‘Denmark to assist Pakistan with increasing renewable energy intake by improving grid constraints,’ Danish Ambassador, Ole Thonke

BR research recently sat down with Denmark’s Ambassador to Pakistan, Ole Thonke to have a candid chat on Pakistan Denmark relations with a focus on helping Pakistan meet the Sustainable Development Goals and the promotion of renewable energy in Pakistan. Below are edited excerpts from the meeting

BR Research: Let’s start off with the work Denmark is doing to help developing countries achieve the Sustainable Development Goals (SDGs).

Ambassador Ole Thonke: In Europe and especially in Denmark, the integration of the sustainable development goals into private businesses is happening on a large scale. Goal 17 aims to revive the global partnership for sustainable development.

The idea behind the new SDGs is that governments cannot produce the desired results on their own. The private sector involvement is a must otherwise achieving the SDGs will never happen.

In Pakistan, you have Nestle that is focusing on nutrition, water and rural development, which are some important areas covered by the SDGs. The way Nestle is working here is a very good proof of making SDGs part of a company’s core values. It is the same with a Danish company like Novozymes that is also starting to sell here in Pakistan. They make enzymes for the textile business, but they also operate in biomedicine. Novozymes has simply taken all the SDGs and integrated them into their business strategy.

So, for a lot of companies it is transforming how they think and do business. The whole CSR debate changed a lot from doing something nice on the side that you can make a campaign out of to actually live and breathe some of these new SDGs.

There are so many good things about the SDGs that encompass very pressing issues, but the story hasn’t really been told. As compared to the Millennium Development Goals, there has not been the same kind of hype for SDGs.

Denmark has been very active on a broader scale on many of the SDGs in Pakistan through our traditional development program. This includes education poverty reduction, human rights and democracy.

BRR: What are the high impact areas in particular when it comes to achieving SDG’s where Danish collaboration can come in useful for Pakistan?

 AOT:  Our policy is to first assess where our expertise and technological competencies fit the needs and demands of the country where we are working in. We work with different SDGs in different countries. For Pakistan, we used to have a more traditional development program, which is now being changed to a more business instrument program.

A key SDG in Pakistan that Denmark can assist with is Goal 7 “Affordable and clean energy”. Everybody talks about how important energy is for Pakistan and of course, with the CPEC coming in things will surely get better. However, part of these projects is clean energy, but the same cannot be said for all projects.

Denmark has a very long history of using renewable energy and is the world leader in wind power. We have more than 40 percent of wind power in our grid, and the share is increasing. The trend in Denmark is that we actually produce more offshore wind power. Globally, the prices have come down a lot. One has to be careful as the prices you get in Denmark cannot be compared to what you could get in Pakistan for many different reasons. Financing is one of them.

The tariff for the latest 600MW wind power plant was around 5.3 USc/kWh, which is very competitive against more traditional fossil fuel based power production.  You would see similar figures for solar power around the world.

Granted, in Pakistan there is still a risk premium and the financing is more expensive.  But I still believe a tariff of 7-8 USc/kWh is definitely achievable here as well.

Of course, then you have the discussion on base load and the fluctuations of wind energy. In Denmark, that has been turned upside down and we see renewables as the base load and traditional production as fluctuating.

One of the biggest advantages of renewables is that there is no fuel cost, which results in no foreign exchange obligation. That is one of the reasons that Denmark in the 1970s started working on renewable energy. Our current account was under pressure coupled with large amount of foreign debt. In 1973, when the oil prices shot up, the Danish economy suffered considerably because the country could not afford to import more expensive fuel. Pakistan has also been facing similar situations in the past.

Therefore, at that time the Danish government took a strategic decision to try to develop renewable energy and work very hard on energy efficiency. The renewable industry developed gradually and in the first few decades the government doled out massive subsidies to the wind energy sector. It was quite expensive in the beginning, similar to the trend you witnessed in Pakistan, but gradually the costs came down, which is also happening here. There is a new price regime given by NEPRA now, so let us see how the market reacts to that.

BRR: You mentioned that renewables have become part of the base load in Denmark. But for some reason policymakers in Pakistan have gotten the impression that renewables cannot become part of base load. How can Danish co-operation play a role in increasing Pakistan’s share of renewable energy in its energy mix?

AOT: I think the government has an interest in addressing these concerns and we are in discussions with the Ministry of Water and Power to solve this issue. Denmark has had a positive experience in helping China, Turkey and Indonesia with helping them increase the share of renewables in their energy mix. Denmark has also initiated government to government collaboration with Pakistan on grid integration of renewable energy.

Of course, it requires a lot of technical expertise and technology. But the current cap on 5 percent intake of renewable energy can be increased to 20-25 percent of the total power mix in Pakistan.

Our approach that we have adopted in China and other countries as well has been to get together the civil servants and experts. We hope to invite our experts to a seminar in the coming months to have discussions with the stakeholders including the Ministry of Water and Power, NEPRA and NTDC. The objective is to put them together at an operational level and then start off the collaboration.

It is not a money intensive area but rather a targeted intervention that aims to provide the requisite technical skills for renewable induction into the grid.  But our experience from other countries has been very positive and the results coming out very rapidly. That is what we hope to do.

Fortunately, there is also a lot of financing available from multi-lateral development banks, and they are very actively engaged in addressing Pakistan’s grid constraints.

BRR: How important do you feel the transition to renewable energy for a country like Pakistan?

AOT: It will be a big win for Pakistan if it manages to increase the renewable intake because in the next five to ten years the prices of renewables will continue to go down, and it will outcompete traditional fossil fuel based electricity. This will completely disrupt the existing system of power generation and distribution. If you have renewables cheaper than fossil fuel based energy, then there is no argument for not doing it.

Then what it takes is the adaptation to have a much larger intake of renewables, and a country like Pakistan needs to start now. It is not possible to go from zero to 50 percent renewables in the energy mix in a short period of time.

You have to think strategic and long term, because if Pakistan does not start adapting now, it will miss the train. Eventually, the consumers of Pakistan will pay a higher price for electricity in the coming years if it does not promote renewable energy.

BRR: How much investment do you see coming into the renewable energy sector of Pakistan by Denmark?

AOT: Vestas, which is the world’s leading producer of wind turbines, is hoping to put up a 1000MW wind power plant, and they are working with the federal and provincial government to start off that project. That will be by far the biggest investment made by Denmark in Pakistan.

Generally, the investment depends on a lot of factors including regulatory framework, grid capacity to take renewables, success of CPEC projects and the future demand of electricity in Pakistan. Again, you could have far larger wind take than what you have right now.

The general conditions are there, but a lot factors need to fall in place for wind energy to succeed. My hope is that if we can pull off the 1000MW project, which will initially start off as 250MW, and showcase it to be competitive in terms of price with the traditional fossil fuel based energy then it will be an eye-opener.

There has been criticism that for a country like Pakistan, renewables are expensive; but if projects like this can prove that it is not the case then it could be a game-changer indeed.

BRR: Denmark has a lot of expertise in clean water and sanitation which is Goal 6 of the SDG’s. What kind of assistance can be provided to Pakistan in this area given that it is poised to become a water scarce country in the near future?

AOT: There was a World Bank report published recently that showed that only a very small part of waste water is treated in Pakistan. Water scarcity is an imminent threat for a country like Pakistan. Therefore, something needs to be done on an urgent basis.

Previously, waste water treatment was quite energy intensive, but the technology has now improved considerably. Denmark has waste water treatment plants that are actually more than 100 percent energy recovery plants. What you do is you use the biomass in the waste water treatment and you can produce electricity from that, and put it in the system that makes it more than 100 percent energy recoverable.

We are interested in sharing our expertise with Pakistan and are in talks with the Punjab government for a waste water treatment in Faisalabad. There is a lot of industry there but only a small part of waste water is treated. The rest is dumped and a lot of that is subsequently used for irrigation.

There is DANIDA business finance, a soft loan, where 35 percent is a grant element that we hope to introduce to finance the waste water treatment plant in Faisalabad using Danish technology. This will be a showcase project aiming to change the perception of waste water treatment here in Pakistan. You can use it for irrigation or other industrial systems.

The feasibility study will be undertaken this year and hopefully next year the project will kick off. It will be part a credit and part a grant.  The idea is to gradually scale it up and cover other cities. Again, just like energy the challenges that Pakistan faces in water management will mean that all cities will need to install waste water treatment plants in the coming years.

 BRR: There has been considerable work done by Denmark globally to help countries with achieving gender equality, also a part of the SDGs. What initiatives are you pursuing to promote gender rights in Pakistan?

AOT:  Denmark considers gender equality as not only a right in itself but also as a key part of a country’s development. The Nordic countries and our development of the welfare model did not really take off until the women joined the labour force which happened during the 1970s.

The same thing will happen at a certain point in Pakistan when the birth rate goes sufficiently down coupled with increasing growth resulting in a shortage of labour. The women will have to join the labour market, both from their own will but also from society’s need.

This will be a huge benefit to Pakistan’s development aspirations.  We are working with UN Women and Oxfam to help Pakistan realise this untapped potential by educating young women about their rights and opportunities. I can see there is gradually more awareness and discourse on these issues which is a positive indicator. The recent legislation pertaining to women rights also reflects the government’s resolve to tackle gender equality.

BRR: How is trade progressing between Pakistan and Denmark?

AOT: It is doing quite good actually. We just got the trade statistics for last year and the export from Denmark to Pakistan increased by more than 55 percent, whereas Pakistan exports to Denmark went up by 30 percent. The total trade figure is approximately between $500-600 million, and the balance of trade is almost neutral.

BRR: What is the potential for increasing trade between the two countries?

AOT: Denmark has a large fashion industry so there are a lot of textile imports from Pakistan. The exports from Denmark are to a large extent machinery, pharmaceuticals and technology.

However, the potential is much bigger than what is being realized now. In the long term the opportunity for Pakistan is to become a production hub. You are well located geopolitically to be an exporting hub to Europe and Africa in the future. The Chinese model could be followed in this regard. Pakistan has the ingredients to do so: low cost labour, well educated workforce, highly skilled business people.

Whenever I have Danish business delegations coming to Pakistan, they go back with a positive image of Pakistan. Especially if the security situation continues to develop positively, I see no reason why Pakistan would not take off within the next 5-10 years. If looked at from a European perspective, companies who are the first movers in Pakistan will also benefit from this.