Energy Crisis in Pakistan: Alternative and Renewable Solutions

Pakistan has a large population of over 210 million and an economy that is rapidly developing. Since Pakistan is a developing country and is carrying out mega projects including undertaking of the CPEC project, Pakistan’s energy needs are potentially huge. The country, which historically has been a net energy importer, is confronting serious energy shortages as its economy and population grow while simultaneously global fossil fuel prices continue their upward spiral. Moreover, the Pakistani currency has been devalued by about 100% in the past 10 years. Thus, Pakistan needs to initiate a sustained, long-term transition towards greater use of alternative and renewable energy (ARE) – indigenous, clean, and abundant resources – whose considerable potential has to be tapped by the country to enable it to become self-sufficient to generate the required energy.


The Government of Pakistan intends to pursue this objective of harnessing power from alternative and renewable resources with the full participation and collaboration of private sector. It has prepared policy and strategies to exploit such resources and attract investments in electricity generation projects utilizing hydro (up to 50 MW capacity), wind, solar power (of all capacities), biomass, bagasse and bioenergy. For hydroelectricity (hydel) projects of capacity greater than 50 MW, the applicable policies are described in the Government’s Policy for Power Generation Projects separately. 


The unfortunate reality is that more than 70 million Pakistanis do not have access to electricity since they are away from the national grid, while 130 million are yet to avail the natural gas facility. The average shortfall in the power sector is 5,000-7,000 MW in summer and 2,000-3,000 MW in winter. Shortfall in the natural gas sector is nearly two billion cubic feet per day (BCFD). Despite construction of new imported fossil fuel based power plants in the past five years, Pakistanis suffer long hours of load-shedding daily. Ministry of Energy’s Power Division is losing about Rs. 135 billion annually mainly on account of theft and its burden is shared by millions of Pakistanis. The obsolete transmission and distribution system needs urgent upgradation.


Pakistan’s circular debt situation isn’t faring any better. It has reached Rs. 1100 billion, an ever increasing trend due to the government’s decision to shift our energy generation to fossil fuels such as imported LNG, imported furnace oil and imported coal instead of utilizing free indigenous ARE sources like water, wind, solar, biomass and waste etc.
Pakistan specially has a huge potential to generate energy from water. More than 50,000 MW can be generated from water. Large and small dams also act as storage reservoirs for water. Hence development of hydel projects can provide us with water, energy and food security. 


Due to the energy crisis, industries are closing down and people are being put out of jobs. As one economic advisor has acknowledged, Pakistan’s energy crisis has provided a “fertile breeding ground for extremism and insurgency against the state.” Government’s failure to provide basic services like electricity and employment have allowed extremists to fill the void.


Alternative and Renewable Energy (ARE) is considered the resource of 21st century. It should be utilised to improve the energy sector as it could decrease poverty, inflation and unemployment from the country in both urban and rural areas where gas and electricity can be provided through alternative energy. 


Government of Pakistan has to ensure energy security, food security, water security and sustainable development in the country. The Government must issue new LoIs (letter of intent) for solar and wind power plants and release funds for Dr. Samar Mubarakmand’s underground coal gasification project. It is essential that due attention be given towards fast track development of ARE resources in the country. A roadmap has to be developed to overcome the energy crisis in order to meet increasing energy demands of the country.


There is an urgent need to optimize the utilization of the country’s indigenous resource base and emphasize on increasing the share of alternative and renewable energies in the overall energy mix and develop hydel, solar, wind, biomass, waste to energy, biogas and underground coal gasification to give energy, water and food security to the country.
Pakistan is blessed with an abundance of renewable energy potential but so far this potential has not been harnessed except for a few large hydroelectric projects. Renewable Energy Policy of Pakistan was developed in 2006, it envisaged mainstreaming of renewable energy in the development plans of the country. The policy comprised of three phases: short, medium and long term. The short term policy laid down very liberal and attractive incentives to attract investment to put Pakistan on the renewable energy map of the world. Based on the experience gained under the short term, the policy for the next phases was consolidated.


Some salient features of this policy are:
a)  It invites investment from the private sector for following categories of proposals:
i.    Independent power projects, or IPPs (for sale of power to the grid only).
ii.  Captive cum grid spillover power projects. (i.e., for self-use and sale to utility).
iii. Captive power projects (i.e., for self or dedicated use).
iv. Isolated grid power projects (i.e., small, stand-alone).


b) Except for category (i) above, these projects will not require any LOI, LOS, or IA from the Government.
c) Electricity purchase by NTDC/CPPA from qualifying renewable energy-based generation projects has been made mandatory.
d)  It permits an investor to generate electricity based on renewable resources at one location and receive an equivalent amount for own use elsewhere on the grid at the investor’s own cost of generation plus transmission charges (wheeling).


e)  It allows net metering and billing so that a producer can sell surplus electricity at one time and receive electricity from the grid at another time and settle accounts on net basis. This will directly benefit the economics of small scale, dispersed generation and optimize capacity utilization of installed systems.
f)  It de-licenses and deregulates small scale power production through renewable resources (up to 5 MW for hydro and 1 MW for net metered sales) to reduce the transaction costs for such investments. This will be particularly beneficial for micro, mini and small hydro as well as solar-based electricity production.
g)  It lays down simplified and transparent principles of tariff determination.


h) It insulates the investor from resource variability risk, which is allocated to the power purchaser.
i)  It facilitates projects to obtain carbon credits for avoiding greenhouse gas emissions, helping improve financial returns and reducing per unit costs for the purchaser.
These guidelines are in line with the Government’s open door policy for inviting private investment into the country. It will go a long way in strengthening and improving the power supply position of the country and help fuel rapid and environmentally sustainable economic growth.


Wind Energy – An Alternative Energy Source
Wind energy is a process that describes how wind is used to generate mechanical power or electricity. Wind turbines convert the kinetic energy of the wind into mechanical power, which then is converted to electricity by a generator.


Wind is a clean source of renewable energy that produces no air or water pollution. And since the wind is free, operational costs are nearly zero once a turbine is erected. Mass production and technology advances are further making turbines cheaper. Pakistan Government also offers various fiscal and financial incentives through Renewable Energy Policy to encourage wind-energy development in the country.

 

Investment Opportunities
Targets


As part of Energy Security Action Plan, there should be share of at least 5% of total national on-grid power generation capacity through wind energy by year 2030. The Government has developed investment friendly opportunities and several fast track regimes for wind power project to meet the targets. In order to harness the wind potential in Pakistan, wind resource mapping has been done and private sector is being encouraged to invest in this sector.


Incentives by Government for Wind Power Projects’ Development in Pakistan

Government of Pakistan's Policy for Development of Renewable Energy for Power Generation offers the following incentives for setting up wind IPPs:
•    Wind risk (risk of variability of wind speed).
•    Guaranteed electricity purchase.
•    Grid provision (responsibility of the purchaser).
•    Protection against political risk.
• Attractive tariff (cost plus 17% ROE), indexed to inflation and exchange rate variation (rupee/dollar).
•    Euro/dollar parity allowed.
•    Carbon credits. 
•    No import duties on equipment.
•    Exemption on income tax/withholding tax and sales tax.
•   Repatriation of equity along with dividends freely allowed.
•    Permission to issue corporate registered bonds.


Proposed Areas of Collaboration for Investment in Pakistan
Foreign Direct Investment (FDI): Participation of     companies in development of alternative and renewable power projects through FDI. Government of Pakistan shall provide full facilitation.


Financing/Lending for Commercial Wind Power Projects:   Banks and financing institutions may finance the commercial projects through debt and equity sharing.
Export Credit: To promote equipment, Governments may give export credit to its original equipment manufacturers.


Capacity Building/Technical Assistance: Support in  capacity building and technical assistance of public entities/organizations of Pakistan associated with renewable energy sector.


Collaboration in Wind Turbine Manufacturing:   Collaboration with Pakistani engineering industries for manufacturing/assembling of alternative and renewable energy equipment/components in Pakistan.
 


The writer is a specialist in Alternative Energy with a Ph.D from England and a 33 years international experience in Alternative Energy Development. 
E-mail: [email protected]

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