most electrons will be bought by it.

• The prospect of an independent regional body governing trade, championed by theorists, is thus unlikely to begin with.

• It is nearly impossible to fathom in the context of an ailing South Asian project characterised by low levels of trust. India will thus enjoy pre-eminent rule-setting powers, but continually attract the ire of its smaller neighbours who feel their economic growth is being stunted by decisions in India.

Mega solar project:

• India’s ambition of anchoring a global super-grid called One Sun One World One Grid, or OSOWOG needs an institutional vision.

• It aims to begin with connections to West Asia and Southeast Asia and then spread to Africa and beyond.

• The South Asian lesson, contained in these latest rules, is that political realities will constantly collide with, and damage, expansive visions of borderless trade.

• Impartial institutions for planning, investments and conflict resolution are crucial to multi-country power pools.

• Managing the needs of three relatively small neighbouring economies in South Asia has consumed large amounts of time and political capital for the better part of a decade.

Countering China:

• Nepal has an ambition to develop 15,000 MW within the next ten years, approximately seven times its current capacity, on the premise that that it can export much of it to India and the region.

• India’s plans will be one among many in a soon-to-be competitive space. China, for example, has its own power pool ambitions.

• An attractive institutional model can lock countries into the pool by setting standards that investors and utilities plan towards and profit by. Once locked in, countries are thus unlikely to defect to other pools.

• The likely first battle will be in Southeast Asia, where China presently holds sway. A considered, stable institutional model will likely surpass anything China has to offer.

Conclusion:

• The “regional electricity market” and “regional Indian electricity market” remains the single most important impediment to achieving genuine integration of power markets across the region.

• Indian electricity markets have become robust enough to integrate cross-border transactions. Governments must now step out of the way.

• They must let power sectors from across the region integrate, collaborate, compete, and trade within an open market free from the risk of discretionary Government intervention.

• India has ramifications for the electricity markets of Bangladesh, Bhutan, and Nepal, which, to varying degrees, have aligned their energy futures with the Indian market.

• It attempts to balance China’s growing influence in the region with developmental aims, both its own and the region’s.

• It is worth considering releasing the vice-like grip on South Asia, aimed at countering China, by creating a rule-based regional institution that can counter Chinese offerings in other theatres.

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Prelims Questions:

Q.1) Consider the following statements:

1. Indian and Japanese space agencies recently reviewed cooperation in earth observation, lunar cooperation and satellite navigation.

2. India and Italy decided to explore opportunities in earth observation, space science and robotic and human exploration.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Answer: C



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