ISLAMABAD: Pakistan could save an estimated $5 billion in power costs over the next 20 years, if the country implements a major expansion of solar and wind power, says the World Bank.
A new World Bank study, "Variable Renewable Energy Integration and Planning Study", launched Tuesday, noted that Pakistan's power sector was strongly influenced by circular debt, creating a financial bottleneck for producers due to non-payments.
This resulted in protracted and unannounced load shedding.
Moreover, there are limitations and losses in transmission and distribution, tariff fluctuations, and power theft.
In order to overcome the crisis, Pakistan's government has prioritised domestic hydrocarbon production, the increase of natural gas imports, and the diversification of the installed capacity of power generation, it added.
With the recent phasing out of Load Management (LM) NTDC, LM by DISCOs has increased to some 3,000 MW.
LM Regional is a commercial problem on the DISCO level (as part of the circular debt) with no plan to reduce it, but with the general agreement that it has to be solved on a political level.
For this reason, the NTDC has so far prepared load figures including (calculated) and excluding (recorded) LM Regional, both in historic figures and forecasts, without any assumption on phasing out.
For this project, a phasing out assumption has been applied to the forecast.
In addition, the quality of recording and reporting of LM varies among DISCOs with possible errors.
There are indications that QESCO, and electric distribution company, has in the past overestimated LM by some 6,000 GWh per year.
The study suggests that Pakistan should quickly implement a major scale-up of solar and wind generation.
Pakistan needs to urgently implement a major expansion of solar and wind ("variable renewable energy," or VRE), to achieve a share of at least 30 percent of total capacity by 2030.
This would help lower the cost of power, achieve greater energy security, and reduce greenhouse gas (GHG) emissions. Following an optimal scenario with a major scale-up of Variable Renewable Energy (VRE) would save Pakistan $5 billion costs over the next 20 years, mainly from reduced fuel consumption.
According to the study, many sources of fossil fuel generation are no longer competitive and should be retired or their use significantly reduced.
This includes domestic and imported coal, which is not economical over the next 10 years compared to VRE and has the additional downsides of GHG emissions, air pollution, and use of scarce water resources.
A substantial and immediate scaling up of VRE capacity represents a "least-cost" strategy for expanding capacity in Pakistan, including consideration of the costs of integrating the variable supply from solar and wind.
Short-term reductions in demand growth-even a stagnation in demand as a result of the ongoing COVID-19 pandemic-does not impact this finding, and the country's energy policy needs to be considered over much longer time horizons.
Even allowing for the relatively short development and construction times associated with solar PV and wind projects, competitive bidding for new VRE capacity and associated investments in the transmission system should start immediately, if Pakistan hopes to reap the cost, energy security, and environmental benefits outlined in the study.
Pakistan needs to avoid repeating the cycle of load shedding followed by emergency procurement and oversupply as it has been doing in the past.
This implies that it continues the planning for new capacity (from VRE) even when the country is in a position of supply surplus, recognising that new capacity will take several years to come on stream.
Achieving a least cost electricity mix in Pakistan would require a rapid expansion of VRE, reaching at least 20 percent of installed capacity by 2025, and at least 30 percent by 2030.
It further stated that at least 6,700 MW of wind and 17,500 MW of solar photovoltaics (PV) should be added by 2030 to achieve the government targets in a least cost way.
The optimum electricity mix would require even greater additions: a total of 27,400 MW of VRE by 2030.
If this were achieved, the VRE share would represent 30-33 percent of a total installed capacity of 85,000 to 88,000 MW by 2030.
These results remain true even under a scenario where there is lower electricity demand due to weaker economic growth.
The analysis considered scenarios of lower than expected growth in electricity demand, which may now be likely as a result of the COVID-19 pandemic or due to other economic factors.
Against a lower total installed capacity of 76,900 MW by 2030 (representing the response to a 10 percent decrease in electricity demand compared to the baseline), 22,600 MW of VRE additions would be optimal, representing 31 percent of total installed capacity.
This is 1,500 MW below the government targets in the baseline electricity demand scenario.
Conventional generation options such as imported coal and imported gas are no longer competitive due to the declining cost of VRE combined with the expansion of hydropower and domestic coal capacities.
More than 10,000 MW of thermal capacity is going to be retired within the next 15 years.
An optimum expansion would see a mixture of VRE (solar PV and wind) and hydropower fill the gap up to 2032.
When unconstrained, the model suggests additional domestic coal capacity post 2032, but this does not account for the external cost of GHG emissions.
In many cases, it will be optimal to keep this 10,000 MW of capacity as a reserve (dispatching only when absolutely necessary) or to retire it earlier than planned.
The VRE in combination with hydropower partly replaces the generation from existing capacity and can lead to significant fuel cost savings.
However, costly fuel contracts relating to other fossil-fueled plants place commercial constraints on the optimal operation of the system, and therefore, on the ability to carry out such measures. Although VRE can be expanded while fulfilling the existing fuel contracts, this is not optimal.
it is no longer economical to build three conventional supply sources- imported coal power plants, combined cycle gas turbines (CCGTs), and nuclear plants-although there will be other considerations that may override a purely economic perspective.
Further, some committed plants are only drawn because of their status but not because they make economic sense or are needed for supply.
These include the Jamshoro imported coal plant and Chashma Nuclear Unit 5.
Domestic coal is not economic when the external costs of GHG emissions are considered.
Other risks, such as water scarcity and security of supply due to the concentration in one area, may further reduce the feasibility of domestic coal. Domestic coal, in addition to what is already built or committed, is not called for by the model until 2033 when external costs are excluded, despite the low fuel cost.
This is due to the even lower costs of VRE in combination with the existing power plant fleet and planned hydropower projects.
From 2033 onwards, today's assumptions would lead to an expansion of domestic coal by 13,000 to 17,000 MW due to the need for additional dispatchable capacity and the assumed low fuel costs, although there is a high uncertainty for a prediction of total costs so far into the future. However, this result ignores external costs associated with GHG emissions which, when considered, may more than double the variable generation costs of domestic coal.
If these external costs are accounted for in the long-term expansion, then domestic coal will not be economic, almost no new plants would be built, and utilisation of existing plants will be lower.
Furthermore, the clustering of more than 10 percent of the total system capacity in one part of the country (Thar mine area) far away from demand centers will require reinforced interconnection capacity to not endanger security of supply, as
well as securing of water resources.
Transitioning to a system based on hydropower and VRE would lower costs, improve energy security, and reduce GHG emissions.
Adding VRE to the system decreases overall costs by more than $5 billion (today's discounted value).
This is a reduction of $0.002 for every kWh consumed in Pakistan during the next 20 years.
This would be a one to two percent reduction, if total costs of $0.10 to $0.15 per kWh are assumed.
While not necessarily significant for most consumers, the overall impact on the Pakistan economy is substantial. However, VRE will not reduce the cost of capacity charges relating to existing plants and will only displace the output from these plants that can be varied.
Nevertheless, reducing the utilisation of these plants may allow for a renegotiation of some of these contracts, which could allow for additional flexibility and cost savings.
The additional costs of a high share of renewable energy ($0.5 to $1.5 billion) are by far lower than the saved external costs ($2 to $6 billion, depending on the scenario), representing an additional action that Pakistan could take with global (but limited national) benefits in terms of reduced GHG emissions. Furthermore, it would reduce the associated investment costs by $3.5 billion ($700 million net present value).
Although less beneficial, the government RE Policy Targets scenario is only slightly costlier (0.6 percent) than the PLEXOS Optimum and shows slightly lower VRE shares; ie, the
government targets lead to an expansion, which is close to the optimum.
This changes, if external costs of GHG emissions are considered, under the externalities scenario, where the PLEXOS Optimum is three percent less costly.
Pakistan also needs to avoid repeating the cycle of load shedding followed by emergency procurement and oversupply that has characterised the electricity sector for the past 15 years, meaning that planning for new capacity (from VRE) should continue even when the country is in a position of supply surplus.
"A large and sustained expansion of solar photovoltaic and wind power, alongside hydropower and substantial investments in the grid, is both achievable and desirable," said Najy Benhassine, World Bank Country Director for Pakistan.
"Such an initiative would lead to immediate and long-term economic and environmental benefits. It would enhance security of supply as well as positioning Pakistan at the forefront of the global energy transition. We stand ready to support Pakistan in achieving the goal of affordable, reliable power for all by 2030," he added.
"We understand that for achieving the renewable energy targets set through Alternative and Renewable Energy Policy 2019, we need to make sufficient investments in the transmission system, including modern automation and control systems and a reliable forecasting system," said Dr Khawaja Riffat Hassan, Managing Director, National Transmission and Despatch Company.
"We are convinced that with political commitment, investment in technical capacity and planning tools, and flexibility on the part of existing operators and investors, Pakistan is in a strong position to reap the benefits of greater reliance on our indigenous resources of solar and wind."
Copyright Business Recorder, 2020
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