The Energy Saga

The pandemic will not change things as much as expected

Global energy demand has risen in the past century which led to the improvement in standard of living, increase in life expectancy, coupled with decrease in poverty levels globally. This is just one side of the story: fossil fuel consumption drove the growth but with-it carbon emissions also rose. From 1998-2018, CO2 emissions rose 48 percent and to achieve climate goals carbon emissions have to decrease at the same rate for next 20 years.

However, in the times we are living in, electricity demand has dropped six percent and global carbon emissions have dropped around six percent, with a highest 17 percent drop year-on-year in April, all because of the covid-19 pandemic. But globally this reduction in emissions will not be sustained as lockdowns associated with covid-19 are eased.

What should we expect in future? Fossil fuel demand (excluding natural gas) is expected to decrease in the West in all future scenarios from 2018-2040. This makes sense as advanced economies can afford to make the shift from conventional to renewable energy sources.

On the contrary, fossil fuel consumption in the East is expected to increase in the majority of scenarios in next 20 years.

The rise in the renewable which was estimated before corona and fossil fuel decline it triggered, would still be valid with slight variation. Which is to say, for instance, solar power which supplied less than 0.01 percent of electricity in 2018, increased to 2 percent in 2018, and is expected to provide 20 percent of electricity globally.

The game-changing green revolution that is believed to be the outcome of the hit that the fossil fuel industry received in contemporary times is not grounded in reality and seems mere wishful thinking. Covid-19 may however speed up the rise in the renewable in the advanced economies (reasons for which are discussed later).

There will be two kinds of impediments that renewable will have along the way. For advanced economies low capital turnover and capital stocks will still be a problem as technology which is to be used in future in the energy industry is produced earlier. There is a lot of investment at stake and with-it politics comes into play as well.

As far as the developing countries are concerned, they have received a huge financial hit because of the pandemic and despite the decline in fossil fuel industry they will continue to find the shift to renewables, eveb if they are expensive, and would seek an autonomous increase in energy efficiency. This opportunity in the developing economies will be lost to the lack of the fiscal space which is necessary to make the energy shift.

To understand the energy landscape of Pakistan, I got in touch with former Prime Minister Shahid Khaqan Abbasi. The former PM said, “As far as the primary energy mix is concerned, Pakistan is in a much healthy condition. Reliance on gas has gone up and furnace oil consumption has reduced. Commitments on nuclear energy have been made and it will become available too.”

He further said, “4000 MW coal-powered plants (installed in the PML(N)’s tenure) and 1300 MW which is being installed in this government’s tenure will provide the cheapest electricity. We added 13000 MW in the national grid in just four years which is unprecedented. Along with the coal-powered plants, we have installed 5000 MW in LNG-based power plants. A 1000 MW plant running on diesel for 12-13 years around Lahore (installed during Musharraf’s time) was shifted to LNG, reducing its cost to one-third. Rousch and Nandipur plants which have a capacity of around 1000 MW were also shifted to LNG. Rousch was shut down and Nandipur had technical issues when we came in.

Talking about Thar coal, the former Premier said, “Thar coal is an expensive source of fuel and it will stay like that for 15-20 years when price crossover is expected.The Main reason for this is that a lot of investment is required in Thar which takes a lot of time and without it, cost of production will be high. The main problem with the present government is its indecision. You need to shut down old power plants, for instance, Jamshoro and Muzaffargarh, but I am not sure if government can do that keeping in view their inability to make a decision, and vested interests”

He also discussed the viability of renewable power in Pakistan. He said, “The problem with renewable power is it doesn’t have a base load and it is only feasible in Pakistan when the total cost of generation of renewable energy is less than the fuel cost of your cheapest fuel generation.

“Now coming to the problem of circular debt, it is not because of expensive electricity, as one Minister believes it to be. Secondly, circular debt is a misnomer. It is pure loss and I suggested we should either privatize them or hand them over to the provinces to deal with the aforementioned problem, said Mr. Abbasi while discussing the everlasting problem of circular debt.

Pakistan’s energy mix now stands with natural gas at 34.6 percent, oil at 31.2 percent, hydro at 27 percent, nuclear at 2.7 percent and renewables at 1.1 percent. As far as the menace of circular debt is concerned, it stands at Rs 1.8 trillion., The government instead of decentralizing distribution and handing it over to provinces (so it can be managed efficiently), has moved a law to pass circular debt to consumers.

Be it the circular debt conundrum or the overall governance problems of Pakistan, administrative and fiscal decentralization is the only viable solution. Anyone arguing otherwise doesn’t understand the problem, doesn’t want to resolve it or is protecting certain vested interests (political/financial). In this government’s case it appears to be a mix of all three.