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Pakistan risks locking in long-term overcapacity and expensive power

September 03, 2020
Simon Nicholas
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Key Findings

The power plan's demand growth forecast was too optimistic even before COVID-19 but the pandemic has made it even more obsolete.

The three operational imported coal-fired power plants – which have all become operational since 2017 – as well as coal and LNG plants yet to be completed, will only have a few years of high utilisation before their use drops to unsustainable levels and they are stranded.

The lack of renewable energy focus comes despite the fact that Pakistan has excellent renewable energy resources and that wind and solar – which are already the cheapest source of new power generation in Pakistan – will be even cheaper throughout the 2030s and 2040s.

Executive Summary

Pakistan’s new long-term power capacity plan largely fails to live up to its identified salient features and the government’s stated principles of sustainability and affordability. The National Transmission and Despatch Company (NTDC) published its latest longterm power plan – the Indicative Generation Capacity Expansion Plan 2047 (IGCEP) – in April 2020. According to the IGCEP, its salient features include significantly increased use of renewable energy and domestic coal-fired power, and reduced fossil fuel imports and carbon emissions.

As the IGCEP report notes, “Energy and demand forecast provides the basis for all planning activities in the power sector.” This is quite correct and the result of the IGCEP’s over-optimistic power demand growth forecasts is that more power capacity than needed may be planned and built.

The IGCEP’s Medium demand growth forecast was too optimistic even before COVID-19 but the pandemic has made it even more obsolete. Other nations, including China, India, Bangladesh and Indonesia, that have overestimated power demand growth are also dealing with the issues of overcapacity, declining utilisation rates, increasing capacity payments to idle plants and rising subsidies and tariffs to cover the cost of excessive, expensive power plants.

The Pakistan government’s principle of affordability cannot be met if the power system is locked into long-term overcapacity – capacity payments to plants lying idle are already an issue and would become even more unsustainable if more overcapacity is locked in.

Although the IGCEP includes additions of renewable energy to meet the government’s draft renewables target by 2030, renewable energy is neglected in the model after 2030 with no further wind power additions at all.

The lack of renewable energy focus comes despite the fact that Pakistan has excellent renewable energy resources and that wind and solar – which are already the cheapest source of new power generation in Pakistan – will be even cheaper throughout the 2030s and 2040s.

Pakistan would be far better off reducing reliance on fossil fuel imports via an appropriate emphasis on renewable energy. By switching focus from expensive and polluting domestic coal-fired power to renewables, the IGCEP would be better able to live up to the government’s principles of affordability and sustainability.

Press Release: Pakistan’s new 27-year power plan risks locking in long-term overcapacity, leaving imported coal and LNG plants stranded

Simon Nicholas

Simon Nicholas is IEEFA’s Lead Energy Finance Analyst for Bangladesh, Pakistan and the global steel sector as well as Asian seaborne thermal and coking coal markets.

Simon’s focus is on the energy transition, the long-term outlooks for coal and steel as well as the need for emerging nations to establish financially sustainable power systems to support their development.

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