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Review of Policy draft 2019: A threat to Govt alternative and renewable energy targets

The world’s energy-mix is changing rapidly to give priority to cleaner and renewable energy technologies to counter the looming threat of climate change. According to New Energy Outlook 2019 (NEO 2019) from the international research firm Bloomberg New Energy Finance (BNEF), global power generation capacity will shift from its 57 percent fossil fuel base today, to 66 percent renewables by 2050. The additional 12,000 GW generation capacity will require investment of US$13.3 trillion by 2050, 77 percent of which will go directly to renewable power production and energy storage technologies.

Global power sector emissions are on-track for 2 degree C pathway until 2030. Zero-carbon technologies will provide more than half of the world’s generation needs by 2030, overtaking fossil fuel for the first time in history. However, aggressive decarbonisation will be needed beyond 2030, including transformation of the transport sectors from liquid hydrocarbons to renewable electricity, to keep the temperature increase below the desired 1.5 degree C limit.

In line with the global trends, Pakistan is also planning energy transition towards a greater share of alternative and renewable energy (ARE) in its system. Development of AREs locally will form a key component in this respect. Without significant scaling up and localizing, we can’t expect renewable technologies to meet government’s targets of 20 percent (8000 MW) by 2025 and 30 percent (20,000 MW) by 2030 as has been envisaged in the draft ARE Policy 2019 currently under review and approval by the government.

The draft ARE Policy 2019 scheduled to put up for a final review and approval from Council of Common Interests (CCI)in its next meeting on 23rdDemeber 2019. The draft ARE Policy 2019was supposed to be carved out of the National Energy Policy (NEP) and also aligned with other key policy documents and plans in the country such as Integrated Energy Plan (IEP) and Indicative Generation Capacity Expansion Plan (IGCEP). Since these documents are yet to be finalized and approved, issuing ARE Policy 2019 before these can lead to conflicts and contradictions. Such risks should be avoided as much as possible.

 

The current draft of the ARE Policy 2019 does not properly build on the four guiding principles of sustainability, affordability, responsibility (of use) and availability and should be revised to clearly incorporate these principles. At a minimum, the draft ARE Policy should cover the following points before it is put up for approval before the CCI on 23rd December:

  1. As indigenization and localization are important pillars of the national energy policy, the ARE Policy should also clearly specify measures and incentives for local manufacturing of ARE technologies. Without government’s support and protection, the nascent and fledgling local industry may not be able to compete with long established foreign suppliers. Therefore, the government must guide their gradual evolvement in the country through a phased programme by setting minimum local content and employment targets in the future ARE projects. Currently the draft Policy does not specify any concrete targets and leaves the whole matter open for Alternative Energy Development Board (AEDB), Federal Board of Revenue (FBR), and Engineering Development Board (EDB).
  2. Unsolicited procurement (on cost-plus tariff) is only allowed for government-to-government (G2G) proposals for mature technologies and the private sector is restricted to solicited bidding only. This appears discriminatory and as such should be avoided. All future procurements should be made through a competitive bidding process to provide equal opportunity to all investors. This will ensure procurement at least cost to the nation.
  3. The existing holders of Letter of Intent (LOI) from the AEDB and provinces, 104 projects (wind, solar, bagasse, waste to energy etc) of roughly 6,547MW, should all be given full opportunity for devolvement through bulk auctions approach adopted (more than 200 MW instead existing 50 and 20 MW current wind and solar projects capacity) until complete capacity needs are exhausted. This will boost the confidence of potential investors on government’s policy and plans with lower tariff ensured for consumers.
  4. The current draft of this Policy solicits bids for 25 years meaning that the term of the energy procurement agreements (EPAs) will also be for 25 years. The first 15 years are, however, assigned a “must-purchase” status to ARE projects while the balance term is given a “take-and-pay” status. This means that AREs’ contract period is in effect reduced to 15 years for must purchase obligations. This will lead to higher bid price/tariff from these projects. All ARE projects, especially those based on renewable resources, will be of a “must run and purchase” nature. It doesn’t makes sense to depreciate ARE asset at half their life. With lowest and sustainable tariff reached through a bidding process and after debt retirement these projects should be on top of the merit-order to ensure the cheapest per unit energy to the country.
  5. Returns on investment, in dollars for foreign equity and rupees for local parties is discriminatory and will frustrate the local investors who are expected to be the majority investors in the future ARE projects, Like the existing thermal project policies and the RE Policy 2006, the dollar returns should be maintained for all investors whether they are foreign or local.
  6. NEPRA has already prescribed the comprehensive Competitive Bidding (CB) Tariff (Approval Procedure) Regulations, 2017. As such, the ARE Policy provisions regarding competitive bidding should also be aligned with these regulations. The ARE Policy should also include references to development of competitive electricity market, which is a key mandate of NEPRA, and the ways it will impact the ARE projects should be detailed in the Policy.
  7. Wheeling provisions are restricted in current draft Policy. It’s recommend that these be specified in concrete terms in the next revision. In particular, the Policy should encourage wheeling arrangements between ARE projects and desirous bulk power consumers. The role and mandate of National Transmission and Despatch Company (NTDC), provincial transmission companies, and DISCOs in this regard should also be elaborated during the next revision of the ARE Policy.
  8. To ensure effective and inclusive decision-making, there should be a tripartite letter of award (TLOA) issued by AEDB and provinces as alike tripartite letter of support (TLOS) existing arrangements practiced under earlier renewables and existing thermal power polices.
  9. Small Hydro projects less than 50 MW capacity are excluded from current draft ARE Policy 2019. These should be made part of the new Policy as had been the case for RE Policy 2006. Their exclusion not only is a violation of AEDB Act 2010 but will also obstruct development of these renewable resources in the country.

The past experience regarding renewable projects development in the country has not been very bright and has been a matter of considerable concentration for the relevant investors. Sponsors of 19 projects with 531 MW of capacity having letter of support (LOS) already issued, had to obtain their legal rights under RE Policy 2006 through Islamabad High Court. Out of 22 Projects with1,199 MW capacity already having NEPRA, only 12 wind projects were allowed recently by the government, and only after the World Bank and Government of Sindh had to intervene to ensure it. Not a very encouraging record for potential investors.

There does not seem to be any thoughtful planning in place to determine the annual ARE procurements requirements to achieve the 30 percent target set for 2030in the country for AREs since the IEP and IGCEP are not as yet approved. Moreover, there is also no clue on how much time it will take to finalize and approve the competitive bidding process. Therefore, the firm date of commissioning of first ARE project into national grid is not anticipated before the 2022 through new ARE Policy 2019.

Current draft of the ARE Policy 2019, if approved in its proposed shape from CCI, will not promote AREs in the country, and in fact may slowdown their uptake. In the absence of a clear and concrete roadmap, the target of 30 percent share of renewables in the national grid appears vague, non-committal, and merely a dream.

This situation will only create false hopes and woes for the sector and will also put the nation way behind the world in terms of renewable and clean energy development in the various sectors of our economy–something which may be difficult to rectify and catch up later.

The writer is an energy professional, with engineering and business training. He can be reached through email: bhutto.gulhassan@gmail.com.

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