NAYSAYERS have always argued that clean energy is expensive. The argument, however, is losing its salience due to improved technological efficiencies and market forces.
As per the new United Nations Global Trends in Renewable Energy Investment 2016 report, for the first time in 2015, clean energy accounted for a majority of new electricity-generating capacity added around the world. More importantly, half the $286b investments in wind, solar and other renewables have occurred in developing markets like China, India and Brazil.
In terms of electric hours produced, excluding large hydroelectric plants, clean energy also produced roughly 11pc of all electricity generated globally in 2015; approximately double the amount in 2007, no small feat by all standards.
“We can stick to the old bandwagon where we live with bailouts, blackouts and burnouts as part of our daily lives; or we can hop on to the new one which characterises hope, confidence, self-reliance and energy independence. The choice is entirely ours.”
Even with these stellar numbers, clean energy is overlooked in Pakistan. A common argument is that clean energy is intermittent and does not produce electricity 24/7 whereas thermals (coal, furnace oil, natural gas) can produce electricity when required. Though technically true, the argument requires greater examination.
There are two types of intermittency mainly technical intermittency and financial intermittency. Technical intermittency is defined as an intermittency where an energy resource is not continuously available due to an outside factor — typical to clean energy technologies such as hydel energy (when water is not available), wind energy (when wind does not blow) or solar energy (when sun does not shine). Clean energy intermittency needs to be managed through well thought out power systems planning or mitigated through additional back up generation or battery storage.
There is another type of intermittency that no one typically talks about: financial intermittency. Financial intermittency can be defined as intermittency triggered by lack of financial and economic resources to run the system. This can happen when fuel/energy cannot be procured or capacity charges cannot be paid to sustain operations.
Financial iIntermittency is more typical of thermal power plants in Pakistan where time and again, power sector managers have run out of cash to pay for the sustained fuel supplies or operations of power producers. From the fuel supplies fiasco in 2015 where the country ran out of petroleum products because the power sector defaulted to PSO on its payments, to several IPP threatening PEPCO to call off sovereign guarantees in case of continued short payments; are all examples of financial intermittency.
To understand the context better, Pakistan is mainly reliant on thermal energy and produces 70pc yearly on average from natural gas, HSD and furnace oil, which is an expensive fuel, contributes to 40pc of total electricity generation at a cost of Rs.12-14/unit, whereas average domestic tariff is roughly 70pc on discount to our FO generation. HSD is even higher with a generation cost of Rs.16-18/unit.
This implies that the more FO and HSD we use, the more we pile up ‘circular debt’ which accumulates in the system when we are unable to pay for the cost of power supplies. The result; our average utilisation capacity (11,000MW) is far below our total generation capacity (23,000MW)- a truly intermittent solution which then translates in 6-8 hour blackouts in urban areas and more than 12 hours in rural areas.
Perhaps the people of this country have been sensitised to these blackouts which they now accept as a part of their daily lives. Yet, ironically, we feel clean energy is truly intermittent. Had we realised half of the hydel potential that we have, we would have been generating hydro electricity at a maximum price of Rs.2.5/unit, still far below what we produce from FO and HSD, even after the current oil price decline.
With a sudden push towards RLNG, coal and natural gas power plants, both under federal government and CPEC, we will soon see a common scenario. Higher generation resulting in higher guaranteed payables to power producers (with guaranteed IRR of 17-20pc in case of coal); stagnated or downward consumer tariffs, resulting in either higher governmental subsidies or higher consumer surcharges/taxes and with poor operational efficiencies; a creeping circular debt, only to be bailed out later through additional bond flotations, supplementary commercial financings and incremental interest payments.
A better financial and socio-environmental alternative is clean energy which does not go off when planners don’t pay nature for the sunshine they have used or the wind and water they have utilised.
It is time to rethink clean energy credentials in Pakistan. Costs are falling, technology is improving and new and better jobs are being created. We can stick to the old bandwagon where we live with bail outs, black outs and burn outs as part of our daily lives; or we can hop on to the new one which characterises hope, confidence, self-reliance and energy independence. The choice is entirely ours.
Published in Dawn, Business & Finance weekly, July 25th, 2016