Pakistan’s energy use: high inefficiency and distorted consumption

Energy is pivotal for growth, yet Pakistan’s situation is grim. Despite possessing abundant resources, its energy landscape is plagued by inefficiencies and distorted consumption pattern. This complex issue is multifaceted that intertwines to shape the current energy paradox.

The energy to GDP conversion rate serves as a key metric to gauge an economy’s energy efficiency and measure how effectively a country uses energy to generate output and income12. A higher rate in this regard means the country is more efficient at converting energy into economic output.

To put things into perspective, Bangladesh’s conversion rate of $6.13 million/ktoe is twice that of Pakistan, which stood at $3.3 million/ktoe. This significant difference underscores Bangladesh’s superior energy efficiency and effective allocation of resources, setting a regional benchmark.

Interestingly, a key factor in Bangladesh’s higher efficiency is the declining energy demand within its industrial sector. This trend indicates greater energy efficiency in industrial processes, contributing to the country’s overall energy performance.

Further analysis reveals that the largest share of Bangladesh’s gas consumption, about 40%, is by its power sector, followed by industry 19% and captive power 18%, with domestic consumption trailing at 13%. The pattern shifts for electricity, where the domestic sector emerges as the primary consumer, accounting for 52%, followed by commercial 25% and industrial use 13%.The gas, being a more affordable energy source, is allocated to industries, while the more expensive energy sources are directed towards households. This approach achieves a balance and results in a higher conversion rate compared to regional counterparts.

Meanwhile, India, although not leading in the conversion rates, has demonstrated noteworthy progress in its energy efficiency. The country’s GDP per unit of energy used increased from $2.30 million/ktoe in 2010 to $2.94 million/ktoe in 2022. This improvement can be partly attributed to India’s service sector-led economic growth, which is inherently less energy-intensive than industrial sectors.

However, a large portion of India’s energy—approximately 41%—is consumed by its industry, compared to 26% for domestic use. Despite India’s effective resource allocation, its transport sector, marked by high inefficiency, is a major contributor to the country’s overall low energy efficiency, consuming a substantial share of its energy resources.

Pakistan, for its part, has seen improvement in its energy conversion rate, increasing from $2.8 million/ktoe to $3.3 million/ktoe in 2022. This increase suggests a growing economic value from its energy use, driven by sectors such as manufacturing, agriculture, and services.

However, Pakistan’s energy consumption pattern poses a unique challenge. A large portion of its electricity, around 46%, is consumed by its non-productive domestic sector, while the industry accounts for 28%. When it comes to natural gas, the domestic sector again has a higher consumption rate at 20%, compared to the industrial sector’s 18%. Pakistan has the most inefficient allocation of resources among the countries.

For instance, gas, a more affordable energy source, is predominantly supplied to households, which contribute the least to the GDP. In contrast, industries receive more costly energy forms and incur higher expenses due to subsidies provided to households for energy cost reduction. Moreover, the policy of providing energy to households at very low prices strains the industries through a higher tariff which as a consequence includes cross-subsidy, adversely affecting their competitiveness in the global market. Despite having a lower industrial energy consumption than India, Pakistan’s industry exhibits greater efficiency.

Further compounding the issue is Pakistan’s heavy reliance on fossil fuels, which account for 64% of its total energy, hydropower contributes 27%, and the remaining 9% comes from other renewables and nuclear power. This reliance on fossil fuels not only makes energy less affordable but also exposes the country to vulnerabilities in energy supply disruptions.

Bangladesh faces a similar dilemma. Due to its high reliance on fossil fuels to generate electricity, it is also facing the issue of energy affordability. The country’s energy portfolio is composed of 99% fossil fuels, with dominant contribution of natural gas at 67%. However, its energy affordability problem is being partially compensated by its gains in energy efficiency.

In stark contrast, India’s approach to energy significantly differs, with a strong focus on renewable sources, setting it apart from the fossil fuel reliance prevalent in Pakistan and Bangladesh. By investing in renewable energies like solar and wind, India has achieved more cost-effective energy solutions and competitive market prices, thus carving a unique niche for itself in the regional energy sector.

The analysis of energy efficiency and energy consumption’s impact on economic growth brings to light the importance of formulating energy policies that are specifically designed to suit the unique circumstances of each country.

For Pakistan, improvement in the industrial sector’s energy efficiency reveals a competitive response to global market pressures, in stark contrast to the domestic sector’s apathy towards energy conservation. A consequence of ineffective and below-cost energy pricing strategies leading to severe misallocation of resources. It’s imperative to acknowledge the substantial role of energy prices in diminishing energy intensity via efficiency improvements. Rationalizing energy prices is crucial to incentivize energy conservation and efficient use through, for instance, adoption of more efficient appliances. As energy prices are rationalized, any increase in prices should be counterbalanced by improved energy efficiency. Hence, it is urgent and essential to aggressively implement pricing policies that will curb the excessive energy demand of the domestic sector.

Gas appliances and any inefficient products in the market are a direct threat to energy conservation and their use must be regulated, including through benchmarking of energy efficiency. The government must enforce minimum energy performance standard (MEPS) and stringent labeling regulations. No appliance should be allowed to enter the market if it does not meet minimum efficiency standards. This is particularly crucial considering that a significant portion of domestic electricity in Pakistan, over 67%, is consumed by fans and lighting that do not meet modern energy efficiency standards. This is not just a recommendation but a critical necessity. Such legislation will steer consumers decisively towards energy-efficient products, drastically cutting down the domestic sector’s energy consumption.

In line with these efforts, in 2023, the government took a decisive step by banning the manufacturing and sale of old, high electricity-consuming bulbs and traditional fans as part of its broader energy-saving initiative. These actions are targeted at achieving significant energy savings, potentially up to 9300MW. Adhering to the new MEPS, newly manufactured fans are now designed to consume only 60W of electricity, which is half of what traditional fans used, while the energy consumption of light bulbs has been capped at 12W.

The shift towards energy-efficient appliances must be urgently mandated, particularly replacing gas geysers with solar alternatives.This measure alonecan save up to 500 MMcfd of gas, thereby providing much needed relief to the balance of payments by reducing the import bill by over $1 billion per annum. Additionally, upgrading gas burners is critical for further domestic energy savings, offering a potential gas conservation of 200 MMcfd at a one-time cost of Rs 2 billion. The proven success of solar water heating systems, like those in Nathiagali conserving 500 tons of fuelwood annually, illustrates the urgent need for nationwide adoption.

Moreover, key actions like implementing mandatory annual vehicle efficiency testing and effective national load management can significantly optimize energy consumption patterns.

For the long term, one of the pivotal steps towards achieving this is the immediate implementation of the Pakistan Building Code. This would ensure energy-efficient practices in construction, leading to long-term energy savings.

Moreover, Pakistan’s energy policy, which aims for a higher proportion of renewable energy in its power mix — with a target of 30% from wind and solar by 2030 — and the planned expansion of less carbon-intensive energy sources, also signifies a move towards greater energy efficiency.

Furthermore, industries and companies can play a crucial role in energy conservation. Implementing an Energy Management System (EMS) allows companies to monitor energy consumption data in real-time and identify opportunities for energy savings.

Another effective approach is the use of Building Automation System (BAS), which optimizes heating, cooling, ventilation, lighting, and other systems in offices and industries. It uses advanced technologies like AI and machine learning to identify energy consumption patterns and implement energy-efficient measures. For instance, the Ministry of Energy and Mineral Resources in Indonesia saved 318,700 KWH in 2019 by implementing BAS in their buildings.

In light of these recommendations, Pakistan’s journey towards resolving its energy paradox requires a multifaceted approach. Given its limited resources, the affordability of energy emerges as a looming challenge. Pakistan’s path to economic stability and growth is intricately linked to enhancing its energy efficiency. The country must urgently address the misallocation of energy resources, incentivize efficient energy use, and adopt innovative technologies and practices across all sectors. By prioritizing energy efficiency, Pakistan can not only meet its economic goals but also contribute to global environmental sustainability.

1. It is calculated as GDP divided by total energy consumption.

2. Energy intensity is the reciprocal of energy conversion rate and is calculated as total energy consumption divided by GDP.

Copyright Business Recorder, 2024