The first wind power farm in Pakistan, according to the Alternative Energy Development Board’s (AEDB) website, was established by Fauji Fertiliser in Jhimpir. It became functional in May 2013 at a feed-in tariff of Rs 12.61. A month later, another wind farm, by Zorlu Energy, started operations. Although the latter project had begun five years earlier, it suffered from many delays and its reported cost was $136 million.

Fast forward to the present, and the AEDB’s website states that Pakistan now has 26 completed wind farms (as of August 31, 2021), with a 1,335 MW cumulative capacity contributed to the national grid. Costs for establishing wind farms have also been reduced substantially and are estimated to be in the ballpark of $50 to 70 million.

These new wind farms are located in southern Sindh in Jhimpir or Gharo (along what is frequently referred to as the Gharo-Keti Bandar Wind Corridor) and most have a capacity of 50 MW. A further 10 wind power farms have been approved and are under construction. Currently, most wind farms (21 according to the AEDB) are located in Jhimpir, and the remainder in Gharo, and at least four have been built as part of the CPEC programme. Consequently, the total share of wind energy in Pakistan stands at two percent as of February 2022, lower than other sources of energy, such as coal (32%), hydel (18%), RLNG (15%), nuclear (13%), gas (11%) and fuel oil (7%), but higher than bagasse and solar, which capture a share of one percent each.

All wind generation companies, known as generators (GENCOs) or independent power producers (IPPs) provide energy to the national grid through the Central Power Purchasing Agency (CPPA), which was formed from within the National Transmission and Despatch Company (NTDC). The tariffs are determined by the National Electric Power Regulatory Authority (NEPRA) which in turn sells it to the power distribution companies (DISCOs), which then supply to end consumers. Although this may sound like a relatively simple process, it is anything but.

As the head of a major wind IPP points out: “Obtaining the necessary approvals from the relevant departments and local government entities is a major challenge, although due to better governance and timely support by the relevant government departments, this issue has been resolved to a large extent.” However, not all stakeholders are of this opinion, and many believe a one-window operation is required to expedite the approval processes. (It is pertinent to mention that after the enactment of the 18th Amendment, provincial governments play an important role in the setting up of wind farms.) Muhammad Ali, MD, Sapphire Wind Company and TriconBoston Consulting Corp, which have four wind projects, further points out that after approval by the AEDB and other government bodies such as NTDC, CPPA and NEPRA, other entities come into play. These include wind turbine suppliers such as GE, Nordex, Vestas, Engineering, Procurement and Construction (EPC) services contractors such as Hydrochina and Descon, and financers such as local banks and international development financial institutions, such as the International Finance Corporation and the Asian Development Bank.

The Tip of the ‘Windberg’

The Gharo-Keti Bandar Wind Corridor covers an area of 9,700 km and is believed to have a power potential of 43,000 MW. It has been identified as one of the most lucrative sites in Pakistan for wind power, as several studies estimate its potential to be over 50,000 MW. Pakistan’s wind potential is estimated to range between 132,000 MW and 346,000 MW according to several reports and studies. Given the fact that the cumulative capacity of existing wind farms and those under construction is lower than 2,000 MW, this means that currently, Pakistan has barely hit the tip of the ‘windberg.’ In fact, according to Wind Is at Our Back, an article published by The News in January 2020, “Pakistan stands at the 33rd position among wind-based power countries, with nominal 1,048 MW installed wind power capacity, utilising less than one percent of its exploitable potential.”

In terms of what is preventing Pakistan from realising this potential, most stakeholders were of the opinion that setting up and running wind power plants is no longer an attractive proposition. Here, it is pertinent to mention that although the government did introduce a series of incentives for wind IPPs, primarily through the Alternative and Renewable Energy (ARE) Policy 2020, in some cases these were reversed or modified and neither are they substantial enough to make them an attractive investment proposition. These incentives included but were not limited to, guaranteed electricity purchase, protection against political risk, “attractive tariffs” indexed to inflation and exchange rate fluctuations, no import duties on equipment, as well as exemptions on income, withholding and sales taxes.

Deeper and Deeper Debts

Circular Debt, the single factor that contributes heavily to Pakistan’s energy crisis, also acts as a deterrent for wind IPPs. In fact, Circular Debt was the most often cited reason given by stakeholders to explain why the sector is failing to grow, mainly because it delays payments from the power purchasers to wind IPPs, which in turn affects daily business operations negatively, as receivables accrue and impact their ROI.

This problem affects wind IPPs that have received financial assistance from overseas entities even more. As Sattar Jumani, MD, Yunus Energy, points out, the wind power projects financed by international institutions are given priority by the government, but paying back loans secured in dollars poses problems given the rising dollar rates, in addition to which they have to import machinery which constitutes at least 80% of the initial expenses. “Although foreign financing is not a written condition, the State Bank of Pakistan will not approve projects without it, and in order for investors to recover their ROI, one of the most important factors is timely payments. Unfortunately, due to the Circular Debt issue, payments are being delayed to the IPPs.”

Another issue that affects all IPPs (be they wind or not) is transmission and the reality is that although Pakistan does produce surplus energy, much of it is lost due to power theft and infrastructural issues (unstable grids and outdated or substandard transmission lines). As Shahzad Malik, MD, Master Group, explains, “Inadequate transmission and distribution infrastructure are the main reasons why we still face loadshedding and power cuts (and consequently Circular Debt). Furthermore, the lack of load centres near wind corridors necessitates the development of high voltage transmission lines to carry energy to load centres, which constitutes another major hindrance. This lack of infrastructure is particularly acute in Balochistan and according to Kashif Mateen Ansari, CEO, Sachal Energy Wind Power, “for many wind corridors located in Balochistan, grid interconnection is a big challenge.”

Location, Location, Location

Exacerbating the situation in Balochistan, where remote location wind corridors have been identified, are law and order issues which discourage foreign investors and EPC contractors, both of which are vital for the establishment of wind corridors. Another hindrance is the fact that wind farms are too clustered (they are mostly located in Jhimpir and Gharo) and could therefore lead to grid instability. The solution would be to install wind farms in Balochistan and Khyber Pakhtunkhwa. In fact, as early as 2015, sources in the Ministry of Water and Power told Dawn that Pakistan’s 1,046-kilometre coastline running through Sindh and Balochistan would be a prime area to invest in, rather than the Gharo-Keti Bandar Wind Corridor.

Lower Tariffs, Lower ROI

Ansari outlines another issue. “ROI depends on the type of tariff and it usually takes about 10 years to recover our ROI, depending on the business model, and our profit margins have reduced significantly over the years.”

This is not surprising because tariffs have been reduced over the years. In 2013, they were benchmarked at 13 cents, whereas now they range between three and four cents, despite inflation. They also tend to fluctuate and are lower than the international average of eight cents. According to an article published in Dawn in January 2021, the Pakistan Foreign Investors Forum (PFIF) wrote to former prime minister Imran Khan, pointing out that “NEPRA has recently awarded the lowest wind power tariff in Pakistan’s history at an average of cents 3.22/kWh to five projects of 275 MW (which is lower than present wind tariff of China, USA etc.).”

According to Jumani, Tariffs in India are comparatively higher than the recently determined tariffs in Pakistan for renewable energy projects, despite the presence of indigenous manufacturing. This is not the case in Pakistan, where expensive equipment has to be imported and specialised, expensive arrangements for their transportation (by sea) have to be made; additionally, India has a pool of experts, but in Pakistan we have to import that expertise as well. These factors show a lack of interest and discouragement from the government.”

Taxing Issues

Another problem, according to Malik, is related to taxes. He cites the reversal of the exemption on sales tax while importing wind turbines which, combined with increased competition and a reduction in tariff, no longer makes wind energy profitable. Perhaps to counter this, the government had begun the process of introducing the concept of competitive bidding via auctions for new projects. According to Malik, “The introduction of competitive bidding for GENCOs will increase competition and will be beneficial for the country as the overall electricity price will go down.” However, there is a catch, as many stakeholders believe a cap will be placed during the bidding which will amount to low rates. Jumani says the draft regarding competitive bidding by the AEDB/NEPRA did not receive a positive response from investors and they showed a lack of interest as the conditions are not ideal, as “a very small window is available regarding indexation and inflation. Furthermore, a cap on the higher side of the bid has been placed.”

Changes on the Horizon

Some positive developments have taken place and among them is the establishment of Pakistan’s first-of-its-kind hybrid solar-wind plant by Engro Energy, which many stakeholders believe is a positive step. To this end, Engro Energy signed an MoU in October 2021 with the Sindh Transmission and Dispatch Company (STDC) and the Directorate of Alternate Energy (DAE), whereby the STDC will be responsible for laying out the transmission network and the DAE will provide the required land. The project aims to provide up to 400 MW of electricity by early 2024 and one GW by 2029.

According to an article published in Dawn in October 2021, Mohammad Saleem Shaikh, CE, STDC, was reported to have said that as the Engro Energy initiative was a B2B project, NEPRA would not determine the tariff; it would be mutually agreed on by Engro Energy and the purchasers of their energy. He added that the business community should reach out to STDC to arrange reliable and cost-effective electricity supplies in bulk. “The field is going to be wide open from 2023 onwards. We will not stop at transmission. The Sindh Government wants to go into distribution.”

Under an agreement signed in April, Engro Energy will provide renewable energy to Agha Steel from their park in Jhimpir. They also plan to provide electricity to other commercial entities in Port Qasim and Dhabeji. This development suggests there may be more hybrid parks in the future as they are believed to be more productive, as they use the benefit of the sun (during the day) and the wind (which is at its highest in the evenings and at night.) In fact, a recent study, Fostering Renewable Energy Development in Sindh: Identification of Impediments and the Road Ahead, conducted by the World Wind Energy Association (WWEA) in 2020 states that the cumulative solar and wind potential stands at 11 GW.

Another development is the Competitive Trading Bilateral Contract Market (CTBCM) which is due to come into effect on May 1. According to Malik, “through the CTBCM, there will be several sellers and buyers and this will increase wind power generation. These initiatives are beneficial but there are a few hindrances as well and include the fact that the pace of such initiatives is very slow.” Ali believes “the CTBCM is a step in the right direction, although it will be some time before consumers have the option of purchasing electricity from different DISCOs.” In his view, the expected increase in competition will drive down the price of electricity and improve the quality of DISCOs. He believes that in terms of distribution, private companies such as KE would be at an advantage as they pay on time and this could in turn encourage public DISCOs to up their game.

Ultimately, if the wind energy sector is to develop, the government’s active engagement will be required. In Ansari’s opinion, “We need consistent and reliable government policies that favour wind and solar projects over the next three years and without substantial changes in policy in between. A reasonable tariff should be announced, the issue of Circular Debt should be resolved, matters relating to taxation and the law and order situation must be addressed and finally, ease of business should be improved and made investor-friendly.” Ali for his part emphasises the fact that “the government needs to promote local production of wind power generation technology to ensure it remains competitive, and to do this it is essential that a clear roadmap for wind power capacity is committed and consistency of policy is ensured.”