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Thursday September 29, 2022

Pakistan’s large hydropower generation projects at risk

September 24, 2022

KARACHI: Pakistan’s long-term goal to meet 46 percent of its electricity needs from hydropower by 2030 was at risk on account of delays, fiscal constraints and extreme weather events, a report said.

While the Indicative Generation Capacity Expansion Plan (IGCEP 2021) indicates that almost 14GW of both large and small hydropower capacity would likely come online by 2030, a report of the Institute for Energy Economics and Financial Analysis (IEEFA) has pointed out key concerns.

The IEEFA has identified three key risks that could delay the realisation of this capacity by 2030. First includes the cost and schedule overruns that are a normal occurrence for large dams, and lead to a huge economic burden on the national exchequer, higher costs of debt financing and non-provision of project benefits.

The second risk are the delays in pipeline realisation that can likely lead to a supply-demand mismatch in the country prompting a switch back to fossil fuel-based power to bridge the gap. Pakistan and the government’s hydropower development wing Water and Power Development Authority (WAPDA) were recently downgraded by all three prominent credit rating agencies ie Moody’s, Fitch and S&P. As Pakistan’s economic outlook is predicted to remain weak for the next few years, this hinders the governments’ ability to raise capital for these projects, which could further delay project implementation cycles.

Third, the hydropower pipeline is becoming increasingly vulnerable to extreme weather events and climate change. Should there be an early onset of summers or droughts in the country, water availability in hydropower reservoirs for power generation could be severely limited. Competing water usages for irrigation and agricultural demand would precede hydropower generation leading to power outages and widespread load shedding within the country.

“Hydropower has been favoured in Pakistan’s renewable energy planning as a symbol of nationalist pride and a fundamental resource for water security. However, achieving its targeted production appears increasingly unlikely, due to more frequent extreme weather events, significant cost overruns and schedule delay”, author of report Haneea Isaad, Energy Finance Analyst at IEEFA stated.

She said that as of September 2022, only 51 percent of planned hydropower capacity has achieved financial closure and only 39 percent has begun physical construction. “We estimate that only 15 percent of the hydropower pipeline will come online in time,” she noted.

Report said that the recent floods in Pakistan have further increased economic stress and shifted the government’s focus towards disaster recovery.

“Capital for large-scale hydropower projects may become even harder to come by, further jeopardising their realisation,” explains Isaad.

Pakistan’s total 14 gigawatts (GW) hydropower pipeline has previously been valued at $31.2 billion, but IEEFA’s latest cost estimate goes up to $49-61 billion.

Of the total 14GW, 37 percent or 5.2GW would be financed through the support of multilateral development banks (MDBs), which would also require funds to be matched by the government.

“This could mean additional economic burden for the country and allocation through public funds, as well as a supply-demand mismatch for the country’s projected power generation in the future if the planned capacity fails to materialise on schedule,” said Isaad. “What follows could be a switch back to fossil fuels such as furnace oil or coal.”

Despite holding a significant share of Pakistan’s power mix, water stored within hydropower reservoirs and dams also serves its agricultural economy.

Hydropower dams are primarily available for power generation during the summer months, replenished during the monsoon season and drained during the winters for crop production. This hampers their ability to provide year-round power production.

Pakistan itself is no stranger to extreme temperatures and drought conditions. The country has an arid climate and an early onset of summers this year and last year has led to record-low water levels in major reservoirs such as Tarbela, Mangla and Chashma. As a result, competing usages such as agriculture took precedence over power generation, and the country suffered power cuts and blackouts.

Moreover, as Pakistan’s hydropower pipeline becomes increasingly vulnerable to climate change, the reliance on data that overestimates rainfall or underestimates the climate risks could put the financial viability of these projects into question.

The report recommended that a clear criterion needed to be set for projects within the pipeline that should be allowed to go forward in times of such economic distress. High costs would likely result in a financial burden for the government and end-consumers.

Projects that are yet to achieve their financial closure or begin construction should be put on hold. At the same time, the existing hydropower capacity should be complemented with a portfolio of smaller, quicker to build and easy to finance solutions, it said.

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