RFI_Summery_-_South_Asia_EDGE.pdf

United States Agency for International Development (USAID)

South Asia Enhancing Growth and Development through Energy (South Asia EDGE)

Proceedings of the

Multi-stakeholder consultative meeting

Tuesday, March 19, 2019

New Delhi, India

Prepared by:

Clean Energy and Environment Office, USAID/India, with input from the workshop participants

South Asia EDGE

Multi-stakeholder consultative meeting proceedings

March 19, 2019

New Delhi, India

Summary

On March 19, more than 90 energy experts from a range of U.S. and India-based organizations including consultants, utilities, think tanks, and vendors, attended the USAID/India’s Multi-stakeholder Consultative Meeting on South Asia EDGE. The meeting was an interactive workshop in which participants collaboratively developed ideas and solutions responsive to Asia EDGE’s goals. Breakout sessions focused on the four pillar themes of regional markets, advanced technologies, utility modernization, and best value procurement and private sector investment. Later sessions included discussions on how to implement a cohesive approach towards fostering regional energy cooperation across South Asia. USAID’s energy office will be incorporating the rich feedback from the co-creation event into South Asia EDGE program designs.

Overall, the multistakeholder consultative meeting validated the importance of regional energy cooperation across South Asia, the importance of all the thematic areas under the four pillars, recognizing the cross-cutting nature of each of these, and the importance for an approach that takes into account each individual country’s needs and priorities. India’s role as a regional leader was frequently mentioned, not only for its pivotal role in cross border electricity trade, but in the other thematic areas that are often addressed through traditional bilateral programming. For example, the advances that India has made in the area of renewables deployment can be leveraged for cross-learnings with other countries. The meeting underscored the scale of the task ahead in order to reach the desired outcomes, and thus, a phased approach in which early wins are identified, with the necessary trust building across all stakeholders is important. The diverse participation highlighted that there are a wide number of stakeholders with expertise appropriate for South Asia EDGE, from the US and in the region.

Background and Context

In July 2018, the USG announced the Asia Enhancing Development and Growth in Energy (EDGE) as a key component of its Indo – Pacific strategy. Asia EDGE is a regional energy cooperation platform that aims to address several four key issues confronting the region, through: i. strengthening the energy security of regional partners; ii. creating open and transparent energy markets; iii. improving free, fair and reciprocal energy trading relationships and ; iv. expanding access to affordable, clean and reliable energy.

Due to the unique features that define the sub-regions of Asia, USAID's support to Asia EDGE is being implemented through three sub-regional hubs: South Asia (led by USAID/India), South East Asia (led by USAID/RDMA) and Central Asia (led by USAID/Kazakhstan). USAID/India has been designated as the regional hub in South Asia for the new Asia EDGE program. This program, referred to as “South Asia EDGE”, aims to improve access to affordable, reliable, reliable and sustainable energy in South Asia through expanded, transparent and efficient energy markets. These market based policies would serve to bridge the region’s energy deficit gap, harness the untapped hydro power resources that straddle the Himalayan region (Bhutan, India, Nepal and Pakistan), promote U.S. strategic, trade and business interests, and serve as a confidence building, socialization measure between the peoples and the nations of the region with the United States. Early on it was recognized that energy cooperation in South Asia must aim at achieving regional consensus and participation through a journey that promotes self-reliance and clear choice of its partners. It must be visionary, long term and flexible in its design and implementation.

These are exemplified by the Four pillars of SA EDGE that would support and fund interventions that contribute to the USG-wide Asia EDGE initiative.

The SA EDGE program initiative shall contribute to the four pillars of Asia EDGE:

● Pillar 1: Enhanced Regional Energy Markets and Integration

● Pillar 2: Utility Modernization

● Pillar 3: Deployment of Advanced Energy Solutions and Systems

● Pillar 4: Transparent, Best Value Procurement and Private Sector Investment

Multi-stakeholder Roundtable

A multi-stakeholder roundtable (RT) including the private sector, think tanks, academicians, and others, on March 19, 2019 was organized to discuss and inform the approach to the SA EDGE initiative. This RT consisted of four parallel discussion groups each devoted to one of the four pillars of Asia EDGE and highlighted best global and regional best practices, energy security policy solutions, program implementation models and delivery mechanisms. The RT was attended by about 80 experts from South Asian countries and included regional and national energy experts, utility officials, think tanks, energy consultants, energy service providers, vendors, and others. The ensuing sections sets out the brief details of the roundtables including the list of questions that were posed to elicit stakeholder responses and thus help inform the approach and design of the SA EDGE program.

Roundtable (RT) Proceedings:

The proceedings of the RT are grouped under each of the pillars to address the following common set of questions:

● What are the key challenges and issues?

● What are some of the interventions to address these challenges?

● How might you prioritize the solutions by geography?

In order to arrive at the appropriate responses to the aforementioned common set of questions and recognizing the different themes that each of the SA EDGE pillars constitute, a set of specific questions was designed for each of the pillars. This elicited responses that sought to address the common set of questions that were relevant and connected to each pillar. All efforts were made to ensure that each of the discussion groups comprised of participants who were known thought leaders and thematic “pillar” experts in the region.

SA Pillar RT 1: Enhanced Regional Energy Markets and Integration

Brief Description: South Asia EDGE aims to both expand economical gas markets as well as integrate regional electricity markets. As South Asian countries look to diversify their energy mix, there is an increased interest in liquefied natural gas (LNG) for use in power generation, transportation, and as cooking fuel. South Asia EDGE will focus on promoting a more enabling environment for the gas market through policy and regulatory frameworks that increase trade in South Asia and establish a regional gas hub. Cross-border electricity trade (CBET) in South Asia has more than doubled from 1200 MW in 2013, when the Bangladesh-India transmission first corridor became operational, to 2500 MW in 2018. Most of the regional power trade is through bilateral contracts - though the region is now at the crux of moving from bilateral to multilateral power trade. South Asia EDGE will focus on advancing multilateral power trade and operationalizing a short-term power market in the region.

Roundtable panel questions:

● Current regional cross-border trade efforts are not enough – the SA region is the least integrated globally. Intraregional trade is less than 2% of GDP, and regional energy trade is less than 0.5% of the total external trade. What benefits can we expect from an enhanced and reinforced regional cross-border energy trade ?

● Limited gas reserves, accounting for about 1% of global reserves and national priorities have discouraged SA countries from exporting natural gas. How important is the availability of gas a critical component of energy security policy making in SA? What are the likely impacts of the following developments on the expansion of LNG markets in the region:

o Technological breakthroughs in shale gas production in the US, and rise in its exports to Asia for electricity, transportation and household cooking sectors.

o Opportunity to import gas from outside the region through gas pipelines operated on a common carrier basis, jointly developed and owned by the participating nations (e.g., TAPI, IPI, MBI, etc.). None of the projects have materialized thus far due to security concerns, investment requirements and vacillation by one or another party.

o Domestic subsidies for specific end-uses are a central issue related to the development of gas markets in the region. These subsidies led to skyrocketing growth in natural gas demand, while low wellhead prices discouraged domestic gas producers from prospecting and tapping new reserves or developing and bringing to market existing supplies.

● Which of these do you think are the key impediments to CBET in SA?

o Political mindset which considers 100 percent national self-sufficiency as the basis of national energy security and which regards reliance on trade as a threat and an erosion of such energy security o Diverse economic status, governance quality, sector reform status and legal and regulatory frameworks o Unrealistic price expectations and political commitment needed to abide by the concluded agreements o Difficult transit country situations creating major security risks to trade o Absence of adequate transmission interconnections between neighbouring countries o Absence of harmonization of operational standards, practices, grid codes, and regulatory arrangements, o Slow and halting progress in the expansion of bilateral electricity trade and in the creation of multilateral, regional electricity markets o Any other?

● How can private sector engagement, creation of institutional alliances and regional networks, diversification of energy resources, and regional energy integration be promoted?

● Overall, for this pillar, how might you prioritize the solutions (e.g., by geography and sub-domains)?

Summary of Group Discussion: SA Pillar RT 1: Enhanced Regional Energy Markets and Integration

What are the key challenges and issues?

Key challenges (Gas):

● Promoting the role of gas as a critical component of energy security policy making in SA

● The policy conundrum of administered (subsidized) pricing over market- based pricing of gas

● Gas allocation policy across consuming sectors, i.e., power, fertilizers, domestic, etc.

● The need for a regional level strategy incorporating the following:

○ i. the planning, siting/location of regional LNG hub

○ ii. policies, strategies and regulations for imported and domestic gas

○ iii. institutional capacity building

● Assessment and mitigation of risks associated with cross-boundary, transnational gas pipelines

Key challenges (Power)

● Strong political and stakeholder commitment including credible country utilities needed to advance large cross-border electricity projects at bi-lateral and multilateral levels.

● Exploiting opportunities for trade due to seasonal complementarities and diversity in demand and supply

● Economies of scale, optimal use of resources and improved reliability of power supply

● Three emerging business models (Stages 1, 2 and 3&4) need to be accelerated:

○ stage 1: bilateral trade between neighboring countries in SA (i.e., Bhutan -India; India- Nepal: India-Bangladesh).

○ stage 2: bilateral & multilateral trade between non-neighboring countries via transit country (i.e., Nepal – Bhutan (via India); Bhutan -Bangladesh (via India)

○ stages 3 & 4: SA trade via regional grid through regional energy markets; fully interconnected multi-buyer and multi-seller trading competitive power pool.

What are the key interventions to address the challenges and issues?

Key interventions (Gas)

● Implementation models such as PPP models addressing investor/developers risk appetite with minimal governmental role

● Introduction of market-based pricing of gas.

● Establishment of a regional gas trading hub/exchange market in SA. This would require the following key related developments:

○ availability of adequate pipeline infrastructure (i.e., inter-regional connectivity, third party access)

○ market design; hub design (virtual or physical)

○ policy, regulatory and settlement mechanisms

○ back-up gas security strategy

● Setting up of a South Asian regional LNG terminal

Key interventions (power)

● Optimized, intra-regional transmission networks (e.g., HVDC linkages)

● Accessing technical and financial support provided by IFIs (e.g., WB, ADB) for project development and resolution of common issues

● Adoption of legally enforceable contracts (i.e., multi-country treaties, bilateral/multilateral intergovernmental agreements)

● Ensuring private sector participation to speed up development both for funding and operational expertise and raise the comfort level of commercial lenders.

● Guaranteeing creditworthiness of the main buyer as a prime consideration to enable project financial closure

What are some of the prioritized solutions?

Prioritized solutions (gas)

● Phase out subsidization of gas market prices at wholesale and retail levels

● Emphasize gas availability for transport and domestic sectors (cooking)

● Develop integrated planning strategies for regional gas planning

● Evaluate feasibility of gas imports through the following means:

○ gas pipelines operated on a common carrier basis, jointly owned and operated by the participating SA countries (i.e., TAPI, IPI, MBI)

○ shale gas from the U.S. due to technological breakthroughs and rising exports to Asia

Prioritized solutions (power)

● Move from bilateral to multilateral power exchanges

● Establish regional power markets and exchanges building on the Indian experience

● Set up a Regional Electricity Regulatory Authority for South Asia

● Emphasize integrated regional power planning

SA Pillar RT 2: Utility Modernization

Brief Description: South Asia EDGE will work with the utilities across the power chain (generation, transmission and distribution) to improve their financial performance, operational efficiency and adaptability to new technical advancements. It will also support the creation of an enabling environment by development of policies and regulatory frameworks, improve access to finance and build the capacity of personnel through knowledge exchanges, peer-to-peer partnerships.

Roundtable panel questions:

● Now that power generators have become more efficient, what else remains for modernizing the generation fleet (i.e., thermal, hydro and other)?

o Supercritical and ultra-supercritical generation?

o Advanced O&M systems; reliability engineered maintenance systems?

o Others?

● The distribution sector is the Achilles heel of the SA power sector. Inadequate service quality with frequent outages, high system losses, tariffs that do not recover costs, low levels of billing and collections, ill-trained utility personnel, and antiquated staff and resource management systems are some of the issues facing the distribution utilities.

o What are the key technological interventions that can help modernize SA discoms, such as IT enablement and digitalization technologies, including smart grid?

o What are the key managerial interventions that can help modernize SA discoms?

o What are some of the promising reform and restructuring models and policies for distribution utilities in SA?

● What benefits can one expect from a global/regional collaboration on utility modernization?

o What are the impacts of setting utility level targets such as plant heat rate improvement, T&D loss reduction etc?.

o What are the next steps? Should more partnerships be developed and if so, how can such collaborations be organized?

● Overall, for this pillar, how might you prioritize the solutions (e.g., by geography and sub-domains)?

Summary of Group Discussion: SA Pillar RT 2: Utility Modernization

What are the key challenges and issues?

● The SA electric utility sector is largely technically deficient, with the exception of a few Indian utilities, and is being developed in an ad hoc approach to sector operations, governance and modernization.

● Integrated resource planning (IRP) is seldom followed as an optimization strategy to symmetrically evaluate return on investments in generation, transmission and distribution.

● The pace of adoption of smart grid technologies including digital automation has been slow barring a few exceptions.

● While system load factors have shown improvement with concomitant rise in generation and transmission efficiencies, the low voltage, last mile distribution continues to register high (excess of 25-30%) technical and commercial losses in most SA utilities.

● Regional power planning, specifically cross-border transmission planning, has been held hostage to lack of policy, legal and regulatory harmonization.

● Demand Response programs including advanced energy technologies such as DER, EV, grid connected RE, etc. are nascent and, with the exception of India, have been unexplored in most SA countries.

What are some of the interventions to address these challenges?

● Broadening and deepening the pace of power sector reforms to include performance indicators and targets for benchmarking technical and financial performance of generation and distribution utilities.

● Short and medium term strategies to improve O&M practices in generation plants to improve station heat rates; long term strategies to modernize power plants through repowering programs, switch to supercritical and ultracritical power boiler systems.

● Adoption of modern distribution network planning tools, improved HT/LT ratios through high voltage distribution systems (HVDS), SCADA system for load management and smart meters for efficient billing and metering would be key steps to reduce distribution losses.

● Integrated resource planning, management and operation would advance the optimal utilization of diverse energy resources including demand response programs.

What are some of the key prioritized solutions ?

● Establish utility partnership and twinning programs among SA country utilities as a platform for information exchange and capacity building.

● Facilitate regional energy sector regulatory partnerships to assess and guide the policy and regulatory landscape in SA.

● Design, develop and implement pilot model utility efficiency enhancement programs in SA countries

SA Pillar RT 3: Deployment of Advanced Energy Solutions and Systems

Brief Description: In supporting countries to modernize their energy systems, South Asia EDGE will focus on approaches and technologies that have the potential to transform the power sector and provide a large market opportunity for private sector investments. This includes advancing renewable energy (RE) generation, distributed energy resources (DER), digitization technologies, off-grid energy, sustainable building technologies, and air pollution control systems.

Roundtable panel questions:

● Which of the following deployable energy technologies, systems and solutions are most promising that could advance energy security, reliability, and availability of energy in the SA region, including relevant business and regulatory models?

o Grid connected renewable power projects (solar, wind, biomass, small hydro) o Distributed solar PV (rooftop, community) o Off-grid distributed energy resources o Utility driven demand side management (e.g., demand response) o Sustainable green building technologies o Electric vehicles o Energy storage o Air pollution control systems and other devices o Others?

● What are the key barriers and constraints to the market development and scale-up of alternate energy technologies in SA?

● How can the design and implementation of commercially driven, deployment of these technologies be facilitated?

● Air pollution in cities and regionally is a significant health hazard. What are the likely solutions to address the health and environmental impact of fossil energy use?

● Overall, for this pillar, how might you prioritize the solutions (e.g., by geography, technologies and market segments)?

Summary of Group Discussions: SA Pillar RT 3: Deployment of Advanced Energy Solutions and Systems

What are the key challenges and issues ?

● Lack of vision leading to ungrounded policies

● Varying technology status and maturity requires technology specific policies and strategies

● Massive, unrealized opportunities for retrofit technologies

● Affordability issues: High first cost is a key deterrent to market growth; even if low first cost, high servicing costs is a barrier.

● Poor access to finance including local financing

● Lots of pilots – “India is the biggest junkyard of pilots”

● Need for institutional capacity building

● Go-to market strategies is lacking

● Poor enforcement of existing regulations (e.g., air quality)

● Barriers are specific to urban/rural context

What are the key interventions and prioritized solutions?

● Identify market deployment interventions that are aligned with existing governmental policies and initiatives

● Develop regional planning framework for deployment of advanced energy technologies

● Frame policies with the following key considerations:

o anticipatory policy planning (e.g., commitments ahead of time) o demand aggregation strategies for energy efficiency and renewable energy technology solutions o long term policy consistency and clarity o judicious combination of mandates (e.g., energy savings targets, RE deployment targets) and fiscal incentives

● Development of plug and play models with the following characteristics o modular DER technologies o go-to market strategies (e.g., addressing issues such as retail marketing)

● Custom designed financing packages for different technologies

● Incubation of private sector distribution channels

SA Pillar RT 4: Transparent, best value procurement and private sector investment

Brief Description: USAID will use its convening power and vast expertise across the energy sector value chain to mitigate private-sector constraints and risks of investments, and build market-based approaches to energy security challenges. South Asia EDGE will work with technical and procurement divisions of the key public agencies to help them improve procurement processes and governance, adopt best value procurement practices for new technologies and increase competition. To increase private sector participation and investments, South Asia EDGE will develop new models for public-private partnerships (PPPs), improve the bankability of energy projects, and mobilize investment by increasing awareness among the private sector of investment opportunities.

Roundtable panel questions

● How can procurement practices that are open, fair and transparent, and create a level playing field for investors and companies be promoted?

● How can governments in the region build market –based approaches to energy security challenges to mitigate private sector constraints and risks of investments?

o How can the private sector’s innovation and technologies, entrepreneurship, investment capacity and managerial and operational expertise be utilized to modernize and transform regional energy sectors.

o How can effective and transparent procurement help governments at all levels to meet a goal of procuring the best value for taxpayer money, while also achieving other socio-economic benefits, environmental sustainability?

o How can one apply objective evaluation criteria, unbiased and transparent systems and effective governance structures in procurement o What new models of investment banking will help mobilize financial resources, foster greater public-private partnerships and improve the bankability of energy projects?

Summary of Group Discussions: SA Pillar RT 4: Transparent, best value procurement and private sector investment

What are the key challenges and issues?

i) Institutional strengthening

● Inadequate capacity in the region, barring India, to promote and facilitate large scale private investments

● Lack of capacity in FIs to address technical complexities

● Insufficient risk coverage; scarce access to credit

ii) Policy and regulatory design

● Long term policy uncertainty and general lack of clarity of policy objectives

● Little attention to quality standards and monitoring in procurement design

● Regulations to guide and facilitate procurement are often absent

● Rigid policies formulated with inadequate stakeholder consultation

ii) Project design and procurement

● Absence of risk assessment and mitigation measures

○ scalability risks that impact business potential

○ demand risks; law and order issues

● Shortcomings in pilot project designs

○ focus on technology demonstration over business model development

○ risks and barriers associated with technology development & commercialization

● Inadequacies in procurement frameworks/design

○ lack of quality assurance standards

○ L1 rules discourages reputed players; marginalizes innovations

○ mediocre technical specifications inhibit superior bid submissions

○ long and protracted contract negotiation

iv) Experimentation in design of implementation models

● well designed implementation models (e.g., PPP models) are missing

● consumer-centric models need to be encouraged

● minimal role of governments need to explored

v) Best value procurement

● granularity of procurement specifications is a deterrent

● numerous performance parameters is restrictive

What are the key interventions ?

● Assessment of institutional capacity and policy frameworks in SA countries to help promote large scale investments.

● Adoption of risk mitigation measures incl. access to credit (e.g., insurance guarantees, regulatory risks)

● Long term policy and regulatory certainty including clarity of policy objectives

● Exclusive focus on lowest offer price procurement (i.e., L1 bids) must be balanced against quality, performance and technological features.

● Reduced development costs by investors through structured, pre-approved, fast-tracked, single-window clearance facilities

● Tailor procurement strategies to the specific stage of technology evolution (i.e., basic lab research, field trials, scale-up and commercialization)

● Well defined procurement documents with few performance parameters that ensures that primary project goals and objectives are met.

● Engage proactively with private sector to build investor confidence

What are the prioritized solutions ?

● Establishment of a supra-national anchoring institution for institutional strengthening;

● Support inter-regional capacity building through training and information exchange with key

Indian stakeholders

● Quality standards, performance benchmarks and monitoring frameworks (e.g., S&L program).

● Regulatory directives to guide and facilitate procurement actions (e.g., India’s Electricity Act enabled manifold private sector investment in hydropower)

● Pilot projects designed to demonstrate technology applications as well as business models (i.e., market driven, technology development projects)

● Implementation models such as PPP models addressing investor/developers risk appetite with minimal governmental role

Discussion on South Asia EDGE as a Regional Cooperation Platform

Brief description: Calls for intra and inter-regional cooperation have been pitched in the past by regional associations such as SAARC and BIMSTEC including the SARI/E program. It was opined that a regional platform of autonomous networks led by policy groups, private sector, NGO agencies, academia and others could provide expertise, assemble and disseminate opinions, lend voice and strategic advice that could help inform policies and shape actions that flow from them.

Such a platform could comprise of a multiplicity of regional energy networks involving regional stakeholders and USG/US private sector. The functional areas of each of the proposed networks would advance the four key strategic pillars of SA EDGE.

Following the pillar group discussions and their individual presentations, a full house meeting was held to discuss the structure, importance and modalities of a regional cooperation platform. The participants were grouped in separate tables (approx 10/table) and the following two questions were posed to each group.

Full-house working questions

1. What are the processes and structures that the South Asia EDGE regional energy cooperation platform should adopt to enable outcomes regionally? Example regional outcomes include:

a. Cross-learnings between and among countries

b. Government to government exchange

c. Private sector engagement

d. Other regional outcomes???

2. What is the importance of networks in operationalizing a regional energy platform? Should these be domain specific or cross-sector? Should new networks be created or are there sufficient existing networks regionally, and what are they?

Key responses:

● Establish a clear value proposition for all the countries

● Develop a platform for political discussion, studies, information exchange, etc.

● SA Energy Forum

● Project level partnerships for joint project design and implementation- established through

MoU’s

● Annual EDGE conferences rotate in the region

● Establish domain networks- non-governmental actors, the private sector, think-tanks, and academic institutions - RE partnership, utility partnership (multiple layers- planning, TSO, utilities)

● Sharing of regulations and policies- model regulations/common regulations will help the private sector

● Collaborate with SAARC, WB, ADB and other organizations who are already implementing CBET programs.

● Regional initiatives for skill development and capacity building.

● Investor forums

● Political consensus building

● Learn from other successful regional initiatives (e.g., ASEAN)

● Do not create more govt-govt forums, build/strengthen the existing forums such as

SAARC