Policy changes in power pit centre against provinces
The government decision to introduce competition in the country's alternative energy market must help bring down power prices, but it can hurt new investment in renewables in the short to medium-term.
The move can also force a shutdown of numerous 'initiated' but smaller hydro, solar and wind schemes where implementation agreement (IA) or energy purchase agreement (EPA) are yet to be signed between the government and the investors.
The Cabinet Committee on Energy (CCoE) last month significantly changed the renewable energy policy of 2006 for all alternative energy sources including wind, solar, biomass, baggasse and small hydropower projects below 50 megawatt capacity.
The changes will replace feedin or upfront tariffs that have attracted substantial private capital into such projects with competitive bidding, cut the power purchase contract period from 25/30 years to 15, and pass on the risks of variability in wind speed, solar irradiation and hydrology for small hydro projects to the sellers.
"The changes in the 2006 policy were long overdue," argued Vaqar Zakaria, a director at Hagler Bailly Pakistan, who has rich experience in energy and environment management.
"The upfront tariffs guaranteeing profits for renewable generation were given in the policy to kick- start private investment in alternative energy sources. Such incentives are meant to be for a limited capacity and period.
"But in Pakistan solar and wind (power) projects have become such money making machines ( for investors)… and consumers here have been burdened with the high cost of electricity (owing to a lack of competition in the market). There's no other example like this in (the rest of the) world."
The changes in the policy for renewables has nevertheless pitted the governments of Sindh and Khyber Pakhtunkhwa, (and Azad Kashmir) against Islamabad as these feel that the new policy would deal a serious blow to smaller wind and hydro projects where letters of intent (LoIs) or letters of support (LoS) have been issued to investors.
Both Sindh and Khyber Pakhtunkhwa have already challenged the federal government's authority to make these changes without discussing them at the platform of the Council of Common Interest (CCI) and demanded that they be withdrawn.
"The provinces feel - and rightly so - that small hydropower and wind power investors in Khyber Pakhtunkhwa, Sindh (and Azad Kashmir) - have been disadvantaged because the government is building large projects based on imported coal and gas in Punjab," says a senior official of the Private Power Infrastructure Board (PPIB).
The official, who requested anonymity, claimed more than 70 small hydropower schemes with aggregate capacity of 200MW to 250MW will be affected by the policy change. "A few of these projects are at an advanced stage of completion."
An Alternate Energy Development Board (AEDB) director, who also declined to give his name, contended that the government had rejected a proposal by the board to exclude the already 'initiated' solar and wind schemes from the application of the changes in the renewables policy.