Asia’s $50b grid push faces private capital test

Cross-border transmission needs predictable revenues and clearer risk allocation as regulatory differences threaten Asia’s regional power ambitions.

Asia’s push to expand cross-border electricity transmission will need more than development capital to attract private investors, with regulatory and contractual uncertainty remaining a bigger obstacle to bankable projects.

The Asian Development Bank is mobilising US$50b through 2035, but Rayyan Hassan, Executive Director of NGO Forum on Asian Development Bank, said financing alone cannot resolve uncertainty over revenues and risk allocation.

“A transmission line becomes bankable when there are predictable revenue streams, and somebody credible is contractually responsible when that revenue stream fails,” Hassan said.

Governments and public utilities should not carry all the difficult risks simply to attract private investment, he added. Private investors must also retain some project risk.

The bigger hurdle is establishing consistent rules across countries participating in regional grids. Agreements need to determine who can use transmission infrastructure, how operators are paid and who bears losses when expected electricity flows fail to materialise.

“Money is not actually the first order problem,” Hassan said, pointing instead to regulatory harmonisation and institutional readiness amongst countries exporting, transmitting and receiving electricity.

Cost allocation presents another challenge. Hassan said the guiding principle should be that beneficiaries pay rather than costs falling primarily on countries hosting transmission infrastructure.

Generators or exporters would normally bear project-specific connection costs, whilst regional backbone infrastructure could be allocated according to measurable benefits such as improved reliability, reduced congestion and increased trading capacity.

Countries transmitting electricity between producers and buyers should also be compensated for providing that service and absorbing transmission losses, Hassan said.

Project economics must additionally account for community and environmental costs, including land acquisition, displacement, livelihood restoration and biodiversity protection.

For regional grids to attract private capital, governments will therefore need contractual structures that establish predictable revenues whilst distributing costs and risks amongst investors, utilities and participating countries rather than shifting them disproportionately onto the public sector.