Alternative energy policy 2019 at a glance

According to informed statistics, Pakistan’s energy mix is formed of 64% fossil fuels, 27% hydropower, 5% nuclear power and 4% renewables. While Pakistan has strong potential for producing renewable energy, it is still far behind much of the world in developing these resources.

Realising this pending need, the federal cabinet recently approved the Alternative and Renewable Energy (ARE) Policy 2019. It aims to create a conducive environment for the sustainable growth of the ARE sector in Pakistan in line with the UN Sustainable Development Goal number 7, namely the provision of clean and affordable energy for all. The policy envisions to have 20% of the generation capacity from ARE technologies by 2025 and 30% by 2030. ARE Policy 2019 has an expanded scope encompassing all renewable energy sources i.e. wind, solar (PV/Thermal), biomass, geothermal, ocean/tidal wave energy, storage technologies, waste to energy, hydrogen production and hybrids of any of these.

Another objective of the policy is to lower the average basket cost of generation in Pakistan. Therefore, the need for capacity addition is not the only driver. The displacement of more expensive fossil energy with cheaper and cleaner renewable energy will be the other driver.

A third objective of the policy is promoting indigenisation of energy resources and development of local manufacturing capabilities.

The following types of projects are enlisted in the policy for dedicated production and sale of power; federal entity sale-purchase, provincial level arrangement, federal-province arrangement, captive power, business to business projects and unsolicited projects.

As opposed to the ARE Policy 2006 wherein feed-in-tariffs were prescribed, the present policy will determine tariffs through an open bidding process using lowest evaluated tariff as the main determinant.

Projects under the policy shall be exempt from corporate income tax, and currently enjoy waiver on customs duty on the import of equipment/machinery not manufactured locally to be installed in renewable energy projects.

A primary dividend of renewable energy deployment resides in reduced green house gas emissions and protection of the environment. Pakistan is a signatory to the Kyoto Protocol and the Paris Agreement that allows accessing global carbon crediting markets, environment and climate funds and other global financing options for projects under mitigation, adaptation and a combination thereof. AEDB may also facilitate the ARE project developers in trading carbon credits in the international carbon market and help DNA/NDA in creating a national carbon credits trading scheme. The revenues generated through the sale of carbon credits will be exempted from income tax or duty.

Renewable energy is inherently intermittent in nature, which presents some technical challenges to weaker grids like Pakistan. In order to deal with these challenges ARE projects connecting to the grid shall be required to have certain basic equipment to support grid stability. Secondly, NTDC will be tasked to be an integral part of the procurement process such that it can plan to strengthen the grid to handle intermittent operation in real time. This applies to wind and solar, however biomass plants or storage technologies do not pose the variability problem.

The ARE Policy 2019 is a power-specific policy, it somehow overlooks the transport sector which consumes approximately 17% of total primary energy requirements of the country. A comprehensive ARE policy must include the commuting sector. Long-range driving, on-road trucking, aviation and marine do not run on electric power and require fossil fuels for their transport.

Although storage technologies included in the policy cater for electric energy for commuting, it is currently quite limited and requires battery charging from the main grid which predominately runs on fossil fuel.

The remedy lies in renewable biofuels which dominate and excel by far the battery electricity used in the transport sector. According to The World Bio Energy Association, in a total of 4.81 EJ units of energy used in transport, biofuels comprise of 3.5 EJ, fossil electricity 0.98 EJ while renewable energy electricity accounts for a meagre 0.33 EJ. Biofuels can be taken as a direct replacement to liquid petroleum for the transport and agriculture sector in the country.

The policy also omits heat generation from renewables (thermal sector). Thermal energy is costly but imperative for both industrial and domestic sectors. Solar, thermal, biomass and biofuels may be employed to generate heat at a local level, or via thermal micro-grids supplying pipeline gas to homes and offices. The policy presumably delegates fuel cells to the league of unsolicited projects. Fuel cells carry the potential of producing smoke-free electricity and thermal energy.

The policy mentions promoting indigenisation of energy resources and development of local manufacturing capabilities in renewable energy equipment. However, a framework or roadmap is not laid down to achieve this objective.

ARE 2019 foresees the replacement of expensive thermal power with relatively cleaner and cheaper renewables. However, an exit strategy is not prescribed to retire thermal power plants, especially when most of the thermal IPP’s are operating under long term agreements often with sovereign guarantees.

Finally, research and development strategy has been ignored. It will be appreciated that there is a need to connect research and development with the financial engine comprising of industry, commerce, products and services. This will ensure improvements through value addition from knowledge work. The virtue of triple helix collaboration between academia, industry and the government cannot be overemphasised.

In conclusion, ARE Policy 2019 is a welcome step which holds the potential of both reducing the cost of energy and protecting the environment from the green house effect. Above all, it will help to utilise the abundant and proven indigenous renewable energy resources, i.e. wind, solar and biomass. However, the Policy needs to address the limitations mentioned in the foregoing.

Dr. Muhammad Bilal Khan
The writer is senior fellow, at the NUST Institute of Policy Studies.

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