After achieving commissioning of five wind energy projects of 255MW and financial closing for seven projects of 377MW — with a cumulative investment of $1.7bn — the government’s decision to stop issuing new letters of intent for renewable energy projects has stunned the market.

One’s bewilderment was only compounded with the inauguration of the 100MW Quaid-i-Azam solar project about a week later, and the announcement of another 900MW worth of solar projects. On top of that, there were media reports that termed solar projects as being too expensive.

The power sector is capital intensive and requires a medium- to long-term policy horizon for planning, investments and operations. The policy drivers for renewable energy are besieged by myths mentioned below that need to be dispelled.

It is expensive: The price of power generation is always measured in terms of the levelised cost of energy (LCOE) — the ratio of the present value of the sum of all costs incurred over the lifespan of the power plant to the total energy generated over its lifespan. LCOE is more predictable for renewable projects; in thermal projects, the fuel price swings over the life of the project are anybody’s guess.

The prime example is of thermal IPPs installed in the 1990s and 2000s, where the fuel cost assumed at inception shot through the roof, as the per-tonne price of residual furnace oil went from $23,000 in 1998 to $83,000 in 2013. This meant that one unit of energy, which cost Rs5.2 in 1999, was available for Rs18.5 by 2013.

The recent fall in fuel prices is being bandied around as the mainstay for installing coal- and gas-based IPPs. And while it remains to be seen how long oil prices stay low, everyone predicts them to rise again.

Meanwhile, the fuel is free for renewable energy projects. Once the debt is paid-off, the tariff drops to about one-third of the original — in contrast with thermal projects, given that their rising cost of fuel offsets the impact of debt repayment. In many countries, renewables are achieving ‘grid parity,’ i.e. their tariffs are approaching the average price at which power is supplied by the grid using a mix of various generation sources.

The table below shows the tariffs for different modes awarded by Nepra in the past five years, demonstrating that the LCOE of renewable projects is getting closer to those of gas and coal plants. Expensive generation from imported fuel is widely blamed for the spiralling circular debt.

For a country that imported approximately over $2bn worth of small generators in the past few years to power homes and factories on fuel oil and paid approximately Rs30 per unit for such generation, would solar prices at half to two-thirds of this cost be expensive? The prices of solar PV modules have dropped by 70pc since 2009, and pundits predict this trend to continue.

Energy security depends on cheap power: Energy security means being not reliant on imports for generation. Its manufacturing dimension is beyond our ken in the short- to medium-term as we have not focused much on developing indigenous manufacturing capability and are stuck with imports.

However, fuel imports are something we can hedge our risk against by increasing the share of renewables in our energy mix. The government’s impetus towards hydropower projects is one step in the right direction.

Investors will come anytime we want them to: Capital doesn’t wait; it flies to wherever opportunity exists. It took Nepra, the Alternate Energy Development Board and the national power purchaser, NTDC, about eight years to mature the enabling framework to a stage where serious project developers are poised to develop approximately 1,500-2,000MW of renewable energy in the next 3-5 years. And more are ready to come. If we shut the gates all of a sudden, it will take several years to lure them back and start from scratch.

It is unpredictable: While this used to be true until a decade or so ago, now, with highly sophisticated resource mapping and forecasting tools, generation can be predicted with a fair degree of accuracy. One way to deal with this issue is by spreading renewable energy projects all over the country, so, for instance, low wind season in one area can be matched with high wind season in another.

Pakistan cannot have more than 2,000MW of renewable energy: This theory goes that as the intermittent nature of renewable energy compromises the reliability of grid supply, their share in the generation mix should be capped at 5pc. But experts argue for a 10-15pc ceiling. Based on our current installed capacity of 20,000MW, this translates to 2,000-2,500MW.

Big is beautiful: This is perhaps the greatest fallacy when it comes to renewable energy projects. The hallmark of renewable energy is in ‘distributed generation’, where smaller plants are built close to load centres and connected to low voltage distribution systems. Solar power plants of 1-10MW can be set up in a short time of about 6-8 months. When the plants are placed closed to load centres, the losses are also lower.

Distributed solar generation can provide a huge relief from load-shedding, while enabling the system operator to divert the existing generation to other deficient areas. But this will require equipping the distribution companies with the requisite skills and giving them managerial and financial autonomy.

Renewable energy generation worldwide has been buttressed with a host of enabling policy measures, including tax credits, subsidies and innovative financing products etc. In many countries, schools, commercial buildings, housing clusters etc are successfully implementing private shared off-site solar generation. Besides, local authorities are sponsoring local generation, and there are also crowd-funding, net-metering and rooftop solar-sponsored programmes.

Given this situation, one would expect our policymakers to let renewable energy flourish to secure energy security and sufficiency, create jobs and boost manufacturing. The Pakistani entrepreneur is smart, hardened and ready to take the plunge if the government lets it do so.

The writer is a lawyer based in Islamabad

Published in Dawn, Economic & Business, May 25th, 2015

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