The paradox of energy transition

Ahead ofthe 26th UN Climate Change Conference of the Parties(COP 26) scheduled at the end of the year in Glasgow, many countries have been upping the ante on the ‘green agenda’ to deliver new ambitious commitments. Pakistan has also expressed strong support for advancing renewable energy and fast-tracking energy transition, which is certainly an admirable, and necessary, pathway. This support could be tracked in multiple policies and political statements including the Nationally Determined Contribution (NDCs), Net Metering Regulation 2015, National Energy Efficiency and Conservation Act 2016,Pakistan 2025: One Nation, One Vision, National SDG 7 Framework, and most notably the Alternative Renewable Energy Policy (AREP, 2019) which set a target of reaching 30 percent of non-hydro renewable energy by 2030.

Let’s theorise compatibility of thesecommitments, policies, visions and inter-linked broader political economic landscape.Evena cursory look at themost recent policies and statementsalone indicates major misalignments.For instance, the National SDG Framework targets to increase share of renewable energy to 25 percent in the total final energy consumption.The AREP targets 30 percentof power generation capacity from non-hydro renewables by 2030.Whereas the recently revised Indicative Generation Capacity Expansion Plan (IGCEP) for the period 2021 to 2030 envisage the share of solar and wind at 10 percentin the overall energy mixby 2030. The stated differences in mandates, goals and targetshave created widespread confusion and scepticism toward a uniform decarbonisation strategy and roadmap.

It is important to note here that the very idea of having aplanned power sector expansion trajectory was to avoid misbalanced growth and misaligned systemic institutional logics.The plan itself states its overall purpose to be “fulfillment of outlines, actions, and strategies as stipulated in the relevant policies and decisions of Government of Pakistan”.To this note, IGCEP hence raises several questions, notably its misalignment with ARE Policy, and its blatant disregard for the 30 percent non-hydro RE target.

An incoherent planning system cannot drive a coherent strategy. IGCEP must align with AREP. It is time to walk the walk and ensure that this 30 percent target is met by 2030

What is difficult to comprehend here is not only the paradox of policy and planning, but also the paradox of rationality. For the power sector of Pakistan, a long-standing objective has been reducing reliance on imported fossil-fuels and improving energy security. And although Pakistan always had abundant solar and wind energy resources yet till recently, competing counterclaims associated with the economic and technical constraints ofthese technologies held back its growth. However, withmajor technological breakthroughs, recently renewable energy technologies have undergone a dramatic downward shift in terms of cost, reaching grid parity. The cheaper and widely accessible solar and wind energy hence has the potential to bring down generation cost. Where intermittency of these resources remains a key challenge, but in the specific case of government’s 30 percent VRE target, the recent World Bank commissioned studies have concluded that a large and sustained expansion of solar PV and wind power, alongside hydropower and substantial investments in the grid, are both achievable and desirable. And that a substantial and immediate scaling up of solar and wind capacity could assure several advantages including lowering GHG emissions over the long term and reducing externalities. With these established techno-economic environmental efficiency gains, the only problemstill not addressed is fragmented state oversight, planning and coordination; absence of innovative organisation, business and finance models; as well as grid related constraints-consequently making the renewable transition highly resistant despite promising potential while the reliance on fossil-fuels continues unabated. Theskepticism surrounding renewables is another key impedimentundermining the entire process.The real challenge therefore remains- complementing policy tools with creating an environment for transition. If done so, this could effectively unleash a renewable revolution in the country.

The window of opportunity to achieve the 1.5°C Paris Agreement goal is closing fast. We need to timely head in the right direction. For Pakistan, renewable energy does not only offer an ‘irresistible alternative’ for advancing indigenous sustainable energy but a ‘necessary prescription’ for addressing longstanding challenges in the power sector-a much overlooked discourse. The challenge of advancing renewable energy,however,cannot be achieved by a single government, institution or sector-rather will require consolidated coordination and changes at every level of the energy value chain. Relevant actors and stakeholders, legal and political regulationsmust be organised to successfully leverage the underlying transformational forces substantiating the transition. A systemic approach to solving fundamental barriers and capturing opportunities is therefore imperative to foster the desired transformation. However, as a starting step, the government needs to face the reality and match its grand plan’s words with more action through aligned institutional logics.

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Calendar January 10, 2021

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Prime Minister Imran Khan’s coal moratorium announcement gains plaudits but the lack of reaction from investors in coal plants, mainly Chinese, raises troubling questions of the way forward.

In a surprising turn of events, the Prime Minister of Pakistan, Imran Khan, announced a moratorium on coal on December 12, at the Climate Ambition Summit held to mark the fifth anniversary of the Paris Climate Agreement, where 195 countries came together and pledged to limit temperature rise to two degrees Celsius (from the 1880 average) through stronger climate action. At the Climate Ambition Summit, leaders from around the world were invited to present their strengthened commitments for decarbonization and greener growth.

Khan’s statement received international acclaim, since Pakistan’s bid to achieve energy security was known to be based on coal-based generation is widely known, indicated by the heavy investments in the sector from Chinese and local investors alike. While the Prime Minister’s statement is certainly a step in the right direction, there is much that is desired in terms of explanation when it comes to its implementation.

SeeScrapping imported coal projects, Pakistan fails to let go of local lignite

When will this phaseout of coal occur? How will the transition happen? Does this mean that existing coal power plants will be shut down too? What happens to those already under construction? Such a transition would have far reaching impacts on most energy projects under the China Pakistan Economic Corridor (CPEC), so why have the Chinese coal investors kept quiet?

Explore a large-scale version of the map here. [Data source: & CSIS]

China is Pakistan’s largest investor and contractor of energy projects, most of which are coal-burning power plants. CPEC includes 17 priority energy projects totalling 11.1 GW in capacity and USD 18.62 billion in investments. Three quarters (8.22GW) of this capacity is coal fired in nature, backed by roughly USD 8.7 billion of insured debt from major Chinese banks including the Industrial and Commercial Bank of China (ICBC), Export-Import Bank of China (China EXIM Bank) and the China Development Bank (CDB).

SeePakistani military in charge, provinces sidelined in a revived CPEC

Coal a major player in Pakistan

Despite being a recent player in the energy domain in Pakistan, coal is already a major part of the generation mix. The year 2019-2020 saw 19% of the power generation in the country coming from just four coal-fired CPEC power plants. The 4.62 GW of CPEC funded coal-fired generation includes the 1,320 MW Huaneng Shandong Ruyi-Sahiwal Coal Power Plant, the 1,320 MW Port Qasim Coal Fired Power Plant, the 1,320 MW HubCo Coal fired power plant and the 660 MW Engro Thar Coal Power Plant which started supplying electricity to the national grid between 2017 and 2019. A further 1,980 MW of capacity comprising the Thal Nova, Thar Energy (HubCo) and Shanghai Electric (SSRL Thar Coal Block I) power plant are under various stages of construction already.

A complete phase out of coal would gravely complicate matters for these power projects. Pakistan does not have a competitive market when it comes to buying and selling of power. Instead, power purchase is governed by contracts between the government and power producers. CPEC energy projects are considered Government to Government (G2G) projects, founded on the basis of state-to-state cooperation. To divest such huge investments a massive renegotiation and considerable strategic manoeuvring would be needed. The government’s recent attempts to reconfigure power purchase contracts with about 47 independent power producers (IPPs), which are proving to be exceedingly difficult, is a sign of the kind of trouble this would entail.

Effect on new projects?

Perhaps, then the biggest implication of the Prime Minister’s statement would be for coal-based power projects which are still in the pre-permit stage. Take Gwadar for instance, where a 300 MW imported coal fired power plant is in the pipeline, or Thar where a 1,320 MW project is being planned by Oracle. Both plants fall under the CPEC umbrella, with a cumulative worth of over USD 2 billion, a majority of which will be funded by state-owned enterprises in China.

An additional 2,473 MW non-CPEC coal-based capacity has also been planned in Thar, Jamshoro and Arifwala, financed by a mix of local and foreign sources that could possibly reach up to USD 3.3 billion. It would be logical for a moratorium on coal in Pakistan to start from these projects, effectively putting 4.1 GW of planned coal-fired capacity in jeopardy and risking the financial security of billions of dollars in investment.

SeeLocals urge Pakistani government to drop CPEC coal mining plans

None of the CPEC coal power projects under operation or planning have responded to the PM’s statement yet. Could this mean that they think they have nothing to worry about? It would certainly not be the first time Pakistan’s climate policy discourse has not gone beyond promises.

New coal plans a big worry

While the first part of the Prime Minister’s statement could be a message of hope, the second part is cause for concern: it refers to the government’s recent plans for exploring the possibility of Coal to Liquid (CTL) and Coal to Gas (CTG) options in a bid to shift away from coal-based generation. The government has already been in contact with two Chinese companies – China Ghazuba and China Coal – for this. Three local fertiliser companies have also been asked to conduct a joint study on the feasibility of this venture. Individual studies conducted separately by these same companies indicated that such an endeavour would not be cost-effective.

Khan’s statement can be construed to essentially mean that mining activities would continue, but instead of coal being directly fed into power stations, it would first be converted to gas or oil. What is surprising is that the premier introduced this as his plan to mitigate climate change, while it is widely known how cost-prohibitive and water and energy intensive these CTL and CTG processes are. The closure of the Kemper County Clean Coal Power plant in Mississippi after construction delays of seven years and a cost escalation up to USD 7 billion is a warning.

Running the state-owned Shenhua’s pilot CTG plant in Ordos, Inner Mongolia, China, led to an almost four-metre drop in water level of the local aquifer in just the first year of operations. Greenpeace reported that several wells less than 30 metres in depth had gone completely dry in the area, and new wells up to 100 metres deep had to be dug to access water.

The same fate awaits Thar, a desert in which the government intends to start its CTG and CTL plants.

And then there are the social impacts surrounding the less-than-transparent process of land acquisition in Thar, which is proceeding without free, prior and informed consent of residents.

Pakistan’s Thar desert contains one of the largest untapped coal deposits in the world [image by: Amar Guriro]

If Pakistan is to shift away from coal, then CTL or CTG is not the way to go. The government should come up with a solution that is better thought out, more rounded and ensures that Pakistan’s transition to cleaner energy is socially and environmentally just. Perhaps the government should be looking into the feasibility of battery storage and hybrid renewable energy systems instead.

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