Pakistan’s Looming Electricity crisis: Causes and Solutions

Pakistan has been grappling with acute power crisis for almost a decade now as the supply of electricity has failed to keep up with its demand. As a result, long hours of scheduled and unscheduled load shedding became a norm, leading to protests across the country.

These power disruptions and energy shortages have posed a major constraint to the economic growth and development in the country. According to government estimates, 2-3% of the GDP is lost annually due to the demand-supply gap.

The installed capacity increased by only 6,000 MW over the last 17 years. Output stagnated at 18,000 MW in summer and 12,000 MW in winters as against an installed capacity of 23,000 MW by 2015-16. A shortage of 6,000-8,000 MW has been recorded in the system.

Eliminating this gap was on the top of PM Nawaz Sharif’s agenda when he took office in June 2013. To its credit, the government over the last four years has pursued investments in the power sector, prioritizing increase in generation. By 2018, 10,000 MW would be added which is expected to eliminate the shortage. In fact, some surplus has been indicated for the initial years. However, single-mindedly undertaking supply side investments without addressing other issues is only going to provide temporary relief rather than a long term solution.

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Key Issues and Challenges of Pakistan’s Power Sector

The inefficiencies in the power sector are caused by a multitude of factors including:

1. Generation mix dependent on imported fuel

The reliance on imported fuel for power generation has increased over the years as our energy mix has come to be dominated by furnace oil based plants. Before 1994 IPP Policy, hydel was the dominant fuel source but post-1994 private sector has invested heavily in FO and gas based plants. Thermal power now constitutes more than 60% of the electricity mix.

The increasing share of thermal electricity generation has increased the utilities financial burden particularly in foreign exchange. The Pakistan Bureau of Statistics reported that the country imported fuel worth of $7.60 billion in the fiscal year ended June 30, 2016. Most of the oil imports were made to meet the growing demand for power generation.

International oil prices have been extremely volatile, with prices going up as high as $120/barrel. Since any increase in the fuel cost was allowed as a pass-through item, in the IPP policy, with the risk to be borne entirely by the buyer, the cost of generation increased to Rs. 15/kWh. According to a study conducted by SDPI, an average Pakistani is not willing to pay more than Rs. 8/kWh. Thus, high price of electricity creates burden for the national exchequer as well as for consumers of electricity.

See: Pakistan’s over-reliance on imported fuel

 

2. Inadequate Grid Capacity

Our transmission infrastructure has critically lagged behind in transmitting the available generation capacity efficiently, and in accepting and transporting new sources of power. The NTDC 500 kV and 220 kV transmission system’s current capacity is approximately 16,000 to 17,000 MW while the constrained summer peak demand is calculated at 20,000 MW. Thus, there is a 3,000 to 4,000 MW gap in transmission transfer capacity to serve the constrained peak load

NEPRA, in its site visit of NTDC’s projects under construction, found that the interconnection arrangements for several incoming generation projects were behind schedule and were not likely to be completed before the expected commissioning of powerhouses.

If the planned new energy supply sources meet the commissioning dates in the transmission expansion plan, there will most likely not be sufficient transmission network transfer capability in 2017 through 2018.

See: Inadequate transmission capacity continues to hinder Pakistan’s renewable energy growth

3. Governance

Before restructuring of the power sector, there used to be an intermediary level of professional management, intervening and communicating between government and the operating companies. Now bureaucracy in Islamabad is directly managing the companies. The ministries, on the contrary, should only be responsible for policy making.

When WAPDA was disintegrated into separate generation, transmission and distribution companies, it was envisaged that these smaller companies would be given full corporate autonomy to control their management, resources and finances, without any political interference. The expectation was that doing so would improve their performance and efficiency. Unfortunately, this hasn’t happened as the bureaucracy continues to manage the day-to-day operations of the companies ordering transfers and removals.

4. High Distribution Losses

Pakistan’s distribution losses are among the highest in the region as 20% of the electricity generated in the NTDC system is lose due to a beleaguered distribution network and power theft. PESCO, SEPCO and QESCO are the worst performing DISCOs with losses above 30%.

Since, the government cross subsidizes the inefficient DISCOs by imposing surcharges on the customers of better performing DISCOs, they do not have the incentive to improve their performance. NEPRA, in its audit, found that there was marginal improvement in the performance of DISCOs in the last five years. In fact, there were cases of worsening performance.

See: No improvement in performance of DISCOs

5. Inefficient Electricity Consumption

It is unsustainable to continue investing in power generation without doing anything about its demand. With limited financial resources and the associated environmental costs, the Government cannot keep on building more power plants.

The recorded demand in Pakistan is already constrained due to years of load shedding and slow economic growth. As soon as the current deficit is eliminated and the economy starts growing at the projected rate of 7% per annum by 2020, the electricity demand, in both productive and non-productive sectors, will grow at an even higher rate requiring 5,000 MW of capacity additions every year.

See: Energy Efficiency – Missing Link in Power Sector Regeneration Puzzle

6. Integrated Energy Planning

Pakistan’s energy sector has separate ministries for petroleum and natural resources, water and power, planning and development, climate change, and transportation. There are also separate regulatory bodies for oil and gas, and electric power. No single ministry or regulatory body, therefore, has the overarching responsibility for energy. In this scenario, Pakistan’s energy planning is unlikely to be optimal.

There is a critical need for an integrated model for the energy sector of Pakistan, which will help planners in evaluating the impact of different policy scenarios allowing them to make better policy decisions. This could assist policy makers in evaluating the costs and benefits of both demand- and supply-side resources under a given set of technological, economic, and environmental constraints.

Recommended Solutions

  • Increase share of renewables in the energy mix.
  • Implement competitive bidding, instead of upfront tariffs, for all power projects to reduce the cost of generation.
  • Augment the transmission network so that adequate capacity is available in system to absorb power from the incoming projects.
  • Impose strict penalties on inefficient DISCOs incurring losses more than that allowed by NEPRA
  • Implement incentives for energy conservation by enforcing energy efficiency standards and building codes and reducing import duties on energy efficient appliances.
  • Improve energy planning in Pakistan to optimize available generation sources and to meet demand in the most cost-effective and sustainable manner.
  • Reduce control over the production and distribution companies and give them more autonomy over their management and resources. The role of ministries should be limited to policy making only.

 

 

 

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