Roadmap to overcome power crisis - II

In the last article published on August 1, we presented the road map leading to the availability of power. Equally important is the affordability of power. The electricity tariff in Pakistan is biting the domestic consumer, industry, agriculturist, traders and cottage industry. Power tariffs in Pakistan are the highest in the region hovering at 16 cents per unit, which is over 50% higher than India and Bangladesh. This has put us at a great disadvantage in terms of exports and investment. The advantage of GSP plus trade incentive granted to Pakistan is slipping away on account of lack of power availability and inaffordability.
Pakistan's global ranking of ease & cost of doing business slipped to 110th from 107th among 189 countries. Power availability and its cost is a major deterrent. With the withdrawal of subsidy on power, as per the agreement with the IMF, the tariffs will escalate further resulting in dire social and business consequences.
There are primarily two factors, which determine the power tariffs:
1. The cost of power generation, of which fuel is the main component (fuel mix) followed by plant efficiency (APCF - Annual Plant Capacity Factor)
2. The governance of the power sector in managing the technology and the financials like receivables, cash flow, margins and similar.
Pakistan started well in the 1960's by opting to adopt hydro energy as its main source of power. This trend continued up to late 1980's wherein the power tariff in Pakistan was one of the lowest in the region. Thereafter, the power mix began being dominated by thermal power plants based on furnace oil (RFO), HSD (diesel) and gas. Attractive tariffs and quick payback on investments with IRR over 18% prompted the entry of IPPs into Pakistan energy market followed by Rental Power generation. At the same time Wapda was restricted to pursue new hydro projects. This lethal combination of decisions by our policy makers proved to be a disaster for Pakistan, the effects of which we are witnessing today in shape of unrelenting circular debt and chronic loadshedding.
The remedy which now needs to be applied is to bring on grid only the power which is cost-effective and affordable. In the face of multiple challenges only the right actions can make good the wrongs of the past couple of decades and create a sustainable and feasible power sector.
The present energy mix in the power sector mainly comprises of Thermal 65% (oil 36%, gas 29%), Hydro 31%, Nuclear 4%, whereas, wind has managed a footprint with around 100 MW. Coal and other renewable energy options are hardly on the map but have a potential to be an important and feasible component of a future energy mix.
Our energy mix is appalling when contrasted with others in the region: Malaysia's generation is based on oil 2%, gas 45%, hydro 13%, coal 35% and renewable 5%. India's generation is based on oil 1%, gas 12%, hydro 11%, coal 58%, nuclear 9% and renewable 8%.
This comparison explains why our power tariffs are the highest in the region. It is criminal negligence and lack of planning on part of our successive governments for having condoned this situation for so long and having complied with the vested interests at the expense of the nation.
Pakistan's overall generation mix cost is Rs 12 per unit. Of which generation on Hydro costs Rs 3 per unit, generation on RFO costs Rs 17 per unit and on HSD it costs Rs 23 per unit. With rising and unpredictable oil prices and depleted gas supply, our 65% dependence on thermal energy is not sustainable.
Our strategy for healthy and affordable energy mix should be to revert back to the situation in the 1960's and have hydro the main source of power whereas thermal, renewable & nuclear power should serve as a base to bridge the marginal gap between supply and demand and manage seasonal peaks.
We will do well by rationalising the transmission and fuel transportation costs, if we position the hydro generation in the north, thermal (coal and LNG based) in the centre and thermal (coal & LNG based) and wind power in the south. We also need to pay attention to the national grid which needs extension and upgrades
The current list of new projects in hand, which are in different stages of implementation, includes around 29,000 MW of hydro power, 1200 MW of wind power, 1400 MW of Nuclear Power, 1500 MW of coal based power plants & around 850 MW of renewable energy with a depleting trend in oil based thermal plants (List of project published in the issue of part 1 dated 01/8/2014). This power mix scenario is great and promises a healthy energy mix whose positive effects are likely to gradually start to be translated to the consumers in midterm period (2016-2018) and with full effect felt in long-term period starting 2020 and beyond with robust growth in hydro power.
For short-term improvement in the energy mix, the inefficient RFO and HSD based power plants should be converted to coal and LNG which will provide a cost benefit of 50% and 25% respectively resulting in better tariffs and some ease in chronic circular debt and incessant loadshedding. Over 3500 MW of inefficient power is sitting idle. Its best suited for the said repurposing.
Reduction in the cost of the power generation through a better energy mix should be the focal point of our energy policy. The government's first priority should be to get on grid as soon as possible all the power plants which are in the pipeline. The government will do good to establish a special task force to remove irritants and facilitate early completions of these projects. In parallel the government should work to initiate other green field energy projects in coal, LNG, LPG, solar, biogas and similar.

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POWER MIX (% OF TOTAL INSTALLED POWER CAPACITY)

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                Present (2013)        2013-15(addl)    2016-18(addl)   2019-21(addl)

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Energy Source

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                      MW        %      MW       %       MW       %       MW        %

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Thermal (oil/Gas)   14,600     65      291      60      134      3       -         -

Hydro                7,000     31      393       8     1673     37     27,190     88

Nuclear                787      4        -       0      680     15        700      3

Wind                    -       -     1150      25      TBA      -        TBA      -

Coal                    -       -        -       -     1200     27       1000      4

Power Islands           -       -      200       4      300      8        500      2

Biomass/Biogas                  -       50       1      150      3        250      1

Geo Thermal             -       -        -       -      -        -         -       -

Solar                   -       -      100       2      300      7        600      2

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TOTPL               22,387     100   4,810     100    4,437    100     30,740    100

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