Achieving a Cleaner and Resilient Generation Mix

In Pakistan 58 million people lack access to electricity. With growing incomes, population and urbanization, energy demand is increasing, placing pressure on domestic resources. Expansion of electricity generation to meet rising demand and reduce the endemic power blackouts and outages has been a high priority of the Pakistan government. Despite the existence of indigenous natural gas, renewable, and coal resources, Pakistan has become more dependent on imported oil, gas, and—recently—coal resources. Although natural gas-fired generation provides the largest share of electricity output, Pakistan has significant hydropower production, some nuclear power, and increasing renewable energy generation. Now the country is poised to enhance the share of nuclear portion of its energy mix. In its report “Transforming the power sector in developing countries: Geopolitics, poverty, and climate change in Pakistan,” the Atlantic Council has suggested a robust strategy for Pakistan. The following piece consists of an excerpt from this report.

As a large developing country, Pakistan faces a wide range of problems, especially related to overcoming poverty and improving the health, education, and employment opportunities for low-income groups. The energy sector is critical to progress in addressing these problems, but inadequate investment, unreliable energy supplies, weak governance, and poor fiscal management of the sector have been major constraints. The problem of creating a viable energy sector that can mobilize the needed investments and support sustainable economic growth is a fundamental challenge. This section examines the position of Pakistan with respect to five common challenges affecting power-sector transformation, as identified in the initial strategy report, namely: (1) meeting growing energy demands and moving to a cleaner energy mix; (2) improving governance and transparency; (3) increasing affordability and access; (4) addressing environmental degradation and climate change; and (5) achieving power-sector financial viability.

Strategic Priority

Pakistan should continue to diversify its electricity mix but reorient efforts to accelerate the move to lower carbon sources and away from oil and coal by focusing on gas, renewables, and increased energy efficiency. It should seek to facilitate the private investments needed to meet its 30 percent renewables target by 2030 and ensure that the transmission investments required to integrate these sources into the grid are realized and carefully coordinated with generation-expansion plans. Given the declining costs of renewables, its favorable solar resources, and high electricity access requirements, Pakistan should give greater priority to minigrids and distributed solar-power systems for towns and villages.

Discussion

Pakistan has ambitious plans to expand electricity-generation capacities. Currently, Pakistan’s installed capacity stands at about 34,282 MW and Pakistan’s target is to increase generation capacity to about 50,000 MW by 2022 and 62,186 MW by 2025. Meeting peak load, estimated at over 25,000 MW in 2019, is a problem, exacerbated by transmission and distribution limitations. To address the frequent outages and rising electricity demands, Pakistan has turned heavily to imported natural gas and coal.

1. Natural Gas

Pakistan has already achieved significant reductions in oil generation, especially through substitution of natural gas, with both the level and share of oil declining from 30.22 terawatt-hours (TWh) (26.49 percent) in 2017 to 14.32 TWh (11.54 percent) in 2018. The substitution of gas for oil has substantially reduced Pakistan’s fuel import bill by more than US$2 billion. Pakistan has rapidly increased the use of gas in its power generation since the initiation of LNG imports in March 2015. In March 2018, gas power generation accounted for 43 percent of total power generation (3,013 gigawatt hours), with LNG providing 19 percent and domestic gas 24 percent. Three major new gas power plants in Punjab province, totaling 3.6 gigawatts (GW), accounted for the significant increase.

Pakistan has two floating storage regasification unit (FSRU) LNG facilities at Port Qasim, the Excelerate/Nakilat 3.8 million metric tons per annum (mmtpa) FSRU at the Engro Elengy Group terminal, and a 5.7 mmtpa unit owned by Pakistan LNG Terminals Ltd. The main LNG import contracts are for supplies from Qatar. The Cabinet Economic Coordination Committee in July 2019 endorsed planning for a third terminal, and other projects by major oil companies including Shell, Exxon, and Total have been proposed. LNG imports are expected to grow with estimated levels of 14 million metric tons (mmt) by 2022 and 21 mmt by 2025, up from just 6.7 mmt last year.

Pakistan’s focus on LNG and gas-fired power generation has opened new opportunities for US LNG exports and investment by the private sector. General Electric has a long-standing presence in Pakistan and plays a major role in Pakistan’s power system, with its technologies providing as much as 25 percent of Pakistan’s total generation. This work includes new gas units, both large and small gas field units, steam systems, and wind turbines.

2. Coal

Despite environmental concerns and its Paris NDC commitment to reduce projected CO2 emissions, Pakistan is counting on coal to play a significant role in the nation’s future power mix, with a combination of both coal imports as well as domestic resource development. Pakistan has 6.6 GW of coal plants under construction, with coal capacity additions totaling 11,353 MW projected for 2025. The Pakistan Vision 2030 targets installed coal capacity of 19,910 MW by 2030, representing 19 percent of the projected installed generation mix. Estimates foresee Pakistan’s imports of coal rising from about 12 million metric tons (mmt) in 2018 to 30 mmt in 2020 and 40 mmt in 2025. Imports will increase to meet the needs of two new, large coal plants at Sahiwal and Port Qasim.

Pakistan is therefore moving rapidly to implement its policy decision to develop almost from scratch a coal power industry with all the attendant infrastructure requirements for import and transport. Although this follows the trend in some other South and Southeast Asia nations, there are serious questions about the viability of this strategy from both economic and environmental standpoints even though both the Sahiwal and Port Qasim coal plants are efficient and use super-critical coal combustion technology. In Pakistan, one recent study using data from the energy regulator shows (see Figure 5) that both renewables and gas are less costly than coal (with wind at 4.3 cents per kWh, solar at 5.3 cents, gas at around 6 cents, and hydro averaging a little over 8 cents, compared with 8.4 cents for super-critical coal. Plants such as the China Huanang coal plant at Sahiwal have been given a power purchase agreement price of 8.36 cents per kWh. These investments create long-term obligations and the coal plants may become stranded assets, potentially obsolete and weighing on balance sheets as renewable energy costs decrease and the costs of climate change increase.

3. Nuclear

Important developments are evident in global nuclear markets as Russia and China seek to expand their political and economic influence in developing regions through the export and state financing of nuclear power plants. China and Russia are building over 60 percent of the nuclear reactors currently under construction in the world today. Pakistan is thus far the only foreign country operating Chinese commercial nuclear reactors. Chinese nuclear engagement with Pakistan dates to 1993, when the China National Nuclear Corporation (CNNC) began construction of the first of four small Chinese CNP300 nuclear reactors at its Chashma complex in central Pakistan, with commercial operation in 2000, 2011, 2016, and 2017. As it pursued export opportunities, China in 2015 began to construct near Karachi two of its larger, indigenous-designed Hualong One plants (1,000 MW each), the first and only Chinese Generation III plants thus far to be built outside China. They are expected to be completed by 2021 and 2022 and will be an important showcase, together with the four Hualong One plants under construction and ten planned plants in China. CNNC is building these units with reported financing from a US$6.5 billion loan in 2014 from the Chinese Export-Import Bank. A third Hualong One unit for the Chashma complex is at the tender stage, but it is unclear whether the financing has been finalized. Pakistan envisions 8,800 MW of nuclear capacity by 2030, providing 20 percent of its electric power.

Although nuclear energy is a small part of Pakistan’s power mix, these huge projects create a long-term financial, technological, and energy dependency on China and its authoritarian system and state companies. They reduce transparency in the sector and raise concerns about safety and security. Pakistan, like India, has not signed the Nuclear Non-Proliferation Treaty, but the nation is a member of the International Atomic Energy Agency (IAEA). In 2018, Pakistan established a four-year joint program with the IAEA to work on ensuring the safety and security of the new plants. The economics of the new plants are still unclear, but given the reported size of the loans, it is reasonable to estimate that the plants in Pakistan will cost about US$4,000 per installed kW, assuming they are completed on schedule. Even with high capacity factors, they will likely be among the highest cost power generation units.

4. Renewables

Interest and investment in renewable energy have picked up over the past four or five years. However, excluding large hydropower capacity, renewables only accounted for 4 percent of Pakistan’s generation in 2018. As pointed out in the Renewable Readiness Assessment by the International Renewable Energy Agency (IRENA), Pakistan has substantial wind energy potential (i.e., 6.9 to 8.6 meters per second in the Sinh corridor and solar resource potential, and international companies from many countries are establishing facilities, particularly in the Sindh and Punjab provinces. Chinese companies have been major investors in wind projects, accounting for 397.5 MW, or 36.8 percent of the new wind power capacity developed in Pakistan between 2014 and 2018. In total, 1,500 MW of wind, solar, and bagasse (a biowaste) had been installed as of 2017, and NEPRA projected in 2017 that more than 3,500 MW of these sources will be added by 2024-25. A July 2019 report of the US Commercial Service indicates that a 400 MW installation at the Quaid-e-Azam Solar Park is operating, with expansion planned, and an additional twenty-four solar projects of different scale are producing 550 MW of power. At least six bagasse plants of 201.1 MW are in operation. Besides its large hydropower potential, Pakistan has many favorable sites for small hydro projects; 877 projects are underway and will add to the current generation of 128 MW.

The Khan government has recently announced ambitious plans to increase the share of renewable energy in total power generation to 30 percent by 2030, including wind, solar, small hydro, and biomass. The new plans are expected to expand renewable capacity by as much as 7,000 MW by 2025 to around 20 percent of generation. In addition, there is a target to raise the share of large-scale hydro (more than 50 MW), currently around one-fourth of the country’s electricity supply, to 30 percent by 2030. Reaching 60 percent renewable and hydro generation by 2030 would be a tremendous achievement and counter the growing trend of fossil-fuel imports.

Pakistan has been moving to further its investments in hydropower, which has long been a pillar of the electricity system, accounting for between 25 percent and 30 percent of nationwide generation, depending on water availability. Pakistan’s installed hydro capacity reached 9,389 MW in 2018 with the commissioning of the 108 MW Golen Gol 2, the 1,410 MW Tarbela Fourth Extension, and the 969 MW Neelum Jhelum projects. Work is beginning on the large World Bank-funded 4,320 MW Dasu project, which has experienced major delays due to land issues, and the government has announced an 800 MW Mohmand Dam project on the Swat river in the Khyber Pakhtunkhwa Province. Pakistan is experiencing historically low water flows, and the potential for further climate impacts may affect this important subsector, despite the value of the projects in terms of increasing water storage and management capacity.

This piece has been excerpted from the third country analysis in the Atlantic Council’s “Transforming the Power Sector in Developing Countries” series.