Presently, the global economy faces higher energy prices which may remain intact because of the Russian-Ukraine war. The war has led to significant disruptions to the production and trade of commodities for which Russia and Ukraine are key exporters. World Bank’s (WB) forecasts showed that the war in Ukraine is set to trigger the largest commodity shock. This would contribute to a huge price surge for energy-related goods including oil and natural gas. Furthermore, energy prices are set to increase more than 50 per cent, pushing up costs for households and businesses. This situation has raised concerns at the global level, mainly for the developing economies where the provision of energy subsidies has become a major challenge because of weak fiscal position.
According to the Economic Survey of Pakistan FY2022, in 2019 the Alternative and Renewable Energy Policy was launched to assist and promote the development of renewable resources in the country. The main objective of the policy was to provide a supportive environment for renewable power projects and increase the share of green energy capacity to 20 per cent by 2025 and 30 per cent by 2030 by attracting private capital in the area of green energy. The energy sector is prone to certain challenges.
For instance, the problem of circular debt in the energy sector is a long-awaited issue. Despite the massive increase in tariffs, the circular debt stock of Pakistan’s power sector grew to Rs 2.31 trillion by the end of June 2023, up from Rs 2.25 trillion at the end of the previous fiscal year (FY2022) — Rs 57 billion, or nearly 3 per cent higher after 12 months. Pakistan’s dependence on liquefied natural gas (LNG) has increased in recent years because of depleting indigenous natural gas deposits. As per government officials, Pakistan is producing a very limited percentage of oil to meet the overall demand of the country. The latest data shows that the import bill of oil grew by 95.9 per cent to US$17.03 billion during July-April FY2022 compared to US$8.69 billion during the corresponding period last year. The Surge in oil import bill is attributed to increases in value as well as increases in demand as the import of petroleum products went up by 121.15 per cent in value and 24.18 percent in quantity. The Crude oil imports grew by 75.34 per cent in value and 1.4 per cent in quantity during the period under review. Similarly, liquefied natural gas witnessed an increase of 82.90 percent in value, while liquefied petroleum gas (LPG) imports also jumped by 39.86 per cent during July-April FY2022.
In FY2021, around 373 million MMBTU of LNG gas worth around US$3.4 billion was imported. This corresponds to around 30 per cent of the total natural gas consumption in Pakistan. During July-Feb FY2022, 75.64 per cent of gas is domestically produced, while 24.36 per cent of gas is being imported.
Coal is also used for electricity generation in Pakistan. Thar has the largest coal reserves in the country which has been actively developed in present years. The first Thar plant, having a capacity of 660 MW, became operational in the first quarter of FY2020. The overall electricity generation from coal has reached 5280 MW. Thar coal contributes 1,320 MW, while imported coal contribution in electricity generation is 3,960 MW which is almost 75 per cent of the total electricity generation from coal in the country. Pakistan is very rich in hydropower and has the enormous potential to generate electricity from water. The estimated total hydropower potential of Pakistan is around 60,000 MW. Pakistan is not utilising its full potential and using nearly 16 per cent of the total hydropower potential. The Hydro installed capacity is 10,251 MW which is around 25 per cent of the total installed capacity.
Our country has wind corridors as well and there is huge potential to generate electricity from wind. It is estimated that Pakistan can generate 50,000 MW from wind. The contribution of Wind in the total installed capacity is 4.8 per cent and currently stands at 1,985 MW. The installed capacity of solar is 600 MW which is around 1.4 per cent of the total installed capacity. Pakistan is also producing energy from nuclear technology whose contribution is increasing gradually. The gross capacity of the nuclear power plants was 2,530 MW which supplied about 7,076 million units of electricity to the national grid during July-March FY2021. The gross capacity of nuclear power plants has increased by 39 per cent and it stood at 3,530 MW which supplied 12,885 million units of electricity to the national grid during July-March FY2022.
Experts in the energy sector indicate that by implementing enhanced power production strategies, Pakistan can save more than $8 billion over the next decade. It also uncovers the negative consequences of ineffective planning, which has led to the establishment of expensive and inefficient power plants, burdening consumers with high electricity costs and exacerbating the circular debt crisis.
It is forecasted that wind and solar power will constitute only 30 per cent of Pakistan’s energy mix by 2031, the independent study projects this share to be as high as 47 per cent by the same year. Increasing the incorporation of variable renewable energy could lead to a reduction of over 10 per cent in variable electricity costs and a 50 per cent decrease in emissions by 2030.
Experts, on the other hand, recorded that the substantial costs associated with inefficient energy production as a key driver of inflation. The latest economic survey reveals a staggering 28.2 per cent headline inflation, measured through the Consumer Price Index (CPI), during the July-April period of the current fiscal year. This represents a sharp contrast to the 11 per cent recorded over the same period in the previous fiscal year. It is recorded that the rise in energy prices has led to a substantial rise in the prices of goods in the international market, significantly affecting the overall cost structure across various industries.