Despite current on-going energy shortages and load shedding, Pakistan has energy wealth that could be unlocked just by thinking differently about electricity distribution.
Electricity supply is capital intensive engineering. Pakistan built the existing electricity supply network with the help of large loans on favourable terms from the World Bank and other international institutions.
In addition, Pakistan has benefited from the generosity of Saudi Arabia in providing low-cost fuel.
Pakistan has reaped the benefits of large hydroelectric generating plants at Mangla, Tarbela and other dams: they generate electricity with no ongoing fuel costs.
As fuel and capital borrowing costs rose for Pakistan in the last 20 years, and the proportion of cheap hydro power reduced, Pakistan governments shielded people from the real cost of electricity generation with generous subsidies but these cannot continue.
Another factor that frustrates efforts to find energy solutions is the high cost of engineering in Pakistan. Through research we have identified many factors that Pakistan engineers struggle to overcome, such as the deep social divides that inhibit effective collaboration and knowledge sharing between engineers, investors and labour. Given the same requirements for product availability and service quality, the cost is almost invariably higher in Pakistan than in industrialised economies like Europe and the USA. Just as an example, when indirect costs are taken into account, the cost of safe drinking water ranges from US$50 to $150 per tonne in Pakistan while the cost in Australia, the driest continent, is US$3 per tonne.
(This is an updated and extended version of an article published in The News, Pakistan, 31st May 2013)
Fast forward to 2016, with a population addicted to cheap energy. The PML-N government has two years to run and there few signs that their election promise to end electricity load shedding is going to be delivered.
Like Australia, much of Pakistan’s power generation and distribution infrastructure was built in the 1960s and 1970s. It is now reaching the end of its operating life and needs to be replaced.
The large dams have filled with river silt, reducing their water capacity for electricity and irrigation.
Now the government faces some hard choices. Unable to collect enough money even to pay for fuel, government-owned distributors have deferred maintenance and infrastructure investment needed to meet demand. Overloaded power lines burn up to 20% of the electricity that is generated. Influential consumers and cash strapped government organizations refuse to pay their bills and others steal electricity, further reducing revenue. As more people connect air-conditioners, load shedding continues for most consumers, and energy subsidies at up to 10% of government spending have helped drive inflation.
Power prices have seemed to rise fast at times. However, after allowing for inflation and currency devaluation, real electricity prices have fallen for most people. Even for the wealthy, real prices have mostly remained static.
Even though gas prices have increased recently, gas is still being delivered at well below equivalent international rates in other countries.
Low domestic energy prices have two destructive effects.
First, low energy prices encourage wasteful consumption and discourage efficiency. Pakistan uses twice as much electricity per unit of GDP as Australia. Apart from the traditional mud buildings with thick walls, few buildings in Pakistan have any effective insulation so they require much more energy for traditional space heating and cooling. Using a conventional air conditioner in summer is extremely expensive because heat flows in through the walls as fast as the air conditioner can eject it to the outside air.
Second, low energy prices discourage the search for alternatives. Pakistan is running out of domestic gas supplies, further compounding electricity problems, and necessitating gas load shedding in winter. Low prices have discouraged exploration for new gas supplies.
There is no easy way out. The government would have to increase electricity prices by around 75%, perhaps more, to cover the cost of fuel and replace aging infrastructure. Faced with similar decisions, even pro-business conservative state governments in Australia have chosen to continue subsidies. With only a slim majority, the PML-N government cannot afford to raise gas and electricity prices and put voters off-side with elections just around the corner.
Yet, there are solutions without having to raise prices, but not in obvious places.
Many people have pointed to the vast coal reserves under the Thar desert. However, most of this coal lies under deep water below highly permeable aquifers, almost completely inaccessible with today’s technology, and is destined to remain there for the foreseeable future.
However, even without Thar coal, Pakistan is rich in energy.
Pakistan’s greatest energy wealth comes from the sun, much of it absorbed by agricultural crops on some of the most fertile soil in the world. Pakistan also has large land areas suitable for solar generation. It has hydro-electric infrastructure that could be used for pumped energy storage, enabling daytime solar-generated electricity to be stored for night-time consumption. Strong and reliable winds along the Arabian sea coast and over the Himalayas could be used for power generation. How can this vast renewable energy potential be unlocked?
The cost of photovoltaic solar panels has fallen dramatically in the last few years and solar electricity has now reached grid parity in many countries. That means the cost of solar electricity from roof-top panels is at or below the grid power prices.
But not in Pakistan.
Government subsidies keep grid power (when it’s on) far below the cost of solar electricity. Grid power prices in Pakistan would need to rise to about Rs. 27 per kilowatt-hour unit to make solar and wind power at attractive option. With government institutions paralysed, that’s not going to happen soon.
In reality, electricity costs in Pakistan have already exceeded this level, but few people realise that.
Load shedding forces up the real cost of electricity for everyone.
The real cost of a running an efficient diesel generator, the cheapest 24 hour alternative power source, is about Rs.55 per unit after allowing for fuel, maintenance, labour, loan markup and depreciation. However, almost all generators are running at low efficiency, raising the cost per unit even higher.
For anyone using a generator, therefore, the average cost of power with 12 or more hours of load shedding is already well above Rs.30 per unit.
Industrialists tell you that bulk energy costs in Pakistan are at least twice the level of industrialised countries, partly because of the need to provide on-site generators.
However the real cost is even higher still because of indirect costs from load shedding.
With the power predictably off for many hours a day, illegal connections can be made in darkness with little chance of electrocution or detection, reducing revenue and imposing extra costs on everybody.
The cost of lost production makes it more difficult for businesses to pay their bills. Workers earn less because their employers can’t make effective use of their labour without continuous electricity.
Load shedding increases the temptation to ignore electricity bills, particularly when you need a backup generator.
Pakistan grows around three times more food than it eats, far more than an industrialised country. Much of the excess is lost due to power interruptions that cause food to deteriorate in storage and processing. Unlike in Australia, most families need to buy and prepare fresh food every day and can’t keep leftovers without a reliable electric fridge. This factor imposes huge costs on every poor family in Pakistan.
Even mobile phone calls cost more because of the high cost of generators that keep every mobile phone tower running through load shedding.
The massive fuel import bill hits every citizen as it helps to devalue the Rupee, slowly and steadily every year.
Power interruptions also damage appliances, further increasing end-user costs.
These costs are shared by everyone and, as a result, Pakistanis are actually paying much more for electricity than they think.
How could we move from the current load shedding chaos to reliable and continuous electricity and gas supplies? Here’s one way it could be done.
The success of mobile phone technology provides some important lessons. Mobile phones did not result from governments replacing the old landline phones with new technology. Instead, governments around the world recognised that such a radical change required private investment. Governments created the necessary laws and regulations to enable private companies to provide an alternative service to provide customers with a choice. Customers quickly moved to mobile phones because the service quality was better and the overall cost was less, especially taking indirect costs into account.
The same transformation could be achieved for energy supplies and other services such as water distribution.
Pakistan governments could legislate to provide licences for qualified private power companies to provide a guaranteed 24 hour electricity service in special zones at a negotiated price, probably around Rs. 27-33 per unit. This would be much less than the current real electricity cost that includes running a generator and other opportunity costs incurred from load shedding.
The most attractive locations will be major commercial and industrial districts, with progressive expansion to other parts of Pakistan.
Private power companies would need to install new transmission infrastructure – wires, meters and transformers – with built-in theft detection and prevention measures. These systems would incorporate technologies to make it impossible for socially powerful or dishonest people to interfere. The same technologies protect mobile phones and safeguard the credit represented by pre-paid phone cards.
There would be no need for new power generators. The private companies would purchase bulk power from WAPDA, or directly from the current independent power producers, just like the government distribution companies IESCO, LESCO and others do today.
Remember that generators are running 24 hours a day in Pakistan – load shedding results from wasteful use, distribution and payment recovery problems, not a lack of generating capacity.
Initially, most customers would be businesses because they better understand the real cost of intermittent electricity supplies and the value of uninterrupted supplies. Think about the choice between a shop that’s cool in summer and brightly illuminated compared with another that is half in darkness, hot without air conditioning, and a noisy, smelly generator outside. Which one is going to attract more customers?
The city of Mumbai has realised this years ago. The Maharashtra government mandated continuous power in Mumbai and, as a result, economic activity has grown at the expense of other parts of India.
Customers would have a choice. They could stay with the existing government power network with a cheaper price at the meter, but without continuous supply. Or they could change to 24 hour guaranteed supply at a higher price.
Now, here’s the exciting part.
At Rs.27-33 per unit, solar electricity from roof-top panels becomes economically attractive. The solar panels also shade roofs, reducing the need for air-conditioning. Solar powered chillers could refrigerate stored water which can be used to provide night cooling with minimal electricity. The wholesalers could add to their revenue by hiring out solar panels to customers who cannot afford the up-front capital cost.
Gradually the scheme could be extended to shopping centres and smaller commercial districts and eventually to residential areas as consumers realise the benefits of 24 hour uninterrupted power. By being exposed to higher meter prices, consumers would be more careful with power consumption, reducing waste. With continuous power for refrigeration, food could be stored safely, reducing processing and storage losses.
At the same time, governments can avoid unpopular decisions to raise energy prices on the existing supply network. Savings and efficiencies may gradually allow load shedding to be reduced. Government would be gradually freed from crippling subsidy payments, and the Pakistan people would emerge from their current nightmare of wasteful under-employment caused by load shedding.
The same principles can be applied in water distribution. Taking the real cost of safe drinking water mentioned before, and realising that everyone in Pakistan needs at least 10 litres of safe drinking water daily, the total cost at today’s levels accounts for 10-15% of Pakistan’s GDP. Just getting barely enough water to survive. You can see it in almost every village: women carrying water for hours every day for their homes and animals. Reducing the cost closer to, say, $5 per tonne, by providing reliable alternative 24 hour water distribution services to places where safe drinking water is needed, in every kitchen and bathroom, could transform Pakistan’s real economy even more than continuous electricity supplies. My students are working on a technology demonstrator as I write this article.
As all these savings work their way through the economy, Pakistan could be re-energised, awakening the nation to a bright and far more prosperous future based on efficient use of limitless renewable energy, backed up with responsible use of fossil fuel energy.
All these changes will require thousands of energetic and innovative engineers. Our research, now published in the form a book “The Making of an Expert Engineer” provides guidance that enables Pakistan engineers to learn from the tiny number of real experts in Pakistan who have been able to find ways to work around the challenges for engineers working here. By learning how to do that, engineers will be able to earn much higher salaries for themselves while providing every greater benefits for their employer. This knowledge will also help reduce energy costs over time, and also costs for water and all the other essential engineered services on which a modern society depends.
Pakistan is not the only country facing energy and water challenges. The lessons learned here can help other countries too, while providing attractive investment opportunities.
Pakistan can grasp the opportunities for a bright future with almost unlimited energy and water supplies. It just takes a little imagination and a lot of determined effort by engineers.
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