Online link to the study: https://ieefa.org/wp-content/uploads/2020/08/Pakistan-Risks-Locking-in-Long-Term-Overcapacity_Expensive-Power_September-2020.pdf
KARACHI, LAHORE, ISLAMABAD, 3rd September 2020 (Thursday): Pakistan’s new long-term power capacity plan fails to live up to the government’s stated principles of sustainability and affordability, reveals a study launched here Thursday.
Power demand growth forecasts made under Integrated Generation Capacity Enhancement Plan-2047 (IGCEP-2047) are too high and do not take into account the impact of COVID-19, states the study conducted by the Institute of Energy Economics and Financial Analysis (IEEFA) and launched through a webinar held under the auspices of Alliance for Climate Justice an Clean Energy (ACJCE).
Owing to the IGCEP’s over-optimistic power demand growth, more power capacity than needed is planned to be built, warns the study titled as ‘Pakistan risks locking into overcapacity and expensive power’.
“The Pakistan government’s principle of affordability cannot be met if the power system is locked into long-term overcapacity – capacity payments to plants lying idle are already an issue and would become even more unsustainable if more overcapacity is locked in,” said Simon Nicholas, author of the study. Notwithstanding the fact that wind and solar were already the cheapest source of power generation in Pakistan and would be even cheaper in the 2030s and 2040s, he said, the IGCEP had neglected modern clean energy in its model after 2030.
Modeling declining contribution from renewables post-2030, the IGCEP-2047 seemed to have been oblivious to current power trends, he said. With utilization at virtually zero by 2047, the addition of 20,000MW of unneeded LNG-fired power capacity between 2030 and 2047, as modeled under IGCEP-2047, would prove to be expensive stranded assets.
Terming indigenization of power through domestic coal-fired power as expensive, he said, renewable energy could reduce reliance on fossil fuel imports far more cheaply than coal power. By prioritizing expensive coal power over the cheap renewables, he said, the IGCEP further failed to live up to the government’s affordability principle.
Besides, the large amounts of domestic coal power to be introduced under IGCEP-2047 would also lead to a significant increase, not decrease, in the overall carbon emissions of Pakistan’s power system, he said while adding that the IGCEP failed the government’s sustainability principle as well as one of its stated goals of reduced carbon emissions.
Following the author’s presentation on the ‘key findings of the study’, a panel discussion started at the webinar.
Haneea Isaad of Rural Development Policy Institute (RDPI) questioned the methodology used in IGCEP-2047 for defining the least-cost generation option and underlined the need to overhaul the modeling approach used for its development. She said the cost-benefit analysis made for IGCEP-2047 didn’t take into account the costs of auxiliary services such as transmission or water infrastructure that would be constructed to run power plants in Thar. Nor did Pakistan’s long-term power capacity plan give any substantial consideration to better storage options to be available in the future, the country’s international environmental commitments, and emission reduction targets.
Advocate Syed Ghazenfur of Alternative Law Collective (ALC) raised the legal aspects of the IGCEP-2047 while Muhammad Ali Shah of Pakistan Fisher-folk Forum (PFF) apprehended the increasing use of domestic coal under the indigenization component of IGCEP-2047 would intensify the social and environmental miseries, which the people of Thar were already suffering from.
SUMMARY OF IEEFA’s STUDY ON IGCEP-2047
Pakistan’s new long term power capacity plan called the IGCEP-2047, released earlier this year largely fails to live up to its identified salient features and the government’s stated principles of sustainability and affordability. According to the IGCEP, its salient features include significantly increased use of renewable energy and domestic coal-fired power, and reduced fossil fuel imports and carbon emissions. However, a detailed analysis of the report reveals several issues with the assumptions used by the IGCEP model and the results it produces.
The Medium growth forecast is the foundation of the IGCEP’s Base Case power capacity addition scenario. This forecast assumes that GDP growth increases from 4% in 2020 to 5.5% by 2025, and remains at that level out to 2047. The IGCEP’s Medium demand growth forecast was too optimistic even before COVID-19 but the pandemic has made it even more obsolete. This could lead to risks of locking in over-capacity over the long term, a phenomenon that is already being experienced in China, India, Indonesia, and Bangladesh- nations that overestimated their demand growth. The Pakistan government’s principle of affordability cannot be met of the power system if this happens– capacity payments to plants lying idle are already an issue and would become even more unsustainable if more overcapacity is locked in.
This overbuilding of capacity and its subsequent underutilization also poses a risk of these investments turning into stranded assets. Under the Base Case scenario, the 5.3GW of coal-fired power plants fuelled by imported coal expected to be operational at 2030 have a collective utilization of just 14%. This basically means these coal plants are stranded – they cannot operate commercially at such a low utilization rate without very generous capacity payments paid to them whilst they sit idle. The same holds true for the three operational imported coal-fired power plants – as well as coal and LNG plants yet to be completed. If such low utilization rates for imported coal-fired power plants by 2030 are anything close to reality by that date, there will be significant implications for the Asian seaborne thermal coal market, particularly South Africa, Indonesia, and Australia which are the main sources of imported coal for Pakistan.
Although the IGCEP includes additions of renewable energy to meet the government’s draft renewables target by 2030, renewable energy is neglected in the model after 2030 with no further wind power additions at all. The overall contribution of renewables to power capacity drops from 31% in 2030 to 23% in 2047 according to the model. Modeling declining contribution from renewables post-2030 makes the IGCEP look very out of touch with current power trends. Newer technology such as batteries that can store renewable energy will also be significantly cheaper by that time, which the IGCEP fails to consider. Countering the intermittency of renewables by building out 20,000 MW LNG-fired power is a flawed idea as well, especially given how cheap energy storage solutions will be by that time.
To reduce reliance on fossil fuel imports a major focus is placed on more expensive domestic coal-fired power, complemented by additions of almost 35,000MW of hydropower between 2030 and 2047. The IGCEP attempts to justify its focus on domestic coal and hydro by highlighting the need for the “indigenization” of Pakistan’s power mix. Certainly, a move away from reliance on imported fossil fuels makes sense, but the IGCEP is not putting anywhere near enough emphasis on wind and solar power which can increase the indigenization of the power system and improve energy security at a lower cost.
Pakistan would be far better off reducing reliance on fossil fuel imports via an appropriate emphasis on renewable energy. By switching focus from expensive and polluting domestic coal-fired power to renewables, the IGCEP would be better able to live up to the government’s principles of affordability and sustainability.
