The upward spiral of the energy bill
- Jan 18, 2021
A report published last week suggested that the government had decided to raise the base electricity tariff by Rs1.90 per unit from this month. The announcement, it is said, has been delayed in view of the increase in the fuel prices. The power price increase is agreed to bring the International Monetary Fund back on the table for the revival of the suspended $6 billion economic stabilisation deal with the multilateral lender.
The power-sector regulator, National Electric Power Regulatory Authority (Nepra), had recommended a base tariff hike of Rs3.30 per unit and the prime minister had agreed — as if he had a choice — last month to implement it and pass it on to the consumers in phases. Thus the differential will be passed on to the households in the next quarter.
Indeed, the present government cannot be blamed for the current situation. The previous governments since the 1990s should share most of the blame. Likewise, no single factor or policy or decision can be held responsible for the electricity prices we are forced to endure today; it is rather an outcome of many different policies, pressures and decisions at every step of the power supply chain.
Unless NTDC revises its future projections and focuses more on cheaper and sustainable renewables, the chances of reduction in electricity prices will likely remain low even in the future
Some like to selectively blame the expensive agreements with independent power producers as others look for the devil in the imported fuel used for generation. Still others link the ever-increasing prices to the combination of massive transmission and distribution losses and widespread theft and so on. But the question is: do we have what it takes to reduce the exorbitant costs of power generation, transmission and distribution to make electricity affordable for the households and industry, as well as stop the build-up of the circular debt, which has already crossed the Rs2.3 trillion mark? Apparently, the planners appear devoid of this capacity.
Take the example of the Indicative Generation Capacity Expansion Plan (IGCEP) 2047 developed by the National Transmission and Despatch Company back in April last year. A review of the plan by Australia’s Institute for Energy Economics and Financial Analysis (IEEFA) warned that Pakistan would “risk locking” itself into expensive, long-term overcapacity as a result of over-optimistic energy demand growth forecasts.
“The government’s principle of affordability cannot be met if the power system is locked into long-term overcapacity. Capacity payments to plants lying idle are already an issue and will become even more unsustainable if more overcapacity is locked in,” the IEEFA study argued. In other words, the consumers will end up paying higher prices if the plan was implemented.
The IGCEP 2047 has been the cause of much debate over the past months with stakeholders concerned about locking in unsustainable forms of generation capacity based on dirty fuels like indigenous coal and liquefied natural gas without taking into account their impacts on the environment or human health. The provinces had also cited concerns that the plan undermined the environment-friendly cheaper generation technologies such as hydro, solar and wind power.
The model assumptions and methodology of demand forecasting was also widely questioned by many. Nepra returned the report to the National Transmission & Despatch Company (NTDC) with a list of directives for its revision that would be needed for its approval. However, NTDC is yet to return with the revised version. Sources say the Grid Code requires the submission of a new long-term electricity plan every year. “So even if a revised document is submitted now its value will be very short-lived,” a former NTDC official says.
The energy mix proposed in the IGCEP is heavily skewed towards expensive thermal sources of generation such as Thar coal, imported gas etc. Not only are these sources heavily polluting but are also economically unfeasible. IGCEP’s power demand growth forecasts are too high when the overcapacity in the power sector is already a big issue, which is getting worse amid Covid-19 economic downturn. IGCEP forecasts assumed that the “gross domestic product (GDP) growth would increase to 5.5pc by 2025 and remain at that level until 2047”
“The IGCEP plans for very significant levels of stranded (RLNG and coal-fired) assets by overestimating power demand growth,” the IEEFA study reads as it criticises the plan’s declining contribution of renewables in the generation mix. “While IGCEP includes additions of renewable energy to meet the government’s renewables target by 2030, renewable energy is neglected in its model after 2030. The overall contribution of renewables to power capacity drops from 31 per cent in 2030 to 23pc in 2047 according to the model. Modelling the declining contribution from renewables post-2030 makes the IGCEP look very out of touch with current power trends,” the study observes.
Pakistan has excellent renewable energy resources — wind and solar, which are already the cheapest sources of new power generation and will be even cheaper throughout the 2030s and 2040s. IGCEP, however, instead of utilising these sources to reduce reliance on fossil fuel imports, focuses on more expensive domestic coal-fired power. “The Pakistan government’s assertions that the power plan is based on the principles of sustainability and affordability have largely failed to live up to the principles,” the study’s authors argue.
Unless NTDC revises its future projections and focuses more on cheaper and sustainable renewables, the chances of reduction in electricity prices will likely remain low even in future.
Published in Dawn, The Business and Finance Weekly, January 18th, 2021