Najam Ahmed Shah is Chief Executive Officer of Quaid-e-Azam Solar Power Pvt. Ltd (QA Solar). An Electrical Engineer by his first degree, he holds a Masters in Manufacturing and Supply Chain Management from Cranfield University, UK. He is a Fulbright Scholar and an Eisenhower Fellow and also holds a Masters in Public Administration from Harvard Kennedy School. Previously he has worked in various capacities for Siemens, K Electric Bin Qasim Unit 6, HUBCO Power Plant and KAPCO CCPS.
BR Research: Give us a brief introduction of the Quaid-e-Azam Solar Park?
Najam Ahmed Shah: Considering the prevailing energy crisis in Pakistan, Government of Punjab wanted to come forward in support of the Federal Government by exploring the potential of solar energy as this sector was totally untapped. The process was not easy as this entire sector was needed to be built from scratch. There was no tariff, purchase agreements, grid code, incentives or investors to invest in the sector. It was in 2013 that the Energy Department of the Government of Punjab allocated 6500 acres of unutilised desert land near Bahawalpur on lease for a nominal rate of token $1 per acre per annum. Simultaneously, the provincial government invested in road network from the airport and the city towards the location, water availability, and security on the assumption that it would attract huge investment. Federal Government through NTDC ensured evacuation of the electricity to be produced through up-gradation of existing 132 kV grid and by building another 220 kV grid station.
At the same time, Quaid-e-Azam Solar Power (Private) Limited, a wholly owned company by the Government of Punjab was established in September 2013 for the pilot project of 100 MW solar plant. The idea was to walk ahead of all, work on security documents, get the tariff, and the know how of the technology, and pave the way for private investors to follow suit. When the project was launched, there was no in-house knowledge that could have helped QA Solar scrutinise and single out the top-notch contractors for the project. QA Solar procured one of the best consultants in the world in order to supervise the best procurement, implementation and efficient running of the project. At the same time the company built its human resource with a mix of senior experienced minds and young energetic up-coming professionals from around the world. It was because of all this that in a six month time period, Quaid-e-Azam Solar Power (Pvt.) Limited was all functional. An achievement for the company is that it procured the services of one of the largest EPC solar plants contractors ie, TBEA Xinjiang Sun Oasis Co Ltd, in the world for the construction and operation and maintenance of the project for a period of 25 years.
BRR: So what has been the result so far?
NAS: The project timeline was such that the installation started on site by end of October, 2014 and was completed by early February, 2015. Subsequent to that the commissioning was being carried out, and the first megawatt of solar power was added to the national grid on March 30, 2015. In less than 10 days the last megawatt of 100MW was added to the grid, and since then, the project is functioning and supplying power to the National grid. We will officially disclose our contribution in the inauguration of the first 100MW of solar power tomorrow. Our next step will be to spend two months of performance and testing before our commercial operations date.
I would also like to mention here that it was based on our most competitive EPC price lock that NEPRA was able to reduce the tariff further in the same year. Initially, the levelized upfront tariff was announced at a higher rate of 16.29 cents however, it was later reduced to 14 cents. This new levelized upfront tariff is also our ceiling, and it will be less than that when the project runs and show results over years. You see the market had estimated an EPC of $170-180 million per 100MW in early 2014, while our final bid contract is $131 million dollars that was not believable or attainable before. We have proved this impression as wrong. Solar is now open as we have the tariff, EPA, implementation agreement and the grid code in place.
BRR: How different is setting up a solar power plant than a conventional hydro, gas, coal and oil-based power plant?
NAS: With regards to time, the setting up of a solar power plant is way quicker than oil, gas and hydel power projects. The fastest ever recorded time for setting up a solar power plant was around 4MW installation per week by an American EPC giant. At our site, we have done more than 2MW per day in installation, which is a record. Normally implementation of a solar power plant is fast but we have been faster because the government wanted it to happen as quickly as possible, and we worked 24/7 on it with around 3000 people in three shifts to complete the implementation of the project in six to eight months. While working really hard for quick installation, we also ensured that quality installation was being carried out through our German consultants in the role of Owners Engineer and Lenders Technical Advisors. The end result is in front of you.
BRR: Under what mode does Quaid-e-Azam Solar Power (Pvt.) Limited operate?
NAS: The government had two options: one was the GENCO mode where it is just a development project and the second one was to walk your way through and create a path, so that others can follow you as Independent Power Producers. We chose the hard way... Quaid-e-Azam Solar Power (Pvt.) Limited was created as an IPP with 25 percent equity by the Government of Punjab with 75 percent debt financing from Bank of Punjab. We are thankful to the management and board of Bank of Punjab for their support right at the beginning when people were not very sure about our bankability due to new technology, non-availability of robust security documents and its associated apprehensions. Now there is a gate crash at the park and funding is freely available, but BOP support can never be undermined being the pioneering bank in solar sector investment in Pakistan.
BRR: What are the other costs in this 100MW solar project?
NAS: Aside from the EPC of $131 million, other costs would be around $15-16 million including the Interest during Construction (IDC); IDC is a major cost. This 100MW project was supposed to be $153 million in total, but it is now estimated to be around $146 million as the IDC is expected to be reduced since we constructed it at a very fast pace.
The fuel cost is negligible and O&M is just two percent of the EPC value, which are peanuts in comparison to the fuel and O&M costs incurred in conventional power plants. In renewable, upfront cost is high whereas the O&M cost is nearly insignificant. I would like to mention here that solar projects are indigenous with no fuel risk, no foreign exchange risk, no political risk and no fluctuation and escalation in terms of inflation. On the other hand, the oil coal or gas based power plants though mandatory and necessary because of the base load, have their cost continues to grow with an increase in oil cost.
BRR: What is the return on these renewable IPPs?
NAS: There is a minimum 17 percent guaranteed rate of return (ROE) in dollar terms on all renewable, which is indeed a good incentive. The company and its board are very confident that it will have higher returns with the quality and equipment the company has.
BRR: You are the first one to generate 100MW from a piece of land in Quaid-e-Azam Solar Park. How much can this solar park produce in total?
NAS: The land is not an issue at the park. As per the grid evacuation studies conducted, 1000MW of power can easily be evacuated. However, it has to be coupled with how much the Pakistan grid can sustain. A study conducted by NTDC showed confidence in evacuation of 1000 MW in the national grid. However, this is the limiting factor so far.
Evacuation of 400MW with 132KV transmission line already exists at the site. 600MW evacuation grid with 220KV is under construction by NTDC, and will be completed in a year's time.
BRR: How many units of electricity can be produced from your 100MW solar power projects at Quaid-e-Azam Solar Park?
NAS: We expect to produce more electricity than the 153 Gigawatt hours per annum calculation by NEPRA for the first year.
BRR: What is the status of investors and land being allotted for these solar projects at Quaid-e-Azam Solar Park?
NAS: 1MW takes around four to five acres of land for solar power production. 10,000 acres of land has been transferred to the Energy Department for the said purpose. Out of this, the Department has developed the park on 6500 acres for 1000 MW. There is ample space for extension as far as land of the park is concerned. There is a tremendous response from all around the world because of the success of the 100MW project, and the park is inundated with requests for land allocation.
Most of the interest emerging from abroad is from China. The China-Pakistan economic corridor has allocated 1000MW plants loan for the park. This would entail loans coming from Chinese banks to Chinese companies, and the companies would invest this money and will provide return to the country. Two years from now, we are hopeful that 1000MW will be coming from the private sector as we have successfully laid precedence.
Yes, we have more land to allot further, but it's not the land but the stabilisation of the grid. So the next step would not be allotting more land at the same site but also some other areas. Government of Punjab has initiated another project for identified 50 sites for small solar power plants from 1MW-50MW all over Punjab near the load centers.