Capacity charges, neglecting renewables intensifying Pakistan’s financial burden: reveal studies

  • Calendar Jun 26, 2020

KARACHI, LAHORE, ISLAMABAD, 26th June 2020 (Friday): Massive build-up of coal power projects in Thar and ignoring renewable energy both at policy and operational level have been intensifying Pakistan’s financial burden amidst the economic downturn induced by COVID-19, reveal two studies launched on Friday.

High capacity payments to thermal and coal power generators coupled with surplus installed generation capacity have been adding to increasing cost of electricity and worsening power sector’s circular debt, state the studies conducted by Institute for Energy Economic and Financial Analysis (IEEFA) and World Wind Energy Association (WWEA).

Both the studies launched at a webinar—titled as “Pakistan’s Power Crisis: Imperatives for Renewable Energy in Sindh” and organized by Alliance for Climate Justice and Clean Energy (ACJCE)—underlined the significance of using the renewable energy of Sindh as the cheapest and the most cost competitive source of power that does not receive any capacity payments.

Simon Nicholas, author of IEEFA’s study titled ‘Thar Coal: Locking Pakistan into Unsustainable Capacity Payments’, said the government of Pakistan had already realized the gravity of capacity payment issue and raised it with the government of China, which had been sponsoring coal power projects in the country under China Pakistan Economic Corridor (CPEC).

“Premier Imran Khan has noted that total capacity payments to power generators could reach an entirely unsustainable Rs1.5 trillion (US$9bn) in the next few years. The government of Pakistan has now asked China for easier repayment terms on 12GW of CPEC power projects totaling US$30bn of investment,” he said.

Despite the gravity of capacity payments, he said two more coal power projects in Thar, namely Thar Energy Limited and Shanghai Electric had reached financial close in the current years. These projects, he said, would not only receive capacity payments but also intensify the issue of overcapacity afflicting the power sector before the outbreak of pandemic.

Zeeshan Ashfaq, author of WWEA study titled, ‘Fostering Renewable Energy Development in Sindh: Identification of Impediments and the Road Ahead’, said weak grid infrastructure; limited ability of provincial government, lack of effective coordination mechanisms; and arbitrariness in regulatory and policy decisions were hampering growth of renewables in Sindh.

He said Sindh, where 72 percent of existing solar and wind power projects of the country were located, had an immense potential for development of renewables. However due to centralized governance of power sector in the country, he said, the potential of the province for renewables was not being realized. In December 2017, the cabinet committee on energy’s decision stopped renewable energy projects, including the ones initiated by Sindh under feed-in-tariff framework, while allowing the coal and RLNG based plants to be developed.

He urged the Council of Common Interests to act proactively for enhanced coordination between the federal and provincial governments on renewable energy policy, planning and development. Besides, he demanded the Sindh government to formulate provincial renewable energy policy, in line with its mandate and the federal Alternative Renewable Energy (ARE) Policy-2019.

Others who spoke at the occasion included Sohaib Malik, Senior Analyst, Wood Mackenzie Power & Renewables; Engineer Mehfooz Qazi, Director, Sindh Solar Energy Project, Sindh Energy Department; and Advocate Ramis Sohail, a representative of Alternative Law Collective and ACJCE.