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Category: Renewable Energy

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Khyber Pakhtunkhwa Energy Sector – A Primer

The energy sector of Khyber Pakhtunkhwa is centered around the development and operations of Hydro Power projects. With most IPPs in Pakistan located in Punjab and Sindh due to port and logistic access, KP has an abundance of hydel resources with an aggregated capacity of 30,000 MW. To facilitate public and private sector investment in the sector, the Sarhad Hydel Development Organization was inaugurated by the government, which was later renamed as the Provincial Electricity Development Organization (PEDO) in 2014 to act as an investment arm for power development projects. KP has also shown the most promise on the upstream exploration. Post-18th amendment, GoKP established Khyber Pakhtunkhwa Oil & Gas Company Limited (KPOGCL) with the mandate of commissioning oil and gas upstream activities and ensuring private sector participation and investment in the E&P industry. The energy sector in the KP is fourth in contribution to KP’s economy after services, agriculture, and industry sector and contributes roughly 7-8% of provincial GDP. It also retains the potential to be a provider of future FDI in the province and employment opportunities to vastly remote rural areas of the region. Overall, the energy sector in the KP contributes to 11 percent in the employment rate of the province. Renewable energy has become an emerging sector with most of the employment taking place in trades related to micro hydel energy trades in Swat and Chitral, which have high potential for the production of cheap electricity through micro hydel power plants. In terms of RE, solar holds the second most potential besides hydel. The prolonged and unresolved power shortage in the country, particularly in the rural area of KP and FATA, has given a surge to solar energy deployment and has the potential to ramp up off-take.

Besides community hydel projects, the GoKP has shown interest in the mobilization of large and medium-sized hydel projects. It has adopted the federal Alternative and Renewable Energy Policy 2006 for all renewable energy projects except hydropower. For hydropower potential, the PEDO has issued the Khyber Pakhtunkhwa Hydropower Policy 2016. The provincial government has developed a ten-year action plan to develop hydropower projects in the province through public funds and private-sector investments. There are differences between the rural policy and the federal policy of 2006. The latter assigns grid interconnection responsibility to NTDC while the provincial rural requires the project developer to construct the transmission line and embed the tariff’s cost. The strategy envisaged a mix of public spending, corporate funding, and public-private partnership to mobilize investments.

Additionally, the large projects, such as SK Hydro, Azad Pattan, and Chakothi Hattian have seen private sector engagement with installed capacities of 870 MW, 640 MW, and 500 MW respectively, primarily with the aid of Chinese investments. Nonetheless, issues persist that hinder the growth and investments in the energy sector. High transmission and distribution losses in PESCO / TESCO circles and weak operational structures have spiralled the power sector under high technical and commercial losses. Additionally, the monopolistic structure of the electricity market alongside high inefficiencies means that there is little incentive for the private sector to mobilize investments on its own. Also, sub-standard customer service, along with red tape, make it a challenging industry to attract private investments.

Some issues persist in renewable energy and oil and gas sectors also. For large and medium hydel, PEDO has demonstrated little capacity to initiate, design, and close projects. Overall, technical capabilities remain weak and require strengthening. Other challenges also abound. For instance, to reach full capacity, PEDO needs to initiate detailed designs and feasibilities on the Chitral river. Further, extensive delays have been observed in project management such as the due implementation of hydro projects which leads to increased costs on both financial and economic fronts, a case in point is that in PEDOs 40 years history, it has only been able to install 120 MW of public sector projects). On the hydrocarbons front, the GoKP needs to liaise with federal agencies to improve the regulatory framework to incentivize exploration. If streamlined, such processes can greatly simplify due diligence and compliance procedures and facilitate investment opportunities by local and international E&P firms. A technology-driven approach also needs to be part of the new hydrocarbon strategy, such as availability of hydrocarbons prospects and seismic data to investors who can access data through secure online platforms. Additionally, seismic studies need to be carried out for unexplored areas to improve upon hydrocarbon prospectivity data. On energy efficiency, there appears to be a lack of a coherent strategy to foster energy efficiency and conservation efforts. There is a need to improve upon a transaction off-take model that can facilitate energy efficiency investments, such as a guarantee fund through first loss guarantees in coordination with IFIs, Pakistan Credit Guarantee Company, lenders etc. Moreover, capacity building through education and training remains a major bottleneck along with compliance, following the enactment of national EEC laws.

To counter the issues, present and further enrich the business environment in the KP province, GOVERNMENT has been presented with specific entry points for their intervention that can streamline the process. This process then, in turn, could speed up the projects that are in the pipeline in different energy streams and ultimately bring in more projects that could catalyse the economic development in the province. For instance, there exists an opportunity in the ARE policy 2020 to auction new RE projects on a competitive bidding process. This would require capacity building at PEDO to incorporate changes that would be introduced in the ARE policy 2020. PEDO would also need to deepen its’ understanding of the transaction design and implementation process, including project management, evaluation of technical and financial feasibilities and risk-return parameters. GOVERNMENT could also help in providing transaction support in preparing and evaluating concessions under the tripartite agreement, which can be done by deploying specific consultants specialized in the domain. Support around specific transactions could assist PEDO in procuring the right concessionaires for new hydel projects and build capacities for future purchases. In turn, this will improve GoKP’s ability to invite financially and technically sound concessionaires to ensure projects continuity over its’ proposed life, hence realizing Value for Money (VFM) for the government. It is suggested that GOVERNMENT deploys specislized transaction consultants to assist PEDO and help them in designing the optimal framework.

One of the most significant ways that Government can help GoKP is to build upon the wheeling regulations and coordinate a market between generators (publicly owned, such as PEDO) and Bulk Power Consumers (BPC) for industrial off-take of power. Some projects can be facilitated for wheeling such as Malakand HPP (81MW) that can be offered to industries through strike price (which would still be substantially lower than what they are paying to CPPA(G)). If these projects are successfully executed, they can pave the potential for a homegrown, competitive power model for GoKP, realizing efficiencies for the entire province. Government can facilitate such transactions under wheeling arrangements. It can build upon projects for a competitive market off-take that would consequently reduce their reliance on federal institutions while augmenting revenues for the province through indigenous hydel development offerings. Also, GoKP can coordinate for the establishment of a new transmission company. Under the NEPRA Act amendment, provincial governments can now set up their own provincial transmission companies, such as the one established in Sindh called the Sindh Transmission and Dispatch Company (STDC). With the setting up of this company, GoKP can evacuate power by relying on its agency (instead of NTDC) while promoting projects under both public and private sector. At the same time, maintaining a viable transaction structure and bid security package would allow investors to utilize the opportunity (most likely under a tripartite arrangement).

Another entry point suggested in this report is around waste to energy. There is a strong political will to execute waste to energy projects, and they have the potential to bring about a socio-economic revolution in KP. Further, such projects have a strong link with climate change, are capable of generating employment opportunities, and can directly impact health improvement indicators and sub-surface water. With rapid urbanization in Peshawar and Mardan, one of the most daunting issues is the mounting waste problem that affects public health, pollutes the environment, and threatens to drown some poverty-stricken areas in toxicity. It is estimated that solid waste is growing in Peshawar and the adjacent regions at an annual rate of 2.4%. GoKP can carry out specific pre-feasibility studies, identifying densely polluted areas in major cities and targeting an optimal point that would be suitable to place a waste to energy plant that could benefit the population. Additionally, a Model Concession Agreement (MCA) and a bid security package for a transaction that could be implemented in the Public-Private Partnership (PPP) domain could start from a pilot transaction and if successful, can be replicated throughout with more substantial stimulus. This exercise could involve several stakeholders such as the Ministry of Climate Change, Global Environment Facility (GEF) for assistance on financial and technical fronts.

Another area that GoKP can target is the completion of feasibility analysis of the Chitral River that is a conglomeration of around 36 tributaries originating from the same number of separated valleys in the district. It is the largest river in KP, but the capacity for hydraulic power generation remains severely limited. To be fully implemented, site and feasibility assessments of projects need to be undertaken. GoKP can help prepare transaction opportunities and a transaction structure for possible locations in the Chitral River. The transaction opportunities include developing a well-defined pre-feasibility study in the area and identifying key factors that could help in harnessing energy. Adding on to the site surveys, GoKP can help the government formulate models and analysis on the Chitral River and the surrounding area through preliminary designs in the first stage, leading to detailed plans. Consequently, legal and financial feasibilities could be firmed up in case investors are interested in specific sites and locations.

For KP’s energy growth, there is a clear need for a well-coordinated demand-side management strategy that can help take prudent supply-side decisions and related infrastructure. With the demand for intersectional developments, such as transmission and grid investment, the need for a cohesive strategy becomes much more significant. To KP, this exercise will mean better preparation, evident not only at the provincial level but also with the federation for a successful evacuation, tariff, and regulatory regime. GoKP can conduct a comprehensive, long-term (10-year) energy demand-side assessment of KP, identifying which sectors are expected to consume energy (such as tourism, hospitality, marble, SEZs, transport).  Furthermore, a calculation of how much could be saved from energy efficiency and conservation, and how much new generation stimulus would be needed. A holistic plan that balances supply-demand scenarios for KP would optimize public sector finances without imposing excessive direct and contingent liabilities. Moreover, capacity building to create awareness regarding the demand side management poses another entry point. Educating the masses about the EEC laws and projects’ adherence to these laws is also required.

As identified, for hydrocarbons off-take, GoKP can be best positioned to organize regulatory dialogues that can best present interests for KP in liaison with the federal agencies. Enhancing the capacity of DGPC / provincial government and making existing regulations more investor-friendly through quick, compliance-based decisions and in line with international standards is a priority. This can be achieved on an on-going basis to ensure that regional priorities are well-matched with federal legislation. There is a need to have a sound regulatory and policy framework to improve the existing investment framework. The policy and organisational context will eventually drive the demand for GoKP to bolster the capacity to address longer-term structural challenges while responding to immediate-term priorities. Also, a sound regulatory structure will provide for more equitable, evidence-informed policymaking, and lead to effective, value-based governance that engages stakeholders in the policymaking process inclusively and openly. Moreover, GOVERNMENT can also facilitate discussions on the unbundling of natural gas, lead discussions forward and devise a framework that can pave the way for operational and institutional efficiencies, which would enable both federal and GoKP to design a new competitive and operationally efficient landscape.

GoKP can also work on fostering energy efficiency transactions, especially in industrial and building sector. There are two impediments generally faced for industrial and building energy efficiency financing; i) high transaction costs and ii) performance risk. GoKP can play an active role in the development of a framework that can overcome both the impediments to catalyze a road to success. For instance, the provincial energy department can attempt a few pilot projects by overcoming the disproportionately high transaction costs that the transactions face. To address this barrier, GoKP can work with financial institutions, such as lenders, IFIs, Pakistan Credit Guarantee Company Limited in making energy improvements easier for KP energy consumers, and to develop low-risk and cost-effective energy efficiency measure packages that can achieve up to 20% energy savings for one specific small industrial unit. The team can choose to focus the pilot project efforts on small commercial office buildings with GOVERNMENT providing transaction support, allowing building owners who meet a specified criterion to obtain funding with minimal paperwork and without lengthy bureaucratic processes.

Lastly, there are positive energy nexuses that can accrue from various interventions that GoKP can capitalize. For instance, one of the fundamental challenges that KP faces is meeting the growing demand for food, water, and energy for a rapidly growing population. First, GoKP can focus on providing 30MW power to the Chashma Right Bank Lift Canal Project, which has been approved by the Executive Committee of the National Economic Council to irrigate approximately 286,140 acres of land in the southern districts of the province. If executed, this can free up space and provide an area for plantation of the crops that could mitigate the provincial government’s burden to import food and declare self-sustenance. This along would be a milestone and can result in significant improvement in food security, climate change mitigation efforts, and employment opportunities to the indigenous population of the province. Second, GoKP can also plan and execute transaction design for a potential HPP near the Tang on the Tochi river, which can boost the energy required for the surrounding areas, i.e., North Waziristan in the north and D.I Khan in the south. If executed, this would catalyse the development pathway in the NMD areas – providing them with cheap and affordable electricity for economic and social upliftment.

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Impeding Gas Crisis: Key Issues

Demand – Supply Gap:

Pakistan’s demand of NG (Natural Gas) including RLNG (Re-liquefied Natural Gas), which accounts for 45% of primary energy mix, remains at 3875 MMCFD as compared to its demand of  5315 MMCFD. The demand supply-gap currently standing at 1,440 MMCFD, is projected to further increase by 3,684 MMCFD by 2024 under business as usual scenario. With projected sharp increase in Natural Gas demand, there exist a dire need to bridge the gap between demand-supply to sustain country’s progressing economy. Present government has already anticipated a substantial shortfall of natural gas to be faced by domestic and industrial consumers this year, which may be further amplified by next year. This portrays an alarming picture and necessitates a long term strategic as well as short term vital solutions to sustain current economic development.

High share of Imported Gas:

Pakistan Initial LNG policy 2006 was modified in 2011 to attract more private investors. The new policy offered two-tier import practices to be followed to facilitate potential investors and meet the growing demand by increasing gas import capacity. The model allowed the import practices to be structured as unbundled (buyers and terminal developers are different) or integrated (buyers and developers arranged by same entity). Although, the change in policy increased the investment in gas and oil import sector, yet the increase in demand during the same period surpassed the additional installed capacity. This creates an issue where we have high share of  imported gas for our energy requirements, yet we are still at shortfall to meet our foremost priority of domestic demand. Although, GoP in the past has taken certain measures to increase upstream exploration activities to increase production of natural gas reserves, the steep increase in demand eventually results in large share of imported gas in the country. This huge share of imported gas than ultimately leads to ever increasing burden on our current account deficit as the imported gas costing around 17 Rs/unit is sold at 14 Rs/unit, creating a 3 Rs/unit deficit. Therefore, dependance on high share of imported gas, under our current centralized pricing regime, will keep on increasing circular debt of energy sectors unless a long-term strategic solution is envisioned.

Uneven demand and production:

Another issue, specific to Pakistan, is the highly uneven gas production capacity of provinces corresponding to their domestic and industrial demand. Punjab has been the province with highest gas demand for industrial as well as domestic use. However, its share in production is of  natural gas is closest to none. Sindh and Baluchistan, being the highest producers, have least demand. This uneven picture of gas demand and production give rise to multiple issues including high cost of transmission infrastructure and provincial political biasness. This situation than double downs to extreme load shedding when gas production is not sufficient to meet peak demand.

18th Amendment and Article 158

The article 158 of  the constitution entails that the province with higher share in gas production shall have precedence in its use subjected to all bilateral , and other commitments and obligations. The 18th Amendment also makes sure that the gas allocations at the time of enactment of amendment shall remain protected. This ensured high demand provinces, like Punjab, of its share in natural gas to avoid any excessive shortfall. However, with the increasing demand-supply gap, even the high production provinces like Sindh may also start facing load shedding as warned earlier this month by PM Imran Khan. Load shedding for low demand – high production provinces may also increase substantially by next year. A sound political solution is needed to overcome this problem by having diverse RLNG portfolio including imported gas for each province.

Subpar Exploration Activities:

Another reason, for anticipated looming gas crisis is the subpar exploration activities as the gas production is decreasing at a rate of 9% annually. This portrays an alarming picture when coupled with the fact that our demand is increasing substantially. Even though certain measures have been ratified on policy level to speed up exploration activities, the new discoveries fall far behind when compared to evacuation of existing reserves. Therefore, indigenous gas production is not sufficient to sustain Pakistan’s economy in short term.

Regulated Market:

Worldwide, energy markets, including gas and electricity have shifted from a regulated centralized model to deregulated structure to ensure competitive pricing and thrive private sector investment. However, in Pakistan we still follow the old model of centralized pricing for all energy products. Even though, back in 1960 the petrol market was deregulated at national level, we transformed to centralized pricing through induction of “Fright adjustment Surcharge” mechanism which  averaged out the pricing of petroleum products nationally. The provinces near by import terminal or refineries payed the freight adjustment charges for other provinces. A similar problem is noticed in electricity market where performance of DISCOs varies largely. A centralized pricing system removes any motivation for lower performing DISCOs to increase efficiency. Likewise, in gas market there needs to be a modern deregulated market structure to increase private sector investment at competitive prices. This will also remove burden of additional financial support of GoP in subsidizing gas for domestic and industrial consumers. Instead, the competitive market itself shall drive down the gas prices while keeping up with the demand.

Resolution:

The GoP needs to avert this crisis by addressing it at multi-facet level:

  • Accurate Demand-Supply Projections: OGRA and other federal entities need to come up with accurate model-based demand projections that needs to be revised at regular intervals. This shall serve as the basis for short-term and long-term strategic plans for meeting gas demands.
  • Long-term clear strategies: GoP needs to optimize its primary energy mix based on strategic and financial considerations while also reflecting upon the looming shortfall in natural gas and indigenous reserves. It needs to envisage a long-term strategic plan that entails cost-benefit comparison, financial sustainability, affordability and sourcing optimization of gas supply.
  • Structural Reforms: GoP needs to bring about structural reforms and plan towards shifting to a modernized regulated market structure, similar to developing countries like U.S. There is a dire need to corporatize the gas transmission monopoly to allow private investors to participate, resulting in reduced pricing through competition and increased performance at the same time.
  • Political Harmony: The GoP needs to bring all provincial stakeholders on board and bring about political harmony to ensure fair split of gas commodities. Political polarization and stalling will evolve this crisis into something more complex, therefore, political parties need to adopt give and take approach to reach an amicable solution as soon as possible.

Common Misconceptions about Renewable Energy in Pakistan

Energy crisis in Pakistan is a serious one. In cities, we face 6-8 hours of load shedding (except parts of Karachi) and in rural areas, typical load shed figure is anywhere between 12-18 hours. According to estimates, our supply numbers have been stagnated at just around average of 11,000MW for the last seven years and our demand has kept soaring and gone past well beyond an average of 18,000MW. Yet in a dire power crisis, we continue to hear misconception on renewable energy generation as compared to current fossil fuel generation status quo.

The first general misconception goes like this: Renewable energy generation is not competitive today and mainly live on governmental subsidies. Let us analyze this argument. The current status quo of thermal generation (Furnace Oil and High Speed Diesel) produces approximately 40% of total electricity generation. Since price of FO and HSD are linked to international oil prices and rupee exchange parity, we have to subsidize the end user price of electricity as Tariff Differential Subsidies (TDS) which is the difference between the actual costs of electricity and what consumers pay. In the last five years alone, the Government of Pakistan has paid TDS of PKR 1,500 billion as a difference between the actual price of electricity and price billed to consumers (since consumers can’t afford to pay for the expensive energy our system produces). This subsidy amount of Rs. 1.5 trillion is a humongous one. With this price tag, almost 30,000 new village infrastructure could have been upgraded, 24 full scale metro projects could have been completed, almost 75,000 new high end schools and hospitals could have been built, approximately 100,000 new libraries could have been constructed from ground up and almost 5,000MW of new renewable energy capacity could have been added to the national grid. Thermal energy is not cheap. And if people think renewable energy is expensive, just remember price tag of Rs. 1.5 trillion as subsidies for thermal generation in the last five years alone.

Second misconception goes like this: Cost of producing electricity from renewable energy exceeds the cost of electricity from thermal generation, hence thermal generation should be preferred. This is again a matter of perspective. Let’s suppose if we would have built our energy system based on small distributive, community driven system rather than large scale, centralized system that we currently operate in, we would not have needed sprawling costs that we incur today on thing such as large scale transmission lines, transformers, distribution grids, cables, meters, people to read meters, planners and headquarters etc. In local parlance, this cost is typically knows as Distribution Margin (DM) and is typically one fifth of the total cost of electricity today. Add to this the cost of line losses that we incur today on our centralized energy systems and power theft, which almost always causes our power system to cripple down and ask for higher subsidies resulting in massive debt problems. Even at large scale now, renewables are competing against thermal and especially coal power generation. The best wind turbine in town today is producing electricity at the same cost as large scale coal generation. Hydel power generation is so cheap that even if we tap 20% of the total hydel potential, we will require no subsidies. What renewables further provide is fuel price hedging since price of solar and wind resources have been bestowed by nature for free. Even if we install renewables at a higher price, we no longer have to worry about fuel price volatility and exploding fiscal deficits in times when price of oil balloons up. Further, the externalities such as environmental cost, health costs of producing renewable energy far outshine the cost of thermal generation.

Third misconception is something like this: Renewable energy is intermittent (only when sun is shining and wind is blowing) and thermal generation is baseload (can run 24 hours). This argument is technically true. Solar energy produces mostly during the day time but we also need most electricity during that time period only. Wind generally blows during the night time and if combined well with solar can give a powerful solution to intermittency. Hydel generation produces maximum electricity during summer time, just when we need most electricity. Technical intermittency remains an issue but we need to re-define intermittency in Pakistan’s context. The question we need to ask is have we received uninterrupted electricity supply on thermal generation? The obvious answer is a resounding no. With 18 hours of load shedding, intermittency is a problem more for thermal based generation rather than renewables. Renewables may encounter engineering or natural intermittency problem. But thermal generation produces far greater financial intermittency problems since our power sector cannot afford high furnace oil and diesel prices. Think of creeping circular debt bailouts time and again, nationwide petrol crisis and large scale black outs because somehow our power sector have not generated enough financial muscle to cater to increasing production levels at higher prices. Intermittency is a major risk for thermal generation and not for renewables.

Third misconception is something like this: Renewable energy is intermittent (only when sun is shining and wind is blowing) and thermal generation is baseload (can run 24 hours). This argument is technically true. Solar energy produces mostly during the day time but we also need most electricity during that time period only. Wind generally blows during the night time and if combined well with solar can give a powerful solution to intermittency. Hydel generation produces maximum electricity during summer time, just when we need most electricity. Technical intermittency remains an issue but we need to re-define intermittency in Pakistan’s context. The question we need to ask is have we received uninterrupted electricity supply on thermal generation? The obvious answer is a resounding no. With 18 hours of load shedding, intermittency is a problem more for thermal based generation rather than renewables. Renewables may encounter engineering or natural intermittency problem. But thermal generation produces far greater financial intermittency problems since our power sector cannot afford high furnace oil and diesel prices. Think of creeping circular debt bailouts time and again, nationwide petrol crisis and large scale black outs because somehow our power sector have not generated enough financial muscle to cater to increasing production levels at higher prices. Intermittency is a major risk for thermal generation and not for renewables.

As consumers of electricity, we have not been given choice over the supply of electricity. Imagine, if someone wants to drive a Honda in this country but is only given an option to drive a Suzuki. We have been told for long enough now that renewables are expensive and therefore not for us. But same analogy does not hold for automotive industry. In the auto industry, people do buy expensive cars, small cars, hybrid cars, eco-friendly cars and at the same time gas guzzlers. But this is not the role of policy makers to decide which car should I purchase. Consumers should be given a broad based choice to pick and choose from newer technologies and efficient technologies. Right now, we have been given only an obsolete option for electricity generation which is expensive and at the same time less efficient. We need to enlarge our menu, open up more choices, benefit from renewable energy prices of today and use current low thermal prices to plan an effective transition from this gigantic, inefficient power sector to a new, efficient one.

 

Financing Renewable Energy in Developing Countries: Business Models and Best Practices

The World Bank has reported that an estimated 1.29 billion people in 2008 lived below $1.25 a day, equivalent to 22 percent of the population of the developing world. Almost over three billion people live on less than $2.50 a day and at least 80% of the world population lives on less than $10 a day. The relationship between income poverty and energy poverty is also ubiquitous. Today, there are 1.4 billion people around the world that lack access to electricity, some 85% of them in rural areas. Without change in current policies, by 2030 the number of people without electricity will drop only by 200 million. Sub-Saharan Africa continues to remain one of most the electricity deprived areas of the world. Further, the number of people relying on the traditional use of biomass is projected to stay same by 2030.

However, traditional finance mechanisms are not applicable in rural areas. Rural populations are spread out often in small pockets with dispersed locations and hence conventional grid is difficult to extend to such areas. As a result of low population density, difficult terrain, and low consumption, rural electricity schemes are costly to implement (Tomkins, 2008, p. 48). Project financing is virtually not possible since project cash flows are not adequate. In addition, low rural incomes can lead to problems of grid affordability and maintenance. Also, long distances mean greater electricity losses and more expensive customer support and equipment maintenance. Thus rural electrification projects have often required subsidies to make them financially viable (Tomkins, 2008).

The resources future publications take a deep dive into one of the most comprehensive studies on financing of renewable energy in developing countries. Download the full publication here and if you are interested in executing small energy projects, feel free to contact Resources Future at info@resourcesfuture.com

 

Pakistan Solar Update 2018

Pakistan Solar PV Update

Pakistan Solar PV – Opportunities and Challenges

Abstract:

This sector update 2018 tracks Pakistan’s solar energy evolution – where it all began – a transition from upfront feed in tariffs to one based on competitive markets and reverse auctions. The sector update talks about different upfront tariffs offered by NEPRA since 2014 and what issue and challenges remain to keep solar PV on track to make it a potent force in Pakistan’s electricity generation mix.

Download the solar PV sector update here.

Pakistan’s Energy Balances

Pakistan’s Energy Balances: Pakistan’s primary commercial energy supplies are dominated by oil and gas, contributing roughly around 80% of total energy supply mix. The share of each source in primary energy supplies for 2014-15 was: Natural Gas (43%), Oil (36%), LPG (0.6%), Coal (7%), Hydro (11%), Nuclear (2%), Renewables and LNG (1%) and imported electricity (0.1%). The encouraging thing in the last fiscal year was addition of newer fuels in the primary energy mix such as LNG, wind and solar which did not feature significantly in prior energy balances of the country.

The balance recoverable reserves of natural gas as of FY2015 remained 20.26 TCF whereas the production remained a 1.4 TCF, showing R/P ratio of 14.5 years. There is significant rise in demand for natural gas as it has always been the fuel of the choice for consumers as compared to other more expensive fuels available. On average, despite supply constraints, more than 300,000 consumers were added/connected to gas network by the gas companies. Meanwhile, addition of new power plants, industries and commercial and residential networks also contributed to increased demand. It is expected that the demand for the natural gas will increase further in next 5 years’ time owing to growing user base and increase per capita consumption of energy. During FY2015-16, total supply of natural gas was recorded at 3,947 MMCFD whereas average demand remained more than 6,000 MMCFD, recording a 2,000 MMCFD deficit. With increasing demand, the projected deficit is expected to reach by 6,700 MMCFD by FY2030.

The balance recoverable reserves of crude oil as of FY2015 remained 385 million barrels while annual production equaled 35 million barrels. The consumption of petroleum products registered a growth rate of 5.2% with total petroleum product consumption reaching to 23.7 million tons primarily on the back of improved demand in the power sector for furnace oil as well as diesel in the transport sector and MOGAS for two and four-wheeler vehicles. Total production by the refineries remained 11.31 million tons which was by PARCO’s market share in POL products (39%) followed by NRL (19%), PRL (14%), ARL (14%) and BYCO (10%). Country met demand for HSD, MOGAS and FO primarily through imports, which put pressures on the foreign exchange reserves and balance of payments situation of the country (total import payments of oil: $15.4 billion in FY2016).

LPG remained a fuel of the poor but its mix in the country’s primary energy remained insignificant. The size of the LPG market was 1.1 million Mtons per annum which was mainly consumed by domestic (38%), commercial (37%) and industrial (25%) sectors. Gas production fields contributed around 46% of LPG’s total production with refineries (37%) and imports (17%) also contributed to its supply chain.

The estimated coal reserves of the country as of FY2015 remained at about 186 billion tons while indigenous production remained meager at 3.7 million tons. Imported coal was about 5 million tons which is estimated to increase substantially during FY2016 due to operationalization of coal power plants and other CPEC related coal projects.

On the hydel side, Pakistan has a potential of 40,000 MW whereas its total installed hydel capacity is only 7,200 MW (utilization of 18%). Hydel share has declined considerably over the years in Pakistan’s primary energy supplies which has resulted in higher cost replacements (oil and gas). Most of the hydel capacity is owned by WAPDA which is a publicly owned company whereas only a meager capacity is owned by private producers.

Pakistan Atomic Energy Commission (PAEC) undertakes the nuclear projects development and operations in the country. The first nuclear plant (KANUPP) was commissioned in 1971 with a capacity of 137 MW. The second nuclear plant (Chashma) was commissioned in 2000 through a turnkey agreement with a Chinese company. The third plant (Chashma II) was commissioned in 2011 with an installed capacity of 325 MW. Under CPEC, Pakistan is poised to undertake K2 and K3 nuclear projects – with Chinese partners to enhance nuclear electricity generation capability.

Pakistan has a rich renewable resources zone which is both technologically viable and commercially feasible. Pakistan’s eastern wind corridor alone is estimated at 50,000 MW (Gharo, Jhimpir, Keti Bander) alone with the western corridor of Baluchistan also with proven exploitable wind potential. Pakistan also has a high solar irradiance potential which can also ameliorate energy deficit and can also utilize micro hydel, biomass and geothermal potential. Under CPEC, more than 3,000 MW of renewable energy projects will be brought online which is estimated to significantly increase renewable’s share in primary energy supply mix.