Problems in Pakistan’s Power Sector

Pakistan’s power sector faces significant challenges in terms of capacity, governance and financial sustainability. In May 2012, with demand at 15000 MW and supply 9000MW, power generation shortage reached at 6000 MW. Since then several power generation plants have been commissioned but even in 2017 power shortfall was around 400MW. New power generation under CPEC approved by NEPRA as of March 2017, consists of coal, wind, solar and hydel based power projects with total installed capacity of 9887 MW. Of this approved capacity, coal based capacity is 6600 MW and hydel based capacity is 2690 MW. Solar and wind power capacity is only 6 percent of the total capacity. Since 2014, there has been a switch of sources of power generation from oil/gas to coal, gas, and renewables. Increased consumption of conventional energy sources such as fossil fuels (oil, coal and gas), especially coal, cause greenhouse gas emissions and has other adverse environmental effects. The various forms of electricity-power generation in the country differ in terms of the differences in their sources of energy but also in terms of their costs of generation, both fixed and variable. There are also several other distinguishing features.

Some power plants are base-load (oil/gas/coal) plants and can provide uninterrupted power throughout the year; plants that depend on solar energy are constrained to provide power only during the day (assuming no storage); and power generation from hydro-plants varies by season. Some form of generation depends on imported fuels with possible constraints on imports; other depends on local fuel and still others on renewable. Therefore, it is necessary to explore long run energy mix for power generation in Pakistan that takes into account both the standard generation cost as well as the environmental costs, balances imported fuel with local fuel, and factors in seasonality and time of the day variation in power generation. Models that provide least cost generation mix for Pakistan over an extensive period of time are still lacking.

Pakistan relies on different forms of power generation. Thermal-based electricity generation in Pakistan accounts for 64% of total power generation. This overreliance on thermal generation, in particular oil based generation, has made electricity cost heavily dependent on imported oil and the fluctuations of international oil prices. Coal based generation is less reliant on imports because of large domestic reserves but coal-based generation involves high environmental costs.

Hydel power generation is the other major form of electricity generation (29%) and while it involves no fuel costs, initial investment cost is very heavy; besides power generation from hydel sources varies considerably from summer to winter, which requires backup power generation in winter months. With these alternative forms of energy generation, it would be fruitful from a policy perspective to develop a power generation model which provides a least cost power generation mix for Pakistan which factors the differences in the costs of productions (both fixed and variable) of different forms of power generation, their levels of emissions and environmental costs, their reliance on imported and domestic fuel, and their seasonal and diurnal variations.

At present most energy is derived from conventional energy sources such as fossil fuels. Different studies have concluded that though these sources are economical but increased fossil fuel consumption has exacerbated emissions of greenhouse gas and also deplete the natural resources. To address these issues countries moved toward sustainable development. Because sustainable development has gained importance in energy planning, models have incorporated renewable energy sources and CO2 price of energy sources within generation costs. Koo et al. model the fuel costs and carbon price to analyze their impacts on total costs, estimates on installation and operation costs are modeled through learning curve, they found counter balance in fuel costs and carbon price. He improved their work by incorporating the recent changes in nature of sustainable energy planning and generated an optimal energy plan in an uncertain environment. They considered the installation of Carbon capture system in coal plants as one of the alternative in the energy supply sector. Since the key issue is to reduce GHG emissions and produce least cost combinations.