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Pakistan needs better policy design for power sector to achieve decarbonization: experts

13 January 2022 Max Tingyao Lin

While Pakistan has vowed to generate more renewable energy and curb fossil fuel-based power on its decarbonization pathway, energy experts believe the South Asian country needs better policy design in its fight against climate change.

The Pakistani government, when updating its nationally determined contributions (NDCs) last October, committed to reducing GHG emissions by up to 50% from the business-as-usual (BAU) level by 2030. This compares with its previous target of a 20% cut in 2016.

To reach the new goal, Pakistan said 60% of the electricity in the country will be generated from renewable sources like solar, wind, and hydropower by 2030, compared with 32.8% in the nine months to 30 April 2021 (the latest official figures available).

The ambition was shown after nonprofit Germanwatch ranked Pakistan as the eighth most vulnerable country to extreme weather events out of 180.

Despite the seemly aggressive targets, some question their robustness under close scrutiny.

According to the government's BAU scenario, Pakistan's emissions will grow from 405 million metric tons (mt) of CO2e in 2016 to 1.6 billion mt in 2030. So, a 50% cut from the BAU level in 2030 will still lead to much higher emissions in absolute terms.

While the country stopped approving new coal-fired power plants in December 2020, construction of those already with permits continues: Global Energy Monitor (GEM) data shows that capacity total was 1.29 GW as of July 2021.

"As more coal-based power generation comes online, the emissions profile is more likely to increase than decrease," Haneea Isaad, a research associate at the Institute for Energy Economics and Financial Analysis (IEEFA), told Net-Zero Business Daily.

IHS Markit expects Pakistan's emissions to be less than 500 million mt of CO2e by 2030. This brings up the other problem with the BAU scenario being used by the government: it sets a very high assumed emissions level in 2030 of 1.6 billion mt, which makes achieving a promised 50% cut relatively easy. IHS Markit's number suggests the country can easily achieve its climate target, but IHS Markit Senior Sustainability Analyst Mohd. Sahil Ali said the apparent success results from the government's assumption of a compound annual growth rate of emissions exceeding 10%. The historical rate is 3%-4%.

"From our perspective, it is not a question of whether Pakistan will achieve its NDCs, but whether the baselines have been constructed realistically," Ali said.

Questions on proposed power mix

Moreover, there are doubts over Pakistan's decision to favor hydroelectric energy over solar and wind power in its renewable expansion.

In the latest Indicative Generation Capacity Expansion Plan (IGCEP) for 2021-2030, state-owned National Transmission and Despatch Co. said its base case involves increasing installed hydropower capacity to 23 GW by 2030 from 9.87 GW at the end of April 2021. Its share of total capacity would rise to 43.2% from 26.5%.

But IHS Markit only expects about 16 GW of hydroelectric capacity to be in place by 2030, given historical delays in construction and the fact that financing for a significant chunk of the planned expansion has not been secured.

Taking that into account, IHS Markit expects the share of all renewables in the capacity installations to be in the range of 40-50%, rather that the government's stated goal of 60-65%.

Meanwhile, the IGCEP sees installed solar power capacity jumping to 1.96 GW from 400 GW and wind to 3.8 GW from 1.24 GW in the same timespan. The relatively small expansions come despite many industry participants—including the National Transmission and Despatch Co.—calling solar and wind the cheapest energy sources.

Aditya Lolla, a senior electricity policy analyst at thinktank Ember, said the Pakistani government lacks "holistic planning" in its clean energy transition. "There seems to be a reluctance to embrace variable renewable energy like wind and solar in its long-term capacity expansion planning. A well-rounded national policy is now especially pertinent," he said.

That well-rounded strategy includes a need for substantial investment in the power grid, IEEFA's Isaad suggested.

"Pakistan's grid in its current state isn't flexible at all and will require heavy upgrades and reinforcements to accommodate higher penetrations of variable renewable energy," she said.

Challenges in coal phaseout

Another policy has made Pakistan's utility sector even more difficult to decarbonize. Before the moratorium on coal power in December 2020, the government had been expanding coal-fired generation capacity to take advantage of cheap, abundant, locally-produced lignite.

GEM data shows coal-fired capacity in Pakistan jumped to 5.09 GW in 2020 from 150 MW in 2015. Coal's share of the electricity generation mix rose to 20.2% from 1.17% in the period, according to Ember, even though the total share of fossil fuels fell to 55.9% from 61.3% as the country's oil- and gas-fired plants didn't operate at high utilization rates.

Isaad described the "resource nationalism" as one of the greatest challenges in cutting emissions from Pakistani power plants, saying government planners have the "indigenization of the generation mix" high on their agenda.

"They're pushing for domestic coal as the cheapest, most economical alternative to imported furnace oil and re-gasified LNG," she added.

Moreover, Pakistan's debt-ridden electricity distributors have inked long-term, take-or-pay power purchase agreements with fossil fuel-fired plants.

"Heavy reliance on [fossil fuel-fired] generation has created a high carbon lock-in within Pakistan's grid and is making the transition difficult," Lolla said. "While the country did reduce oil- and gas-based generation since 2017, it was replaced by power from new coal-fired power plants."

"As a result, the country is now locked-in with coal as its young coal-fired power plants may have to run for about 15 to 20 years to pay back their debts," he added.

To achieve a 50% emissions cut by 2030, the Pakistani government estimated that $101 billion in international grants would be required by 2030 and another $65 billion by 2040 to increase renewable deployment and phase out coal. Without the funding, the country can only manage a 15% reduction, according to its NDCs.

Energy transition financing

As part of its fund-raising efforts, Pakistan recently expressed interest in joining the Asian Development Bank's Energy Transition Mechanism (ETM), following in the footsteps of Indonesia and the Philippines.

Based on the ETM's design, two multi-billion-dollar funds will be established to accelerate the early retirement of fossil fuel-based power generators and expand renewable capacity, respectively. The Manila-based development bank has provided a technical assistance grant of $300,000 to Pakistan for a pre-feasibility study, which is expected to be completed in the third quarter of 2022.

Sunil Dahiya, an analyst at the Centre for Research on Energy and Clean Air, suggested the government needs to create a better environment for low-carbon investment even with the bank's backing.

"The ETM and favorable environmental, climate, and economic factors for renewable development will put Pakistan on track to the energy transition. However, it would still require aggressive local support from the Pakistan government," Dahiya said.

While Indonesia and the Philippines are seeking to phase out coal with the ETM, the mechanism has been expanded to cover diesel- and furnace oil-fired power plants in Pakistan, the bank confirmed.

With nearly all of the country's coal-fired capacity having come online since 2017, analysts say Pakistan will likely target its petroleum-based plants for retirement. IHS Markit estimates oil accounted for 14.2% of the country's capacity mix and contributed 8.1% to the generation mix in fiscal 2021, but many oil-fired plants are 20 or more years old.

According to IEEFA estimates, old fossil fuel-based plants with a total capacity of 6.5 GW are scheduled to retire by 2030, of which 5.9 GW use furnace fuel.

As the ETM is created to buy petroleum power generators and shutter them early, Isaad believes its decarbonization effects would be stronger if Pakistan focused on the plants not already in those retirement plans.

"The question of additionality is very important," she said. "If a power plant is to retire naturally within five years, it doesn't make any sense for it to be a part of the ETM. A facility retiring in 10 years or more could be targeted if the ETM proposes to retire it in five to seven years."

"For Pakistan, the regulators and managers of the ETM will have to find the sweet spot, where plants with a good 10-15 years of remaining operations are targeted, have written off most of their debt, and have higher costs of operations," she added.

Posted 13 January 2022 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability

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