In 2017, Laos agreed to sell 100MW of power to Malaysia via Thailand’s power grid in a practice known as “wheeling.” Tenaga Nasional Berhad (TNB) which signed the energy purchase and wheeling agreement (EPWA), will import the electricity from Laos’ state-owned Electricite du Laos (EDL) via the existing transmission grid owned by the Electricity Generating Authority of Thailand (EGAT). The EPWA positioned Thailand as the power highway between Laos and Malaysia with a simple toll for the electricity’s journey.
Thus, began a new era in power within the ASEAN region which has long ruminated over a pan-region power grid for many decades.
The practice of wheeling involves the use of another country’s grid as a transit to move power from one country to another.
The practice of wheeling involves the use of another country’s grid as a transit to move power from one country to another. This is especially important when the demand and supply countries are separated by differing geographies and state borders. Such a practice would require a fair degree of technical harmonisation since these countries may not be using similar power systems. In this day and age when meeting energy demand is a priority for governments, wheeling is set to become a norm especially when it is lucrative to both sides – the power producer and purchaser.
Southeast Asia’s power sector is set to strike out in a new direction this year, driven by energy security needs and new opportunities for collaboration in the renewables space. Although the region’s GDP shrunk by 2 percent in 2020, it is slated to bounce back to grow 5.2 percent in 2021 and its GDP is expected to triple by 2040.
The spike in energy demand must be met and is a top priority for governments in the region. This is therefore an incentive for cross-border collaboration. To date, regional power trading has been limited but multilateral power trading is where the benefits are most lucrative including reduced system costs, increased energy security and an ability to integrate higher shares of variable renewable energy.
The importance of multilateral energy trading within ASEAN should not be lost on its governments. The ASEAN region consists of an area inhabited by a 640 million population in 10 different countries – all of which are making great strides in development and progress in the post-pandemic era.
This has led to a huge demand for energy. According to the ASEAN Energy Outlook 2020, energy demand in the region is set to increase by more than 70 percent between 2020 and 2040. As such, member states are working towards a broader vision of an ASEAN Power Grid (APG), a long-standing goal for the bloc to integrate its power systems.
The APG would first connect the region’s power grids on cross-border bilateral terms, and then gradually expand to sub-regional basis and subsequently leading to a total integrated system. As one of the physical energy infrastructure projects in the Master Plan of the ASEAN Connectivity, the APG is expected to enhance electricity trade across borders that would provide benefits to meet rising electricity demand and improve access to energy services in the region.
ASEAN member states have long recognised, that to fully unlock the benefits of the APG they will need to establish some form of multilateral power trading infrastructure and strategy in the region.
ASEAN member states have long recognised, that to fully unlock the benefits of the APG they will need to establish some form of multilateral power trading infrastructure and strategy in the region. To that end, there are numerous technical requirements for establishing a multilateral framework for power trading including a harmonised wheeling policy which outlines the necessary costs and grid codes needed to facilitate cross-border electricity trade. It will also help delineate provisions for third-party access to domestic grids, agreements on data and information sharing, and a dispute resolution mechanism.
The implications of multilateral power trading to economies of the region are best demonstrated through the tripartite energy trading agreement between Laos, Thailand and Malaysia.
Laos has for long been touted as the “Battery of ASEAN” thanks to its immense hydropower potential. Therefore, Laotian sale of electricity would be a gamechanger to the economy of the state. However, on the demand side, Malaysia, which could benefit from Laos’ supply of electricity would only be able to gain access to Laotian hydropower through a power supply route that must go through Thailand.
Thailand, as a neighbour to Malaysia plays a crucial role in any cross-border electricity trade that we aim to venture into. The main reason being the trade of electricity is heavily reliant on the geography of the trade route itself. Since it is extremely costly – therefore counterintuitive – to transmit electricity over sea, and given that Laos is a landlocked nation, the only other alternative is through land. This also spells a lucrative economic opportunity for Thailand which can take advantage of this by way of imposing wheeling charges.
Using existing infrastructure to enable cross-border power sharing opens up a new avenue for energy diversification for Malaysia thus ensuring energy security. Malaysia’s GDP is set to grow by up to 7.5 percent this year, from a slump last year due to the pandemic. Hence, the demand for power will always be of paramount interest to the government.
Having a regional power grid would ensure that ASEAN member states, like Malaysia will always have a reliable and continuous supply of electricity to feed growth.
Having a regional power grid would ensure that ASEAN member states, like Malaysia will always have a reliable and continuous supply of electricity to feed growth. Less developed economies like Laos on the supply side, are able to diversify their economy and improve their overall GDP. Intermediary countries like Thailand also benefit thanks to earnings from wheeling dues.
Consequently, energy trading should and always will have its place in the diversification policy of ASEAN member states alongside other options like renewables.