How much electricity does Pakistan need in the future?
According to NEPRA State of Industry Report last year , the NTDC’s Projected Demand Growth Rate will go up from 3.9 % in 2019 to 5.7% in 2030.¹
What forms and what should form the basis of this projection is debatable. Are historic figures enough for predicting future demand growth? How do experts come up with any numbers for the future electricity demand and how do we predict electricity demand in Pakistan are some of the questions that I will try to approach in this article.
Electricity has to be consumed in real time…
It would not be wrong to say that the supply chain for electricity is dynamic — to ensure supply in the future, appropriate investments have to be made today; the demand has to be anticipated well into the future. Failing to do so often leads to over-investment in the power projects which end up being underutilized or left stranded because these were not needed in the first place or there aren’t enough consumers of this excess electricity. In an economy like Pakistan this also means a build-up of circular debt and in case of foreign projects based on imported fossil fuel, a rise in the import bill. Conversely underestimating demand will lead to an under-investment in supply which can then lead to black outs — there isn’t enough electricity available to fulfill the rising demand. So demand projections are critical and have to be methodological. There is no space for political interference, personal preference or arbitrariness. Done correctly it will uplift the economy.
“Prediction is a very difficult art, especially when it involves the future” -Neils Bohr (Nobel Laureate Physicist)
Predicting the future is always hard and prone to error. Electricity sector is no different. Better predictions can be made and flexible plans are possible but the chances of error are never zero. One way to predict the future pattern is to look at the historical pattern of the demand and to see how better off the economy will be in the future. Fortunately such estimates for economic growth in the future are readily available. However this GDP-based demand growth projections might be too optimistic and might not take into account the political economy factors or technological advancements.² Delving further into the issue, experts suggest that electricity demand is not just a function of GDP growth but there are other major components which can drive demand. Some of them are as follows:
- Aggregate demand — which is driven by economic growth , population growth, access to power
- Energy intensity — the extent of industrialization and resulting changes to the industry-mix
- Input prices — such as price of oil and coal as well as the prices of substitutes e.g. solar PV³
- Technological advancements e.g. with the advent of electric vehicles, the demand and the price of fossil fuels will get affected.⁴
So how exactly to make sense of all these factors which might or might not be known to us accurately into the future. Countries have moved out of the mere practice of projecting demand on the basis of GDP growth rate and are making use of these wide array of variables through econometric modelling. When compared to simple growth-rate based projections, econometric modelling has the flexibility to take into account as many variables as needed and has been known to yield reliable results of the electricity demand projections when tested on the historical data.⁵
What we do in Pakistan to foresee our future…
Despite available projections for electricity demand mostly based on the historic patterns or GDP based projections, the consequent decisions in Pakistan have often been arbitrary leading to poor outcomes.⁶ Many experts attribute today’s problems of the power sector in Pakistan to the decisions and projections made during the 90s at the time of the introduction of the first power policy. This was nearly three decades ago. The Energy Task Force at the time was “mandated to carry out a study of Pakistan’s electricity demands up to the year 2020”.⁷ The resulting projections painted a highly optimistic economic growth scenario on the basis of which it was felt at the time that massive investments would be needed. Attractive fiscal incentives were offered to the international and local investors.
The shortcomings of the policy itself and what could have been done and what was done is another debate but what resulted is summarized by a World Bank Report in 2005 as follows:
“The financial difficulties of WAPDA were exacerbated by too many IPPs coming on stream simultaneously at a time when demand did not grow as anticipated. This resulted in excess generating capacity that, in the minds of most Pakistan officials, they neither needed nor could afford… However, there was no clear mechanism for GOP to prioritize projects. The basis on which projects were selected and accorded attention was not transparent and subject to political influence which led to perceptions of corruption by successive governments.”⁸
In the recent past energy planners in Pakistan have been projecting for three scenarios — high, medium and low GDP growth — rightly so after the experience of the past, caution is necessary. Indicative Generation Capacity Expansion Plan 2040, a planning document by NTDC states that electricity demand is a function of economic growth, population trend, industrialization, weather and electricity price and predicts the same under three different scenario.⁹ However critics of Indicative Generation Capacity Expansion Plan 2040 suggest that the demand projections are too optimistic and rigid. Subsequent investments as planned in the document will again trap Pakistan into a bad equilibrium for the next thirty to forty years of outdated technology and rising share of polluting coal in the energy mix. The medium case scenario as picked up by the expansion plan uses 5.5% of GDP growth up from 4% in 2019.This does not take into account the recent economic slump suffered all over the world due to Covid-19 Pandemic. A comprehensive report by IEEFA has been published recently which suggests that even before the onset of Covid-19 the base case scenario is highly optimistic and with Covid-19, the projections and the resultant planning for investment becomes totally irrelevant and needs to be rethought.¹⁰
With a troubled power sector as of Pakistan what is needed is to reduce the rigidity of the plan in the face of political and economic instability. The plans can be of 10 years instead of 20 years with frequent updates and revisions as needed.¹¹ This would simultaneously require a renewed focus on the country’s indigenous renewable resources which also happen to have shorter construction times.¹² This will also have an added advantage of improving energy security of the country which ultimately affects economic growth and future energy demand as well. Improvements within demand forecasting should not be restricted to using economic modelling, the analysis needs to be done at a granular level. With ever evolving country dynamics and diverse topology and population densities across Pakistan, some experts have even suggested that a national level demand projection is not enough. This needs to be brought down to the regional level and also to be done for seasons through out the year to have a much better estimate of the demand that Pakistan will actually be facing in the future.¹³
References:
¹ “State of Industry Report, 2019” NEPRA.
² “Forecasting Electricity Demand : An Aid for Practitioners”, Live Wire, The World Bank, 2017
³ ibid
⁴ “The complexities of energy planning”- the news.com by Syed Akhtar Ali, 2nd Nov 2019
⁵ “Forecasting Electricity Demand : An Aid for Practitioners”, Live Wire, The World Bank, 2017
⁶ “The complexities of energy planning”- the news.com by Syed Akhtar Ali, 2nd Nov 2019
⁷ “The History of Private Power in Pakistan”by Fahd Ali and Fatima Beg, SDPI, April 2007
⁸ “Lessons from the Independent Private Power Experience in Pakistan” by Julia Fraser 2005. World Bank Report
⁹ “Indicative Generation Capacity Expansion Plan 2018–2040”, NTDC https://nepra.org.pk/Admission%20Notices/2019/09-September/IGCEP%20Plan%20(2018-40).pdf
¹⁰ “Pakistan Risks Locking in Long-Term Overcapacity and Expensive Power- Imported Coal and LNG Power Plants Are Stranded According to New Power Plan” by Simon Nicholas, IEEFA, 03 Sept 2020
¹¹ “The complexities of energy planning”- the news.com by Syed Akhtar Ali, 2nd Nov 2019
¹² “Pakistan Risks Locking in Long-Term Overcapacity and Expensive Power- Imported Coal and LNG Power Plants Are Stranded According to New Power Plan” by Simon Nicholas, IEEFA, 03 Sept 2020
¹³ “Is there a Silver Bullet to Pakistan’s Energy Crisis?” Book Chapter by Naveed Arshad and Fiaz Chaudhary from Rethinking Pakistan: A 21st Century Perspective By : Bilal Zahoor , Raza Rumi
