IEEFA update: New Pakistan renewables policy represents a step change in clean energy ambition

Pakistan’s Alternative Energy Development Board (AEDB) has published a draft of the long-awaited Alternative and Renewable Energy Policy 2019.

As has been discussed by the power minister on numerous occasions since the beginning of the year, the draft policy includes strong targets of reaching at least 20% renewable energy capacity by 2025 and at least 30% by 2030, up from around 4% currently.

IEEFA recognises that this ambition represents a significant step up in renewable energy ambition for a nation currently very focused on expanding hydro, coal- and LNG-fired power yet blessed with excellent wind and solar resources.

Recognising the sharply declining cost of renewable energy technology, the draft policy sets out a plan to expand wind and solar capacity via transparent, competitive bidding processes in order to enhance investor confidence and discover further cost reductions for least-cost electricity supply in Pakistan.

HOWEVER, PAKISTAN SHOULD BE EVEN MORE AMBITIOUS in embracing the technology-driven, global energy system disruption and the investment opportunities of renewable energy. In December 2018, IEEFA published a report which found that the nation could approach 30% of power generation from renewables by 2030. According to our model, renewable energy would make up 36% of total power capacity by that date.

This higher level of renewables capacity could be reached by installing an average of 1 gigawatt (GW) each of wind and solar 1GW every year out to 2030, an installation rate below that achieved in other countries where incentivising policy settings are in place. In the 12 months to June 2019, Vietnam installed more than 4GW of solar, incentivised by feed-in-tariffs, with an average construction time of just 275 days.

Given it is the China-Pakistan Economic Corridor (CPEC) program that is driving Pakistan’s power capacity build out, the successful implementation of the new policy will depend, to a great extent, on China’s commitment to renewables in Pakistan. Domestically, China’s renewable energy investment is world leading and it increasingly dominates in new energy technology globally.

China has certainly made some positive statements. In January 2019, during a meeting of Power Minister Omar Ayub Khan and the Chinese ambassador to Pakistan, the ambassador stated, “Chinese investors are closely following Pakistan’s power-sector policies and are keen to invest in renewable energy”.

China Still Pushing Coal

Despite these words, China is still pushing its increasingly outdated, polluting and expensive coal technology on Pakistan, even when the latter attempts to slow the build out of coal power.

The Pakistan government had understandably attempted to scale back the recently-commissioned Hub coal power plant, a 1,320 megawatt (MW) CPEC project, and reduce it to 660MW on concerns about over-capacity and too much reliance on imported coal. The Pakistan rupee has depreciated significantly over the last 18 months, making coal imports even more expensive and highlighting how inflationary coal imports will potentially be for the country.

However, the project proceeded at full scale after the Chinese proponent of the joint venture raised the issue “at the highest level”.

Meanwhile, the CPEC imported-coal-fired power projects already operational are suffering severe financial stress. The Port Qasim coal plant near Karachi is reportedly having financial difficulties partly caused by the expense of foreign currency denominated coal imports.

The Sahiwal coal plant in Punjab province is also apparently having severe financial issues. This plant is using imported coal despite the fact that it is many hundreds of kilometres from the nearest port, leading to major coal logistics issues.

Renewables are an Energy Security Boost

In addition to the economic burden of importing fossil fuels, over-reliance on power plants fuelled by imported coal and LNG would be an energy security concern for any nation.

Amongst the many benefits of wind and solar power technology is the fact that they do not require any fuel to be imported which avoids the expense, logistics issues and the energy security issues that accompany reliance on seaborne fossil fuel imports.

In addition, renewables do not pose the water security threat that Pakistan’s planned fleet of domestic coal-fired plants do. Such plants will need to consume significant amounts of water every year for the project’s 40-year life and are often planned to be built in areas that are already water stressed. Coal plants to be fuelled by low-quality lignite from the Thar desert will be located in Sindh – a province that has only just gone through a disruptive water crisis.

Pakistan also plans to build a chain of major dams with the aim of resolving water issues as well as provide more power. However, a recent report from the World Bank has called this plan into question, with the report’s author explaining that “new dams can help improve water security but will not address the most pressing water problems that Pakistan faces”.

Plans for hydro are also held back by the difficulty in financing some projects and the very long construction times required – an issue not faced by wind and solar power.

Pakistan to be a “Greening the BRI” Case Study

China is under pressure to “green” its Belt and Road Initiative (BRI), of which CPEC is a leading element. So far, Chinese power investment in Pakistan has been fairly typical of its investment in other BRI countries in that it is focused to a great extent on coal-fired power. With Pakistan’s government now keen to benefit from the advantages of ever-cheaper renewable energy, the country is now becoming a key case study on China’s ‘greening the BRI’ progress.

China has made some positive statements regarding renewables investment in Pakistan, now it needs to back those words up with ambitious action on the ground.

Simon Nicholas is an Energy Finance Analyst with IEEFA.

This article first appeared in The News on Sunday.

Related links:

IEEFA Op-ed: Pakistan’s energy pathway under the spotlight

IEEFA report: Pakistan could build greater energy security by increasing use of cheaper renewables

Pakistan remains at frontline of climate risks: Advisor