Pakistan aims to have 20 percent of electricity generation capacity as renewable energy

ISLAMABAD: Government has issued Alternate and Renewable Energy (ARE) Policy 2020 setting requisite processes in place so that ARE is fully mainstreamed and integrated within the energy planning as the country intends to have at least 20 percent of its generation capacity as ARE technologies by 2025 and 30 percent by 2030.

“In order to achieve these targets, a larger percentage of new capacity additions and retiring plant replacements will be ARE projects, while keeping also in view the technological solutions to address constraints such as RE forecasting capabilities, hybrid AREP solutions and distributed generation,” it says.

The RE targets, together with over 30 percent hydel, will result in one of the most environmentally friendly and affordable electricity mix compared to the heavily dominated mix of imported fossil fuels in the past.

ARE Policy 2020 aims to protect the environment by increasing the share of green energy in the overall energy mix; fast track and transparent procurement of ARE projects through auctions; develop and open up the power market and ease pressure on the public purse for investments in power system expansion.

ARE Policy 2020 would also facilitate development of ARE technology local manufacturing, skilled human resource and technology transfer.

The policy provides, “Procurement of new RE capacity, displacement energy capacity, and replacement capacity for retiring plants will be done through auctions”.

Power system planning (PSP) and procurement of capacity for system generation expansion are distinct but synergetic functions. PSP is a function of the national grid company (NGC) under law and will be carried out by NGC using state-of-the art system planning tools, updating Indicative Generation Capacity Expansion Plan (IGCEP) on annual basis.

The procurement decisions to respond to IGCEP will be made in accordance with this policy with the objective to give visibility for expected auctions for the next two years.

The IGCEP was prepared in February 2019 for the period 2018 to 2040. A revised IGCEP will be in place by year-end 2020 keeping in view the on-grid ARE targets in this Policy.

In addition to generation capacity expansion, ARE projects will also be solicited for displacement of expensive electricity generated using fossil fuels. “This is a major directional change from the past, stemming from the twin advantages of AREPs, namely, a significant drop in the AREP deployment prices over the past few years and that the AREP tariffs do not include capacity payments,” Policy suggests.

According to the policy, tariffs will be denominated in Pakistan rupees. Consistent with the current practice, the tariff for AREPs will comprise energy purchase price only and no capacity payments, coupled with a ‘mandatory-purchase obligation’ for a specified duration.

For mature technologies, public utility procurement of AREPs will be through competitive bidding only and not on upfront or cost-plus tariffs. In order to promote new technologies, National Electric Power Regulatory Authority (NEPRA) may allow upfront or cost plus tariffs for new technologies if it deems appropriate.

Moreover, Alternate Energy Development Board (AEDB) will move the Federal Board of Revenue (FBR) and the Engineering Development Board (EDB) to withdraw the import duty exemptions on ARE technology based consumer items which the local industry is capable of manufacturing or undertakes to manufacture.

The exemption from the ‘locally manufactured’ condition for duty free import for ARE projects above 25MW will be abolished for items that the local industry is capable of supplying.

AEDB will set up an Institute of Renewable Energy Technologies under the aegis of academic or institutional frameworks, with the flexibility to set up sub-campuses of the institute across the country.

Procurement of ARE projects by federally owned power utilities (FPUs) will be done primarily through competitive bidding, using IGCEP outputs for new capacity additions, displacement of expensive fossil-fuel based generation, and replacement of retiring capacity.

The Policy recognizes that competitive procurement has the potential to secure lower tariffs than negotiated tariffs or cost-plus tariffs awarded through a rate hearing process. To the maximum extent permitted by law and the licensing instruments, NEPRA will require that all procurements of ARE projects by K-Electric and the public utilities that may be privatized in the future will be done through competitive bidding, except only where a demonstrable case is made out to the satisfaction of NEPRA that competitive bidding will yield higher than directly negotiated or cost-plus tariffs set by NEPRA.

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