Pakistan aims to plug its power deficit and reduce dependence on energy imports – gas from overseas accounts for almost 40% of generation – by increasing the share of renewable energy. The target to get 5% of total generation from renewables by 2030 is expected to be increased to at least 15% in the coming years. The country’s energy sector has received a boost from the $62 billion China Pakistan Economic Corridor (CPEC) initiative targeting infrastructure investments. The government is hoping that reducing or eliminating outages of 6-10 hours a day, common during the summer months, would support continued economic growth. The GDP growth in 2016 was 5.3%.
Pakistan added 300MW of solar power, 244MW of wind, 85MW of biomass and 48MW of small hydro power plants in 2016. The country has 1.1GW of wind, 557MW of solar PV and 578MW of biomass power plants at different stages of development. The CPEC plan, announced in February 2016, aims to fund 10.4GW of new generation capacity from solar, natural gas and coal. The government is also seeking to increase private sector participation in other segments of the energy sector, and has been issuing licenses for transmission and distribution. Direct electricity sales between private power producers and large consumers were permitted in 2014, in an attempt to provide generators an opportunity to circumvent distribution companies, many of which are loss-making.
In November 2016 and June 2017, the Asian Development Bank approved loans of $325 million and $300 million for the energy sector. The first loan is focused on connecting off-grid areas in the two provinces of Khyber-Pakhtunkhwa and Punjab. It is part of the Access to Clean Energy Investment Program implemented with the support of France, which contributed $78.6 million to the project. The other loan is aimed at short-term power sector stabilization measures and to support long term restructuring. The World Bank, Japan International Cooperation Agency (JICA) and Agence Francaise de Developpement (AFD) also agreed to fund a part of the Sustainable Energy Sector Reform Program.
Activity in the renewables sector in Pakistan has been driven by feed-in tariffs which supported the development of 1.4GW of projects as of 1Q 2017. The National Electric Power Regulatory Authority has been reducing the FiTs for solar and wind on a yearly basis. The continued use of FiTs, rather than auctions, was justified by the regulator as a way of avoiding slowdown of activity in the sector. However, in 2017, there are signs that Pakistan may soon change its approach and introduce auctions for solar and wind power. A benchmark tariff was announced for all future wind power projects in the country - $7.7 cents/kWh for 100% locally financed projects and $6.75 cents/kWh for 100% foreign financed projects. This tariff is 20% lower than the prevailing FiTs, and will act as a price ceiling in upcoming auctions.
The State Bank of Pakistan has also mandated commercial and development banks to provide project loans to renewable power plants ranging from 4kW to 50MW with fixed interest rates of 6% for between 10 and 12 years, depending on the size. In a bid to promote the rooftop solar market, the Pakistan government introduced net metering regulations on September 1, 2015 which allow all domestic, commercial and industrial owners of distributed solar and wind generation under 1MW to sell surplus electricity to the grid.
Pakistan ratified the Paris agreement on November 11, 2016. It intends to reduce its 2030 projected Greenhouse Gas (GHG) emissions by up to 30% as per its Nationally Determined Contribution (NDC). This commitment is subject to the provision of international grants to meet the total abatement cost, which the country estimates at about $40 billion at current prices.
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