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Promotion of clean energy for power generation & environmentally sustainable development

Pakistan is heavily dependent on imported energy in the form of oil, LNG and coal.  The composition of primary energy power generation capacity shows that hydropower generation from large hydropower projects and renewable energy contribute about 25% and 4% of the total electricity generation, respectively. In terms of consumption, RE is meeting less than 3% of the total electricity consumption. Keeping in view the Sustainable Development Goals (SDG) in the wake of international climate change agenda and Pakistan’s commitment to reduce its carbon footprint, Pakistan will strongly promote the use of RE, hydropower from large projects and efficient use of energy. In this vein, the share of RE is proposed to increase to at least 10 % in 2023 and 20 % in 2030. The share of large hydropower generation will also be increased from 25 % to 35%. To achieve these objectives, following are the key elements of policy.

On-grid systems

  1. There will be no cap on the quantum of intermittent electricity to be absorbed by the NTDC/DISCOs up to 2030.
  2. NTDC and DISCOs will be required to identify RE Zones near major grid nodes and points of interconnection in consultation with Provinces.
  3. It will be mandatory for NTDC/DISCOs to provide connectivity within RE Zones and/or within a certain radius of network. All the required improvements needed in the grid system to provide connectivity, including the provision of adequate generation reserves, will be responsibility of NTDC/DISCOs. Grid interconnection will be provided 3 months in advance of commissioning date of projects to enable testing of plants. Arrangement of funds will be the responsibility of NTDC/DISCO, who may arrange it through PSDP, donors, commercial borrowing, self-financing or any other means.  IPP may have the option to provide funds for transmission line on terms to be mutually agreed.
  4. Requests for Proposals (RFPs) for new capacity on the basis of competition will envisage maximization of indigenous manufacturing component.
  5. Distributed Solar Power projects – both stand-alone type and those based on Off-Grid applications – will be promoted.
  6. Planning and construction of Large Hydro Power Plants will get priority over the fossil fuel based thermal plants.
  7. Substitution of subsidized electricity in agriculture and domestic sector with consumption below 300 KWh per month, supplied through grid, with solar based electricity generation schemes on concessional terms.
  8. Innovative financing schemes for upscaling use of RE in industry (e.g. through wheeling) and agriculture (e.g. solar tube-wells) etc. will be prepared.
  9. Wind resource assessment will be carried out for new prospective sites and collection of data for bankable projects through appropriate agencies.
  10. A database will be set up for all the new possible avenues and of the operating renewable energy projects freely accessible to general public, researchers, academia, project developers and financiers to promote evolution of new RE projects.

Distributed Solar Power

Roof-top solar projects with or without net metering will be actively promoted in residential, government, commercial and education sectors (e.g. schools).  Formation of Energy Service Companies (ESCOs) will be encouraged. For this purpose, various types of training programs will be launched to promote entrepreneurship, methods of formation and functioning of ESCOs, capacity building, preparation of sample drafts of agreements with clients etc. The initiative will be supported by enabling access to easy and subsidized sources of funds. Projects for utilization of free spaces such as parks, water reservoirs, agriculture farms, deserts and many other possible initiatives for generation and utilization of solar energy.

Clean Energy Fund and Other Sources of Funding the Clean Energy Initiative

It is proposed to set up a Clean Energy Fund through Clean Energy Levy on the revenue of all oil, gas and coal fuel marketing companies. The purpose of this levy would be to discourage use of fossil fuels emitting GHGs (Green House Gases) and provide funds for schemes/projects for promotion of clean energy, universal access of electricity using renewable energy technologies, indigenization of clean energy technologies, leverage financing of large clean energy projects, concessional funding for projects in far flung areas in the form of mini-grids, roof-top solar projects etc. The resources may also be used to eliminate perpetual subsidy to the customers consuming less than 300KWh/month by enabling them to switch over to roof-top solar energy through one time grant funding of a major share of the cost of installation. The levy may also support R&D for clean energy.

The proceeds of this levy are proposed to be kept in a separate account under a Clean Energy Fund, which will be dedicated to the objectives stated above. It is proposed to be under an independent and transparent administration created through an Act of Parliament. Detailed guidelines for the management and use of the Fund will be prepared immediately after the passage of the budget proposal. The Fund would be so structured and positioned that the domestically raised resources be the seed money for attracting larger funds from various international resources for funding promotion of clean energy and mitigating effects of climate change, grants or concessionary funding from donors and corporate sector.

Is Carbon Capture and Storage for Pakistan?

Carbon Capture and Storage (CCS) is an expensive technology proposition. By cost numbers, the levelized cost of energy is significantly higher for CCS generation as compared to other renewable energy and traditional fossil fuel generation options available. Pakistan already has an expensive energy generation mix which is heavily reliant on furnace oil and diesel generation (around 40%), which accounts for 75% of total electricity costs. Expensive electricity has made industry uncompetitive and has created social unrest. The new power policy 2013 explicitly states to lower the cost of generation and create a generation mix which is environmentally sustainable and financially viable in the long run.

In the light of an already expensive generation mix and Pakistan’s efforts to move towards cheaper options such as coal and hydel, electricity generation through CCS will not be easy to sell to policy makers and the regulator, NEPRA. Both government and the regulator are cognizant of the need to lower the cost of electricity generation to protect consumer interests and balance environmental goals. With Pakistan’s negligible emissions, the policy makers may argue that lowering the cost of electricity generation rank as more important than reducing future emissions or may be to push other renewable options available such as solar PV and wind more vigorously where the costs have already declined substantially.

Nonetheless, the scope of using CCS technology in industries (cement, fertilizer and natural gas processing) is still high where the product (captured CO2) can be sold to E&P companies who could use it to augment oil supplies through EOR. The biggest hurdle remains, however, the cost of capture equipment and hence the financing of the CCS plant which poses financial challenges to the entire deployment. To overcome financing challenges through improved R&D, demonstration CCS plants need to be built using different technologies, under several types of coal (bituminous, sub-bituminous and lignite) while occurring in different terrains and different settings.

Also, it is important to evaluate key CCS demonstration project financing transactions that have happened lately to fully evaluate the impact of policy, financial and governmental support in shaping CCS project deployment. The Global CCS Institute has presented annual lists of CCS projects in various stages of development, going from announced projects all the way to completed projects (“operate”). In the 2015 list, the GCCSI has identified a total of 22 projects in “Operate” (operational) and “Execute” (under-construction) mode, implying that these projects have achieved financial close or are currently being deployed.

Four of the 22 projects can be categorised as Pioneer CCS projects. These projects share two characteristics: (1) they were built with little or no government support and (2) they all start with a high purity CO2 source that requires only compression and transport. One trait the four projects share is that the CCS process was a small part of a larger business project and that existing business drivers played a key role in their justification (Ref: 808). The remaining nine CCS projects all relied on governmental financial support. Seven of these projects resulted from specific government programs designed to promote CCS demonstrations. Three of these plants are operating, while the other six are under construction (Ref: 808).

The reportable data goes on to suggest that CCS projects may be viable on a case to case basis but their usefulness as full-fledged technology option is still far from fruition. The global examples demonstrate that CCS applications are not fully commercially viable except where government support is available or where EOR markets are well established. The price on emissions in most markets or the return on investment has not been high enough to mobilise private sector investment. In fact, there will be many projects which will not proceed given current low emissions price, low oil prices and longer-term uncertainty around government support. Where projects have proceeded, they appear largely motivated by a value being placed on corporate social responsibility, R&D or an underlying corporate objective to demonstrate CCS for long-term, business strategy purposes (Ref: 806).

The business case for a CCS demonstration project in a developing country like Pakistan remains weak, primarily because of the lack of financial incentives to justify the “incremental” costs associated with a CCS project. The imbalance between “risk and reward” for early movers and investors remain a major impediment in making CCS project deployment a reality. Naturally, Government will have to step in to make early inroads in CCS deployment, lead the way with demonstration projects and allow incentives to take the CCS technology out from the “valley of death”.

In the last few years, Pakistan has seen growth in private and public-sector investment mobilization in infrastructure projects. CPEC has emerged as one long term sustainable mode of financing large infrastructure projects to fund emerging technology and investment needs. With China increasingly the front runner in capture equipment manufacturing, Pakistan can look forward to fund a demonstration CCS project under a collaborative funding mechanism and arrange for long tenor funds at subsidized rates. The multilateral support is another avenue which could be used to leverage investments for CCS demonstration projects. The Asian Development Bank in collaboration with other development partners such as the World Bank, the International Finance Corporation, Global Environment Facility and the United Nations Framework for Climate Change can fund CCS project financing either through risk mitigation tools, partial guarantees or loans to fund fully or part of the CCS project finance.

Naturally, the impact of CCS tariffs on electricity prices will be high – with prices rising to almost double the cost of a conventional coal plant. Nonetheless, there will be benefits associated for Pakistan in the long run for transitioning to coal. Pakistan will be in a position to leverage CCS technology, apply it in industrial or power sources and then leverage the technology for further deployment in other countries. It could also benefit from the fact that bulk of oil fields in Pakistan are on the verge of depletion and captured CO2 product can be used to augment oil supplies through EOR activities, thus saving the foreign exchange outflows and relying on indigenous oil production. Last, it can use the depleted oil and gas fields and turn them into long term CO2 storage facilities – prolonging their lives to earn decent rate of returns, which otherwise would not have been possible.

If you are interested in obtaining your financial and economic analysis of CCS study in Pakistan, get in touch with us at info@resourcesfuture.com

Financial and economic Aspects of CCS in Pakistan

A financial and economic analysis scoping study was conducted to review and assess potential for carbon dioxide (CO2) from electricity generation from coal power plant. The Resources Future (RF) study highlights indicative cost structures for greenfield projects with and without CCS, defining and quantifying the elements of CCS costs, calculating cost inputs and subsequently the results. The study further highlights review of relevant financing mechanisms, including proposed funding vehicles for CCS projects in Pakistan and opportunities for public and private sector investments in Pakistan along with calculation of expected impacts on electricity tariffs if CCS is deployed. Last, the study calculated financial and economic risk assessments of potential first of a kind CCS power plants and carry out a sensitivity analysis on key variables to assess impact on end user tariffs.

The study highlights that the cost of CO2 capture, transport and storage will vary according to the type of technologies applied and projects undertaken. In the CCS project economics, enhanced oil recovery (EOR) can play a key role towards economic viability. If the selected storage site is a hydrocarbon reservoir where EOR may be economically viable, it will create the potential to provide additional sources of income (such as the sales of additional recovered crude oil) to the project, improving financial and economic returns and lowering required level of investments for the CCS project.

It may be important to note that the capital and variable costs presented in the RF study are best estimates only. This is primarily because cost inputs such as capex and O&M figures are hard to obtain from public disclosures with specific site storages and transportation networks. The study uses NEPRA’s cost benchmarks and past determinations wherever available as a tool for forward looking technical and economic analysis. NEPRA’s determinations have been useful since it clearly spells out assumptions and benchmarks used in one off and upfront tariff determinations for coal power plants in Pakistan.

As a methodology, the analysis in this study has taken parameters available in NEPRA’s reference tariffs for conventional coal power plant and adds upon the cost of the capture equipment using the post combustion technology for Pulverized Coal plants. The costs of transport and storage is then added using assumptions that can best be estimated only subsequent to the definition and identification of the plant and storage sites location. Last, as discussed in the ROE analysis, all project scenarios have been developed using commercial benchmarks which may change subject to government funding or donor support. It may be recommended therefore that this analysis is read in conjunction with the sensitivity analysis. The sensitivity analysis attempts to ascertain range of tariffs for CCS demonstration project in Pakistan given changes in variables such as WACC, capex, O&M costs and ROE parameters and its respective impacts on LCOE, NPV and IRR. The table highlights estimate of tariffs under three different scenarios; LCOE without CCS, LCOE with capture equipment and LCOE with capture, transport and storage components. The results are highlighted in the table below.

Table: Estimated levelized tariff under different scenarios.

The RF study goes on to highlight potential pre-construction, construction and operational risk to make CCS projects a success. It also highlights potential funding mechanisms to fund a CCS project such as China Pakistan Economic Corridor, Pakistan Development Fund Limited, Governmental support and development partner’s sources to build a first of a kind CCS project in Pakistan.

If you are interested in availing the opportunity to know more about CCS potential in Pakistan, get in touch with us today to purchase your copy of CCS Pakistan copy today at info@resourcesfuture.com.

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 Energy Access Report 2018

Access to electricity

Pakistan continues to struggle to provide for sustainable energy access across the country. Official data shows that energy access figures are in the range of 99% but the reality continues to be otherwise – with approximately more than 40% of the population connected to unreliable and potentially outdated and ill-equipped electricity grid. Provision of electricity is critical to Pakistan as the entire developmental agenda of Sustainable Development Goals (SDGs) hinges on it. On the regional scale, India’s has committed itself to electrifying households and provide for universal electricity access by 2020s, with renewables accounting for about 60% of those who gain access. In sub-Saharan Africa, the access rate has grown to 59% in 2030, from 43% in 2016, however, the number of people without electricity access in the region begins to grow again as efforts fail to gain momentum.

This report talks about improving energy access in Pakistan. To read the full report, including key recommendations for improving energy access please download the publication Energy Access Report Pakistan here.

— If you are working on energy access in Pakistan, let Resources Future provide its latest set of energy access data in Pakistan. Our repository house data from wide range of previous data sets, governmental statistics and private sector publications, giving you easy, hands on data for your project.–