ISLAMABAD: The Asian Development Bank (ADB) has said that Pakistan’s energy investment by 2030 ranges from $62 billion to $155 billion.
According to ADB’s Central Asia Regional Economic Cooperation (CAREC) Energy Outlook to 2030 report, energy investment needs by 2030 differ significantly across the three scenarios.
Due to rapidly growing demand and low base efficiency, the sector of power generation and energy efficiency needs very significant investment. Among the three scenarios, expanding the country’s hydropower capacity requires the largest investment, ranging from $11 billion to $26 billion.
Investment needs for wind and solar power are expected to reach approximately $12 billion in the business-as-usual scenario, $36 billion in the government commitments scenario, and $57 billion in the green growth scenario. is expected, reflecting the country’s ambitious plans for its widespread use. Renewable energy potential
Additionally, according to the country’s nuclear power production targets, investments for expansion and maintenance of nuclear facilities typically amount to about $12 billion, $21 billion in the government commitments scenario, and $31 billion in the green growth scenario. Dollar.
Regeneration and expansion are the investment categories that require the largest share of the total—ranging from 60% to 75%, or $38 billion to $115 billion, across scenarios. The second largest category is consumption-related energy efficiency initiatives, accounting for $12 billion for business as usual, about $21 billion in the government commitment scenario, and more than $26 billion in the green growth scenario. Required.
An investment of around $13 billion to $14 billion is required to modernize and expand electricity and gas grids and introduce modern metering equipment.
Further opening up of Pakistan’s energy market to private companies faces several challenges. One of the key challenges is the lack of clarity regarding resource classification.
For example, although hydropower is generally considered a renewable energy source throughout the world, the Alternative and Renewable Energy Policy has classified hydropower sources as non-renewable sources.
Considering the target of 30% renewable energy in 2030, it will hardly be possible to reach this level with only wind and solar energy sources. If hydropower is included in the definition of renewable energy sources, it will make reaching the stated target and strengthening competition more realistic.
Another challenge is the lack of a detailed energy plan for the energy sector. Although the National Energy Policy has been approved, the relevant division of roles among policy makers who will assign policy areas to all relevant stakeholders is yet to be completed.
In the current framework, sector-specific policies are formulated by the concerned authorities. For example, the Alternative Energy Policy is prepared by the Alternative Energy Development Board (AEDB), while the Power Generation Policy is drafted by the National Electric Power Regulatory Authority (NEPRA). This not only creates uncertainty regarding the long-term direction of the sector’s development, but also creates unnecessary bureaucracy and delays in project implementation.
With the strong focus on generation over the past several decades, T&D sectors have suffered greatly from underinvestment. As a result, transmission losses in Pakistan are among the highest in the region, with some distribution companies reaching losses of 38 percent. While policies such as transmission line policy have been put in place to attract private investment, a centralized transmission plan is needed to consider future load development to set a long-term direction for network development. Realistic targets can be established to reduce coin and T&D losses. Attracting investment.
Another challenge arises from the country’s electrification rate, with more than 25Z% of the population without access to electricity. With the increase in rural electrification, the demand will increase significantly, putting further pressure on distribution companies and generation. Finally, the challenges in the T&D sector are reinforced by the issue of circular debt.
With increased power generation from thermal plants, higher costs came through expensive fuel imports and currency devaluation. At the same time, distribution utilities responsible for energy supply are facing financial constraints due to low tariff collection rates and inability to meet regulatory targets for T&D losses. As a result, the distribution companies are unable to pay the generation companies for the electricity purchased, triggering a chain of debt that flows through the generation companies to the fuel suppliers.
The difference between the NEPRA-approved and uniform tariffs is paid for through tariff differential subsidy, which places a significant financial burden on the government. However, the government is moving towards addressing these challenges and improving the investment climate by creating a clear and conducive environment for private investors in the energy sector. Pakistan has recently approved a plan to implement a regulatory framework that will establish a competitive market structure in the wholesale segment through a bilateral agreement.
Additionally, the government plans to integrate natural gas utilities into transmission and distribution companies and establish a competitive natural gas market, which will be beneficial in attracting private investment in the long run.
Pakistan has already introduced specific incentives for its renewable energy sector to tap 3,000 GW (including hydropower) of renewable resources. With feed-in tariffs for wind and solar PV technologies and a clear plan for renewable energy production, it aims to support the further development of renewable energy.
Considering the significant growth needs in the energy sector and the government’s preference for renewable energy, the investment opportunities are significant.
The government is considering partial privatization of distribution companies through management contracts and concession agreements to address power issues and improve energy distribution capabilities. This opens up possibilities to ensure abundant supply of electricity, reduce losses and increase competition in the distribution market.
Being one of the largest markets in the CAREC region, Pakistan’s population is currently growing by 2% annually, with a potential customer base that continues to grow. However, more than a quarter of the population does not have access to electricity. With appropriate government priorities and regulatory framework, this will provide a substantial basis for investment in the energy sector, with greater potential for return on investment and project implementation.
