Faultlines in renewable energy policy draft
By Engr Hussain Ahmad Siddiqui
THE government is all set to launch a policy for the development of renewable energy. The 76-page policy document, claimed to be the first-ever, was finalised last week by the ministry of water and power, and after receiving comments from concerned ministries, is now to be placed before the Economic Co-ordination Committee (ECC) of the Cabinet for approval.
The policy framework aims at promoting power generation through alternate indigenous resources, with the support of private sector, in the wake of anticipated power shortages at the national level as well as the ever-increasing cost of conventional fuels.
For this purpose, the Alternative Energy Development Board (AEDB) is being allowed to deal with wind and solar energy projects of sizes even larger than 50 MW capacity each, hitherto the domain of the Private Power and Infrastructure Board (PPIB).
Likewise, AEDB will process development of small hydropower projects that are currently dealt with by the respective provincial governments under their own power policies.
The salient features of the policy include inviting domestic and foreign investments primarily for the development of power projects based on renewable energy sources.
These are categorised as (i) independent power producers (IPPs) for supply of power to the national/regional grid only, (ii) captive-cum-grid spill-over projects, (iii) captive power projects and (iv) off-grid (stand-alone) projects.
The policy covers immediate, short, medium and long-term plans, but focuses on guidelines, procedural mechanism and facilities only for immediate term programmes i.e. for the period January 2006 to December 2007.
Thus, the first phase includes grid-connected small-hydro, wind and biomass-fuelled power units, while off-grid projects include wind and solar photovoltaic projects.
The document develops operational, administrative and market arrangements, offers financial and fiscal incentives to the investors including a cost-plus tariff, guarantees power purchase and provides government protection against risks.
Captive-cum-spill-over power projects will not require any permission from the government, according to the draft policy, whereas the developers will be able to sell surplus power to the Water and Power Development Authority (Wapda) entities namely NTDC and DISCOs or other provincial utility companies.
If approved, the policy will make it mandatory for the purchaser to purchase power from renewable energy-resource projects, but, at the same time, small power projects will not require tariff determination from National Electric Power Regulatory Authority (Nepra), which is currently the regulation.
Projects of up to 50 MW net installed capacity, fully or partially connected to the national grid, shall enjoy the governmentââ¬â¢s guarantee for fulfilling contractual obligations of power purchaser.
Likewise, the government shall provide protection to investors against specific political risks, and also against changes in the taxes and duties regime. The respective governments shall facilitate investors in acquiring land or right-of-way for project development, as well as in providing site access.
More importantly, the policy has the unique feature to allow an investor to avail the facility of delivering power on the existing infrastructure and receiving equivalent power for use at a location of his choice.
A study of the fiscal and financial benefits extended to the investor does not only reveal the unprecedented nature of this assistance but also sheds light on the governmentââ¬â¢s desperation to attract whatever investment in this area regardless of its earlier policies. For example, import of machinery and equipment for power generation projects is allowed duty-free and sales tax-free, even if produced locally. Central Board of Revenue (CBR) has issued SRO to this effect on June 6, 2006.
Ironically, the policy document lays emphasis on optimal indigenisation of machinery and equipment and the AEDB claims to have signed in the past agreements for acquisition of design engineering and production technology for local manufacturing. All benefits and concessions extended through Power Policy 2002 and its subsequent amendments, such as exemption from income tax including turnover rate tax and withholding tax on imports and repatriation of equity along with dividends, will also be applicable to all projects initiated under this policy of 2006.
The document also addresses immediate term policy guidelines and procedural requirements for establishing bagasse based co-generation projects and non-power facilities based on renewable energy resources.
A detailed policy framework for medium term implementation (January 2008-December 2010) will be formulated later based on the experience of the policy being introduced, followed by another document for the long- term plan phase.
In the long-term phase, renewable energy will be fully integrated within the national energy plan. The Asian Development Bank (ADB) received last week expressions of interest from international consultants to prepare a detailed policy framework and action plan for capacity development of the AEDB. For this, the ADB has already earmarked $800,000.
Renewable energy and clean technologies are the buzzwords globally. But indigenous renewable energy resources have peculiar characteristics.
In the context of Pakistan, renewable energy resources include biomass fuels, water, solar and wind energy, which all are potentially significant but highly unpredictable in their respective behaviour. Bio-energy systems transform biomass resources into heating, electricity and other uses, at much lower cost. But the systems developed are at too small a scale and thus are neither economically sustainable nor reliable.
Solar thermal system is employed for heating, cooking and a broad range of other applications. It is cost-effective and efficient but its market will remain undeveloped due to many factors. Solar photovoltaic systems are large scale and too expensive. These systems are, therefore, unable to play a major role in contributing towards meeting the national power requirements, at any given time.
Nonetheless, the need for rural electrification of remote areas utilising these resources that require short gestation period has assumed greater significance then ever before, particularly for containing poverty and improving socio-economic conditions. In fact, Sindh and Balochistan are ideal for utilisation of solar energy. In some of these far-flung areas, sadly, light is urgent need of the populace, and there are about 44,000 villages electrified.
Since July 2003, the government has implemented a plan to develop remote areas with the help of alternate energy resources. The schemes included construction of 5,000 solar homes, 10,000 solar cookers and 6,000 geysers. The physical achievement, however, remains much below the target.
Here, the implementation of the 2006 policy would pose a crucial question as to whether the private sector would be responsible for providing rural electrification and, if so, at what cost to the consumer.
Power generation through exploitation of renewable resources of wind energy and small hydropower at a large scale can prove to be economically viable and sustainable. These projects entail high capital cost and associate different risks-hydro projects are complex in nature, whereas power from wind turbines may be available intermittently.
The National Energy Security Plan proposes to set up renewable energy projects, progressively, with a cumulative capacity of 9,700 MW, by the year 2030, with a focus on exploiting wind energy resources.
It was planned to contribute from present non-existent share of renewable energy to the initial level of 10 per cent in the total installed power capacity by 2010. This however, as endorsed by AEDB, does not seem to be practically achievable under the given circumstances because proper economical and technical appraisals, including detailed wind mapping, for installation of wind turbines in different parts of the country are still not available.
At present, three wind-farm power projects of total 145 MW capacity are being established, on build-own-operate-and-transfer (BOOT) basis, at Keti Bandar and Gharo in Sindh. These fast-track projects, which are being implemented by the American, Canadian and Swedish wind turbine manufacturers jointly with local investors, have already run into snags, delayed by almost two years and are being re-scheduled now.
In the second phase, wind power plants of 700 MW cumulative capacity will be installed. As many as 22 national and international companies have signed contracts for developing projects of about 1,100 MW cumulative capacity windmill farms, however the prospective sponsors have not come forward so far.
The policy, nonetheless, attempts to extend more incentives and benefits, even to the on-going projects, as it would basically deal with the projects achieving financial close by end 2007, with an aggregated capacity of 300 MW.
The power purchaser, as per the provisions of the draft policy, shall absorb the risk of availability of wind speed that would have impact on effective energy output.
Sadly, the document does not provide any safeguard to the consumer ensuring affordable electricity. World-over the wind energy system is known for moderate capital outlay, short lead-time, lower line losses and increased energy efficiency of electricity distribution.
Thus, the wind energy power generation cost is much lower than the oil or gas-based projects. Wind energy costs compare favourably with conventional fossil-fuelled power plants, and continue to decline steadily and substantially as technology improves.
Wind power generation cost has come down to an average of US Cents 2.5 per kWh in developed countries while in developing countries, the cost is a maximum of five Cents per unit depending upon site conditions.
Earlier, the AEDB had estimated energy cost through its planned projects as Cents seven per kWh, which was considered to be on the higher side and acceptable to project sponsors. But Nepra has subsequently allowed, in August this year, an up-front tariff of Cents 11.75 per kWh for the first 10 years and Cents 9.5 per kWh average for project life of 20 years.
A 45-MW wind energy project is costing $400 million, in spite of cheap and subsidised land cost, availability of infrastructure and numerous concessions and benefits to the investor. Undoubtedly, the western investors and suppliers of machinery have taken us for a ride, as they develop business opportunities in Pakistanââ¬â¢s emerging market, with much higher profits.
The Alternative Energy Development Board, since its inception in July 2003, has not been able to establish a single project worth mentioning, either wind or solar energy. It had taken over the UNDP-sponsored 100-150 MW wind farm project for fast-track implementation, for which a feasibility study was available many years ago, which has not yet materialised.
The dismal performance of the AEDB may have direct impact on the prospects of success of the new power policy in so far as the wind energy is concerned. It is admitted by the AEDB in the document that the original target of developing power through renewable energy resources to achieve 10 per cent share in total installed generation capacity by the year 2010 was revised downward to five per cent in 2005 and has been further slashed this year to just over one per cent.
This may precisely be the reason that the policy allows AEDB to deal with, in addition to micro- (less than 100 kW) and mini-(100 kW to one MW) hydropower units, the development of small hydropower projects of 10 MW capacity each, even stretching to higher capacity, in a bid to justify its existence.
According to a report published by the PPIB, there exists a total hydropower potential of additional 41,722 MW. Out of this, as many as 570 schemes and sites, with a potential of cumulative capacity of above 2,165 MW capacity, have already been identified for establishing small-size hydropower stations.
These schemes of capacity varying up to 40 MW capacity include projects for which technical and economic feasibility studies have been finalised. Studies are being conducted on various other sites too.
Experts estimate that further potential exists to generate additionally 3,000 to 4,000 MW through establishing small hydropower plants. Punjab government has recently approved 40 schemes of small power units on various canals and barrages that would be capable to generate a cumulative total of 65 MW electricity.
Efforts are thus underway by various concerned departments and agencies, at provincial level, to exploit the small hydropower potential with the strong participation of the private sector.
Power policies of the governments of the NWFP and AJK have adopted simple procedures, extending fiscal and financial concessions and attractive tariffs. The NWFP government has recently revised its power policy to make it more investor-friendly, while the Punjab government has approved the hydro power policy only last month.
The latest move of the AEDB to take over the authority and resources resting with the provinces is bound to create conflicts and non-co-operation, if not a tug-of-war situation, among various federal and provincial organisations, thus hampering the on-going progress on development of small hydropower.
The policy for 2002 provides requisite framework, guidelines, fiscal and financial incentives and concessions to power plants of 50 MW capacity and above, including renewable energy projects. The proposed renewable energy policy has adopted same or similar guidelines, concessions and provisions for application and implementation procedures etc, ââ¬âââ¬â a fact that has been acknowledged in the document. Why then was there an urgent need to introduce another policy and that too an interim, one may ask?
In essence, the policy for 2006 is a flawed document with misplaced focus. It is simply an attempt to build the AEDB empire that would result in widening the gulf between the federal and respective provincial governments, implementation of which may not ensure the envisaged achievement of desired objectives.
It is imperative for the government to heavily rely on developing its huge hydro potential and utilise large coal resources to meet future power needs.
