Shahid Sattar and Hira Tanveer
November 15, 2018
The cost of electricity from renewable energy technologies has been consistently falling, and even dramatically in recent years, especially after 2000, with the rise of solar and wind power generation as viable commercial options. Globally, this has led to a point today where power generation from renewable sources and technologies has become increasingly competitive with the formerly less costly than fossil fuel-based or nuclear power. However, Pakistan has already locked in its electricity generation for next decades on much higher tariffs based on RLNG, coal and hydel generation. This will ultimately impede Pakistan benefitting from much cheaper and environmentally sustainable energy generation options. In 2018, Pakistan’s hydel share in energy mix has reduced from 32% in 2013 to 29% in 2018, while the thermal (IPPS) share has increased from 40% to 45% during the same period. We have become overly dependent on imported fuel thermal power while the solar and wind tariffs have reduced across the world. The future energy mix projections of The National Transmission and Dispatch Company’s (NTDC) has restricted the growth and development of renewable cheaper options of solar and wind beyond 2021. According to a report from the International Renewable Energy Agency (IRENA), the cost of renewable energy is now falling so fast that it will be consistently a cheaper source of electricity generation than traditional fossil fuels within just a few years.
The organization says the cost of generating power from onshore wind has fallen by around 23 percent since 2010 while the cost of solar photovoltaic (PV) electricity has fallen by 73 percent. With further price falls expected for these and other green energy options, IRENA says all renewable energy technologies should be competitive on price with fossil fuels by 2020.
IRENA’s Renewable Power Generation Costs in 2017 report says that globally, onshore wind schemes are now costing an average of $0.06 per kilowatt hour (kWh. In comparison, the cost of electricity generation based on fossil fuels typically costs up to $0.17 per KwH. Parallel to fall in tariffs of renewable options, their global growth in the electricity generating capacity graph shows the drastic rise in solar generation along with a consistent fall in fossil fuels power generation.
At present, there are 4 operational solar power generation projects in Pakistan with a total power generation capacity of 400 MW and their tariff is approximately 18 to 19 US cents/KwH in the first ten years. The upfront tariffs of wind power plants completed in 2015-16 in Pakistan, averages at more than 12 cents/Kwh. The current worldwide wind power tariffs are as low as 2.6 cents/Kwh, world average tariffs are around 6-7 cents/Kwh.
While the world is moving towards renewable energy sources, Pakistan is investing in coal power plants with much higher tariffs. The coal power plants tariffs awarded in Pakistan are 8.36 US cents per Kwh whereas in India, Mundra Ultra Power Project with generation capacity of 4000MW is Indian Rs. 2.64/ Kwh and a few years ago Bangladesh signed three contracts of coal fire power generation, the average tariff for the power plant was set at 5.42 US cents/Kwh. In Pakistan Jamshoro coal Power Plant awarded through competitive bidding has a tariff rate of 6.2 US cents/KwH.
These high tariff rates in all sources of power generation are a result of shortsightedness of policymakers, corruption, and mismanagement. One can safely conclude that existing furnace oil, imported coal and new solar/wind tariffs are not viable options in the long term. The most curious and alarming decision to date was of introducing imported coal-fired power stations to Pakistan, just as the entire world is moving away from coal technology with the US alone in the process of decommissioning a proposed 30,000MW in the short term.
When the electricity prices will be declining all over the world, Pakistan will be unable to reduce its prices for its consumers with much lower per capita income as compared to developed counties. Not only domestic consumers will suffer but also the exporting industry of Pakistan which already pays higher electricity charges as compared to regional competitors. Declining worldwide tariffs will automatically mean that our industry will further face relatively high cost of production even if our electricity rates remain the same as today. The new government has come up with an approach to subsidize energy tariffs for zero rated exporting industry to make them internationally competitive in an effort to narrow current account deficit following export promotion strategy. The question remains are these subsidies sustainable with tight fiscal space in the long run.
The overpayment on account of unjustified higher tariffs awarded earlier has been estimated to cost the country’s economy and the consumer base an extra $1 billion per annum. Pakistan’s economy is already passing through many external and internal challenges. In the current economic situation every possible effort should be directed towards averting monetary losses to the economy.
Current situation is fraught with a similar danger as the IPPs in 1995-96; it has tied the country once again to long-term watertight agreements which are unaffordable. Pakistan being unable to change energy mix in the long run along with higher tariff rates for decades necessitates identifying the policy issues in energy sector and debating them in order to save future of ordinary Pakistani consumer and industry.