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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

 

The Drivers of Climate Change in Pakistan

Drivers of climate change in Pakistan

There is a consensus in Pakistan on the need to act on climate diplomacy. But the search continues as how to best tackle the issue of climate change and play it as an effective tool to make the right pitch for increased climate change adaption and mitigation funding opportunities. There is an urgent need for everyone to understand that climate change threatens us all and the 2005 earthquake and floods in 2010 and 2011 gave a stark reminder that the only solution to building a climate resilient environment is through a more proactive engagement with all stakeholders. While the multi-lateral institutions such as the Asian Development Bank and the World Bank continue to play their part, it is important that the most important stakeholder – the Government of Pakistan should take charge and lead the efforts – along with other potential partners such as NGOs, private sector, aid workers, diplomats, municipal authorities, and military.

Government – Capacity building

In a fragile country like Pakistan, there are multiple risks emanating from climate change. For instance, the complete governance breakdown – which happened last in the situation of floods and earthquake is a case in point. For multiple regions, the first responders were the local NGOs and the military institutions instead of the civil disaster risk management institutions. The Government needs to play its part by not just creating a state-owned enterprise (SOE) on disaster risk management but by disseminating the understanding of the impact of climate change in everyday life. In today’s times, when partisan politics often takes the center stage, it remains a challenge for any government to build a meaningful dialogue on the need to prepare a comprehensive national climate change narrative. Only by presenting climate-sensitive solutions, the overall degree of instability can be ameliorated, and associated risks can be better managed.

The second step is to translate that narrative in legislative actions and policies. The Government of Pakistan has already taken some important steps in that direction – particularly setting up of the Ministry of Climate Change, formulation of Climate Change Policy and an implementation framework through an Act. However, more needs to be done now. Specially, a more proactive approach is necessary which will ensure sectoral policy making, particularly climate considerations being adapted in core areas of energy, water policy, disaster risk management and agriculture.

As a last step, the Government needs to lead climate agenda into actionable opportunities which will have people see with their own eyes the potential impact of environmental regeneration. The Government can launch a series of pilot projects to show people that rivers, forests, and grazing lands could all be revived – building the faith needed to achieve engagement for a lasting impact. In this regard, the billion tree tsunami at KPK government stands out – as it shadows the Provincial Government’s commitment not only to make policies but to bring environment on the forefront of the national dialogue.

Private Sector – Bring that data!

The private sector can play a huge role – especially with the emerging technologies that are on the offing. Big data is one such technology that can be used to measure, disseminate and then take actionable steps to make sense of climate change and tools to counter environmentally-destructive practices. With increasingly fast processing capacities, we can get big data to talk to each other and provide us with a bigger picture – deciphering just how changes to the natural environment can impact communities, regions, and nations. Once we know the data, we can connect the evidence and policy between defense, diplomatic and development communities and ensure targeted interventions are undertaken to optimize community benefits.

Globally, such transition has already started to occur. For instance, Resource Watch is bringing together over 300 quality data sets – around 50 of which are being updated in near real-time – and in partnership with NASA, Google, the UN, and the World Bank, among others. The platform will be going to map how biophysical change such as climate change, soil degradation, and water scarcity can impact the socioeconomics such as food security and health along with the ways in which it can exacerbate political marginalization, exclusion, and regional migration. Government and corporates can play their part in funding and channelizing such initiatives and private sector can build upon environmental data sets to benefit the wider national environmental practices.

Multilateral partners

Multilateral partners such as the Asian Development Bank, the World Bank and the UNDP continue to support the Government in different developmental interventions. However, the most important thing that can be done for climate diplomacy is to ensure a good knowledge-base for actors to draw on. The research and insight are important and in order to do this, adequate resources need to be provided to properly map the risks that climate change poses and ensure that the findings of those researches reach those in a position to use the information. Once a threat is hypothesized, one can create a response. From the response, one can develop an action plan. This can then be directed at the Ministry of Energy and Ministry of Climate Change on what they each have to do, individually and collectively – forming a mechanism for cooperation.

Military as agent of change

Last, the Pakistani military has always been on the front line of the disaster management and they can play a crucial important role as first responders to environmental disasters in Pakistan, managing large relief and rehabilitation efforts. Training the military on environmental management and in recognizing early warning signs can further improve their ability to react and pre-empt disasters and ensure that disaster risk management practices are optimized to benefit the people who need them the most.