Pakistan Offers Renewable-Energy Incentives to Tackle Shortages

Sep 27, 2011 - Haris Anwar - bloomberg.com

Pakistan will announce its first tariff policy for clean-energy producers next month, offering premium payment rates as it seeks to attract investors to help overcome power shortfalls.

The country has given approval to 30 companies to install wind plants with an estimated capacity of 1,500 megawatts, said Arif Alauddin, chief executive of the state-run Alternative Energy Development Board.

“There will be a feed-in tariff based on a cost-plus approach,” he said in an Aug. 23 interview at his office in Islamabad. The tariff policy “offers an extremely good rate of return,” with most of the risks covered by the government, he said.

Developers may be able to get as much 18 percent returns on their investment, he said, declining to say what the feed-in tariff rates will be.

Pakistan is seeking to diversify its energy supplies away from oil and gas and boost electricity production. The nation has a power deficit of 3 to 4 gigawatts a day, or more than the output of two nuclear reactors, triggering 12-hour blackouts that cause riots and close factories in cities nationwide.

Financial Closure

The feed-in tariffs will speed the development of projects in the pipeline, Alauddin said. Companies that are close to achieving financial close include Zorlu Enerji Elektrik Uretim AS (ZOREN), a Turkish power utility, China International Water & Electric Corp. and Fauji Foundation’s two plants in Sindh province, he said.

Pakistan has almost 1 gigawatt of wind-power projects under construction or with financing agreed upon and 498.5 megawatts more of plants announced, according to Bloomberg New Energy Finance data. Only 6 megawatts of wind-energy facilities are operating in the nation.

Commercially exploitable wind exists in many parts of Pakistan, especially in Sindh and the coastal area of Balochistan. Zorlu Enerji’s project is Pakistan’s first privately owned and financed wind farm.

Pakistan is the ninth-poorest country in the Asia-Pacific region with a 2009 gross domestic product per capita of $2,609, according to Bloomberg data. Its fight with Taliban militants in the tribal areas bordering Afghanistan, a debt pileup among energy companies and unwillingness of banks to finance power projects are creating some “barriers” for potential investors, Alauddin said.

“The engineering, procurement and construction cost and the turbine cost that are offered to Pakistani investors appear to be higher than what is being offered elsewhere in the world, maybe 20 percent to 25 percent higher,” he said.

Pakistan is seeking to derive at least 5 percent of its energy from renewable sources by 2030, the development board said in March. Last year, 53 percent came from natural gas, 30 percent from oil and the rest from coal, nuclear and hydropower, according to data from BP Plc. The London-based oil company didn’t measure the sources of renewable energy there.