Only Power Demand Could Constrain Pakistan Renewables: Q&A

By Vandana Gombar, Bloomberg NEF editor. This article first appeared on the Bloomberg Terminal

Pakistan’s swing towards renewable energy is “irreversible”, Amjad Ali Awan, chief executive officer of Pakistan’s Alternative Energy Development Board, said in a phone interview. “Any government that comes to power cannot ignore the cost and other advantages of sustainable energy development,” he said.

The installed capacity of solar, wind and biomass has crossed 1,660 megawatts already, and is set to top 2,000 megawatts by the end of the year. Net metering (in which solar electricity is sold back to the grid) has taken off, at least in the residential sector. Developers are holding letters-of-interest (LoI) to set up thousands of megawatts of new renewable energy plants, Awan said.

The country’s first competitive bidding program for selecting developers of renewable energy projects is on the cards. The new government will have to decide on a few tricky issues, however:

  • Should this be a limited bidding contest among existing LoI holders or an internationally competitive bid process?
  • Should the energy purchase agreement be for 15 years or 25 years?
  • Should the projects be on a build-own-operate basis or a build-own-transfer basis?
  • Should the energy purchase agreement be between two parties or three parties?
  • And most importantly, is there sufficient demand for power?

The draft new energy policy talks about a 20 percent share of renewables, according to Awan. The final decision on that would also fall to the new government.

BNEF: Have the impending elections impacted the rollout of renewables in Pakistan? Depending on which party comes to power, do you think there could be an impact on the growth trajectory of renewables in Pakistan?

Awan: The AEDB has managed to achieve a level of progress in the renewable energy sector of Pakistan that seems irreversible now. Any government that comesto power cannot ignore the cost and other advantages of sustainable energy development. When renewable energy makes perfect economic and ecological sense, it justifies an appreciable share in the overall energy mix in Pakistan. The only constraining factor seems to be demand for energy.

If there is enough margin of energy demand, then the foremost probability is that renewable energy will have better share in the overall electricity mix.

Q: What is the progress of renewables so far?

A: I would divide the overall progress of renewables in Pakistan into two phases. In the first phase – before 2014 – less than 300 megawatts were installed (wind 200MW, biomass 53MW). From 2015 onwards, we in AEDB chalked out a comprehensive strategy to increase the share of renewables. The grid-connected capacity of wind, solar and biomass has reached 1,665 megawatts, and is going to cross 2,000 megawatts by the end of 2018.

We do have a mandate to grow small hydro (up to 50 megawatts) too, but that has conventionally been dealt with by the provincial governments. We have issued only one LoI for small hydro so far, for a 40-megawatt project.

In the context of resource measurement, AEDB managed to deploy nine solar data stations in different parts of the country as well as 12 wind measuring masts with the support of World Bank’s Energy Sector Management Assistance Program. Accordingly, we developed solar maps for Pakistan for the first time. AEDB also issued a biomass atlas for Pakistan, giving information on different feed-stocks available in different parts of the country. By the end of the current year, we will be in a position to develop wind maps for Pakistan.

We have discovered five to six new wind corridors in the Baluchistan Province. The average annual wind speed in these corridors at 100 meters above ground level is greater than 7.5 meters per second. For the first time, we have started hybrid wind-solar in Pakistan. As many as 13 wind sponsors have been issued letters of intent to generate wind and solar combined.

In addition, AEDB launched a net metering program in the country. The first net-metering system, of 1-megawatt capacity, was installed at the Parliament House in Islamabad. We anticipate 3-3.5 gigawatts through net metering by 2023-24. As of now, over 10 megawatts have been installed. The tariffs for wind, solar and bagasse-based projects have been reduced over time. The last tariff approved by the regulator Nepra [National Electric Power Regulatory Authority] in 2017 for a wind project was 6.74 U.S. cents per unit, solar was 5.83 cents and for bagasse-based projects –7.97 cents.

AEDB also took the initiative for the adoption of quality standards and for restricting the import of sub-standard solar PV equipment in Pakistan.

Q: What is the biggest challenge now?

A: The biggest challenge is to determine medium-and long-term targets relating to the overall share of renewables in the energy mix that should be in line with the authentic demand and supply projections for the country.

Q: Why is competitive bidding delayed?

A: We are ready for the competitive bidding on standard terms of 25 years on BOO [build-own-operate] mode. However, there are number of issues where clarity is needed. For example, CPPA [Central Power Purchasing Agency] has introduced its version of an energy purchase agreement [EPA], which is tripartite [seller, CPPA and National Transmission and Dispatch Company or NTDC]. This new version of EPA is yet to pass the litmus test of bankability. In addition to this, there are certain government directives which suggest altering the term of EPA from the standard 25 years to 15 years. In case of any such modification in the tenure, the whole set of bidding documents need to be modified accordingly. Moreover, the identified capacity of solar and windon which bidding will be carried out should specifically be intimated by the concerning stakeholders. That has not been done so far. Once all these matters are clarified, the documents will accordingly be prepared for conducting competitive bidding. This whole scenario is also linked with the percentage share of renewable energy projects in the national grid that is to be stipulated as a matter of policy.

There are different sponsors to whom letters of interest have been issued by the AEDB or provincialgovernment departments. It is highly anticipated that at least the first bidding will be done among the existing LoI and land holders.

Q: Is there also any debate on the capacity to be bid out? The last announcement was for 600 megawatts of wind and an equal amount of solar.

A: This competitive bidding is being done on the basis of evacuation capacity. NTDC has already intimated around 1,200 megawatts capacity for wind, so competitive bidding will be for 1,200 megawatts, unless this figure is emended or modified. In terms of solar, it could be 600 megawatts or 1,200 megawatts, depending on the existing status of infrastructure and determined share by the GCRP [Grid Code Review Panel].

Q: Is Pakistan still guided by the 2011 renewable energy policy? A lot has changed since then.

A: A new policy is under development. The ministry of power is working on it and AEDB has been involved with that. The first draft has been finalized. It recognizes the potential of renewable energy and talks about a share of 20 percent for renewables in future. A higher share of renewables seems inevitable in Pakistan.

Q: Is the case for solar very clear in Pakistan? Is it acknowledged that solar is one of the cheapest sources of power?

A: The case for solar is getting clearer with the passage of time. Based upon the solar maps developed in Pakistan, solar energy is not site-specific. That means there is enough margin of solar energy installation on-grid and off-grid. Presently, the installed capacity of grid-connected photovoltaic based projects is 430 megawatts. In the particular context of off-grid community based solar energy deployment, more than 700,000 people have been provided access to electricity through solar energy. AEDB is partnering with International Finance Corporation in the ‘Lighting Pakistan’ Program, which is consistently providing access to off-grid communities in different parts of the country.

AEDB was recently given the authority to pre-qualify firms doing rooftop installations, and about 60 companies are qualified now. Consumers are directly approaching them. As you know, there is financing available at a reduced rate (6 percent) as per State Bank of Pakistan’s renewable energy financing policy.

In the last six months, more than 450 net metering connections have been installed, with a total capacity of 11 megawatts. These are mostly in the residential sector for now, and we plan to push it in the commercial and industrial sectors in the next phase.

Q: What is driving rooftop installations? Savings?

A: Load shedding [power shutdown] is one of the reasons why consumers are motivated to deploy their own source of solar energy on their rooftops or backyards. Secondly, cost has played a big role. Last but not the least, solar energy has a particular charisma as being clean and environment-friendly.

Q: I read about the ambitious Sindh Solar Energy Program. Are the provinces taking the lead on renewable energy now?

A: We have tried to sensitizethe provinces, and all of them are engaged in the off-grid deployment of solar and wind energy in remote rural areas. The states are active in disseminating solar energy equipment and are electrifying their villages through the active deployment of renewables. We started working with IFC to disseminate solar-charged appliances –LED lights and fans. A typical rural household which has never seen electricity is now receiving 2 LED lamps and 2 fans on a simple lease of 1,500 rupees [$11.68] per month. We are only focusing on those areas which are not connected to the national grid and there are no chances they will be connected in the near future. These are far-flung and remote areas where there is no access to transmission lines. It is not financially viable to stretch transmission lines to their doorstep. Pakistan has 69 million people without access to electricity, and they are mostly living in remote locations.

Q: Is there any local manufacturing taking place?

A: Presently, there are some solar cell manufacturing concerns and wind tower manufacturing facilities operational in the country. In future, we expect more market players to join renewable energy manufacturers in Pakistan.

Q: Is curtailment still an issue in Pakistan? Is there compensation offered for that?

A: It was a problem in the past, due to transmission constraints. It is not an issue right now, except when there is no or less demand. The energy purchase agreement does place a payment obligation on the government of Pakistan for non-project missed volume.

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