Capacity charges, neglecting renewables intensifying Pakistan’s financial burden, say studies

The massive build-up of coal power projects in Thar and ignoring renewable energy at both policy and operational levels have been intensifying Pakistan’s financial burden amidst the economic downturn induced by COVID-19, reveal two studies launched on Friday.

High capacity payments to thermal and coal power generators coupled with surplus installed generation capacity have been adding to the increasing cost of electricity and the worsening power sector’s circular debt, state the studies conducted by Institute for Energy Economic and Financial Analysis (IEEFA) and the World Wind Energy Association (WWEA).

Both the studies launched at a webinar — titled ‘Pakistan’s Power Crisis: Imperatives for Renewable Energy in Sindh’ and organised by the Alliance for Climate Justice and Clean Energy (ACJCE) — underlined the significance of using the renewable energy of Sindh as the cheapest and the most cost-competitive source of power that does not receive any capacity payments.

Simon Nicholas, author of the IEEFA’s study titled ‘Thar Coal: Locking Pakistan into Unsustainable Capacity Payments’, said the government of Pakistan had already realised the gravity of capacity payment issue and raised it with the government of China, which had been sponsoring coal power projects in the country under the China-Pakistan Economic Corridor (CPEC).

“Prime Minister Imran Khan has noted that total capacity payments to power generators could reach an entirely unsustainable Rs1.5 trillion ($9bn) in the next few years. The government of Pakistan has now asked China for easier repayment terms on 12GW of CPEC power projects totalling $30bn of investment,” he said.

Despite the gravity of capacity payments, he said, two more coal power projects in Thar, namely Thar Energy Limited and Shanghai Electric, had reached financial close in the current years. These projects, he said, would not only receive capacity payments but also intensify the issue of overcapacity afflicting the power sector before the outbreak of the pandemic.

Zeeshan Ashfaq, author of the WWEA study titled ‘Fostering Renewable Energy Development in Sindh: Identification of Impediments and the Road Ahead’, said weak grid infrastructure; the limited ability of provincial government, lack of effective coordination mechanisms; and arbitrariness in regulatory and policy decisions were hampering the growth of renewables in Sindh.

He said that Sindh where 72 per cent of the existing solar and wind power projects of the country were located had an immense potential for the development of renewables. However, due to centralised governance of the power sector in the country, he said, the potential of the province for renewables was not being realised. In December 2017, the cabinet committee on energy’s decision stopped renewable energy projects, including the ones initiated by Sindh under the feed-in-tariff framework, while allowing the coal and RLNG based plants to be developed.

He urged the Council of Common Interests (CCI) to act proactively for enhanced coordination between the federal and provincial governments on renewable energy policy, planning, and development. Besides, he demanded of the Sindh government to formulate provincial renewable energy policy, in line with its mandate and the federal Alternative Renewable Energy (ARE) Policy-2019.

Others who spoke at the occasion included Sohaib Malik, senior analyst, Wood Mackenzie Power and Renewables; Engineer Mehfooz Qazi, director, Sindh Solar Energy Project, Sindh Energy Department; and advocate Ramis Sohail, a representative of Alternative Law Collective and ACJCE.