\
Pakistan’s Energy Sector Issues: Energy Efficiency and EnergyEnvironmental Links
INTRODUCTION
Energy
is the life blood of socioeconomic development. It is essential for
technological applications that promote productivity increases. The following
are the three domains where energy is used:
a.
the production of electricity
b.
the extraction/generation
of thermal energy (heating
and cooling), and
c.
Transportation
Although the
availability of fossil fuel has
enabled wealth creation by modern civilization,
today we are faced with two major challenges in the utilization of
energy:
a.
The first is to find adequate substitutes for the declining resources of
fossil fuel.
b.
The second relates to the link between energy and the
environment. The link is evident in all phases of energy
production, conversion, and use.
a.
FINDING ADEQUATE
SUBSTITUTES FOR THE DECLINING RESOURCES OF FOSSIL FUELS
During the past two centuries, fossil fuels
(coal, oil, and gas) have been the main
sources used to meet humanity’s energy
requirements. Currently, fossil fuel sustains about 80 percent of
global energy needs. But these resources, formed by nature over millions of
years, are finite. Large fossil fuel reserves are also unevenly distributed
among countries. They are concentrated in a small number of countries with
about half the low- and middle-income countries having no or very few oil and
gas reserves. Even rich countries are not well endowed with oil and gas,
although coal is more widely distributed.
In Pakistan, the most serious energy-environment
problems are the effects of the emission of particulate matter (TSP, PM ), indoor
pollution from the use of
biomass fuels, sulfur dioxide (SO ),
nitrogen oxide (NOx), carbon monoxide (CO) and heavy metals (lead, mercury) generated
by the use of fossil fuel for transportation and generation
of electricity. While at the global level, Pakistan is not a
significant contributor to the production of carbon dioxide (CO ) (producing 0.9
tons/capita), as we look ahead
Pakistan could (like China at 4.6 T CO /capita) become a significant contributor to climate change.
At Pakistan’s current level of energy consumption, GHGs
(greenhouse gases) are not as important as classic pollutants, but in the
medium term they will become important variables in decisions about energy
production and use. Research has suggested
that wind technologies are the most environmentally friendly with
respect to both GHGs and classic pollutants. However, wind technologies are
location-dependent.
Nuclear power also generates a low external cost even though the
very low possibility of accidents with very high cost consequences and fuel
cycle impacts are included. Nuclear power also produces a very low level of GHG
emissions.
Natural
gas-fired technologies are quite clean with respect to classic pollutants, but
their impact on climate change depends on the efficiency of the conversion
technology. For example, the newer combined-cycle technologies produce low to
average GHG impacts.
Coal technologies carry the GHG burden
of their high carbon dioxide emissions. Old coal-fired plants are also very high emitters of classic pollutants.
This combination makes coal technologies
the worst available for the production of electricity. Non-climate damages from ethanol
were similar to those from gasoline because of the energy needed to produce the corn and convert it to
ethanol. However, ethanol made from second-generation
herbaceous plants (switch grass, trees) has very low external costs. Second-generation bio-fuels are currently not
commercially available, but hold great
promise.
For
Pakistan, we could not find any estimates of external cost from energy production or use. However, we
have small sample (2007) estimates for
the level of classic pollutants in some spots in a few cities: Gujranwala, Islamabad, Faisalabad, Quetta, Lahore,
and Karachi. These estimates are from
the Pakistan Environmental Protection Agency with the help of the Japan International Corporation Agency
(JICA). The estimates focus on particulates
(PM , TSP) and nitrogen oxides (NO ). The concentration of particulates is about 30 times higher than World
Health Organization (WHO) standards for the 24 hour average for PM and
TSP in Gujranwala; for nitrogen
oxides, the highest concentration was in Karachi: about 400 ug/m . This is more than ten times the
WHO standard of 30 ug/m.
In order to get a sense of
the magnitude of the efforts needed by Pakistan
to make the required shifts in policy and create enabling capacity, it is worthwhile to briefly review the
implementation performance of Pakistan
during the past several decades (and several governments). This brief review is confined to the
implementation experience in (i) large dams;
(ii) ongoing discussion with Iran, Turkmenistan, and Qatar for natural gas pipelines; and (iii) the power sector.
Large Dams
The
Indus Basin works were implemented with acceptable delays for large projects.
The works included Mangla and Tarbela dams, link canals, and the public sector
Salinity Control and Reclamation Program (SCARP).The involvement of international
financial and technical assistance working with a strong Water and Power
Development Authority (WAPDA) was primarily responsible for this satisfactory
implementation performance.
Kalabagh dam, on the other
hand, has yet to see completion even though it pre-dates (1950). Tarbela was
the first proposed large dam on the Indus.
President Ayub Khan, preferred Tarbela over Kalabagh. Kalabagh dam was again
recommended by the World Bank/WAPDA Revised Action Plan (in 1979) and a
feasibility study financed by the World Bank was completed in the early 1980s.
The proposal to build Kalabagh as the second dam on the Indus fell by the
wayside due to political conflicts. President Musharraf made a fresh effort in
the early 21 century, but did not succeed.
A substitute, Diamer Bhasha Dam, was proposed in the 1990s and is politically
more acceptable. This dam has the additional advantage of stopping the
sedimentation of Tarbela, thus extending its life by many decades, possibly a
century. However, the project with a 4,000 MW potential also seems to be
withering on the vine in spite of the financial and technical support of two
multilateral banks. Meanwhile, the energy deficit, with long hours of
load-shedding continues, being addressed by inadequate band-aid solutions like
thermal turbines on barrages or rented thermal power plants. The economic cost
of the load shedding is quite high.
International Natural Gas Pipelines
There
are three pipelines under consideration:
1. Iran-Pakistan-India (IPI) pipeline,
2. Turkmenistan-Afghanistan-Pakistan
(TAP) pipeline, and
3. Qatar-Pakistan
(QP) pipeline (see map overleaf).
Natural
Gas Import Pipeline Projects
The
IPI was conceptualized in 1989 and a memorandum of understanding (MOU) signed in 1993 to construct this 2,670
km pipeline with a 3,620 mmcfd gas transmission capacity. Had this pipeline
been completed during the 1990s, Pakistan would have solved its energy problems
for at least half a century. However, discussion continues in 2010 when the
political situation in the region (the US, Iran, Afghanistan, Balochistan)
makes it highly risky to construct this pipeline. Further, the US’s foreign
policy supports the TAP route or liquefied natural gas (LNG) from Qatar. The
MOU for the TAP pipeline was signed in 1994, one year after the IPI MOU. This
is a 1,270 km pipeline through war-torn Afghanistan. While in the 1990s, it
might have been a feasible investment, it is now a highly risky investment
given the current law and order situation in Afghanistan. The QP pipeline is
technologically complex because it will be undersea for part of the route.
Discussions on this also began in the 1990s. Recently, LNG imports from Qatar
are under discussion once again, possibly because the US actively supports this
as a partial solution to the energy problem
of Pakistan and/or as a policy that further isolates Iran.
Pakistan’s
power sector has been in a constant state of flux for the last 20 years. In the
1990s, Pakistan led developing countries in the utilization of independent
power producers (IPPs) to address domestic electricity deficits. In the
mid-1990s, the deficit in Pakistan was about 2,000 MW. The IPPs’ response was
overwhelming and the deficit was allegedly converted into a surplus by the late
1990s. This response from the IPPs was due mainly to the US cents 6.5/KWh
purchase price offered with a guaranteed purchase of power by WAPDA. The 6.5
cents/KWh purchase price was twice what Bangladesh offered, occurring through a
contractual process which minimized the price of energy. Pakistan, on the other
hand, offered a high minimum price to facilitate, it is alleged, hefty
kickbacks. The presence of corruption in
public projects has plagued the power sector and the costs are being borne by
ordinary people. As a result, the power deficit continues with a low likelihood
of solutions in the medium term. Thermal solutions through rented turbines can,
at best, be no more than band aid solutions.
Restructuring
WAPDA and privatizing the KESC also does not seem to have any traction. Karachi and the country
continues to face load-shedding on a
significant scale and WAPDA’s institutional restructuring of the power sector with four thermal generation companies (GENCOs), one central
national transmission and dispatch company
(NTDC) and nine distribution companies
(DISCOs) has not changed the internal incentive structure which is what the separation of generation and
distribution into competing units is supposed
to do. These GENCOs are managed by the Pakistan Electric Power Company (PEPCO) under the aegis of WAPDA’s
financial controls. The ultimate plan
remains to be implemented when GENCOs and DISCOs can provide competition in areas of common presence.
WAPDA plus the KESC have a generation expansion plan to add 50,000 MW by 2025,
of which about 64 percent of the additional capacity will be principally
oil-powered, unless at least one gas pipeline is completed or LNG imports are
feasible with adequate cold storage and gasification infrastructure available
at the importing ports. In case it is oil-powered, the import cost will be
large and so will be the CO sulfur, and nitrous oxide contributions to the
already polluted environment.
The plan also boldly projects that
nuclear powered electricity will be 8,800 MW (the current capacity is 462 MW). The
lessons from the brief survey of Pakistan’s implementation performance are that
governance (incentives, competence, and accountability) could be a major
constraint to implementing the future programs and policies required to meet
Pakistan’s energy needs over the next two decades. Corruption and lack of
accountability, it seems, will continue to dominate Pakistan’s energy sector
choices.
PAKISTAN’S RECENT ENERGY SUPPLY AND DEMAND
The
total energy supply in 2007/08 was 62.92 MTOE. The dominant fuel was natural
gas (48%) with oil a close second
(31%). Total energy consumption in 2007/08 was 39.41 MTOE. Tables-4, 5, and 6
present the structure of supply and sectoral utilization. The industry,
transport, and residential sectors utilize 92 percent, with industry being
dominant with 43 percent utilization.
In 2010, the estimated
energy deficit is expected to be 19 MTOE or about 26% of 2010 energy requirement (Hagler Bailly Pakistan, 2008). Electricity
use increased by 7 percent per annum during 2002-07 with generation growth
lagging at 4.8 percent per annum. System-wide technical and distribution losses
averaged 30%. Serious power shortages began in 2007/08 and have worsened in
2010.
The
energy resource potential of the country is presented in Table-1 and 2.
Table-1: Indigenous Energy Resource
Resource Estimate
Potential
Energy Content
Oil 336
million barrels
45 MTOE
Gas
29 tcf a 900
Btu/scf 628 MTOE
Coal, Measured 3,303 million tons
1477 MTOE
Coal, Inferred 56,382 million tons 25,220
MTOE
Coal, Hypothetical 113, 798 million tons 50, 903 MTOE
Installed Hydel - 6595 MW
Potential Hydel - 40,000 MW
Table-2: Annual
Production of Energy Source 2006/07
Fuel Annual
Production Reserve to
Production Ratio
Oil 24
million barrels
14
Gas 1.4
Tcf a 900 Btu/scf 21
Coal (Measured) 4.87
million tons
678
Hydel Potential Realized
- 16 percent
The
reserve to production ratio is 14 and 21 for oil and gas, respectively. For
measured coal, the reserve to
production ratio is 678. Pakistan claims to have 185 billion tons of coal
deposits in the Thar Desert. This coal is of relatively low quality with a
heating value of 15 MJ/kg (see below), a sulfur content of over 1 percent, ash
over 6 percent, and moisture of about 50 percent. The overburden covering the
coal deposit has a depth of 175-230 m requiring capital-intensive open-pit
mining.
Limited water availability in the region (and nationally) also
presents a severe constraint to the utilization of these coal deposits.
Pakistan has a theoretical hydel potential of 40,000 MW, of which
16 percent is currently utilized. But this potential is unlikely to be fully
realized due to two major factors: One is environmental constraints; the second
is the rapid melting of the Himalayan glaciers (International Panel for Climate
Change 2007) with a predicted reduction of river water flows by 35 to 40
percent over the next 40 years. This would present serious trade-offs between
power production and irrigation/urban water demands on the use of reservoir
water. Heating values of higher-quality coals range up to 33 MJ/kg.
As
noted earlier, so far natural gas is Pakistan’s dominant fuel. Pakistan
has historically been self sufficient in gas. Oil has been imported and has been a significant consumer of
foreign exchange. The primary energy supply
in Pakistan has been increasing at 6 percent per annum during 2002-2007,
electricity consumption at about 7 percent per annum, natural gas at 10.4 percent per annum, LPG at 17.6 percent per
annum, and coal (half of which is
imported) at 22.8 percent per annum.
To satisfy these growth rates in energy demand will
require imports of natural gas (via pipeline or LNG)
and socially responsible (i.e., incorporating external
costs in policy choices) utilization of domestic
resources: coal, hydropower,
biomass, and wind. If we factor in global warming development of nuclear
power may also become necessary. The Planning Commission’s Medium Term Development Framework
2005-10 has projected total energy requirements at a GDP growth rate of 6.5
percent per annum as 198
MTOE in 2025. This is a fourfold increase compared to the
total energy requirement in 2005. The
projected deficit in 2025 will be 122 MTOE or about 62 percent of the energy requirement.
A subsequent
forecast by Hagler Bailley
Pakistan (2008) projects the total
energy requirement with a lower 5.5 percent
per annum GDP growth rate as 176 MTOE. The energy deficit
as a percentage of energy requirement is
however 71 percent due to the slower growth of indigenous energy. The high proportion of imports,
particularly polluting oil, is problematic. The
financing bill
for this scenario is projected to be US$25 billion
in 2015 and $94 billion
in 2030. Of course, such long-term financial projections are not reliable. Several
questions are pertinent and may provide directional
guidance.
Keeping in view this scenario the policy makers in Pakistan need
to address the following questions:
1.
What criteria should Pakistan use to choose the
composition of energy supply? The composition relates to domestic alternatives:
hydropower, coal, biomass, wind, and solar. Can demand management and energy
efficiency significantly reduce total
energy requirements?
2.
Why is oil so dominant? Why not substitute natural gas for oil?
3.
Why should LNG imports not be Pakistan’s priority over the next five
years since in this timeframe a natural gas pipeline from central Asia or Iran
is politically and economically infeasible?
4.
Why not develop clean
energy from domestic coal? Why will 14 MTOE be contributed by imported coal in
2020?
5.
Why
not significantly substitute renewable for imported energy?
6.
What must Pakistan do to accelerate renewable energy
developments?
7.
Why not consider the aggressive development of nuclear energy?
The above questions provide context and some direction. A comparative
evaluation of the external cost of fossil, nuclear, and renewable fuel cycles
reveals a wide range (Table-3). As discussed earlier, wind technologies are the
most environmental friendly. Nuclear power also generates a very low external
cost. Biomass impacts can range from low to high on pollution but have low GHG
emissions. Photovoltaic energy is very clean/green, but so far not commercially
available for MW level solar units. However, it is the future sustainable
technology because R&D will (surely) bring the cost to fossil/nuclear competitive
levels. Gas-fired technologies are also very clean with respect to classic
pollutants, but their impact in terms of GHG emissions depends on the
efficiency of the gas cleaning technology. Coal
technologies are the most polluting (GHGs and classic pollutants) because of their carbon dioxide content. Old and
current coal-fired plants are also
significantly more polluting in terms of SO , NO and CO). Due to lax enforcement as well as inadequate environmental
regulation, in Pakistan emission
levels are much higher. However, Pakistan does not have estimates of external cost for local conditions and technologies
in use for competitive fuels. What
we do know is that the emission of SO NO
, CO, and PM is significantly higher than that of these pollutants
in Europe or the US.
So,
the external cost in Pakistan will be higher.
This “total cost” is presented in Table-11. The addition of external costs
makes hydel and nuclear power more cost effective than natural gas and coal.
So, if total cost were to be the principal choice criterion, Pakistan could
rationally choose to focus on its hydel potential while adding significantly to
its nuclear power capacity.
With a potential 40,000 MW of hydropower of
which only 16 percent has been realized, there is considerable room to develop.
However, it has proven difficult for Pakistan to develop its
hydel resources. As discussed earlier, Kalabagh Dam has been under discussion since 1950 and
Diamer Bhasha Dam for at
least a decade. Will the future be different? On nuclear power, the current capacity is 462 MW and a third 325 MW
plant expected by 2011. The Pakistan Atomic
Energy Commission has been authorized (an unfunded mandate it seems) to develop 8,800 MW of capacity by
2030. Will that be feasible
in the current political situation in the region even though the regional and global status of nuclear power production
should justify an ambitious nuclear energy development plan for Pakistan?
Since natural gas is cleanest among the fossil fuels, its import via
pipelines or LNG should be a high medium-term priority. Finally, clean coal, second-generation
bio-fuels, solar, wind, and mini-hydropower are energy sources
with a sustainable unrealized potential. Their
significant development will however require technological innovation for which Pakistan needs a strong
research and development (R&D) program
and the institutional integration of private sector, academia and government.
CLEANER, SUSTAINABLE ENERGY SOURCES
Transitioning to sustainable energy sources poses
significant challenges for all countries. Pakistan is no exception. Over the
next decade, it should be possible
to accomplish a low carbon path to growth through new energy technologies, greater energy efficiency and
sustainable renewable energy
sources. Since most of today’s fossil fuel-dependent capital stock will be gradually replaced, it will
take a decade or more to accomplish significant substitution and demand
reduction. A few promising, high-value technologies approaching
commercialization are discussed below.
The
conversion of coal to oil products through gasification and synthesis has been
commercially feasible for many decades, but global production is limited. This possibly
is due to the absence of carbon pricing as well as the associated large energy
and water requirements. This should begin to change after Copenhagen and the
dwindling of non-coal fossil fuels. Coal to
methane conversion is also a reliable technology awaiting appropriate
policies on carbon pricing. Given Pakistan’s large coal deposits this is a high-value
technology for development, although the required R&D capability has to be
created. Both India and China have 2
+percent of electricity generated by nuclear energy. India produced 13.2 Twh in 2008; China produced 65.3
Twh; Pakistan produced 1.7 Twh.
This is a technology which mitigates emissions
of CO from power plants and other fossil fuel using facilities. So far, again due to the absence of carbon pricing,
it has not been applied on a
significant scale. Pakistan should
consider experimentation with this technology
as well—the world will be doing so within this decade.
3. Second-Generation
Bio-Fuels
First-generation bio-fuels
(corn and sugarcane) competed with food crops. New bio-fuel
technologies—hydrolysis and gasification of lignocelluloses feedstock to
produce ethanol—are expected to reach commercialization in five to ten years. Four large scale carbon capture and storage
projects are operating in the world each separating one mega ton of CO per year
from produced natural gas. These are Steipner and Snohrit in Norway, Weybarn in
Canada, and Salah in Algeria. Since we have
alternative uses for agriculture residues, their diversion for energy will have an opportunity cost which has
to be studied. However, herbaceous
crops, woody crops, forest residues, and urban residues are not extensively utilized for productive value and
offer potentially large economic opportunities,
associated employment and sustainable energy.
Globally,
the share of renewables in primary energy supply, excluding traditional biomass, is projected to reach 10 percent
by 2030. This projection assumes that
renewable technologies will mature and higher
fossil fuel prices will make these technologies competitive. Wind power
is projected to grow the fastest.
Denmark currently is the world leader with 15
percent of electricity generated from wind. USA is second with 8 percent. Pakistan has a potential of about
50,000 MW which, at this time, has hardly been tapped.
RECOMMENDATIONS
Energy
sector planning is by definition a long-term process. However, all such
planning requires a phased approach requiring:
A. URGENT actions in the short term (1 to 2 years)
B. IMPORTANT actions in the medium term (3 to 7 years)
C. LONG-TERM actions over 8 to
20 years
A) Urgent Actions (2012)
The most critical action is to utilize the
existing unutilized electricity generation capacity. This would require
temporarily addressing the circular debt
problem; and soon after, solving the structural problem underlying this devastating recurrent adverse
event.
ii. Expedite the process for LNG imports
from Qatar.
iii. Initiate investments in deep freezing
and gasification infrastructure needed for LNG imports.
iv. Initiate
a system-wide study to estimate the external cost of the current
utilization of energy in electricity generation, transportation, and industry.
The
Analytical System-Extern-E- developed by the European Commission may be used
with appropriate modifications for application in Pakistan. Since Extern-E is a
European Commission project, the Commission’s involvement as a technical partner
may be efficient. It should be a joint Pakistan-Commission study to create
domestic capacity to carry on subsequent work and the required monitoring
program. For classic pollutants and GHGs, Pakistan’s EPA should consider
heading this project along with one or more domestic academic institutions.
B) Important Actions
(2013-2020)
Urgent actions are also important actions. Ensuring the
finalization of all of the above is the first
important action. Based on the
result of A (iv) above, develop a comprehensive policy package including
instruments from the following policy types:
a.
Market-wide price signals to promote conservation and energy efficiency.
b.
Develop specific regulation
including performance standards and mandatory actions by industry and power
producers.
c.
Design targeted subsidies
such as capital and fiscal incentives, technology funds and programs for skill
development. To promote innovation the technology funds should not be
technology-specific.
d.
Initiate a program for the
development of second-generation bio-fuels along with incentives to promote the
substitution of bio-fuels for oil. Strengthen the Alternative Energy
Development Board (AEDB) to lead this program in collaboration with industry
and academia.
e.
Initiate projects for clean
coal technology for power production.
f.
All of
these will require strong R&D efforts. Pakistan should increase its R&D budget from 0.25 percent of GDP to at
least 1.0 percent by 2020.
i.
Finalize the IPI gas pipeline to diversify
gas supplies and to impact positively the
geo-political environment between India and Pakistan. The TAP pipeline is
subject to much greater risk. The QP pipeline (with part of it under the sea)
is costly and technologically risky.
ii.
Initiate activities in
hydropower, clean coal, nuclear power, and renewables to ensure that domestic
primary energy resources are the main source of energy. Diamer-Bhasha should be
part of the highest priority list with public-private partnership as the
financing and management instrument.
iii.
Nuclear
energy for electricity is an environmentally friendly source and the 8,000 to 10,000 MW target by 2030 should be funded
along with a complementary educational and skill
development program.
iv.
Create capacity to enhance
the role of the market within the domestic energy sector. Fully implementing
the goals of reform in the electricity sector should be a high-priority
objective, which means competition with effective regulation.'
0 comments:
Post a Comment