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Innovative and efficient regime help survive in the fast-track alternative energy business

Interview with Mr Sohail Butt — CEO, Energy Energetics Consulting

PAGE: TELL ME SOMETHING ABOUT YOURSELF AND YOUR CONSULTANCY FIRM, PLEASE:

SOHAIL BUTT: I believe that having spent over twenty five years internationally in the energy sector value chain as a finance professional, I owe it to the oil & gas industry to make a contribution in, whatever, little way I can, based on my experience and knowledge that I have acquired over the years primarily for the benefit of my country.

My intention is to provide consulting and advisory services in the field of energy focusing on sectorial reforms, governance issues, strategy development, energy planning and policies formulation as well as improving project management discipline for implementation of energy sector projects.

With this thought in mind and as a first step, I have established a platform by the name of ‘Energy Energetics.

My plan is to gather energy sector experts on this platform that can pool their thoughts and engage in a meaningful discussion between them and the outside world based on current/latest developments and then focus on issues and give direction for the country’s economy generally on energy sector development in particular. The experts will primarily participate and work at the strategic/academic level where collective thought processes are pooled, identified, debated and concluded for various stake holders in the energy sector value chain of Pakistan.

The beneficiaries could be but not limited to the governmental and regulatory bodies, think tanks as well as successive layers of institutions that form the value chain in the energy sector.

There is a dire need for experts to get engaged in a collaborative mode and to remain aware of all the technological developments, strategic shifts, supply/demand curves, business opportunities taking place in the world of energy.

Additionally, the pool of energy scientists gathered on this or any other platform can voluntarily perform a ‘watchdog’ role in their limited capacity by highlighting their opinion and provide feedback on a variety of issues from seeking legislative support to governance matters in the chain of hierarchy to implementation of projects that finally delivers.

Intermediary/end users seeking a total solution package from Concept to Strategy and Implementation to Delivery can also benefit from this setup. The platform can also assist individuals and institutions seeking information on energy technologies and innovations in progress and/or considering developing ‘strategies for investments across the sector in a fast changing energy landscape in the world.

I believe that in future those economies will survive, grow and flourish who can produce and deliver ‘energy’ in an environmentally-friendly and economically sustainable criterion and on where required and a least cost basis. Accordingly in order to face the new challenges and competitive technologies in a rapidly innovative environment, a comprehensive and dynamic policy and strategy development framework would need to be established for determining basic as well as changing rules of business and resulting impact on policy formulation as well as need for integration between different segments of the energy sector in Pakistan.

PAGE: YOUR VIEWS ON NEED OF CONSULTANCY FOR ALTERNATE ENERGY PROJECTS IN PAKISTAN:

SOHAIL BUTT: The world is undergoing massive transition in the field of energy and related technologies. The age of renewable energy has arrived with all the innovations, efficiencies and cost reduction initiatives. In every year since 2011, renewable power generation technologies have accounted for half or more of total new power generation capacity added globally.

In 2015, a new record was achieved with around 148GW of renewable power added. In 2016 this trend continued and the next decade is expected to increase the renewable energy component of the total energy mix in the world to about 20% or more.

From Pakistan’s perspective we are passing through critical times in view of major transition in energy sector and introduction of innovative technologies, which will drive and alter energy availability, mix and resultantly impact cost in the next few decades in a significant manner.

Accordingly in order for Pakistan to remain competitive and relevant in the international market it is imperative that Pakistan’s energy landscape is aligned with the rest of the world. The recent Paris Climate Agreement signals a strong imperative for the world to transition to a sustainable energy future. COP21 (Paris Climate Change Conference), nearly 200 nations vowed to limit global warming below 2 degrees Celsius (3.6 degrees Fahrenheit) compared with pre-industrial levels. This clear mandate to shift away from fossil fuels places renewables squarely at the forefront of the required transformation of our energy sector.

Hence a consulting and advisory platform is the need of the hour and is available comprising of the local and overseas ‘energy sector’ talent. ‘Energy Energetics’ is just a small step in that direction that will guide various stakeholders in determining the way forward.

PAGE: HOW WOULD YOU COMMENT ON THE PROGRESS IN PRODUCTION AND INVESTMENT IN THE ALTERNATE ENERGY PROJECTS IN PAKISTAN?

SOHAIL BUTT: Renewable energy technologies can help countries meet their policy goals for secure, reliable and affordable energy; electricity access for all; reduced price volatility; and the promotion of social and economic development.

Recent and expected cost reductions in renewable power generation technologies clearly show that renewables are now an increasingly cost-effective solution to achieve these goals. This is particularly important given the agreement in Paris in 2015 at COP21, as it gives confidence that the costs of the transition to a sustainable energy future can be managed and are declining.

The virtuous cycle of policy support for renewable power generation technologies leading to accelerated deployment, technology improvements and cost reductions has already had a profound effect on the power generation sector. It is also setting the basis for what could one day be the complete transformation of the energy sector by renewable energy technologies. Wind and solar power have achieved a record-breaking year in 2016 as a clean-energy construction boom gains momentum in spite of a global glut of cheap fossil fuels. Installations of wind turbines and solar panels soared in 2015 and 2016 as utility companies went on a worldwide building binge, taking advantage of falling prices for clean technology as well as an improving regulatory and investment climate.

Both industries have seen stock prices jump since US Congress and other western countries approved an extension of tax credits or subsidies for renewables. However in Pakistan this is not the case. We are lagging far behind in developing this sector beyond the required threshold of achieving 20% of renewables in the energy mix for the country by say 2025.

Lot of regulatory framework and fiscal incentive regimes have to be developed to achieve the desired objectives. The policy base for renewable needs to be strengthened, both on the incentives side and through mandates and at the same time, the financing of renewable-energy projects should become a mainstream activity in the business for financial markets.

Private sector alone or public/private partnership is the need of the hour to develop the renewable energy value chain comprehensively that ensures indigenization and resulting energy security as well as adoption of innovative technologies being developed elsewhere but nevertheless will impact energy availability and cost.

PAGE: TELL US ABOUT THE SUPPORT BY THE GOVERNMENT FOR ALTERNATE ENERGY:

SOHAIL BUTT: The government is generally very focused on the need to achieve energy security, sustainability and reduce cost. To what extent they are successful will be determined by the successful commissioning of the upstream, mid-stream and downstream energy sector and infrastructure projects specifically those envisioned in CPEC. Though the government is primarily focused on fossil fuels (oil, gas, and coal) projects but hydro power projects are a sizeable proportion of the CPEC allocation of $36 billion for energy sector projects.

The provincial governments are focusing more on alternative energy in the segments of solar and wind power projects, which are likely to increase the power generated from renewable energy to around 2000MW per day in the next couple of years, which will be roughly 10% of the demand. The target during the next decade should be 20% or above for renewable energy as a source of power generation in Pakistan.

Internationally, power generated from renewables (principally solar or wind ) will be priced around 6 cents per kilowatt hour on average and will beat coal and gas as a source of power generation as well as other forms of energy consumption.

The federal and provincial governments accordingly should expand funding for the energy sector’s approved programs to support energy efficiency and renewable energy going forward in a big way.

PAGE: WHAT ARE YOUR VIEWS ON ACHIEVING ENERGY EFFICIENCY IN PAKISTAN AND HOW CAN WE DEVELOP THIS IMPORTANT CONTRIBUTOR TO THE ENERGY SELF-SUFFICIENCY GOAL?

SOHAIL BUTT: Energy efficiency has the potential of plugging 50% of the power shortage in Pakistan. Accordingly about 1500MW of about 3000MW of average power supply/demand gap could be bridged by pursuing energy efficiency policies and goals in Pakistan in a determined and organized manner.

In my view and in accordance with international practices of pursing energy efficiency goals the following road map could be pursued:

ENERGY EFFICIENCY:

1) Energy Efficiency Resource Standard (EERS) to be adopted to help improve energy efficiency and cut energy bills. An EERS should allow for flexibility in the types of efficiency measures covered, and it should address cost-effectiveness, total incremental costs, and cost shifting among customers. In the same context the energy efficient plant and equipment and domestic appliances require standards and codes to be developed to an international standards.

2) Energy Efficient Building Codes (EEBC). The central and provincial governments should adopt energy efficient building codes following an independent analysis of cost-effectiveness, distributional impacts, and other factors. Building energy codes are a relatively straightforward and transparent energy efficiency strategy.

3) Building Energy Benchmarking and Disclosure:. Government and regulatory bodies should adopt a policy requiring benchmarking and relevant disclosure of energy performance information for larger buildings and energy consumption centers.

4) Utility and Customer Market Incentives: The government and the private sector should join hands in adopting combination of both alternative utility revenue and customer rate models.

There should be Energy Efficiency Regulation that would advance policy goals, such as increasing energy efficiency, grid security, and distributed generation cost effectively as well as monitoring the effective implementation of policies and practices adopted by different stakeholders in the energy generation, transmission and distribution and end user consumption chain.

PAGE: YOUR VIEWS ON TAXATION/SUBSIDY ISSUES IN THIS BUSINESS:

SOHAIL BUTT: Every major new energy technology has enjoyed substantial government help initially in the form of subsidies, for solar panels and wind turbines to natural gas fracking, nuclear power plants and biofuels in the developed countries – USA, Europe and Far East etc.

Tax credits and other incentives are normally given. Alternative energy projects entail huge capital cost with added business and operational risks associated during the period of construction and installation. However, in due course, after the loans have been repaid the interest expense elimination reduces the operating costs thereby reducing the need for subsidies.

Accordingly, either subsidies or tax incentives are needed to develop the ‘alternative energy’ sector to its full potential in Pakistan. Currently, this is not the case. With solar and wind turbines cost coming down internationally it would be the right move to develop this form of energy generation by fiscal incentives to the private/public sectors.

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