The right energy mix

Former finance minister Hafeez Shaikh once said that what Pakistan needs is not electricity, but cheap electricity. For Pakistan, the problem is manifold. We have an energy shortfall that is growing even with the addition of small power plants. But the more significant factor, perhaps, is the shift in the energy mix. In the 1980s, the country’s electricity generation relied on a fuel mix of approximately 60:40 in favour of hydropower versus thermal. This changed dramatically over the next decade with the fuel mix going to 30 per cent hydropower and almost 70 per cent thermal, by the end of 2010. According to a recent World Bank report, oil now accounts for nearly 40 per cent of electricity generation with gas and hydropower at 29 per cent.

This dramatic shift in generation source occurred because the 1994 and later, the 2002 power policy, did not discriminate on the fuel source being employed and made Pakistan hostage to fluctuations in international oil prices. This has resulted in rapidly escalating power costs, rising oil import bill and a strain on our foreign exchange reserves. Pakistan needs to reverse the trend in the energy mix back in favour of hydropower, or the next best alternatives, which are gas and coal power. However, with our gas reserves already depleted, there will have to be a government-backed shift in conversion of existing power plants to coal.

The ideal shift would be to hydropower by building dams. But dams take time. Now that Pakistan has discovered some of the largest coal reserves in the world, it is natural to try and use this for power generation. Government incentives with respect to an optimal energy mix are crucial. In the short term, shifting to imported coal or gas might be one solution. However, changing the energy mix provides only a partial answer. The arrangement under which private or public providers of energy come online is equally important if our industry is to become globally completive again.

 Published in The Express Tribune, February 25^th, 2013.