On how best to bring more renewable energy into the national economy
enewable energy has emerged as a possible substitute to Pakistan’s imported fuel based energy sector.
We have failed so far to utilise this abundant indigenous resource. The primary planning document in the energy sector, the Indicative Generation Capacity Expansion Plan (IGCEP) 2021-30, has identified nearly 11 GW projects based on wind and solar systems. These are be commissioned through auctions over the next eight years.
Pakistan is a novice when it comes to energy project auctions. A recent report by the International Renewable Energy Agency (IRENA) estimates that between 2017 and 2018, 55 countries deployed auctions to procure renewable-resource electricity. One third of these countries had no previous experience with auctions.
Internationally, auctions have proved to be a reliable method for procuring electricity at low tariffs. However, their strength is not limited to achieving lower tariffs.
Auctions can also help governments achieve their socio-economic goals. They also help in fostering local support, uplifting domestic renewable energy industry, providing employment opportunities, encouraging participation of small and new players in the energy mix, engaging communities and contributing to sub-national as well as national development.
Auctions can help Pakistan lay the groundwork for a sustainable domestic renewable energy market, industry and supply chain.
Ammar Qaseem, a policy analyst at Renewables First, says that in addition to the least-cost criteria, “we must also keep other policy objectives of the electricity sector in focus as we move towards massive procurement through auctions.”
He believes that to strengthen local markets Pakistan should have started work on these additions. He says that foreign investment and investors can be attracted by the dispersion of the benefits, adding that seeking an auction design beyond cost, would imply prioritising non-cost related energy policy objectives and global best practices.
We have failed so far to utilise this abundant indigenous resource. The Indicative Generation Capacity Expansion Plan (IGCEP) 2021-30, has identified nearly 11 GW renewable energy projects to be launched through auctions over the next eight years.
Qaseem says, this entails allowing domestic markets to grow, streamlining the bidding process to ensure greater participation and competition, reducing barriers to entry, fostering social acceptability, avoiding concentration of projects and, above all, inclusive and participatory development.
Aqeel Hussain Jafri, the director of Policy Alternative Energy Development Board, says that auctions are the way forward for Pakistan. He says that “well-designed auctions provide a level-playing field and attract local and international investors.”
He points out that auctions provide a flexible and goal-based method of energy capacity procurement. However, until these are effectively designed and implemented there is no guarantee that an auction regime will stimulate the desired outcomes.
Jafri says that the government is focused on cost reduction. He shares AEDB’s plans to initiate the first bidding round by the end of June. The launch of the white paper has coincided with a recent World Bank competitive bidding study which provides recommendations regarding various auction models, frequency of bidding rounds and choice of the best design with regard to the local context.
Oliver Knight, a senior energy specialist for the World Bank’s South Asia Energy Unit, says that Pakistan should adopt both substation and park-based bidding schemes to make use of extra capacity available in the grid.
Dr Fatima Khushnood from Engro Energy says that owing to major transformations which keep occurring in the renewable energy sector, the investors’ confidence needs to be revived.
Sohaib Malik, principal analyst at the Wood Mackenzie, proposes that for Pakistan we must carefully identify the best countries to consider a viable comparison as the government of a resource-deprived economy faces certain limitations in terms of what it can offer.
Dr Wikus Kruger, research head at the University of Cape Town’s Power Futures Lab, who has extensively worked on South African energy auctions, says that Pakistan can learn a lot from the South African experience and that it should maintain consistency in the volume it offers for bidding over the years to establish reliable market signals and decrease risks.
The writer is a reporter at The News International. He can be reached at firstname.lastname@example.org