Energy policies are important instruments that governments use to guide and influence the participation and conduct of different actors in the energy sector. While efficacy, efficiency, costs, and benefits are important considerations in policymaking, consistency and continuity of policies are also important in gaining and sustaining confidence of investors. This is critical because energy sector investments are capital-intensive, long-lived and high-risk ventures, and once set into motion, are difficult and very costly to rollback.
This article offers a quick overview of Pakistan’s experience in power sector policymaking and implementation. First, it lists the prominent power policies issued since 1994 and highlights some general weaknesses in this process. Next, by taking the two most recent power sector policies as examples, it identifies some specific deficiencies. Finally, it concludes by suggesting a set of reforms in the future policymaking and implementation in the country.
Power Policies issued since 1994*
- Private Power Projects Policy 1994
- Private Hydel Power Projects Policy 1995
- Policy for Private Transmission Projects 1995
- Policy for New IPP Projects 1998
- Policy for Power Generation Projects 2002
- Policy for Renewable Power Projects 2006
- Policy for Co-Generation Projects 2008
- National Power Policy 2013
- Power Generation Policy 2015
- Alternative and Renewable Energy Policy 2019
- Electric Vehicles (EVs) Policy 2019
- National Electricity Policy 2021
*Titles of some policies were slightly trimmed to keep them short.
Power Policy Landscape
A quick look on the history of power policies issued in Pakistan reveals that our governments did not consider issuing of formal energy policies necessary till the early nineties. The governments’ preferences and priorities until then were mostly reflected in their 5-year development plans. The private power policy issued in 1994 was a ground-breaking event as a streak of similar policies followed in quick succession (see box).
Most of these policies, however, failed to deliver their intended outcomes. These have also led to serious unintended consequences such as excess capacity, suppressed demand, piling up of circular debt, relocating of local businesses to other countries, and raising fuel and electricity prices beyond the reach of common citizens.
Policies are not something set in stone. Numerous developments can render existing policies lose their utility, thus necessitating periodic review to ensure their currency and effectiveness. But governments normally prefer to use incremental and evolutionary approach when introducing reforms in their existing policies.
Public sector policies, prior to implementation, are generally filtered through a 4-pronged screening process: (i) their effectiveness in achieving the intended objectives; (ii) their efficiency in delivering the designed benefits with respect to their implementation costs; (iii) their equity in the distribution of costs and benefits across different stakeholders; and (iv) their compatibility with the existing institutions for efficient and effective implementation.
It’s difficult to comment whether the past power policies, before their introduction, were filtered through the 4-pronged screening process, but considerable evidence exists to suggest that the compatibility of the existing institutions with the demands of the new policies was not given any serious consideration. Not infrequently, the capacity of public sector institutions responsible for the implementation of new policies proved inadequate.
When devising policies, effort is always made to set a clear hierarchy among different policies, from top national policies down to local ones. Efforts are also made to ensure that the policy for a sector guides those in its subsectors. Our governments have followed a reverse order and issued sub-sector policies first (for instance, ARE Policy 2019 and Electric Vehicles Policy 2019), then the National Electricity Policy 2021, and we believe that it’s planning to issue a National Energy Policy soon.
Multiple factors seem to have contributed to the poor performance of these policies. These included lack of a structured institutional process for policy formulation and use of mostly ad hoc, parochial, and issue-driven approaches when devising them. Another critical and often neglected factor has been the lack of supportive institutional capacity for their effective implementation on the ground.
The past power policies were designed mostly without any active or meaningful participation of the implementing entities. Even after their enforcement, these entities were not properly communicated the objectives of these policies and their expected role. This led to not just a gap between what was being asked but also to lack of ownership and motivation during the implementation.
Little or no consideration was given to provide the requisite competencies, skills and toolkits to equip the staff of the implementing entities for dealing with complex new technical, legal and financial issues they had to grapple with in the new policy frameworks. This placed them at a disadvantage vis-à-vis other private actors who came fully equipped with such expertise. This led to signing of terms and conditions in the long-term contracts whose implications surfaced only much later.
On many occasions, the implementing agencies did voice their concerns with higher authorities and highlighted the dire need for training of their staff to equip them with the required skills and tools or for hiring new staff with the required skills. Such concerns and apprehensions mostly received a cold shoulder from the government.
National Electricity Policy 2021
After more than two years of homework, the government has finally unveiled the National Electricity Policy 2021 (NEP2021). A quick glance at it should be sufficient to reveal that it’s tall in intent but vague, non-specific and abstract in content. More than anything, it lacks the substance that was essential to pull the power sector out of its present quagmire and restore its financial health.
The Policy’s three strategic goals, “access to affordable electricity supplies”, “security”, and “sustainability”, are high-sounding, but lack specificity and concreteness, to clearly guide the entities downstream of the energy ministry as to what they are being asked to focus on, accomplish, and by when?
Similarly, the six principles — efficiency, transparency, competition, financial viability, indigenization and environmental responsibility — laid down to guide the power sector entities downstream to accomplish the three strategic goals are all desirable. However, these will be difficult to translate into practical, concrete and action-able strategies as the policy does not provide any guidance as to how these are to be operationalised.
Let’s take the three strategic goals set in the NEP2021 to further illustrate the above point. On “access to affordable electricity” to consumers, what exact measure will be used to set prices of electricity in the country to ensure that these are not above the ability of the consumers to pay? Will it be the same for all consumer categories or will it vary in accordance with their contribution to total system cost? What attributes will be used to ensure the “security of supply’ (minimizing risk to imported fuel supplies, threats to local supply and delivery infrastructure, or both)? How will be the “sustainability” of the whole enterprise ensured?
NEP2021 states that none of the above three strategic goals will be subservient to the other two and each one will be pursued independently. How will this balance be achieved, how will their achievement measured, and how will the implementing entities deal with a situation if achieving one goal makes a trade-off with the other two inevitable?
The targets set for renewables (20% by 2025 and 30% by 2030) in the ARE Policy 2019 (discussed in the next section) have no mention in the NEP2021 which stipulates that all generation and transmission projects will be developed strictly in accordance with the Indicative Generation Capacity Expansion Plan (IGCEP) of the National Transmission and Desptach Company (NTDC). It is not clear which policy the NTDC is to follow for this purpose, ARE Policy 2019 or the NEP2021?
It’s good that the NEP2021 requires developing of different zones in the country for the future renewable generation schemes in the country. It is critical that transmission and distribution (T&D) networks and facilities are also developed with a clear objective to facilitate the rapid growth of renewables. Without an enabling and supportive hosting T&D infrastructure, the nation may not be able to derive the full range of benefits from these schemes.
The NEP2021 also recommends using the conventional “least-cost” approach to generation and T&D development. This approach is a legacy of the past and has already run its course. Instead, the government should encourage devising of imaginative, innovative, and flexible pricing schemes that suppliers can use to squeeze the most value from renewables.
The NEP2021 also specifies a long list of issues on which power sector entities, and specifically, the NTDC, are to support the National Energy Efficiency and Conservation Authority (NEECA). Strangely, it’s completely silent about NEECA’s own responsibility in enabling the strategic planning in the country. This is a serious gap which must be bridged because NEECA should have the primary responsibility to assist these entities in incorporating its estimates of the potential energy conservation, efficiency improvement, and demand response schemes in the country’s strategic plans.
Alternative and Renewable Energy Policy 2019
Pakistan had introduced a Renewable Energy Policy during 2006 (RE Policy 2006) to promote renewable energy technologies (RETs) in the country by introducing multiple incentives and safeguards for investors. As a result, roughly 2,000 MW of renewable energy generation (mostly solar PV and wind power) was added to the grid since this policy’s issuance, while some additional projects are still in the pipeline. Things were moving smoothly until the government had a change of heart and decided to repeal this Policy and introduce in its place a new one.
The new Policy, named Alternative and Renewable Energy Policy 2019 (ARE Policy 2019) sets capacity targets of 20% by 2025 and 30% by 2030 without specifying the basis that was used to set these targets. This is disturbing for many reasons. Renewable power generation targets are more meaningful if these are linked to forecast peak demand, and not to installed capacity. Such targets must be based on rigorous assessment of electricity demand in various parts of the country and the availability of primary resources and hosting T&D infrastructure in these areas.
The Policy disregards the capacity contribution of renewable plants and justifies their inclusion in the grid entirely for their potential to reduce the basket price of electricity generation. This is akin to under-valuing the renewable technologies against the conventional ones. The Policy also does not specify the share of different RETs within the specified targets or various regions. This lack of clarity will lead to many problems during its implementation.
Realising the full potential of renewables requires that their deployment be sought not just in the power sector but other sectors of the economy too and in all possible forms in which these can contribute to serve their energy needs. These include, for instance, direct use, production of other energy carriers like bio and synthetic fuels, process heating and cooling, etc., and not just through power generation.
A fair and objective comparison demands that full avoided costs (generation, transmission, distribution, and delivery) due to renewables’ deployment in the grid should be considered in serving the consumers demand, and not just their costs at the generation terminals. Integrations issues and impacts on the grid (capacity backup, flexibility, additional stress on the system, etc.) and the associated costs these RETs will impose owing to their uncertain and variable nature must also be considered to make an objective and fair cost-benefit assessment.
As uncertainty and variability will be an inherent feature of RETs, external efforts to counter that feature will be needed. This could impose significant costs on the grid. In this regard, storage technologies can play a critical role in promoting RETs, and thus will require special considerations. The current Policy lacks this emphasis and related concessions or incentives.
In the Policy, references are made about the provinces’ right to develop RET projects in their jurisdictions, independent of the national grid. This is not a good idea and could lead to confusion, redundancies, and sub-optimal solutions. All such developments should be coordinated between the federal and provincial governments, before soliciting bids from potential developers. The government should prepare a ten-year system development plan for this purpose to indicate the requirements of generation (including RETs), transmission, and distribution facilities and their preferred locations.
The Policy mandates the NTDC and DISCOs to purchase all the energy generated by the renewable power plants. Such mandates, if enforced without assessing their proper technical and financial implications, can be troublesome. This obligation should be linked to carrying out “grid impact studies”, that will reveal the real technical and economic viability of the project in question.
Our government’s recent initiative to solarize the country on fast-track is a classic example of the ad hoc and quick fix thinking of our leaders. The dust had hardly settled on the ARE Policy 2019 when this initiative has emerged. If the government was not happy with that policy, it should have improved its previous policy instead of issuing a new policy framework, especially for the fast-track deployment of PV systems in the country. A slightly more detailed critique on this particular initiative is available in a previous article by this writer. (Fast-track Solarization)
The Way Forward
There is a compelling need to streamline, institutionalize, and formalize the whole policy formulation and implementation process in the country by making it open, transparent, and consultative, as this will enhance the prospects of their success. The government must screen every policy option from the four-pronged evaluation criteria stated in the first section. Our policymakers must not ignore or overlook the 4th criterion, that is, the compatibility of the existing institutions for effectively implementing the intended reforms and policy instruments.
The existing policies should be reviewed and, if need be, improved to encourage the deployment of distributed energy resources and discourage mega projects, especially those based on foreign technologies and fuels. These policies should also encourage deployment of storage technologies in the system to enhance the value of renewable power plants while relaxing their uncertainty and variability constraints. Similarly, besides being a source of demand, battery packs in EVs can also support the grid in more economical ways than the traditional solutions.
Every time a new reform or policy is introduced, the relevant custodian agency of the policy should organise orientation workshops for the agencies that are to implement these policies to acquaint them with the purpose and objectives of the new policy and their expected roles and responsibilities in making it successful.
Wherever necessary, the relevant staff of these implementing entities should also be provided adequate training and toolkits that they will need to serve effectively in their new roles and responsibilities and, not to miss, also the funds that these agencies will need to effectively implement the new policies.
Just as a good sapling will not grow into a fruit-bearing tree in the absence of conducive ambience and proper nourishment, a policy appearing perfect on paper may also not perform well on ground if the elements required for its proper implementation do not exist or are not provided. The government, therefore, must ensure that not only new policies are sound conceptually but will also have in place the supportive institutional capacity requisite for their successful implementation.
The writer is a freelance consultant specializing in sustainable energy and power system planning and development. He can be reached via email at : email@example.com.