The Bhutanese Leading the way.
Bhutan using its dams strategically to minimize penalties and avoid high import costs
Until late 2022, Bhutan could import power from India in the absence of any legal agreement as part of its winter requirements.
However, coinciding with power sector reforms in India to ensure Grid Stability, and also Bhutan’s much higher energy import needs from 2022 December, Bhutan had to join India’s Central Electricity Regulatory Commission (CERC) Deviation Settlement Mechanism (DSM) system for power imports.
Then in mid-2024 as Bhutan was selling power from the 64 MW Basochu to India’s Energy Exchange, one condition that Bhutan had to agree to, was to even put all its energy exports under DSM, which Bhutan agreed to.
Simply put, the DSM in power imports means that Bhutan has to state a day before its power requirement for the next day in 96 blocks of 15 minutes each which is 24 hours. So, say Bhutan says it will need 1,000 MW on the next day continuously for all 96 blocks of 15 minutes each.
However, the next day Bhutan uses up 1,100 MW, which is overdrawing 100 MW more than stated. This additional 100 MW is violating the grid discipline of India and will attract penalties ranging from 10% to 50% of the tariff amount. The penalties will be higher if the additional withdrawal comes at a time when there is already a lot of excess demand on the grid.
There also penalties for underutilizing power. If Bhutan asks for 1,000 MW and uses only 900 MW then there will be penalties on the unused 100 MW.
So, if the import rate is Nu 3 per unit, then the maximum 50% fine is an additional Nu 1.50 making the total basic tariff Nu 4.50 per unit.
Similarly, for DSM in export of power, Bhutan has to inform its counterparts in India on how much power it will supply for the next day in advance in 96 blocks of 15 minutes each which is 24 hours. For example, if Bhutan says it will export 2,000 MW the next day and over exports 2,100 MW or under exports 1,900 MW then there will be penalties for both the additional power, and also the less power production.
The larger implication of the above is that Bhutan’s power sector for import and export now follows the Indian Grid’s DSM regulations to maintain grid discipline and grid security in India regulated by the CERC.
DSM is an effort by India to ensure that there is an equal balance between the power supplied and the power withdrawn in the grid so that the grid is stable.
A major implication for Bhutan is that since December 2022, the Bhutan Power Corporation (BPC) has been collecting the day ahead power requirement from mainly Heavy Duty Industries in Bhutan, and supplying it to the Bhutan Power System Operator (BPSO) which in turn gives it to their Indian counterparts for DSM.
Similarly, for exports, the Druk Green Power Corporation (DGPC) gives its generation forecast to the BPSO for the next day, which is passed onto counter parts in India for DSM.
The fines depend not only on the quantum of the deviation, but also the condition of the Indian Grid. If there is excess demand on the Indian grid and Bhutan over withdraws then the DSM fine will be stiffer compared to when there is lesser demand. The same applies for energy demand when it comes to exports.
A BPSO official said that Bhutan has managed the DSM quite well, and though there have been penalties, it has not been very big for both imports and exports. The fines can be offset by the incentives.
For example, if the demand on the Indian grid is very high and Bhutan sticks to its import projection or even withdraws less power than stated, there may be incentives as it helps the Indian grid. This may be the same when it comes to power exports where Bhutan supplies stable power in the face of high demand in India.
The official said DSM is not very rigid because changes can be made to both power imports and exports with 1 hour and 30 minutes advance notice.
So, if Bhutan forecasts 500 MW power consumption for the next day and is heading to consume 600 MW the next day then to avoid fines for the additional 100 MW the BPSO informs its counterparts in India 1 hour and 30 minutes in advance, and then in coordination with DGPC starts releasing stored dam water to cover the 100 MW domestically for 1 hour 30 minutes until the additional 100 MW can be bought from the Indian Energy Exchange.
Another way that Bhutan’s dams help is that India does not allow export of its power to Bhutan during the peak hours of 5 pm to 9 pm when demand in India is very high, and prices even touch Nu 10 per unit. During this time, Bhutan again uses the water stored in its dam during the non-peak hours.
For example, Chukha dam can store 4 hours of water and generate 360 MW for 4 hours releasing the water. The Kurichu, Tala, Mangdechu and P II dams are also used in that way in winter.
In summer the problem is more complicated when power is being exported at full capacity. Say, if a unit goes down in Chukha or the system is tripped then while BPSO informs its Indian counterparts, the fines will be imposed for the next 1 hour and 30 minutes for the lost generation which is a double loss for Bhutan, in terms of the lost generation and also the fines under the DSM from India.
There may still be questions on why DSM was imposed on Bhutan. Here, it seems that with Bhutan importing and exporting more power every year, it is becoming big enough to make an impact on the grid in India.
Power officials point out that the main purpose is for grid stability and discipline in India and Bhutan has coped well.
An official pointed out that when Bhutan had power surplus and supplied power to India, there was not much difference made to the Indian grid, but now that Bhutan is deficient in the winter months, Bhutan cannot be withdrawing power from the Indian grid as and when Bhutan wants, as supply should be available.
“Drawing power when generation is not available can cause grid problems,” said the official.
He said grid discipline is maintained by incentivizing sticking to the generation and withdrawal figures and penalizing for not doing so.
In December 2022, Bhutan got formal permission from India to buy 450 MW power in winter from the Indian Energy Exchange, and this increased to 1,100 MW in 2024.
Bhutan’s own winter generation until recently was 440 MW but with P II it will add around 160 MW going to 600 MW.
This is well below the peak firm power or winter demand of 1026 MW in 2024 and a projected demand of 1500 MW in 2025.
However, a businessman said that for the industries giving their power projection to BPC for the next day is not easy as they are not like the large established units in India which can more easily predict power consumption. This can result in deviations and hence penalties.
The businessman said instead of just imposing DSM on Bhutan, there should be a grid to grid agreement between the two countries that takes interests of both sides into account.
The businessman said it would be cheaper for Bhutan to join the longer term energy market in India where tariff rates are lower, where purchases are made on a long term basis than just the current day ahead.
In an interesting turn in November 2024, the Indian side, during power import talks, requested if data can be given by Bhutan on not only its day ahead power demand under DSM, but also share which industries are using how much power.
Eyebrows went up on the Bhutanese side, and they did not agree to this request and in the end, it was decided that only aggregate demand would be shared like in the past with no break ups.
While DSM and strange new requests are issues, the more fundamental issue is the power price difference between Bhutan and India.
While 1020 MW Tala exports power at Nu 2.23 per unit and Chukha at Nu 3 per unit in summer, in winter, Bhutan is paying Nu 5 to Nu 6 and at times even higher for importing power.
Bhutan may bid for and get the power at Nu 3.50 per unit on the Indian Energy Exchange, but by the time it reaches Bhutan, it becomes Nu 5 or Nu 6 due to inter-state transmission charges, load scheduling charges, power traders’ charges and network cost.
