Daily Times

Reports from multiple sources indicate that electricity prices in Pakistan are increasing rapidly, and if not checked in time, would grow into a monster that would haunt the nation in just a few years. Some analysts blame the pervasive inefficiencies and poor management within the power sector entities to be the root cause of this issue. This writer tends to differ with such views. Efficiency and management within the power sector must improve, no denying, but these steps alone may not rid the power sector of its root ailment. A new vision coupled with a systemic overhaul of the whole power sector is needed, along the lines suggested below, to save it from sinking and to transform it into a viable contributor to power the economy and to keep the lights on.

According to a recent study (“Fixing Pakistan’s Power Sector”) by Engro Corporation, electricity prices in the country are already higher than most other countries in the South and East Asian region. Another independent report, “Tariff Appraisal Study” from the ADB (October 2018) also corroborates these findings. The Engro report fears that electricity prices would increase by another PKR 5 per kWh by 2025, if we continued to follow the business-as-usual trajectory, and a large portion of this hike will be driven by capacity payments to owners of power generating plants.

The problem with higher electricity prices is that it stifles both human growth as well as economic development. Electricity prices, if exceed beyond affordability of citizens (generally considered below 10% of their income) adversely affect their quality of life, compelling them to compromise on food, education, and health. This also forces them to use traditional fuels which seriously affect their health and safety. Lack of electricity at reasonable prices to agricultural consumers, commercial businesses, and industries also hurts their competitiveness, forcing them to seek alternatives, shift elsewhere, or in extreme cases, closedown. It is, therefore, critical that we eliminate the causes of our higher electricity prices and take measures to ensure availability of affordable, secure, and sustainable power supplies to our people and economy in the future.

Two recent market developments are worth mentioning that pose a fatal threat to the continued viability of the traditional grid, but simultaneously offer an unprecedented opportunity for our leaders to transform the way electricity is produced, transmitted, and delivered to its end-users in this country

The primary cause of higher electricity prices in Pakistan, in this writer’s view, is our over-reliance on centralized power supply system which is largely based on imported technologies and fuels. This has led to supplies which are prohibitively expensive, inequitable, and unsustainable. While the wisdom of this approach in the past can be questioned, no amount of rumination will reverse these decisions. All our efforts now should focus on seeking a future course that will mitigate the adverse effects of past decisions in the short run, eliminate these causes in the medium run, and shift to more affordable and sustainable electricity supplies in the long run.

Two recent market developments are worth mentioning that pose a fatal threat to the continued viability of the traditional grid, but simultaneously offer an unprecedented opportunity for our leaders to transform the way electricity is produced, transmitted, and delivered to its end-users in this country.

First, only last week, PV Magazine reported a deal between Jinko Power of China offering a record low price of USD 0.0135 per kWh to the Emirates Water and Electricity Company (EWEC) for its 1.5 GW Al-Dhafra Project in a 30-year power purchase agreement (PPA). A 225 MW storage facility with this project is also under active negotiation. Second, the prices of smaller battery packs have fallen from US$ 1,000 in 2010 to below US$ 200 per kWh last year, and continue to fall. Energy storage is attracting huge investment with a major chunk going to lithium-ion battery technologies. Some analysts estimate that the unit cost of electricity produced from a solar-plus-storage system will drop 10 to 15% each year through 2025.

These two apparently unrelated developments, if joined, should be sufficient to make our power sector decision-makers lose their sleep, as this may just be the “tipping point” for PV technologies to combine with behind-the-meter battery storage systems to convert consumer homes and business locations into micro-utilities (forecasters, planners, generators, and consumers of their own electricity needs), thus “cutting their cords” with the grid. One can argue the timeframe for en masse grid defection, but the writing on the wall is too evident and the threat both real and imminent. Some in this business may consider it a ludicrous conjecture, but they better re-visit the fate of landline telecom industry in the 1990s.

The whole power sector edifice is built upon a single premise-the electricity demand will evolve within a tight band of forecasts. Any significant deviation from the forecast can render the system either with over-or under-capacity, each with its own costs. We hear some experts emphasize that we need more accurate forecasts. Yes, we did, but only if the world around us were stable. It’s hardly so. Energy markets around the world are inconstant flux. The patterns of consumer demand, its spatial and temporal distribution, consumers’ ability and willingness to pay, and their tolerance to persistent and prolonged interruptions, all have acquired more importance than the accuracy of forecast at the national level.

Electric utilities around the world are experiencing demands in their systems stagnate, with some even facing negative growth. Causes for this decline are many and varied, but are considered by analysts as permanent and not cyclic. The perceived direct link between the GDP and electricity demand has already been broken in the developed countries. As a developing country, Pakistan may expect some positive correlation between its GDP growth and electricity demand but assuming a one-to-one positive link between the two and building a monolithic and capital-intensive power supply infrastructure around this assumption could prove suicidal for a country that is already struggling to find customers for its previously-contracted generating capacity.

Pakistan’s power sector, therefore, faces a defining moment in its history, and an existential threat. It can continue to travel on the traditional path-trying to serve all of its demand for electricity through the centralized grid-or adopt a more flexible and agile approach by accepting that electricity consumers are no more a helpless lot captive to its outdated power supply system and a dumping ground for all of the costs of poor policies, mismanagement, and inefficiencies of the past. Consumers, unlike the past 70-plus years of our history, now have multiple choices on controlling their demand and meeting it via other non-grid but competitive options. Installing of PV systems on their rooftops or in a nearby location with some storage is just one such option.

National grid and the electricity supply from it can still be a desirable and cost-effective option for a majority of electricity consumers in the country provided our leaders and policy makers are willing to change their old mindset that considers electricity to be a privilege they provide to consumers. Instead, they will have to consider it as just another business product or service which consumers will select based on its quality and price. If they are willing to make this critical mental switch, which admittedly will not be easy, options to continue the relationship gainfully for both the suppliers and consumers of electricity abound. They key, however, will be to shed their myopic view of the world and look into the future from a different vantage point.

(To be concluded)

The writer is a concerned citizen of this country and can be reached via email at: msrahim@hotmail.com