Addiction always has a price. Despite a new government assuming power, Pakistan’s addiction to foreign debt continues. In the past 20 years, more than 13 billion dollars have been borrowed by Pakistani governments from the International Monetary Fund (IMF) to run their affairs. And despite the temporary relief provided by the Saudis to Imran Khan’s government, the downside to our lending addiction is that utility prices will most likely have to be increased soon. There is no such thing as a free lunch, certainly no loans without strings attached. Political parties in power may change, but Pakistanis remain on the hook for paying off foreign debt.
Energy is instrumental for Pakistan’s economic growth and prosperity, that much is clear. We humans do not create any original energy in our universe — the law of conservation of energy that we are taught in school. We can only convert the available universal energy from one form to another — electricity being a high-grade form of it. Once you let this fact mentally sink in, you begin to understand the urgency of using renewable sources and recyclable materials for electricity generation, rather than the one-off burning of fossil fuels. The latter process is ultimately unsustainable and has severely damaging consequences, while it lasts, for our shared, finite planet.
For a country bristling to break its financial shackles, the economic empowerment of its people is critical. The uncertainty of rising electricity tariffs is a major burden for Pakistani households and businesses. The price hikes come despite being told that burning fossil fuels for electricity is the cheapest and easiest option available. That is simply not true.
Like every other country, Pakistan’s electricity planning needs to move towards an optimal utilisation portfolio of its sustainable natural resources given three essential biophysical constraints: land, air and freshwater. Financial planning and engineering of the electricity infrastructure must be aligned to the development of such a portfolio.
With every tranche of a financial bailout from the IMF, the government of the time has increased prices of utilities to satisfy conditionalities. But with people’s purchasing power at a low, a rethink of Pakistan’s energy needs is urgently required
Two useful targets to guide the strategy are (1) the yearly total electricity generation per unit capita, an indicator of the electricity needed to satisfy the whole population; and (2) yearly renewable energy extraction per unit area of the country’s land, a measure of how the nation’s cheapest, cleanest and longest-lasting natural resources are being used. The basic principle is to maximise (1) from (2), as the first and foremost priority, before resorting to more financially and ecologically stressful sources.
Reportedly, Pakistan’s total electricity generation this August was a paltry 14 billion kWh. August is a particularly good month for electricity generation because of the large hydroelectric component (over 30 percent of the total), when the yearly rainfall pattern and melting snows from the glaciers up north combine for the highest water levels in the major dam reservoirs. Let’s be overly generous and extrapolate this peak monthly production to an annual sum of ~168 billion kWh, coming to a yearly 834 kWh per capita and renewable energy contribution per unit land area of 0.047 kWh/m2.
This year, Germany’s renewable energy contribution has overtaken its combined coal power production from lignite (the softer, dirtier type as is found in Thar) and anthracite (the more energetic hard version). Wind turbines and solar photovoltaics (PV) have been mostly responsible for an annualised 208 billion kWh — a yearly 2,526 kWh per capita (three times Pakistan’s grand total) and 0.58 kWh/m2 (more than 12 times Pakistan’s renewable energy extraction per unit area). Germany is now delivering more electricity to its citizens from internal renewable energy sources alone than Pakistan does from all its imported fuels, dinosaur hydroelectric dams and other means. Most of this new power conversion capacity has been deployed over the past decade, using readily available technology that can now be sourced even more cheaply.
Renewable energy options for now and the near future
Pakistan can and should quickly surpass the 208 billion kWh per annum (p.a.) renewable energy output of Germany, considering it is well over twice the size, has far greater unused land to work with, and has diverse geographical conditions for different types of renewables. The industrial technology required for a renewable energy base is widely available from multiple global sources, so its planning and deployment is just a matter of intelligent, diligent procurement.
Solar photovoltaics (PV) is by far the most abundant, quickest to install and cheapest electricity source for every Pakistani province. A standard fixed-tilt PV system would produce 140 kWh/m2 just about anywhere in the country. If you consider the nationwide barren land or empty rooftops, Pakistan can easily deploy 100x billion kWh per annum of PV. You need about 175,000 acres per 100 billion kWh, less than 0.1 percent of Pakistan’s total land footprint. Since Pakistan receives about twice the solar irradiation per unit area as Germany, its land requirements for the same amount of electricity are about half.
Would this daytime electricity from solar PV be affordable? According to publicly available information, several project developers have offered to deliver solar electricity to the Pakistani grid at all-inclusive prices below 6 US cents/kWh — much lower than the power purchase agreement tariffs for coal. Since these offers, the raw capital cost of solar PV systems has dropped by another 15 percent to below 80 US cents per Watt-peak capacity. Solar electricity costs keep sliding with manufacturing economies of scale. It’s safe to say that no fuel-based power can price compete with solar for Pakistan.
The opportunity cost of not using empty land for cheap solar electricity is tremendous. Every day that passes, Pakistan is losing 100x billion kWh of solar electricity that could have been cheaply delivered to satisfy unmet demand and drive economic growth. Upfront financial capital for the solar PV deployment is not a showstopper. In the Independent Power Producer (IPP) business model, the IPP arranges the upfront capital for turnkey installation of the solar PV system and is paid back by the government purchasing authority at an agreed tariff per kWh over a 25-year period. Since there is no fuel required for the solar asset’s operation, there is no fuel price volatility and hence financial uncertainty about the actual kWh output cost. Most importantly, there is no foreign exchange pressure of fuel imports on the national current account.
Wind energy is another abundant option and as cheap, if not cheaper, than solar PV in areas with high wind velocities. The cost and generation potential for this source varies with the cube of wind velocity (you typically want an average of over 5.5 m/s). Commercially feasible areas for onshore wind farms will be less than solar PV but still plenty in a land as vast as Pakistan. Offshore wind in the warm, shallow waters along Pakistan’s 1,046 km long coastline is a particularly attractive option. Germany’s onshore and offshore wind production has crossed 95 billion kWh per annum and 19 billion kWh per annum respectively, from about 0.45x the total land size and 2.3x the coastline length of Pakistan. With a similar if not wider range of geographical opportunities to choose from, Pakistan can pull over 100 billion kWh per annum of wind electricity.
The primary hurdle to renewables is well entrenched fuel importers, their political and bureaucratic lobbying power, with international tentacles of support. They might like some renewable energy in the total mix, but only so much that it doesn’t rock their main gravy train.
Mahmud Yar Hiraj from Baltoro Growth Fund, a private equity firm actively investing in Pakistan, notes: “Baltoro has had a favourable experience with its investment in Triconboston, a 150 MW wind farm located in Jhimpir, Sindh, attracting international financiers, such as the Asian Development Bank, International Finance Corporation, German Investment Corporation DEG, and Islamic Development Bank to participate in the project.” The fund partner adds that Pakistan needs to rely more on its vast indigenous resources, such as wind and solar, by developing clean energy investment opportunities which are both financially appealing and environmentally sustainable.
Other noteworthy options include biomethane from organic waste, geothermal, tidal energy, and hydroelectric. The first and last options will be discussed in a bit more detail later. Biomethane from organic waste feedstock, aka renewable natural gas (RNG), is particularly interesting, as it offers a pathway to complete substitution of fossil fuels in a variety of applications. RNG production uses commercially tried and tested, scalable technology. Anaerobic digestion of the waste, conveniently combined with wastewater, yields a gaseous mixture of methane and impurities which are scrubbed away to leave behind the biomethane. The digestate of residual solids from the process is sold as valuable fertiliser, while the wastewater effluent can be recycled with reduced contaminants. The purified RNG is functional in the same way as natural gas for combined heat and electric power production. Alternatively, it can be injected into a national gas grid network.
RNG electricity has been steadily increasing in the EU, rising from 12.5 billion kWh in 2005 to 46 billion kWh in 2012 to an expected 64 billion kWh in 2020. By contrast, Pakistan’s electricity generation from liquified natural gas (LNG) imports, annualised from figures for July and August, stands at 38 billion kWh. Organic waste and wastewater collection in Pakistan can be organised, as in the EU, to dent the LNG import bill. As Pakistan’s population keeps increasing (already 40 percent of the EU), its organic waste feedstock will only expand.
What’s the cost of RNG electricity? The calculation is not as simple as for solar or wind, as it depends on a broader range of factors, but one can make useful comparative estimates. The UK’s current feed-in-tariff (i.e. purchasing price) for RNG electricity from anaerobic digestion plants, of larger than 500 kW capacity, is 1.57p/kWh — that comes to 2 US cents/kWh or Pak Rs 2.5/kWh. Clearly, the economics is a thumbs up.
What about hydroelectric power? There are two primary types of hydropower: the first is storing the water from a river in a dam’s reservoir as potential energy (that scales with the volume and height of the stored water) to be later released as electricity, and the second is running the kinetic energy of a river through a turbine, with or without a dam, to produce the kWh. Both approaches have troublesome handicaps.
The catch is annual rainfall levels, the quantity and certainty. For Pakistan, the renewable amount of river water from internal sources will depend on the summer monsoon and melting snow from its glaciers over the summer, replenished by the winter monsoon. The total monsoon tally isn’t much. Pakistan is down at 140 or so, on the global list, in average annual rainfall. No country with a greater population ranks below it.
For mega dams, the opportunity cost of the diverted freshwater should be an obvious concern. You are taking water away from the downstream use of irrigation and other basic human needs, to store in the dam reservoir, drastically altering the natural ecosystem. More water is lost from evaporation in the reservoir, than the natural flow of the river. A hydroelectric dam isn’t ideal for flood control, since you need a full reservoir for maximum power capacity. A host of other problems are well documented, including the worsening water quality, adverse hydrological changes, infectious diseases, reservoir sedimentation and even greenhouse gas emissions. In addition, a mega hydroelectric dam must be avoided like the plague in an earthquake-sensitive zone, where there is a risk of reservoir-induced-seismicity.
Run-of-river hydropower (aka small hydro) may avoid most of these problems, with smaller reservoirs if any to support their operation, but some negative downstream effects are unavoidable. With poor regulation and planning, the effects can be worse than large hydro. Run-of-river needs a close-to-steady flow-rate and is more vulnerable to seasonal variations.
There is a trade-off between planning specific-purpose reservoirs, dams, weirs and canals for irrigation and flood control on the one hand, and multi-purpose hydroelectric dams on the other. Pakistan can circumvent this trade-off by prioritising solar, wind, and RNG for the core of its national electricity portfolio.
Energy storage is not a cumbersome cost necessitated by renewable energy, as the fossil fuel industry would like you to believe. It’s an essential component of all electricity planning. Thermal power plants also need energy storage back-up, for scheduled and unscheduled downtime, for example when the plant trips. The truth is, these plants are less reliable in guaranteed uptime than their renewable energy counterparts. The bigger the plant, the bigger the energy storage back-up requirement.
The temporal variability of electricity generation by solar PV and wind is a red herring for policymakers. Financially, the variability has already been factored into the per kWh purchasing price. As for unpredictable weather impacts on the kWh output, the spatial distribution smoothes out individual, short timescale fluctuations. The greater the number of solar PV and wind systems, the more predictable is the aggregated output.
To buttress its electricity generation, Pakistan needs to cleverly plan energy storage — a diverse portfolio in terms of power capacity versus storage duration. A new global trend is to use renewable energy plus storage as a cheaper, more flexible substitute for fossil fuel power plants (known as “peakers”), to meet peak periods of excess electricity demand.
Energy storage systems offer a menu of services such as load shifting, emergency backup, network congestion relief, voltage and frequency control for grid stability. Different types of commercial energy storage include batteries, supercapacitors, flywheels, thermal capture, compressed air, and pumped hydro. In recognition of its growing importance, the World Bank has just announced a one billion dollar fund for battery systems in developing and low-income countries.
Pumped hydro is receiving increasing attention as a grid-scale complement to renewable energy, with low operational costs and long storage duration. An advantage of pumped hydro over the aforesaid hydroelectric dams is that it does not have to interfere with river irrigation. It can be independently operated in what is called a closed-loop system. You can locate these facilities near a renewable energy generator or consumption cluster, and even use seawater instead of freshwater. A 225 MW seawater pumped hydro facility is being planned in the peninsula of South Australia. Similar opportunities can be explored along Pakistan’s coastline, with an innovative addition of water desalination powered by renewables.
Although the prescription is straightforward enough, with little technical risk, bankable economics and a most competitive arena of companies ready to deliver the required assets, it’s unlikely to be easily accepted and administered. The primary hurdle is well entrenched fuel importers, their political and bureaucratic lobbying power, with international tentacles of support. They might like some renewable energy in the total mix, but only so much that it doesn’t rock their main gravy train.
On the other hand, we have the champions of local fossil fuels, trying to copy the riches of Western corporations in the receding past. The talk of “indigenous fuels” by the backers of Thar lignite is a road to economic failure — there is no “black gold” here but “fool’s gold”, a low-energy form of coal that will do more harm to its surrounding ecosystem than good to the economy.
The fear of the incumbent energy market gatekeepers, well fed from generous capacity payments and lucrative long-term supply contracts, is understandable. Renewable energy is a disruptive threat to their extravagant, government-subsidised profits — financially and technically, it squeezes out the demand for costlier fuel-based power. If Pakistan wants affordable energy self-sufficiency, then its government has to choose the road of renewables, and bulldoze the roadblocks. The choice of one road leads to economic salvation, while the others to financial bondage and, finally, bankruptcy.
The writer is a renewable energy and technology commercialisation expert based in London
THE CASE FOR RENEWABLES
While Germany and other countries had to pay a premium over market rates for renewables to replace fossil fuels, there is no such need for Pakistan. The renewable energy will come cheaper than what is being paid for the equivalent kWh from fossil fuels, and can be financed by domestic public finance, rather than foreign loans. Setting a renewable energy extraction target at three-quarters of what Germany has recently achieved, yields ~ 0.44 kWh/m2, about 350 billion kWh p.a., an additional 1720 kWh per capita (over twice the current level).
The many advantages of pursuing a renewable energy strategy include:
Direct cost: An unsubsidised, locked-in 5-6 US cents/kWh (Levelized Cost of Electricity) price is feasible, beating fossil fuels by some distance.
Indirect costs: Would save on the capital costs of additional transmission lines, as the renewable energy systems can be deployed closer to the centres of consumption, or in areas where building the additional transmission lines is not so difficult (e.g. in the plains versus a mountainous terrain). Power losses would also be reduced by shorter distances between supply and demand.
Financial volatility: There is no fuel price volatility to affect the projected financials.
Foreign exchange pressure: No fuel imports means less stress on the current account deficit and the Pakistani rupee.
Speed: Renewable energy plants, especially solar PV and wind, are much quicker to commission — the difference is not months but years.
Diversification: Renewable energy assets could be simultaneously developed in every province, to geographically and socially diversify the national electrical infrastructure.
Security and resilience: The greater the diversification, the more robust the electricity supply, resilient against both man-made and natural disasters.
Air pollution: Reduces an established cause of about 6 million premature deaths a year worldwide. Pakistani cities and dense villages are exceptionally affected by air pollution.
Freshwater conservation: Avoids the orders-of-magnitude greater freshwater consumption by thermal power plants.
Climate change mitigation: The renewable energy portfolio would do the opposite of harming the environment. It would instead bring about positive environmental changes for those living in harsh habitats. Would also help the common global cause of controlling greenhouse gas emissions.
Attraction of foreign clean energy investment: From a growing number of public and private international financial institutions who are making it clear they prefer to fund clean energy projects, many announcing a ban on further funding of coal and the like.
Global branding: Would generate positive publicity for Pakistan worldwide, as a forward-looking economy and progressive nation in the struggle against adverse climate change.
Social satisfaction: Will spur a massive wave of new employment, clean, safe well-paying jobs, as is evident from the renewable energy experience of other countries.
HOW TO MAKE IT HAPPEN
The actions for implementing such a strategy are not that complicated — here are 10 practical steps:
(1) Identify a ranking of locations in each province, most suited to renewables.
(2) Enact legislation to provide a safe investment environment for IPPs, with simple, easy-to-follow, transparent rules and regulations.
(3) Introduce policies for electricity cooperatives, community ownership of remote assets, expansion of net metering and wheeling regulations to include virtual power purchase agreements.
(4) Incentivise a pool of IPPs to invest in complementary grid modernization.
(5) Provide IPPs with the option to invest in hybrid mini-grids for industrial estates, underwriting industry payments to the IPPs.
(6) Make it compulsory for the IPPs awarded with major contracts to invest in a schedule of technology transfer, training, and local content production.
(7) Create a detailed Quality Assurance framework for the renewables assets, with layers of technical, commercial and legal measures for best-in-class risk mitigation.
8) Introduce a Carbon Tax on legacy fossil fuel power producers, to reinvest the proceeds in a Sovereign Renewable Energy Investment Fund.
(9) Market the fund to private and public international financial institutions, including multinational corporations who want to offset their carbon emissions.
(10) Use this investment fund to roll out distributed solar and RNG projects, microgrids, for urban and rural communities, starting from low-income and historically neglected areas.
There is a fork in the road for Pakistan’s government. They can either change direction for a future of clean, cheap electricity, derived from their own land without destroying it, or stumble towards the apocalyptic dead-end of fossil-fuels.
Published in Dawn, EOS, November 4th, 2018