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Pakistan’s energy security at stake
ASIA NEEDS TO INCREASE RE CAPACITY BY 2030 TO FULFIL CLIMATE TARGETS
ASIA PACIFIC
Dr Bikal Kumar Pokharel, Wood Mackenzie
Asia has to increase its renewable energy capacity by four times to reach 5,442 gigawatts (GW) by 2030 from 1,338GW in 2020 to meet the target of limiting global warming to 1.5 degrees Celsius, according to the International Renewable Energy Agency (IRENA).
In the World Energy Transitions Outlook 2022 report, IRENA said, the region would also have to increase its renewables capacity by nine times to reach 12,556GW to achieve the 1.5°C scenario.
IRENA added that Asia, North America, and Europe will account for more than 80% of installations by 2030, with North America having to increase its capacity by five times to reach 1,882GW by 2030, and Europe by three times to reach 1,573GW capacity.
The Middle East and Africa have to increase their capacity by 13 times to reach 993GW by 2030, whilst Oceania/Pacific has to ramp up its capacity by four times to react 172GW in the same period. Latin America needs to increase its capacity by three times to push its renewables capacity to 708GW by 2030.
“Renewables-based electricity is now the cheapest power option in most regions,” the IRENA report said.
“The global weighted-average levelised cost of electricity from newly commissioned utility scale solar photovoltaic (PV) projects fell by 85% between 2010 and 2020. The corresponding cost reductions for concentrated solar power were 68%; onshore wind, 56%; and offshore wind, 48%,” it added.
Overall, an annual average of at least 800GW of new renewable capacity through 2030, an increase from around 264GW addition in 2020 is needed to decarbonise the global power sector mid-century and fulfill the 1.5°C Scenario.
Increasing RE capacity by 2030
The installed generation capacity of renewable power has to reach 10,770GW in 2030, and 27,800GW by 2050, an increase by four-fold, and 10-fold, respectively, according to IRENA.
Electricity generation will have to expand to over 42,100 terawatt-hours (TWh) by 2030 from 26,900TWh in 2019, with 65% of the total electricity supply coming from renewable sources, compared to 26% in 2019, according to one of the key performance indicators.
IRENA added that solar and wind energy will lead the renewables installed capacity, with solar PV seen to exceed 5,200GW by 2030, and wind installations to reach 3,300GW.
It added that coal-fired generation will drop sharply over the decade, with its share in the total electricity generation falling to 11% in 2030 from 37% in 2019, before being phased out by 2050. Natural gas will account for 16% of total electricity needs in 2030 from 24% in 2019, whilst nuclear capacity will remain steady at around 10%.
The country imported 7.4 million tonnes of LNG in 2020
Pakistan’s energy security at stake
PAKISTAN
Pakistan’s reliance on imported liquefied natural gas (LNG) to replace the declining reserves of natural gas put at stake the country’s energy security and financial stability, according to a report by the Institute of Energy Economics and Financial Analysis (IEEFA).
The country’s LNG imports could increase to more than $32b by 2030, from nearly $2.5b in 2021, according to a report co-authored by Energy Finance Analysts Haneea Isaad and Samuel Reynolds, with Isaad noting that LNG sourced from global markets has become five to 10 times higher than domestically produced gas.
“Pakistan’s vulnerability to commodity market shocks has only been increasing in the wake of the Ukraine crisis,” Reynolds said in a statement. “Coupled with the global economic recovery from the COVID-19 pandemic, price-sensitive countries such as Pakistan may be unable to compete with wealthier buyers in Europe and Northeast Asia.”
LNG imports in Pakistan reached 7.4 million tonnes in 2020, and its demand is expected by the government to grow at a fast pace over the next decade. The agency added that at least four major LNG import terminal projects are at various developmental stages.
IEEFA noted that LNG has been unreliable and suppliers under long-term contracts with Pakistan have defaulted on at least 11 cargoes since January 2021, which contributes to fuel and power shortages in the country.
Other problems surrounding Pakistan’s energy sector include final tariffs not reflective of gas costs, inefficient cross-subsidisation of gas tariffs, and high volumes of unaccounted for gas that were lost in transportation.
Reliance on imported LNG would “only reinforce credit risks for investors in the country’s LNG-to-power value chain,” IEEFA said. It added that it may take time for projects and terminals in the pipeline to materialise due to geopolitical conflicts and unviable economics which worsen stranded asset risks for LNK infrastructure.
“As more LNG is injected to this faulty network, financial issues in Pakistan’s gas sector are likely to worsen significantly,” Reynolds said. “Circular debt, chronic cashflow shortages that have historically plagued Pakistan’s power sector, is now rampant in the gas sector.”
The agency also said that LNG price increases and supply insecurity can also affect the economy which widely utilises natural gas. It cited the power sector which saw LNG fuel shortages forcing 3,500 megawatts of power capacity to go offline since December 2021 and contributed to local load shedding of 10 to 18 hours daily in recent weeks.
It also noted that textile mills in Punjab also had to close for over two weeks in January due to fuel shortages that resulted in the loss of $250m worth of materials exports or 20% of the textile sector’s annual revenue.
“In Pakistan’s textile sector, power generation costs can amount to roughly 30-40% of the production costs,” Isaad said. “Since the textile industry depends on gas-based power generation, rising LNG prices can grossly reduce the sector’s profit margins.”
Ensuring energy security
Using existing LNG supply more efficiently by changing regulatory incentives, rationalising tariff structures, and implementing energy efficiency programmes, should be the focus of Pakistan in the near term.
Isaad added that having more coherent strategies for LNG procurement and tenders and maximising the use of existing terminals can also help improve energy security without adding new major infrastructure.
The IEEFA added that accelerating the adoption of new utility-scale and behindthe-meter renewable energy and battery storage projects can also help limit demand for LNG in the country’s largest gas consumer which is the power sector.
