ALTERNATIVE SOLUTIONS TO ELECTRICITY PRODUCTION
TARIQ AHMED SAEEDI
Oct 18 - 24, 2010
While the government defends the rise in tariffs of electricity by reasoning the recourse with widening difference between cost of electricity production and electricity distribution to consumers, it has apparently failed to push up solutions to get power production rid of overreliance over electricity generation based on furnace oil, which is highly susceptible to volatility of global oil prices. Price of furnace oil rose to near 60,000 rupees per tonne in May 2010 from as low as 20,000 rupees per tonne in February 2007.
Energy mix in the country is peculiarly skewed relying extremely on electricity generation through oil-run power plants only next to gas. Installed generation capacity of hydel grabbed the largest share of 58 per cent (6,555 megawatt), followed by thermal 43 per cent (4,844 megawatt), independent power producers 312 per cent (6,374 megawatt), and nuclear 2.3 per cent (462 megawatt) last year. Ironically, in spite of that share of hydropower in total electricity generation is less than thermal sources. Hydropower-thermal ratio is approximately 33:67. The demand-supply gap in the country has expanded to 3,000 megawatt. As per the latest figure, power generation stands at about 12,000 megawatts and demand lingers around 15,000 megawatts. The widening gap unleashes more than one-hour spell of load shedding twice, thrice and on some places four times a day whereas electricity tariffs are being increased over a short span. Electricity tariff for consumption of up to 100 units shot from below three rupees to near four rupees in over two year (Feb 2008 to May 2010), as per a graph by ministry of finance. Over 100-unit consumption, the percentage point hike would turn out more than 100 per cent.
Managing director of bleeding Pakistan electric power company, Tahir Basharat Cheema while defending the rise in electricity tariff by 56 per cent this year, said cost of producing electricity could not even meet breakeven point. Therefore, even government's subsidy to energy sector could not fend off tariff hike, he said speaking to a public gathering. According to an official estimate, average cost of generation and recovery has reached 30 per cent because of hike in international oil price. Government gives subsidy to reduce the tariff-recovery gap. Now the government is not loosing any chance to increase power tariffs in accordance with the rise in international price of oil and in the wake of fiscal discipline dictated by IMF and the World Bank.
Crude oil price in international market touched its height of 147 dollar per barrel in the economically anarchic year of 2008. Electricity tariffs were under the protection from vicissitudes of prices in international market and other costs from 2003 to 2007. This protection along with staggering rise in oil prices in international prices gave a leeway to the present government to keep electricity tariffs on upward graph to offload subsidies it has to cough up to balance cost-tariff differential, though it hasn't lifted hands entirely off subsidies.
High cost of furnace oil in the international market continued to have adverse impact on the power sector of Pakistan during last year and according to the findings of economic survey energy crisis took a heavy toll of around two per cent of the gross development product in the last fiscal year (2009/10).
The overreliance on oil-based electricity production and limited supply of electricity from other sources like hydel aggravated the energy crisis to an alarming level. This also led to malignant issue of circular debts in the "entire energy supply chain", notes the economic survey conducted by the ministry of finance. The reason behind insolvency — a common problem occurred following unmanageable global oil price volatility-was amplification of cost of generation of electricity from furnace-combusted plants. That's why generation cost remained too high to be recovered before the government supported alacrity of utilities to let go power tariffs upward.
State-run gas companies are said to raise gas allocations to power generation companies to help them wean furnace oil as inputs. However, this either has not overcome the power shortfall. Delay in payments becomes the obstacle in the supply chain of energy sector with gas companies no exception in need of clearance of liabilities on power producers.
Pakistan has a huge potential of hydroelectricity generation, but the country could not see developments on this front over last three decades. The existing hydroelectricity capacity is rather declining with its shares waning in the country's energy basket. Government envisaged constructing 103 micro hydropower projects at Chitral and other areas of Gilgit-Baltistan since large dams over the main rivers take long gestation period and enormous funds.
Furthermore, local and international geographical surveys have put weight on the claims of Pakistan being an ideal place to developments of alternative power technologies such as wind and solar energies due to its windy coastlines and brisk sunlight. An insignificant volume of wind electricity has gone online. Turkish wind energy producer established six-megawatt project at rural vicinity of Jhimphir in Sindh after a long-delay.
On the other hand, China is vigorously shifting its electricity generation capacity to wind power, and will augment its wind power capacity more than five-time to 150 gigawatts by 2020 from existing 25.8 gigawatts, AFP reported citing China Wind Power Outlook 2010 report. Right now, China meets 70 per cent of its energy needs through coal. And despite its gradual switchover to wind power, it is not ready to swear off coal power entirely. Indeed, China will enhance coal-based power production four per cent annually by 2030, says a forecast by US Department of Energy Information and Administration.
In addition, incentives to coal and hydropower projects in Pakistan are attractive compared to thermal-based power production. For example, national electric power regulatory authority, a sole regulatory authority of electric power services in Pakistan, has allowed 17 per cent IRR to coal-based and hydropower projects in contrast to 15 per cent provided to oil- and gas-run power generation ventures.
In the wake of rise in furnace oil price, cement producers are also shifting to coal because of its price adequacy as compared to furnace oil. Coal deposits in Sindh are estimated at 175 billion tonne with electricity generation potential of 100,000 megawatts. World over, coal is considered cheap source of electricity generation and many developed countries are using modern technologies to exploit coal safely to produce electricity.