Hydropower - a panacea?

Coal vs hydro controversy is getting heated. The other day, Imran Khan, the Chief of Pakistan Tehreek-e-Insaf (PTI), addressing a public meeting in Sahiwal, questioned the wisdom of installing coal power plants while everybody else is shunning coal. He has instead underscored the need for installing hydropower plants (which would incidentally earn hefty royalties for KPK at new rates). The issue merits serious and objective discussion devoid of political considerations. In these days of acute polarisation, the likelihood of being misunderstood is significant, hence this preface has been considered necessary.
Many people in Pakistan believe that hydropower is a panacea - solution to all electricity problems. If nail is what you have, hammer is the only solution, as they say. Earlier, Minister of Petroleum Khaqan Abbasi stated that RLNG /Gas is the solution. There was a time when nuclear energy was considered to be the solution. In the 1970s, there was a talk of installing 20 nuclear power plants. In Sindh and even elsewhere, there is a strong belief that Thar coal is the answer. In the wake of high oil prices in 2008 and onwards, there was a consensus that cheap coal is the solution and only recently one hears of opposition to coal due to increased momentum of Climate Action. Now oil and gas have become cheap again, which led the Petroleum Minister to suggest that gas is the solution. And, now, there are renewable energy enthusiasts, everybody promoting his solution or product, not necessarily for ulterior motives, but out of genuine thoughts and views.
The fact is that no energy source alone is a panacea. All energy sources have problems and risks. One has to have an optimum mix of all - almost all sources of energy that are potentially available. In the following, I venture to summarise the peculiar features of various energy sources that prove my point: Solar is available in the day only; Wind and Hydro are available in Summer only and hydro plants take a decade to complete; Oil and gas prices keep changing to extremes; coal creates the most pollution; nuclear has safety and waste disposal issues; moreover, it is available only from China at asking prices.
One would like to use local, affordable and clean energy sources. It is often difficult to find all the three factors in one, and thus one would want to have a mix that works towards achieving all the three in the aggregate level. Pollution and Climate Change affect everybody. Let us come to coal (and imported at that) vs hydro. To put briefly, imported coal was the cheapest and fastest solution that could be thought of in 2013. It so happened that China is master in installing coal power plants at a phenomenal speed. After installing a few (Sahiwal and Port Qasim) and ADB Jamshoro, perhaps, the rationale of imported coal plants may not be there in the short run, as 10,000 MW of power plants would be operational by 2017-18. Debt servicing requirements and foreign exchange costs of importing coal should discourage further increase in foreign exchange liabilities. We should install coal power plants in Thar only, which happens to be the policy of Ministry of Water and Power, although this policy is under great pressure from government of Punjab which has circulated a long list of coal projects.
While it is true that the developed countries are abandoning coal, everybody is not leaving coal. China and India are still launching coal projects. Pakistan would not have been able to implement coal projects in the absence of funding from China. International financial institutions (IFIs) generally do not finance coal these days. Until the problems of renewable energy are resolved, there is still a justification for coal power plants based on the utilisation of local resources such as Thar in Pakistan. Coal will continue to be in business for quite a while, although coal trade may go down.
Coal and hydro would complement each other. There is almost no hydro in winters. Pakistan has a large hydro potential, may be around 50,000 MW. We have utilised only 6000 MW only. Decades have been wasted in debate over Kalabagh while the Bhasha has been inaugurated several times. Both Kalabagh and Bhasha would have storage dams catering to water requirements as well while producing electricity. It is hoped that the present government manages to take steps enabling start of construction of Bhasha before the end of 2017, either through local resources or through a deal with the Chinese.
It is important here to narrate and discuss the risks and difficulties involved in Hydropower. It is not as wonderful as it appears to be in the popular circles. First of all, all hydropower plants do not have a water storage component. In fact except for a few, like Tarbela, Bhasha and Kalabagh, no other hydro projects would provide any significant water storage at all. Apart from seasonal variations in water/electricity supply, there are long-term variations as well. Brazil depends on hydropower to the extent of 64-80%; it had severe problems of power supply due to drought conditions recently. Brazil is now taking steps towards having its access to more non-hydro sources. Due to climate change reasons, it has been projected that in Pakistan there would be large variations in precipitation and water supply resulting either in extraordinary floods or drought conditions. Having a large component of power supplies coming from hydro would compound our difficulties; no water and no power. Thus, there is an upper limit on the ratio of hydropower that one can have in the total energy mix. A large construction period, environmental issues and displacement of people have been the other reasons discouraging the introduction of hydropower in our energy mix.
One or two of the major fallacies based on which a popular support for hydropower has been built is that hydropower is cheap and that it brings water also. I have discussed the water component earlier; let us examine the cost issue. It is true that until recently, hydropower tariff was of the order of Re 1 per unit. Now, it is Rs 3.50 per unit, partly as a result of increase in Royalty payments to KPK. It is still an attractive price as compared to Rs 5-10 per unit of fossil-based power plant tariff. However, no more. All recent projects are to produce expensive hydro electricity. Of all the people, KPK government is developing expensive projects costing in excess of 3.5 million USD per MW, resulting in a tariff of more than Rs 10.00 per unit, equal to or exceeding oil based electricity today. Neelum-Jehlum has the same situation, although it had unique problems. There are issues of high relending charges which will result in a tariff of Rs 14 per unit. In any case, NJHPP tariff cannot come below Rs 10 per unit, whatever financial restructuring is done to it.
In our neighbourhood, in India, the CAPEX of hydropower is not so high. On the average, it is 1.5 million USD per MW, resulting in a tariff of about 5 cents per kWh, which appears to be quite reasonable. Far from home in Brazil, new hydropower projects are being auctioned with a price cap of 7.7 US cents per unit of tariff. Offers are expected around 6 cents. There is something terribly wrong or deficient in our hydropower sector. 1.5 million USD per MW vs 3.5 USD per MW as mentioned earlier and a tariff of 10 cents plus vs 5-6 elsewhere. There is a difference of more than twice. I wouldn't jump to the usual reasoning, being very popular these days in political circles and otherwise. May be there are design and engineering issues, or of the monopoly of contractors coming from only one country, perhaps due to law and order situation. As there is long gestation period involved, there might be issues of escalation formulae which are normally understood with difficulty and the multi-currency issues as well. There could be contract management issues as well. One of the projects in KPK has been awarded on EPC terms, while there is a scope of very large variations in scope and magnitude of work, as in hydropower plants due to geo-technical conditions and spatial issues, large cost variations can occur. EPC contracts are normally awarded where scope of work is fairly standard, like building an oil refinery or an oil/gas power plant. EPC in hydro can make client or contractor bankrupt. In this case, it appears, it is the client. But never mind, KPK is flush with Hydro royalty money. If it is established that a CAPEX of 3.5 million USD per MW is a reasonable average, then it would be a sad day for hydropower sector, for it would indicate incompetitiveness of hydropower. Already nuclear power people in the country are saying this. They argue that their CAPEX is the same, but with a capacity factor of almost twice that of hydro and nuclear fuel is very cheap. This does not mean that, in such a case, there would be no hydro, but it would certainly, make its case weaker. As such even in the cheaper days, fewer hydro plants were installed.
As billions are involved, it may be worthwhile spending some money to investigate the issue through credible international advice and a third-party input. Planning Commission had decided to commission a study on the issue of high CAPEX in hydropower in the context of NJHPP project. The outcome of the study should point out the reasons which would have general applicability as well. The study has not been commissioned yet, although, it is the requirement of ECNEC. I would not insinuate or blame unnecessarily. The study should be commissioned without losing any more time. Finally, it is in every body's interest that efforts be made to bring down the hydropower CAPEX so that more of hydropower capacity is brought into our energy mix subject to the issues that I have pointed out earlier.
Climate Change imperatives have made it essential that we start building as many storage dams as we can. Opposition to Kalabagh dam is eventually to go away in these circumstances. However, Bhasha is ready for implementation. It requires funding of the order of 15 billion USD, although over a period of 7 years. If priority is given to Bhasha dam (6000 MW), unless we want to have a water crisis in next ten years, then the coal controversy would be abated, additional coal projects would go into background, at-least momentarily. Bhasha must be our first priority now; beg, borrow or steal. It may be worth revisiting Tarbela V and even delay Dasu for advancing Bhasha, if funding constraints are facilitated, after all there is an upper limit to the borrowings. Renowned economists such as Dr Hafiz Pasha have warned against excessive borrowings. In this space, we have also argued for enhancing exports through mineral projects such as Reko Diq's copper. There must be quite scope left in the CPEC. As contrary to popular understanding, most of the power projects under construction today in 10,000 MW package are non-CPEC. Strong negotiations should ensue with Chinese on support of Bhasha. Hydropower may not be a panacea for our energy ills, but certainly Bhasha is for our water requirements, which also produces power; two birds with one stone. (The writer has been a member of the Planning Commission until recently)