The winds of Thatta

SUSTAINABLE ENERGY

Pakistan’s energy crisis is technical, economic, institutional and strategic. It is no longer enough to tweak the margins of Pakistan’s power sector. The deepening crisis of rising tariffs, circular debt and unutilised renewable energy calls for a fundamental rethink of the system’s architecture.

The idea of sector-coupling -- connecting electricity production with industrial use, transport and hydrogen generation -- offers a new lifeline. This opportunity is most vivid in Thatta, which hosts some of the country’s most productive wind corridors. Here, amid gusts of clean energy often left unused, lies the potential to recast Pakistan’s energy dilemma into an economic advantage. The conversion of surplus wind energy into green hydrogen could not only resolve the financial paradox of Non-Project Missed Volume (NPMV) but also position Pakistan as a future exporter in the burgeoning global hydrogen market, expected to reach $38.1 billion by 2029, from $5.2 billion in 2024.

The roots of this opportunity lie in a problem that has been festering for years. Pakistan’s energy governance model, structured around rigid power purchase agreements and a grid ill-equipped for intermittent generation, has led to a bizarre situation where the country is paying for electricity it cannot use. This is Non-Project Missed Volume -- payments made to wind and solar power producers even when their output cannot be dispatched due to grid constraints. These payments surged from just under Rs1.9 billion in FY2021–22 to a staggering Rs39.5 billion in FY2023–24. At this rate, the power sector is quite literally bleeding cash while the wind blows and the sun shines, further fueling the Rs2.3 trillion circular debt.

Under pressure from fiscal deficits and global lenders, the government has responded by renegotiating Power Purchase Agreements with Independent Power Producers (IPPs), including those based on renewable energy. While this may offer short-term fiscal relief, it has severely dented investor confidence. Global lenders such as the IFC, ADB and Proparco have raised red flags. The perception of contract sanctity has eroded. The risk premium for renewable energy projects in Pakistan has increased, making capital more expensive or altogether unavailable. In this environment of uncertainty, the renewable energy sector, which had just begun to find its feet, is now once again on shaky ground.

This is where sector-coupling enters the conversation -- not as a buzzword but as a viable strategy. The principle is simple: link the energy sector with other sectors of the economy to create new demand, enhance efficiency, and reduce waste. In the case of Thatta, the focus is on converting curtailed wind energy into green hydrogen through electrolysis. This hydrogen can then be used across industrial, transport, and even power generation sectors. In fertiliser production, it can replace fossil fuel-based feedstock. In transport, it can serve as fuel for heavy vehicles. And in the global market, it represents a valuable export commodity with exponentially growing demand, especially for countries seeking to decarbonise aviation, shipping, and heavy industry.

Pakistan has the technical potential to produce nearly 69 million metric tons of green hydrogen annually, particularly in resource-rich areas like Sindh and Balochistan. Currently, its hydrogen export value is negligible, estimated at just $24,700 in 2023. But the international market is poised for an explosion, with low-emissions hydrogen required to scale from under one million tonnes in 2022 to at least 70 million tonnes by 2030 under the IEA Net Zero scenario. Countries like Germany, Japan, and South Korea are investing heavily in future off-take agreements. For Pakistan, this isn’t just about technology but about timing. If it can create a functioning green hydrogen value chain, from generation to storage to transport and export, it can emerge as a competitive player in this high-growth market.

The sector-coupling model anchored in Thatta can help Pakistan kill two birds with one wind turbine. It offers a structural solution to the NPMV crisis and creates a new export industry aligned with global decarbonisation trends. It could become a template for other regions, such as Gwadar or coastal Balochistan

Thatta’s Special Economic Zones (SEZs), already receiving incentives under CPEC, offer the perfect experimental ground. These zones can be repurposed or newly designated as ‘Green Hydrogen Zones’, where tailored policy support, such as tax exemptions, customs relief and infrastructure facilitation, can be provided. India has already exempted SEZ-based green hydrogen projects from the Approved List of Models and Manufacturers (ALMM) requirement. Kenya has integrated hydrogen incentives into its Export Processing Zones. Pakistan can adopt similar models to attract both domestic and international investors, especially those seeking to diversify hydrogen supply chains away from saturated European hubs.

The benefits of such a strategy cut across stakeholder lines. For the government, it provides a long-term reduction in circular debt and enhanced energy security by reducing reliance on imported fossil fuels, which currently account for over 60% of primary energy. For consumers, it promises lower electricity tariffs in the long run, as more flexible energy systems reduce reliance on costly imported LNG or furnace oil. For the renewable sector, especially wind producers in Thatta, it offers a guaranteed buyer for their electricity, even when the grid cannot absorb it. This stabilises revenue streams and enhances the bankability of future projects.

Yet, as with all ambitious strategies, there are hurdles. The capital cost of hydrogen production is still high. Electrolysers, compressors, storage tanks, and desalination facilities for water are not cheap. Today’s Levelized Cost of Hydrogen (LCOH) in Pakistan is estimated at $3.90–4.27 per kg, still above global export price competitiveness. Wind speeds in Thatta, though historically reliable, have shown a declining trend since 2009 -- a factor that must be studied before making large-scale commitments. Moreover, a clear regulatory framework for hydrogen production, safety standards, pricing mechanisms and export protocols is still missing in Pakistan. These gaps must be urgently addressed through a national hydrogen strategy.

Policymakers must also be sensitive to social and environmental concerns. Community engagement, environmental impact assessments, and benefit-sharing mechanisms should be central to developing these green hydrogen SEZs. To ensure inclusive development, local employment and upskilling opportunities must be woven into the planning fabric.

The first policy milestone should be a national green hydrogen strategy. It must outline production targets, permissible technologies, financial instruments, and market development plans. The government should invest in grid upgrades to reduce NPMV in the short term and ensure that surplus energy can be redirected to hydrogen production. A hydrogen certification scheme, aligned with international standards, would be essential to ensure export readiness. Simultaneously, partnerships with China, Germany and the Gulf States could bring technical expertise and capital.

The government should also consider mandating hydrogen blending in existing CNG infrastructure or creating a fixed share of hydrogen procurement in fertilizer manufacturing. These demand-side measures will complement the supply-side investments and help establish a robust domestic market.

Importantly, green hydrogen presents an emerging opportunity in the global carbon market. High-quality carbon credits generated from low-emission hydrogen projects can attract private capital, especially in developing countries like Pakistan, where compliance carbon pricing mechanisms are limited. According to the IEA and GenZero, carbon credits could be pivotal in bridging the green premium of early-stage technologies like green hydrogen, sustainable aviation fuel, and direct air capture.

Given that global investment in these three technologies was just $9 billion in 2023 but needs to grow to $700 billion annually by 2050, leveraging carbon credits can be vital to unlock climate finance. For Pakistan, integrating green hydrogen projects into the voluntary or compliance carbon markets -- once robust methodologies are adopted -- could open a new revenue stream while strengthening its Nationally Determined Contributions (NDCs). With the Integrity Council for the Voluntary Carbon Market (ICVCM) and other global bodies now enforcing stricter rules, projects based on verifiable hydrogen use in industrial decarbonisation can credibly claim carbon reductions, enhancing Pakistan’s appeal in global carbon trading.

Ultimately, the sector-coupling model anchored in Thatta can help Pakistan kill two birds with one wind turbine. It offers a structural solution to the NPMV crisis and creates a new export industry aligned with global decarbonisation trends. It could become a template for other regions, such as Gwadar or coastal Balochistan, where solar and wind potentials are similarly underutilised.

What Thatta offers is a window into a future where clean energy isn’t just a moral imperative or a climate commitment but an economic growth strategy. This shift is not optional for a country like Pakistan; it is existential. The winds of Thatta are already blowing.

The writer has a doctorate in energy economics and serves as a research fellow at the Sustainable Development Policy Institute (SDPI). He can be reached at: khalidwaleed@sdpi.org and tweets/posts @Khalidwaleed