THE world’s energy mix is changing to give priority to clean and renewable energy technologies to counter the looming threat of climate change.
The Bloomberg New Energy Finance’s New Energy Outlook report for 2019 estimates that global power generation capacity will shift from its 57 per cent fossil fuel base today to 66pc renewables by 2050. The additional generation capacity of 12,000 gigawatts will require an investment of $13.3 trillion by 2050, 77pc of which will go directly to renewable and energy storage technologies.
Global power sector emissions are on track for the 2 degrees Celsius pathway until 2030. Zero-carbon technologies will provide more than half of the world’s generation needs by 2030, overtaking fossil fuel for the first time. However, aggressive decarbonisation will be needed beyond 2030, including the transformation of transportation from liquid hydrocarbons to renewable electricity, to keep the temperature increase below 1.5 degrees Celsius.
In line with global trends, Pakistan is also planning energy transition towards a greater share of alternative and renewable energy (ARE) in its system. Developing AREs locally will form a key component in this respect.
Without significant scaling up and indigenisation, we can’t expect renewable technologies to meet government’s targets of 20pc (8,000 megawatts) by 2025 and 30pc (16,000 MW) by 2030, as envisaged in the draft ARE Policy 2019.
The current draft of the ARE Policy 2019 does not properly build on the four guiding principles of sustainability, affordability, responsibility and availability
The draft policy will be put up for a final review and approval from the Council of Common Interests (CCI) in its next meeting on Dec 23 (today). The draft was supposed to be carved out of the National Energy Policy and in concert with other key policy documents and plans such as the Integrated Energy Plan (IEP) and Indicative Generation Capacity Expansion Plan (IGCEP).
Since these documents are yet to be approved, issuing the ARE policy before these can lead to conflicts and contradictions. Such risks should be avoided as much as possible.
The current draft of ARE Policy 2019 does not properly build on the four guiding principles of sustainability, affordability, responsibility (of use) and availability. It should be revised to clearly incorporate these principles.
At a minimum, the draft ARE policy should cover the following points before it is put up for approval before the CCI:
As indigenisation and localisation are important pillars of the national energy policy, the ARE policy should also clearly specify measures and incentives for local manufacturing of ARE technologies. Without government’s support and protection, the fledgling local industry may not be able to compete with established foreign suppliers.
Unsolicited procurement (on cost-plus tariff) is allowed for government-to-government proposals for mature technologies and the private sector is restricted to solicited bidding only. This appears discriminatory and should be avoided. All future procurements should be made through competitive bidding to provide equal opportunity to all investors.
The existing holders of the letter of intent from the AEDB, 104 projects (wind, solar, bagasse, waste to energy, etc) of roughly 6,547MW, should be given full opportunity for devolvement through the bulk auctions approach adopted until complete capacity needs are met.
Returns on investment, in dollars for foreign equity and rupees for local parties is discriminatory and will frustrate local investors, who are expected to be the majority investors in the future ARE projects. Like the existing thermal project policies and the RE Policy 2006, the dollar returns should be maintained for all investors whether foreign or local.
The National Electric Power Regulatory Authority (Nepra) has already prescribed the comprehensive Competitive Bidding Tariff (Approval Procedure) Regulations, 2017. As such, ARE policy provisions regarding competitive bidding should also be aligned with these regulations.
Wheeling provisions are restricted in the current draft. It is recommended that these should be specified in concrete terms in the next revision.
Small hydropower projects of less than 50MW capacity are excluded from the current draft ARE Policy. They should be made part of the new policy, as their exclusion will obstruct the development of these renewable resources in the country.
The experience of developing renewable projects in the country has been a matter of considerable frustration for investors. Sponsors of 19 projects with 531MW of capacity having letter of support already issued, had to obtain their legal rights under RE Policy 2006 through the Islamabad High Court.
Out of 22 projects with 1,199MW capacity already having Nepra’s tariff, only 12 wind projects were allowed recently by the government, and only after the World Bank and Sindh government had to intervene.
There does not seem to be any planning in place to determine the annual ARE procurements requirements to achieve the 30pc target set for 2030 AREs since the IEP and IGCEP have not been approved yet. Moreover, there is no clarity on how much time it will take to finalise and approve the competitive bidding process. Therefore, the firm date of commissioning the first ARE project into the national grid is not anticipated before 2022 through the new ARE policy.
The current draft of the ARE Policy 2019, if approved in its proposed shape from the CCI, will not promote AREs in the country; instead it may slow down their uptake. In the absence of a clear and concrete roadmap, the target of 30pc share of renewables in the national grid appears vague, non-committal and merely a dream.
The writer is an energy practitioner and an engineering and business graduate email@example.com
Published in Dawn, The Business and Finance Weekly, December 23rd, 2019