Pakistan is currently facing one of the major economic crisis. Arguably, the energy sector has played its role in escalating this mess. Economic growth is fundamental to energy and it is highly corelated to energy consumption and its prices. Thus, adequate reforms in the energy sector are much needed to potentially pull the country out of this economic clutter.
Whenever Pakistan seeks to access debt facility from the IMF, energy prices tend to go up. Simply because the government finds it convenient to generate revenues by raising energy prices to payback the debt costs. Apparently, this forthcoming IMF bailout package will raise the energy prices. This in turn can lead to increase the cost of production, damp exports, stagnate the industry and slows down the economy further. As a result, export sector could face stringent competition in international market due to high energy prices – adding further strain on export targets.
To keep this crisis in check and gradually address this challenge, Pakistan needs a feasible strategy for structural reforms. Those reforms requires the policy makers to take tough decisions in order to encourage competitiveness, favorable energy mix, reduce dependence on imported fuels and promote indigenous resources with focus on renewables. For this strategy to bear fruitful outcomes, policy insight, good governance and coordination would be critical to cut down system inefficiencies across the energy supply chain.
According to a recent World Bank report, power sector inefficiencies in Pakistan cost the economy equivalent of 7 per cent of GDP that comes around $18 billion. These inefficiencies emerge out of upstream sectors (oil and gas production), and travels through entire energy supply chain from energy production, transmission, distribution and all the way to consumers. One of the most fundamental structural flaws of the energy sector is its unfavorable energy mix with its heavy use of imported fuel. It is highly vulnerable to geopolitical events and fluctuating prices in the international market. Pakistan’s total power generation capacity stands at roughly 30,000 MW of which imported fuel constitutes about 60 per cent, 30 pr cent hydel, 6 per cent nuclear and 4 per cent renewables.
It is simply uneconomical to connect remote areas to electricity grid mainly because of low energy demand. Renewables can bring energy access to millions of people in underprivileged areas
Worldwide, electric vehicles are gaining quiet some momentum and disrupting the oil markets. High conversion efficiencies, cheaper running costs and lesser emissions make an ideal backdrop for widespread adoption of electric vehicles. India has set an ambitious target for converting to EVs by 2030. We can take advantage of this emerging revolution and explore alternatives. Vehicle production lines in the country may gradually be replaced initially with hybrid engines and eventually increasing the share of electric cars – gradually phasing out Internal Combustion Engines by 2040. The demand for automotive fuels and heavy imports would go down tremendously while easing up on country’s foreign reserves. EVs can also address the issues related to vehicular emissions and reduce the impact in the cities. In short term, the government could use Electric Buses for public transport with utilization of available excess power to address challenges of capacity payments.
Globally, investments in renewable energy sector are setting new records with fastest capacity addition of wind and solar supply. Thanks to stunning price drop of renewables due to technological innovations. In many areas, wind and solar have become more competitive and cheaper than oil, nuclear and coal. In contrast to this global development, growth in large-scale or grid connected renewable power in Pakistan has been rather miniscule. Pakistan is blessed with an enormous amount of renewable resources. It has an excellent solar insolation; decent wind energy corridors; a long coastal line; large livestock population and agricultural waste to generate bioenergy. Good news is that the current government is making its efforts and intends to increase the share of renewables with its target at 30 per cent by 2030.
The current energy mix is unsustainable and this needs to change in favor of indigenous resources, including local coal, gas and hydro, and increased share of solar and wind. There is a valid argument that it is challenging to regulate and ensure stable supply of renewables on a grid scale. Because there are certain limitations with renewables as the sun does not always shine and wind does not always blow, so they require an alternate power plan and backup storage. However, together with the upgrades in the transmission and distribution network, and deployment of appropriate energy storage and micro-weather forecasting, it is now possible to seamlessly regulate the power supply in combination with natural gas plants. This combination is ideal as gas plants can be quickly ramped up or down to adjust for the variable supply of renewables.
On a distributed scale, market forces are driving consumers and as well as producers to adopt innovative renewable power solutions. Power developers are now implementing a “Rent-a-Roof” concept, which is being widely adopted in the developing counties, including India. Under this rent-a-roof concept, the project developers install the solar systems over the roof granted by consumers to generate clean power for their own use and sell excess electricity back to the grid. The widespread adoption of such an innovative concept in Pakistan potentially plunge the demand on grid scale and as well reduce the strain on fuels. Fortunately, the Government has implemented such a mechanism to connect solar power producers with grid through a net metering facility. However, given the power challenges, it has not taken off very well but it can be improved through announcement of further incentives.
In addition, renewables would be the most preferred and cost effective route to ensure increased energy access in rural or remote areas of Pakistan, as it would eliminate the need of extending new power to those far off areas. It is simply uneconomical to connect these remote areas to electricity grid mainly because of low energy demand in remote regions where population density is low in sparsely located villages. Therefore, renewables in large part can bring energy access to millions of people from underprivileged areas who are disconnected from the grid.
One can expect that the scale and efficiency of renewables and other technologies will continue to grow as we move towards more advanced scientific and technological breakthroughs. Therefore, it is high time that we plug the holes of struggling economy and adopt a practical strategy to overcome these challenges with adequate investments in sustainable energy solutions.
The author works with the Economic Cooperation Organization Science Foundation