A fast track solar programme appears to be the need of the hour for reducing electricity cost. At least 1000MW should be installed in one year from now. It is not impossible. It can be done as it had been done earlier in the case of coal power plants under CPEC. We have been and continue running from crisis to crisis; at first there was energy capacity crisis up to 2018 which was resolved by induction of mostly imported energy plants; and now since 2021, there is a fuel crisis. There is both fuel price and availability crisis. All fuels have become expensive and sometimes even unavailable internationally. Fuel prices are too high to be affordable either by consumer or government; the former in terms of consumer tariff and latter in terms of subsidies and foreign exchange. What is the lesson that we can learn from the crisis? Do not depend on imported energy as far as possible; develop local sources of energy.
Fuel prices have increased. The cost of generation has increased up to Rs 36.00 per kWh while consumer electricity tariff remains between Rs 5.00 and Rs 25.00. There is load-shedding of 5-7000MW. To top it all, hydro production is only 50% of the usual production at this time due to climate issues and the consequent water inflow problem in the dams.
Renewable Energy (RE) or Alternative Energy is the darling of today’s energy paradigm.RE has been there but became affordable only recently. We have installed some expensive RE plants for entry and learning purposes which have an excessive tariff of Rs 20-35 per kWh. But these were older investments. RE costs have significantly come down fast enough over the last 5 years or so. Solar generation costs have come down as much as to USc 2 per kWh and similarly wind power.
Both solar and wind power have intermittency issue; sun shines in the day and at variable speed and wind blows in summers and also at variable speed giving off energy with variability. Even hydro suffers from this disadvantage that it depends on water supply and water is either not available or is reduced significantly in winters. We are suffering these days from this hydro problem as has been mentioned earlier. Fossil fuels are usually available at constant supply round the clock and 365 days a year, which has been the main reason for its attractiveness and adoption by most countries.
Solar can be useful in many other ways in agriculture, irrigation and transportation. Although, EV appears to be a bad idea when there is load-shedding and high electricity tariff, solar can be of help. Cheap rooftop solar can be produced and used in EV motorcycles. Some 40% of the petrol consumption goes to motorcycles. Rising petrol cost can be substituted by solar electricity produced by EV motorcycle users. New EV motorcycles and conversion of the existing ones can be encouraged through credit schemes. At Rs 10 per kWh, an EV bike’s cost per km comes out to be Re 0.83 as opposed to Rs 5.25 for petrol bike at new petrol rates of Rs 210/litre. Even if electricity rates for EV users increase to Rs 25.0 per kWh, running cost of EV bikes would still be Rs 2.00 per km.
Commercial and social facilities, government and private offices even industries can benefit from self-generated solar power. Schools are one or two shifts. Most universities do not work at night. Offices work during the day. Government offices in particular can benefit from day time solar. Private sector contractors can be employed under a solarization programme with standardized credit scheme. Contractors can market the system to customers. Sindh and Punjab governments are already implementing such programmes actively which can be enhanced. Other advantage of solar is that it is available everywhere –in all sizes and capacity, from rooftop to a large desert location. Solar has occupied our attention here due to this reason, among others. This advantage is not available to Wind power plants.
IGCEP (Electricity Generation Plan) has provided for the installation of 6000MW of solar energy capacity. Efforts must be made to increase this number to cover the shortfall created by some other planned capacities. It has the cheapest CAPEX and COGE (Cost of Generation). On the average, 1000MW of installation of solar power capacity may be envisaged. We would like to propose a fast track implementation of 1000-2000 solar PV; at least 50% of which may have storage capacity as well.
Storage technology has come of age and has become competitive which can provide 2-4 hours of extra hours of electricity supply for solar power plants. Solar power plants with 2-4 hours storage are being installed fervently in the US, Europe, Australia, India and elsewhere. Studies have been conducted in this respect in Pakistan as well. IGCEP may have to add storage projects in its next iteration.
Assuming 50% higher cost due to various reasons such as higher interest rates etc., solar without storage should be available at 3-4 USc per kWh and with storage it should be 6-8 USc. There is no fuel cost except some O&M costs. These days LNG-based electricity is costing Rs 25 per kWh while the imported coal-based electricity is costing the same amount. That the foreign exchange issue causing current account deficit is an extra problem.
1000MW of solar capacity without storage should cost less than one billion USD to be financed by Independent Power Producers (IPPs) under the China Pakistan Economic Corridor (CPEC) or/and others. It will produce 2 billion units which would be valued Rs 75 billion in RFO/LNG terms. It would actually cost Rs.15 billion per year. Thus, in one year it would save Rs.60 billion. Solar with storage is twice as expensive as without storage. Thus, it’s real cost-saving is without storage. But peak tariff is charged higher also balancing the cost. However, these would be extraordinary savings of an extraordinary time when fuel cost are excessively high. Even under normal circumstances, solar electricity is 50% cheaper than the cheapest fossil electricity. But one cannot have all solar due to its variability and intermittency. There has to be an optimal mix.
There are some real problems as well which need to be resolved. Although, fortunately, it has been decided to undertake Reverse Auction (tendering in ordinary language) and preparations have been made in this respect. The CPEC people have objected to it and would like to avoid it and have an alternative arrangement on the lines of the earlier projects. Almost simultaneously, the International Monetary Fund (IMF) has termed CPEC energy projects “expensive”. According to it, these projects contributed to circular debt. The Fund has demanded a cost audit. Large project financing can possibly only come under CPEC. Also, CPEC is the fastest route to installing 1000MW of solar or more as they implemented coal power plants in record times. How to agree to a competitive tariff has always been a hard and problematic task. GoP has always under pressure to complete deals with friendly powers due to strategic reasons and reportedly cajoles power regulator National Electric Power Regulatory Authority (Nepra) to agree to the asking tariff. Commercial companies want to maximize their profits, be it CPEC or otherwise. In Pakistan, there is too little knowledge of project costs in China under the latter’s complicated special system. It would be a good idea to develop a credible system of awarding projects under the CPEC. Perhaps, a genuine competition among Chinese companies may deliver a competitive price.
Unfortunately, a lot of time has been lost. Cheaper and cleaner solar could have been installed several years earlier, avoiding some of the cost and hardships of today. But we suffered from excess capacity and high accumulating circular debt caused by unutilized capacity. There are unpaid IPP bills. Unfortunately, the solar indigenization objectives would again suffer in the haste that circumstances have imposed on us. It should, however, be pursued a little later.
It may, however, be noted that the current oil and energy prices’ issue is mostly recent one caused by extraordinary oil, LNG and coal prices. Pakistan’s petrol and HSD prices were the lowest in the region despite charging a fair amount of taxation of 50% (30% PLD and 17.5% GST).There are cross-subsidies, though, in gas and electricity circuit which have caused circular debt. There might be a case for some adjustment there but abrupt and large increases cannot be made on the subsidised tariff for the poor. Direct and targeted subsidies may cost the same and may be cumbersome. Thus a programmed approach is desirable, giving some relaxation for the current period when fuel prices are extraordinarily high. Future oil prices are projected to go down gradually to 90-95 USD per barrel by June 2023 as opposed to 122 USD presently. This should affect other prices of LNG and coal. The IMF should have a considerate, flexible and programmatic approach in demanding full adjustment of energy costs. In fact, a separate programme may be conceived to deal with this issue.
(The writer is former Member Energy, Planning Commission and author
of several books on the energy sector)
Comparative EV fuel cost-Motorcycles
Fuel consumption-kms/kWh 12
Electricity Tariff-Rs/kWh 10
Fuel Cost per km 0.83 5.25
at Rs 25/kWh 2.08
Source: Computed by the AuthorSyed Akhtar Ali, "Towards a fast track solar programme," Business recorder. 2022-06-15.
Keywords: Economics , Monetary fund , Oil prices , Solar programme , Social facilities , Fuel prices , Pakistan , China , CPEC , IGCEP , CAPEX , USD , PLD