Mismatch of renewables

Published March 27, 2023

Only 15 per cent — or 2,100 megawatts — of the planned hydropower capacity of 14,000MWs by 2030 is expected to come online in time, with the cost overruns estimated to go up from the current $31 billion to $49-61bn, says the Pakistan Renewable Energy Coalition (PREC).

Out of the planned hydropower capacity 51pc has achieved financial closure, but only 39pc had begun physical construction as of September 2022. The fact sheet also mentions that almost 70pc of the pipeline capacity requires partial or complete funding by either the Water & Power Development Authority or provincial government bodies.

The coalition, a group of allied organisations and individuals assisting in accelerating the growth of renewables in the country’s energy mix, is apprehensive that the delays in pipeline realisation are likely to increase power outages and load shedding in the country, prompting a switch back to the fossil-fuel power to bridge the shortages.

Moreover, Pakistan and the government’s hydropower development wing have been downgraded by all three global credit rating agencies: Moody’s, Fitch and S&P, increasing the likelihood of delay in implementing hydropower projects.

Industry analysis shows that it is not economically viable to select hydro plants for the next 10 years since solar and wind are cheaper options

The hydropower pipeline is also becoming vulnerable to extreme weather patterns and climate change, the effects of which have been seen across the globe in Norway, France and China in the form of drying up of rivers and lower reservoir levels. In Pakistan, too, the early onset of summers saw record-breaking temperatures and low reservoir levels.

In its comments on the Integrated Generation Capacity Expansion Plan (IGCEP) 2022-31, the coalition has suggested that the plan, updated annually by the National Transmission & Despatch Company (NTDC), should provide more clarity and detail on cost mismatches in light of historical data and account for costing of renovation/refurbishing, schedule overruns, uncertainty in indexation and contingencies such as experienced in the case of Neelum-Jhelum and Mohmand Dam.

“We request that all such cost considerations should be included and made publicly available to provide further confidence to the stakeholders in the national power planning processes,” it says.

Analysing the latest IGCEP using the PLEXOS Energy Modelling Software, the coalition has pointed out some issues in the national power planning, starting with a delayed submission of IGCEP.

“As a result, many ground conditions change. Many plants go offline, exchange rate changes, contracts change, etc. Then the committed plants (of capacity of 14,158MW) are fed into the model without capital expenditure on the assumption that they have moved to advanced stages and nothing can be done about them.

“This, however, is not true. Our model shows that only about half of these projects are economically viable, and even then, only because of the urgent need for relatively cheaper electricity,” says Ammar Qaseem of Renewables First, a partner organisation of PREC.

In his comments on IGCEP, Mr Qaseem points out that the transmission costs are also not reflected in the power planning document. “While IGCEP does not claim to model transmission, a truly optimised plan can only be built by incorporating results of both IGCEP and the Transmission System Expansion Plan (TSEP).

However, the TSEP is missing and decisions made solely on the basis of IGCEP are not reflective of true costs. IGCEP selects many candidate hydro projects. But our results have shown that it is not economically viable to select any candidate hydro for the next 10 years. Variable renewable energy — solar and wind — is by far the cheapest option.“

Moreover, he underlines that IGCEP models NTDC and K-Electric (KE) as two separate systems connected with a tie line. “The capacity of this tie line is increased from 1,100MW to 2,050MW. Nevertheless, the government has since gone back on this commitment with KE.

“As a result of this modelling approach, many expensive plants are being run in the KE system, which would not be economically viable if the country was treated as one system, that is, central dispatch. Similarly, many plants such as local coal are being optimised for KE, which would otherwise not be feasible if the country was treated as one system.”

The coalition also questions the authorities circumventing IGCEP, the purpose of which is “to identify generation additions, by capacity and fuel type along with commissioning dates, for a certain plan period, through optimal use of all available generation resources”.

In light of this, it is pertinent to ask how the initiative, taken by the Ministry of Energy to replace 10,000MW of fossil fuel-based generation with solar photovoltaic, fits with the planning of IGCEP.

“Given that such huge fast-track investment can have major financial implications for the power sector and the economy at large, it is important for such investments to be a part of IGCEP scenarios in order to ascertain their true cost in the short and long term. Moreover, the assumptions of IGCEP include provisions for government-2-government projects to be added as committed inputs.

“As previous iterations of IGCEP have shown, projects added in the committed category are removed from the least cost considerations and discussion altogether, even if they run contrary to the purpose of IGCEP.

“It is important to ask why does the IGCEP allow provisions for committed projects through the G2G channel to be added indefinitely into the future for projects which have not even been conceptualised yet and when added, will be able to bypass the entire optimisation process?

“Whether it is the case of 10,000MW additions proposed by the Ministry of Energy (Power Division) or the future G2G projects, why does IGCEP accept raw data and inputs from outside instead of proposing such additions itself based on its own vision and optimisation?

“Even if IGCEP is forced to accept such inputs, why are such projects treated as committed instead of being treated as possible scenarios to ascertain their true financial costs? In order to make IGCEP inclusive and reflective of ground realities, we request that a financial analysis of 10,000MW solar power should be made a part of scenarios to obtain clarity and build a rationale behind such a huge amount of power addition to the grid.”

“We also request that further clarification is provided with regards to which fossil fuel-based plants are expected to be replaced by the said addition given the fact that many of the independent power producers are nearing their expiry term anyway, and their replacement may not prove worthwhile at this stage.

“Moreover, we also ask that rationale be provided for including G2G projects under the heading of committed projects since such practices clearly bypass the IGCEP process and are also likely to discourage private investment in a soon-to-be-open and competitive market,” the coalition demands in its comments on IGCEP 2022.

It adds that the current assumptions of IGCEP do not reflect Pakistan’s rapidly changing economic conditions after floods and negotiations with the International Monetary Fund.

“Changes must be made in the plan to reflect the same. Moreover, we also request that the quantum for new technologies be identified and allocated in IGCEP to encourage the development of new technologies. Alternative and innovative solutions for solving social-environmental issues alongside fulfilment of power demand should also be considered.”

Published in Dawn, The Business and Finance Weekly, March 27th, 2023

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