Seeking Equilibrium in Pakistan’s Energy Triangle
Pakistan ranks at 103 out of 125 countries as per the World Energy Trilemma Index 2018, which focuses on energy security and energy equity. In the last few years, adequate generation capacity was added to overcome long-duration blackouts, but not much attention was given to energy infrastructure, efficiency and improving the recoveries of electricity dues- one of the key reasons for Pakistan’s huge circular debt pile up.
Having come a long way, Pakistan needs to achieve equilibrium in its energy triangle for a sustainable energy equation with the right balance of security and access, environmental sustainability and economic development and growth.
To cater for the gap and the growing demand in the country, installed generation capacity was enhanced from 23,000 MW in 2014 to 33,744 MW by 2019. But overall energy planning remained fragmented across the energy value chain with little focus on improving the energy mix and upgrading transmission and distribution capacity.
It is utterly important that an integrated power sector planning approach is adopted to adequately achieve balance in the energy triangle: accurately forecast demand, add generation capacity, improve transmission and distribution systems, bring costs down and ensure sustainability.
These important factors do one very important thing for economic growth and improving investor confidence: they provide predictability to the availability of affordable energy. For the first time, comprehensive planning has been conducted in Pakistan in the form of the ‘Indicative Generation Capacity Expansion Plan (IGCEP) 2018-40’ which includes expansion planning studies which will be updated annually, in order to retain accuracy in the wake of changing dynamics.
The aim of the IGCEP is to optimize energy generation costs to ensure that adequate generation is added at least-cost basis, to meet future energy demands.
At present, Pakistan’s expensive power generation mix consists mostly of imported coal (8 percent) and Re-Gasified Liquefied Natural Gas, LNG,(23 percent).
Pakistan needs to achieve equilibrium in its energy triangle for a sustainable energy equation with the right balance of security and access, environmental sustainability and economic development, and growth.
Ayla Majid
Local resources, although abundant, are not utilized to full capacity: local coal makes 0.1 percent of the power generation mix. The threat of climate change has led to a drive toward de-carbonization, of which IGCEP is mindful and therefore the planned increased capacity from renewables and hydro sources. While this plan indicates a desire by the government to improve the overall energy mix and reduce costs for its citizens, the same is indeed an area of opportunity for investors who can avail investment-friendly policies, and invest in the provision of sustainable, affordable energy as well as earn responsible gains.
As per the IGCEP, Pakistan’s energy mix will be sustainable and reliant on local production more than imported energy. By the year 2040, hydro-generation will have a 40 percent share, while renewables and local coal will have 16 percent and 25 percent respectively. The dependency of imported fuel including imported coal and R-LNG will be reduced from its present 7 percent and 23 percent to 5 percent and 6 percent.
In addition to enhancing the optimal energy mix and planning, it is fundamental to reduce the electricity losses, which currently stand at a high point of 18.3 percent for distribution losses and 2.4 percent for transmission losses.
These losses continuously contribute to the much-talked-about circular debt which was at a whopping Rs.1,618 Billion by the end of June 2019. Technical and governance interventions are required to reduce the losses and as a consequence, the circular debt. The government is also making out-of-the-box financing solutions by working with key energy stakeholders (including IPPs) to reduce the fiscal burden.
In addition to the IGCEP’s planning and reduction of losses, there is a great need to improve transmission and distribution systems, reduce subsidies, improve governance and create an open energy market platform for long term competitiveness, sustainability and transparency in the electricity business. This improved ecosystem will be a sure-shot formula for fueling economic growth led by domestic and export-led businesses.
At the heart of energy planning and the future of energy are the interests of the people and the planet. This is why the long-term future of energy in Pakistan is based on the principles of availability, reliability, sustainability, less burden on finite resources, low cost, and efficiency.
Following global best practices, fossil fuels will have some, limited role in the future of energy in Pakistan. New innovations, renewables (wind, solar, geothermal) and nuclear power will dominate. Our goal as an emerging economy should be to attract more investment in the renewable energy sector, both on-grid and off-grid, and to adopt solutions for enhanced efficiency that reduce our dependency on public finances and make the regulatory process friendlier for stakeholders bringing in new tools and technologies.
– Managing Director, Khalid Majid Rehman, with high-level M&A, advisory and governance experience in infrastructure, energy, oil and gas, privatization, shale gas, and digital fintech. Sits on many local and global boards including. She is the first Pakistani serving on the International Council of Association of Chartered Certified Accountants since 2014. Ayla is a Young Global Leader of the World Economic Forum.
