A pattern of flawed energy choices

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Pakistan’s power generation capacity expansion process continues to face credibility challenges despite being regularly conducted with an established regulatory framework. Consequently, the government has built power plants to cater to a demand that is simply not there, leaving Pakistan with more electricity than it can consume and more capacity payments than it can afford.

There is a consistent pattern of government institutions, bureaucrats and politicians repeatedly making ill-informed last-minute decisions, resulting in the disaster we see in the energy sector today.

The latest iteration of the Indicative Generation Capacity Expansion Plan (IGCEP 2024) — a document providing insights into long-term generation expansion planning of the National Transmission and Dispatch Company (NTDC) since 2021 — is reflective of this flawed planning process.

While the previous editions of the IGCEP indicated significant promise with regard to renewable energy sources and least-cost planning, the latest draft has reduced optimisable candidate projects to merely one per cent of the total planned expansion of over 20 gigawatts (GW) over the next decade. This means that the remaining 99pc of the planned generation is not subject to least-cost optimisation, regardless of its cost.

High-cost projects committed without considering least-cost criteria may do more harm than good

“Despite the use of advanced modelling software like Plexos, policymakers have effectively rendered the entire process moot by committing to projects whose necessity is questionable and which the software is not allowed to comment on,” a new study, Powering Pakistan’s Future: Pathways to Optimise Affordable and Sustainable Electricity Generation Beyond IGCEP 2024-34, points out.

Large shares of hydroelectric and nuclear power in the form of Diamer Bhasha and C-5 have been declared as committed even when, as the study shows, they are neither least costly nor needed for their capacity in the electric grid. While this is the situation on the supply side, it adds, there is little effort on the demand side to rein in new consumers.

These are the reasons that have forced the regulator, NTDC, to withdraw the draft. NTDC chairman Fiaz Chaudhry explained that the projects were committed to the plan without following the evaluation process based on the least-cost planning criteria.

“We are already paying an exorbitant cost for approving expensive projects through backdoors in the past. This has landed us in a major capacity trap, with the government paying exponential costs in the form of capacity payments and consumers getting electricity at prohibitive prices,” he explained.

The IGCEP 2024 is predicated on an average GDP growth rate of 3.5pc, specifying about 20GW of new capacity additions at a cost of $63.31bn over the next decade, increasing generation capacity to 56GW from the current installed capacity of 43.7GW.

However, the study finds that 99pc of the capacity additions over the planning period of 2024 to 2034 comprising committed projects leaves no room for least-cost optimisation. This assessment is also critical as the existing thermal ‘take or pay’ power plants are rendering the power sector a financial burden.

‘Despite using advanced modelling software, policymakers have committed to projects of questionable necessity’

The report also raises questions over incomplete disclosure of committed and strategic projects’ cost data as over 19GW capacity additions have been modelled as committed, keeping the modelling tool blind to their capital costs and missing technical data such as scheduled and forced outages of thermal plants.

The report is critical of heavy reliance on large hydro projects that will generate electricity far away from the load centres while ignoring the projected alternate and renewable energy shares in the national grid mandated by the Alternative & Renewable Energy Policy 2019.

It points out that the document builds no scenario for assessing how Plexos optimises generation expansion if committed projects are taken as future candidate generation options. Nor are the financial implications of delayed or early retirements of expensive thermal power plants explored.

It also points out that the high-cost, committed Diamer Bhasha Dam and Chashma Nuclear C-5 projects are actually not needed to meet the system demand as envisaged in the IGCEP. If forcibly added, the study says, they will lead to unnecessarily incurred costs of up to $7.6bn for Diamer and $5.52bn for Chashma, as well as causing a reduction in potential shares of renewable energy.

In medium and high growth scenarios, the variable renewable energy (VRE) share can further improve to 25pc and 26pc, respectively. Highlighting the impact of increasing net metering quantum because of soaring electricity prices and declining solar PV prices, it says no capacity additions will be required in the grid except for committed projects until 2027. IGCEP 2024 projects 2.1GW of net metering additions by 2034.

However, the net metering additions have already crossed 2GW. “As electricity consumers continue to become prosumers with rooftop solar installations, large scale generators away from load centres can be avoided, bringing total installed capacity to 44.7GW by 2033 with 4.7GW of VRE, and enabling total system cost savings of $3.7bn,” the study authors argue.

Further, it points out that by shifting the load of captive power plants onto the national grid, utilisation rates of existing fleets become better, and no significant capacity has to be added to cater for their load in the NTDC system. However, IGCEP 2024 has no scenario that discusses the impact of shifting industry load on the national grid owing to the frequent gas shortage.

The key message of the study is to encourage rooftop solar installations to meet demand without adding unnecessary large-scale generation while focusing on grid modernisation to reduce losses, prevent theft, and integrate renewable energy.

The report also calls for a transparent evaluation of committed projects against the least-cost and sustainability criteria to ensure economic viability and alignment with policy goals, particularly in increasing renewable energy adoption.

Published in Dawn, The Business and Finance Weekly, November 25th, 2024