Month: November 2020

Part I: Understanding Pakistan’s Energy Crisis

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By Mujtaba Khan
Chief Executive Officer, Reon Energy Limited

Goal no.7 of UN Sustainable Development Goals(SDG7) is access to affordable, reliable, sustainable and modern energy for all. Access to energy is integral to human development in the 21st century. Of the 1.1 billion people on the planet without access to electricity, a clear majority lives in South Asia. Our own country’s power infrastructure continues to be plagued by a myriad of problems that are discussed and debated time and again.

1) Roughly 60 million people remain beyond the reach of the power grid that means they are relying on more primitive methods such as burning hazardous fuels for cooking and other needs.

Ensuring energy access to this segment will cost roughly 255b PKR (at the country average of 471 kWh per capita consumption*) annually or 2B USD just in terms of generation costs. There will be an added burden to extend the distribution and transmission network to these areas at disproportionately higher costs compared to rest of the country as this segment includes some of the most sparsely populated and difficult to reach terrains.

2) The power system remains structurally nonviable because of high transmission and distribution(T&D) costs and commercial losses are borne by the distribution companies; this is evident in the record levels of circular debt in the system.

3) Heavy reliance on imported fossil fuels creates a huge balance of payments issue for the country and this is the biggest contributor to our trade and fiscal deficits.

4) The grid-connected parts of the country continue to be plagued by power shortages (9GW at its peak in June 2018) that continues to handicap both consumers and industry.

5) Our electricity tariffs are the highest in the region since good customers are bearing the overall costs of all the inefficiencies across generation, transmission, and distribution. Moreover, the recent trend of rising commodity prices such as RFO and coal can cause a further tariff escalation for everyone.

6) Our electricity tariffs don’t reflect the overall cost of externalities from power generation e.g. healthcare and environmental costs of burning fossil fuels. Recent reports from neighboring countries put just the healthcare costs from coal generation between 4.5c – 7.5c per kWh. A study on the health impact of coal-based power generation in the US has found that coal contributes to 4–5 of leading causes of mortality in the US including heart disease, cancer, stroke, and chronic respiratory diseases.

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In summary, we need more power, at better rates, and at fairer pricing to make it available for everyone in the country. Ensuring this by 2030(SDG7) is crucial to creating a more equitable society as per the new government’s manifesto. In Part II of this blog, I will cover a set of policy choices and solutions that are currently available to us to solve these problems.

* Source: 2014 WB IBRD. Actual per capita consumption is much higher considering a large chunk of overall supply is through self-generation and the 471 kWh number only covers 70% of the population.
^ 70.9% losses 26.71 MTOE of fuel used and 7.78MTOE of electricity received by consumers in 2016/17. Compare that to 62% efficiency of combined cycle plants and standard T&D losses of ~6% in the developed world

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Part IIA: Resolving Pakistan’s Energy Crisis – The Economic Argument

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By Mujtaba Khan
Chief Executive Officer, Reon Energy

I’m writing this blog just a few days after publication of the UN IPCC(Intergovernmental Panel on Climate Change) report on the impacts of warming of 1.5 °C and beyond and thus it deserves a mention here. The report extensively covers various mitigating strategies for the wider world to stave off the severest of consequences. While the impact of overshooting 1.5 °C is a severe threat to us, this also presents us with a unique opportunity to participate in the global re-industrialization in a meaningful way. I’ll share detailed findings and implications of the IPCC report in a follow-up blog.

On the domestic front, there’s no doubt that our country is in dire need of an integrated plan to address the energy problems as discussed in Part IUnderstanding Pakistan’s Energy Crisis of my blog. PTI’s energy manifesto had a lot of positives to address these problems including:

 

  • Opening of electricity markets,
  • Promoting indigenous resources, and
  • Distributed solar based generation for off-grid electrification.

However, I believe that this agenda needs to be bolder and more imaginative so we don’t lose this once in a generation opportunity of leapfrogging to the ranks of more technologically advanced nations in energy management.

Looking at the country rankings in energy efficiency it’s apparent that the most efficient countries are also the ones investing most into sustainable energy. It’s led by the usual suspects i.e. Germany and the rest of the EU, followed by the US, China, and India. While there might be a number of reasons why this is the case, I will argue that it’s primarily based on hard economics. According to one estimate, the economic costs of indoor and outdoor pollution for our neighboring China and India were 10% and 7.69% respectively in 2013. When you take this humongous costs into account, their sizable investments in renewable power (126.6B USD and 10.1B USD for China and India respectively) start to make sense. Any solutions we pursue must take into account the economic costs of burning fossil fuels.

Therefore, I believe that our energy problems can largely be addressed by a two-pronged approach:

 

  • Transitioning all our new generation projects to cheaper and 100% renewable power with at least 30% mix from distributed generation
  • Promoting Energy Efficiency across all ends of the value chain from more efficient generation to lower T&D losses and right down to more efficient appliances at the consumer end.

The graph beneath depicts the energy generation round the clock from renewable energy sources primarily Wind, Water, and Solar power (WWS). There’s now widespread acceptance that across the three natural sources of WWS our country has more than enough potential to cover its energy needs e.g. just 1% of Pakistan’s landmass at 7960 sq km can host up to 655 GW of solar capacity and generate 787 TWh of power compared to 85.9 TWh total consumption. So once batteries become cheap everything could be on solar plus batteries including transport. Wind potential in the coastal corridors of Gharo and Jhimpur alone is roughly 50GW.

Clean Electricity 24/7

Source: Inspired by Joule report on 100% Clean and Renewable Wind, Water, and Sunlight All-Sector Energy Road maps for 139 Countries of the World.

Couple that with mostly stable 41 GW of hydel potential to act as storage for peak load, we have more than enough renewable capacity available to serve us for many generations to come.

Commercial case for renewable has never been stronger. Utility-scale tariffs for Wind and Solar have been declining globally`. Latest tariff awards from NEPRA are 4.952c for Wind and 5.2c for Solar projects making them also the cheapest sources available locally. By implementing some of the measures suggested below I believe tariffs closer to the ones in neighboring India(3.74c and 3.3c for Wind and Solar) are achievable.

On a distributed scale, solar power now beats conventional sources by a margin. This has been made possible because of a) Green financing from State Bank that allows businesses and consumers to borrow at sub-commercial rates for up to 10 years b)Increase in price of crude and other imported fuels accentuated by the steep depreciation the USD / PKR exchange rate, and c)Further drop in the price of solar panels due to demand crunch in China and the ongoing trade war with the US.

Distributed Solar vs Conventional Sources

Source: Reon Energy Commercial Team.

So renewable power isn’t just clean and abundant but also the most economical source available both at utility and distributed scale without the health and environmental side effects.

The only argument against Wind and Solar power at utility scale is the intermittency. Firstly, we have more than enough stable power from Hydel and the LNG plants` available to us to balance the grid. Secondly, advanced economies where they’ve had to resolve this issue are at much higher levels of renewable integration (Germany 36.2%, California 30% for 2017) compared to Pakistan at a meager 1%. For Pakistan to reach that level by 2030 will require a minimum of 47 GW* of the renewable installed base as compared to roughly 1 GW in 2017.

The policies and choices of the current govt. will have consequences for generations to come. The first IPP wave in 1994 resulted in expensive Furnace Oil based generation introduced into the system that focused all our investment and resources towards a fuel source with a short shelf life. The fundamental question for the policy makers to answer is “Do we want to repeat mistakes of the past by supporting dead-end technologies OR Do we want to participate meaningfully in the global re-industrialization by developing a renewable industrial base in the country? If the answer is latter then part b focuses on the policies to develop that future.

^Sources: American Council for Energy-Efficient Economy, World Economic Forum Global Energy Architecture Performance Index.

`1.79c Solar tariff achieved by Masdar and EDF for Sakaka Solar Power Project in Saudi Arabia, 1.77c Wind tariff achieved by ENEL in Mexico.

*Source: Pakistan Institute of Development Economics, The demand for electricity in Pakistan is expected to grow 8 fold by 2030 will require 162GW of installed base with the current mix. Actual renewable integration for a 30% contribution could be much higher.

‘Source: World Bank Cost of Air Pollution. http://documents.worldbank.org/curated/en/781521473177013155/pdf/108141-REVISED-Cost-of-PollutionWebCORRECTEDfile.pdf

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Part IIB: Resolving Pakistan’s Energy Crisis – Policy Recommendations

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Now that I’ve laid out the economic and technical argument in favor of renewable power in my last piece, let me highlight some of the key policy measures that if implemented can help the new government to move towards a much more inclusive, efficient and economically viable energy infrastructure.

1. As a first step, we have to start measuring and publishing the proportion of power from renewable sources daily and energy efficiency on a periodic basis like in developed countries. Annual targets could then be set for the integration of more renewable and higher levels of energy efficiency across the board. The govt should also replace generation from less efficient fossil fuel based plants such as those on furnace oil with renewable power as at the current crude price ($85 USD).

2. Priority for the new govt. has to be our 60 million~ off-grid population, it’s mind-boggling that in our 70 odd years of existence, our energy policymakers have largely ignored 30% of the population. The govt should immediately set up a Rural Electrification Board completely separate from the existing power authorities on the lines of REB in neighboring Bangladesh’. This body could setup self-regulating co-operatives in off-grid clusters and implement island mini-grids powered by renewable such as solar, biomass, biogas, etc In more sparsely populated areas, solar and battery hybrid solutions can be made available on easy payment terms to villagers. Aggressive targets leading to a 100% electrification by 2030 is a mandatory goal for a more equitable society.

3. To ensure we’re buying renewable power at the most economical price point, auction mechanism has to be implemented for Solar and Wind Power with immediate effect starting with hybrid opportunities i.e. combination of Wind, Water, and Solar in Thatta and KPK. The number of Megawatts (MWs) to be auctioned must be in-line with the annual targets set by the govt. This could help decrease the tariffs for Wind and Solar Power further by 15-20% (Based on an average of 40 other countries where auctions have been implemented for renewable power). Taking a lead from The Konya Auction in Turkey (1 GW)* and SECI Auction (10 GW)` in India*, only companies with a high degree of indigenization through local manufacturing and services should be pre-qualified to participate.

4. In order to bring the cost of generation down, govt. should accelerate the development of a wholesale power market in the country. At the same time, the practice of awarding 20+ years PPA at a guaranteed capacity payment should be abolished and a maximum term of 10 years should be introduced under a new power policy. We should be encouraging more entrepreneurs with the appetite to sell power in a wholesale market after the Power Purchase Agreement(PPA) term expires.

5. To cover for the environmental and healthcare costs, the government should make it mandatory for a portion of the revenues from fossil fuel plants including RFO, coal, diesel, etc to be re-invested into clean renewable power and health care especially in rural and off-grid areas in Sindh, KPK, and Baluchistan. For fairness, this should start with areas closer to the mining and power generation projects. Island mini-grids 100% powered by renewable is the most cost-effective and sustainable solution for these largely off-grid communities.

6. For more rooftop solar, govt should promote Community Schemes through reverse auctions facilitated by AEDB and local govts. Under such a scheme, homeowners could participate in auctions conducted by AEDB. Similar schemes in large cities like London have significantly improved solar uptake and has helped reduce costs by 15-20%. To encourage this scheme all govt buildings and community shared structures should be allowed to participate in local auctions.

7. A streamlined net-metering process is critical for taking up of distributed solar. DISCOs must set annual net-metering targets and address a certain percentage of their new demand from distributed solar systems. This should include solar heating to reduce the load on gas.

8. State Bank’s Green Financing Scheme is a wonderful incentive and should be extended to 15 years for IPPs, businesses and residential customers. This will further decrease the immediate operating costs for the customer.

 

9. Energy Storage is incredibly important for making the grid more resilient especially for integrating more renewable power. In light of the ever declining battery prices, govt should offer a special peak tariff to customers who install storage for peak demand shaving. These batteries can be charged by excess renewable power during the day and consumed in the night to curtail peak demand.

10. To avoid idle capacity due to transmission bottlenecks, the transmission sector should be opened up to private investment. The National Transmission Company (NTDC) has the impossible job of connecting every single IPP coming on stream and that’s resulting in a huge amount of underutilized generation capacity in the system.

11. Energy efficiency is the cheapest source of energy. More aggressive targets should be set and enforced at transmission, distribution and consumption end. This can only be achieved through digitization of the grid including smart metering of consumers. Our overall T&D losses of 17.5% are too high compared to Bangladesh at 11.4%. Utilities could also be charged with promoting energy efficiency within their geographical boundaries by promoting more efficient appliances.

12. Finally, consumers should be incentivized to invest in energy efficient appliances through credits, green building codes should be enforced within the construction industry and hybrids and Electric Vehicles(EV) should be promoted to enhance fuel efficiency in the transport sector.

I believe if the above-mentioned policy steps are implemented efficiently, they will help make power available to a wider number of people, lower the overall costs for the whole country and will also make our overall system more sustainable. It will also reduce the load on our already overburdened grid allowing it to serve existing customers better. Moreover, integration of indigenous renewable power from Wind, Water and Solar on an aggressive scale will significantly reduce our import bill and will boost our image in the international community as one of the front-line states in the war against climate change and global warming. ‘More on Bangladesh’ Rural Electrification Board, http://en.banglapedia.org/index.php?title=Rural_Electrification_Board *https://www.pv-magazine.com/2017/03/20/turkeys-1-gw-konya-solar-pv-tender-concludes-at-0-0699-per-kwh/ `https://economictimes.indiatimes.com/industry/energy/power/seci-extends-deadline-for-10-gw-solar-tender-to-november-12/articleshow/66168017.cms

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Solar to improve efficiency of Pakistan’s telecom sites

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As published on www.towerxchange.com Renewable Energy wing of DH Corp has already deployed 2MW of solar energy to 250 cell sites Salman Khalili, Head of Telco, Reon Energy: Established in 2012, Reon Energy is Pakistan’s fastest growing and the largest national solar installer for commercial and industrial clients, with 30MW of delivered and ongoing solar power plants. Reon is the clear market leader in the telco space, having contributed 2MW of solar energy on over 250 cell sites in the last three years. Reon is the renewable energy wing of DH Corp, which is listed on the Pakistan Stock Exchange, with a market capitalization of approximately US$400mn. DH Corp is one of the country’s largest conglomerates with a varied business portfolio which includes, fertilizers, foods, chemical storage and handling, trading, and energy – including independent power production, renewables, and petrochemicals. In July 2017, DH Corp and Edotco entered into an agreement to jointly acquire Deodar (13,000 Jazz Towers). As part of the transaction partnership, DH Corp was investing a 45% equity stake in Edotco PK, while the remaining 55% controlling stake was to be held by Edotco. Unfortunately, this deal recently got called off on regulatory approval grounds. TowerXchange: Please describe for us the operating environment for tower co.s and mobile network operators in Pakistan in terms of the extent of the electricity grid and the reliability of that grid. Salman Khalili, Head of Telco, Reon Energy: Pakistan is quite notorious for its poor grid condition. The gap between demand and supply results in extended outages, especially during the summer season (from April-October) every year. Outages peaked in 2013, with a daily average of 18 hours’ downtime in remote areas and up to six hours in metropolitan areas. Though things have improved a little in the last couple of years, even today the experts foresee the energy crisis continuing, whereby metro cities could face four hours and rural areas up to 12 hours of daily grid outage on average. This situation has severely dented all businesses and telco is not an exception. Operating costs shoot up due to exorbitant generator fuel and maintenance costs. More reliance on generators means more frequent refueling and more pilferage. For a low ARPU market like Pakistan, this is a matter of grave concern for all telecom operators, for whom roughly 40% of technology OpEx is spent on energy management (~25% of total company OpEx). However, this adversity has brought its own set of opportunities for renewable energy and storage solutions. There is an increasing focus on solarising telco sites and adding additional battery backup. As electricity from the grid and international oil prices see an upward trend, and the price of solar panels plummets, the time is right to shift to solar energy.
TowerXchange: What are the typical energy generation and storage systems in use in Pakistan, and how does the choice of technologies vary between good grid, bad grid (<16 hours per day) and off-grid sites? Salman Khalili, Head of Telco, Reon Energy: A typical on-grid BTS site has three sources of power – grid, generator, and battery. While the first two are generally constant, the average duration of grid outages determine the business case for solar, and the type and size of battery storage used. By and large, BTS sites have standard 12V or 2V lead-acid and gel batteries. The number of battery banks depends on the number of hours grid is typically not available. The idea always is to prevent the generator from running, and storage is sized as such that it should see off the outage hours and when power returns, get charged again before the next outage cycle. So, fast charging deep cycle batteries are required. Like solar, lithium-ion technology has also gained popularity and a good number of off-grid and bad grid sites are being upgraded to solar with lithium-ion batteries to reduce diesel genset’s runtime.
TowerXchange: Is there an opportunity for a third party Energy Services Company (ESCO) to work alongside Edotco in the provision of primary and backup power solutions in Pakistan, or is the plan for Edotco to deliver such capabilities in-house? Salman Khalili, Head of Telco, Reon Energy: The tower co.s concept is still new to Pakistan and it has still to witness a large successful transaction go through. We certainly believe ESCO is workable as it takes care of half the job a tower co. is expected to do – provide uninterrupted power at a fixed rate of consumption and maintain the uptime Service Level Agreement (SLA) regardless of how energy is generated or stored. From a tower co perspective, we believe that a pass-through energy cost model will not be lucrative enough for telecom operators as energy management is not their core business and they are always searching for options to outsource non-core business to go lean and less OpEx intensive. Suppliers with core expertise in power generation and storage solutions always have an opportunity to combine strengths and maximize margins for operators and tower companies alike. Reon has recently signed a 5MW solar energy sales contract with a mining company and is actively pursuing similar deals in the telco space as well.
TowerXchange: One of the principle challenges ESCOs must overcome is the cost of capital compared to tower co.s – how can larger EPC and IPP companies like Reon help hybrid and renewable telecom energy projects access low-cost capital? Salman Khalili, Head of Telco, Reon Energy: Capital is a challenge when it comes to ESCO. However, it is much easier to get access to capital for green initiatives if backed up by a well thought out contract covering risks. Reon, as part of the largest private group in Pakistan, already has access to the cheapest cost of capital and invests in longer-term energy projects. Investors in SPV’s of Reon, who provide long term energy contracts, are some of the top global corporates and by pooling an ESCO with its existing renewable portfolio it offers low-cost capital in line with those typically available to telecom operators or tower companies.
TowerXchange: Does Reon Energy have any activity or appetite for, telecom energy projects outside Pakistan? If so where? Salman Khalili, Head of Telco, Reon Energy: Currently, Reon does not have any activity outside Pakistan simply because there is massive potential within the country that needs to be unearthed and we are focused on harnessing that before moving out. However, the appetite is there and as a part of the wider group strategy, the company will be keen to look at international opportunities as well. Apart from Telecom, we have worked with partners and have assessed solar projects in Poland and Turkey. The strategy that the group employs is to go with existing local players in new markets whereby it combines its low-cost capital and strong engineering strength with local partners’ local knowledge and capabilities. It also offers partners the principals of reciprocity where they are offered to come into the local Pakistani market on the back of Reon. Countries in the Far East, GCC, and South America are markets we will be happy to explore with the right partners.
>TowerXchange: Do you see cell site energy as a self-contained opportunity, or is there an opportunity to extend rural cell site energy solutions to provide power to local communities? Salman Khalili, Head of Telco, Reon Energy: Absolutely, there is an opportunity to make these towers more powerful. Reon is already working with Edotco to use one of their tower locations in an off-grid area to set up a mini-grid that serves the local community. This is a part of Edotco’s “Tower to Power” drive. We are also working with financial institutions like microfinance and mobile banks on a similar model. This would allow us to create an impact across multiple UN Sustainable Development Goals, especially SDG 7 on making sustainable energy available at an affordable price, SDG9 on improving ICT and connectivity, and many others through improved financial inclusion.
TowerXchange: Finally, please sum up Reon Energy Solutions’ vision for the future of telecom energy. Salman Khalili, Head of Telco, Reon Energy: Reon offers customized small, medium and large-scale solar solutions with a vision to create an energy-rich future while upholding our commitment to the planet through safe and sustainable practices. We understand it is imperative to have affordable and reliable power for business continuity. Reon brings with it unparalleled partnership stories from local and international groups and, with an in-house product development team, we continue to explore possibilities to enhance a partner ecosystem where we create great value for our customers. We strive to be the preferred energy partner for all telecom players by offering a wide array of solar energy, storage, and asset management solutions, backed by multiple commercial engagement models to choose from.
TowerXchange: Does Reon Energy have any activity or appetite for, telecom energy projects outside Pakistan? If so where? Salman Khalili, Head of Telco, Reon Energy: Currently, Reon does not have any activity outside Pakistan simply because there is massive potential within the country that needs to be unearthed and we are focused on harnessing that before moving out. However, the appetite is there and as a part of the wider group strategy, the company will be keen to look at international opportunities as well. Apart from Telecom, we have worked with partners and have assessed solar projects in Poland and Turkey. The strategy that the group employs is to go with existing local players in new markets whereby it combines its low-cost capital and strong engineering strength with local partners’ local knowledge and capabilities. It also offers partners the principals of reciprocity where they are offered to come into the local Pakistani market on the back of Reon. Countries in the Far East, GCC, and South America are markets we will be happy to explore with the right partners.
>TowerXchange: Do you see cell site energy as a self-contained opportunity, or is there an opportunity to extend rural cell site energy solutions to provide power to local communities? Salman Khalili, Head of Telco, Reon Energy: Absolutely, there is an opportunity to make these towers more powerful. Reon is already working with Edotco to use one of their tower locations in an off-grid area to set up a mini-grid that serves the local community. This is a part of Edotco’s “Tower to Power” drive. We are also working with financial institutions like microfinance and mobile banks on a similar model. This would allow us to create an impact across multiple UN Sustainable Development Goals, especially SDG 7 on making sustainable energy available at an affordable price, SDG9 on improving ICT and connectivity, and many others through improved financial inclusion.

TowerXchange: Finally, please sum up Reon Energy Solutions’ vision for the future of telecom energy.
Salman Khalili, Head of Telco, Reon Energy: Reon offers customized small, medium and large-scale solar solutions with a vision to create an energy-rich future while upholding our commitment to the planet through safe and sustainable practices. We understand it is imperative to have affordable and reliable power for business continuity. Reon brings with it unparalleled partnership stories from local and international groups and, with an
in-house product development team, we continue to explore possibilities to enhance a partner ecosystem where we create great value for our customers.

We strive to be the preferred energy partner for all telecom players by offering a wide array of solar energy, storage, and asset management solutions, backed by multiple commercial engagement models to choose from.

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An interview with CEO Reon Energy – All incremental power should be renewable

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Mujtaba Haider Khan is the CEO of Reon Energy Limited, the largest industrial solar solutions provider in Pakistan. Reon is a part of Dawood Hercules Group.

Mujtaba took over the company reins in October 2016 and has managed to turn around the decentralized solar market’s landscape in the past 16 months.

He has served as the Head of Strategy for Dawood Hercules as well as the Head of Strategy and Transformation for BT Fleet, a wholly-owned subsidiary of British Telecom in London. He started his career as a software entrepreneur at the age of 19. His area of expertise includes growth strategy, start-up, and cost transformation.

BR Research set down with him for a chat on the need for renewable energy in Pakistan, and Reon’s business activities especially in the past few years. Here are edited transcripts.

 

BR Research: Last year, a headline on NYT said: “Smog has become a fifth season in Lahore”. This year, it is worse. The world is grappling with the consequences of climate change. Is Pakistan under threat of an environmental crisis?

Mujtaba Haider Khan: We are already there. At a recent conference on healthcare in Lahore, a cancer surgeon put up images of the lungs of two cancer patients. He asked the audience: “spot the smoker”. No one could. The statistics say that 50 percent of lung patients nowadays are non-smokers. It used to be a lot lower before. The cause is poor air quality. One could argue it is the crop burning in Delhi but that has always been there. What have been added on top are the fossil fuel plants we are burning and the cars we are running. The crisis is staring us in the face.

The big problem is that we are not pricing our costs correctly. We are not incorporating the negative externalities when we set the tariffs. There is demonstrable research on the perils of fossil power to the environment. A recent study conducted by the World Bank puts the cost of environmental degradation from burning fossil fuel at 10 percent of the GDP for China, and at 7.5 percent for India. If China has on average been growing by 6-7 percent and the cost for environment pollution is 10 percent, they are witnessing negative growth. When they realized this, they kicked into action. It’s not about loving the environment—there is a huge economic cost.

In terms of healthcare costs: India has put the cost of fossil fuel power plants at 4.5 cents per kWh, in China, that cost is 7.7 cents per kWh. If we add that to the tariff of the current plants, we will immediately see it become a lot more expensive. If the current tariff is around 8 cents per kWh for energy plants on coal and gas, adding the healthcare cost would bring it up to 12 cents per kWh. Compare that to the solar tariff which is under 5 cents per kWh. This is when one starts seeing the real comparison. We have to incorporate the cost of that lung on the monitor.

BRR: Tell us about Reon’s background and your current business model.

MHK: Reon was set up about six years ago to work on innovative models in energy as part of Dawood Hercules group. We had a vision of moving towards more sustainable means of addressing our energy needs. We also recognized that spending millions of dollars in setting up a power plant, then laying a thousand kilometers of cable to send that power to another end of the country is very inefficient. The longer the length of the cable, the higher the losses.

Our two mandates were renewable power that was clean and sustainable, and, distributed power. We started experimenting with different technologies such as biogas, solar tube-wells, solar lanterns and we also started installing solar power for industrial customers. Naturally, as the startup evolved, we found that industrial solar showed great promise because the segment was paying very high prices, faces load-shedding, has an unstable network, and received low-quality power. The industry was feeling the pinch. This was the time when exports were declining, gas was short, and we did not have a lot of power in the system.

So today, we are the largest installer of solar and solar-hybrids (for consistent supply, solar is either balanced with the grid, with batteries, or with diesel/gas generators where a grid is not available) for commercial and industrial customers.

BRR: What is the market size of solar, the market demand and which segments are you currently targeting?

MHK: Solar sizing is limited by two things: first, demand as measured by customer size, and second is the availability of space. The only problem with solar is it takes too much space so it either needs rooftops or land to put in a solar plant. Based on both those constraints, roughly 2-2.5GW is where the industry puts the market size in Pakistan. This is only for the large commercial and industrial base where each industry should be able to absorb at least a MW of power.

The demand for electricity would be around 23 GW, and the installed base is slightly below that. We know that large portions of that are consumer demand, and around 30-40 percent is commercial and industrial. On overall demand basis, that’s around 8GW of power which can be absorbed by industries. A large part of that is the long-tail which is the SMEs. That market requires a different business model. We realize that there is a big problem to solve when it comes to SMEs as they have limited access to banking and financial products to be able to afford investment into solar.

Our other focus is the customer on the distribution side so, for instance, telecom customers who have telecom base transceiver station (BTS) sites. In Pakistan, we have roughly about 35000 BTS sites and we are the largest installer of solar systems on them. On a typical site, there are multiple sources of power because for telecom companies, availability is crucial. When the tower doesn’t have power, it loses revenue. We are using a combination of solar, lithium-ion batteries, grid power, and even diesel generators to assure 100 percent availability. The diesel generator is the misfit here and we are trying to eliminate that by enhancing the size of solar and batteries.

BRR: What about local manufacturing? Do you see that happening for solar, and/or for batteries? Are there any local ancillary industries involved?

MHK: We have very limited manufacturing base for solar in Pakistan. For any manufacturer to start competing with the large Chinese players, he needs demand in large volumes which is the biggest limitation here. In batteries as well, our manufacturing caters to the old lead-acid batteries which have a very short shelf life so has to be replaced every year or couple of years which is a big cost for the customer. Secondly, there is the depth of discharge—only 50-60 percent of the capacity available on the battery is used.

As for lithium-ion batteries, the manufacturing process is very expensive for which large investment is needed, and requires a supply chain. You need access to specialist material used which are only available in certain parts of the world such as lithium (Chile and Argentina) and cobalt (Congo). You may also need to acquire certain patented formulas. However, I’m sure when the volumes reach a certain level, there will be an investment.

BRR: At what volumes do you think these investments can come in?

MHK: My estimate is roughly around 200MW of guaranteed demand. That’s the minimum level you need to reach to be able to put up a panel manufacturing factory. But there is no guarantee that it will produce a product cheaper than China. In China, the largest manufacturer, Jinko Solar, last year manufactured around 11GW. We are talking about minimum viability at 200 MW so there is a massive difference in scale. It will be very hard for local players without protection early on from the government to be able to scale to that level and compete with the Chinese.

BRR: Tell us about some of the projects you have undertaken in Pakistan.

MHK: Currently, we are working on 30 MW of distributed solar. Easily the largest is about 12.5MW captive project for Fauji Cement where solar is synced with grid—they will be saving a lot of money. We have a 5MW project in Thar where we will be selling power to Sindh Coal Mining Company for a 15-year period. We also have several other megawatt plus scale projects. This is an industry of exponential growth. The number of projects we are doing this year is 3 times what we did last year.

BRR: Aside from structural issues within the energy sector which are well-documented, what other challenges are you seeing?

MHK: Right now, I see repeating a huge mistake that we made in the past. In the 90s, we set up furnace oil plants on technology which was dead-end and was environmentally polluting. It was also the most expensive fuel and the consumer has been paying the cost of that lopsided decision. Now again, to the detriment of everyone, we have seen a mad rush toward fossil fuel on long term take or pay contracts. We have locked 25-30 years power purchase agreements (PPAs) where not only the capacity charge is guaranteed but the energy charge is also guaranteed. This means we have to pay for the fuels when the plants are not running.

In a world where the energy market is moving toward wholesale, which means, you sell your power to the wholesale market and you get what the market is going to pay you at a certain time, we are handing out 30-year PPAs as a nation. And that too in an environment where technology is progressing at a very fast pace.

For large scale power plants, it takes 4-5 years to get everybody to agree on the technology, the money, the debt terms, the regulatory processes, etc. By that time, the technology has moved on. Compare that to renewable distributed power. First: the project can happen within six months of agreeing all the details—from the time when the customer starts thinking about it to getting the power in the system could be less than one year. Second: we are injecting power into the grid. We know the transmission and distribution system is overloaded. NEPRA report says 80 percent of transformers are overloaded. We have all this power which cannot be evacuated because we don’t have the transmission capacity. And the great thing about distributive power is that you can go to the source and get past all that distribution and transmission constraint and evacuate power at the local level.

Going forward, the government should shorten the length of the contract. There has to be some guarantee for people to make the investments but after that period has lapsed, which can be 10-15 years, the investor should have to sell it to the wholesale market. We know the government is keen on setting a wholesale power market. The Central Power Purchasing Agency (CPPA) has already received the first license to act as the wholesale market operator in the country. This needs to be accelerated.

BRR: Solar tariffs are significantly lower, so why aren’t we going solar?

MHK: Yes, solar and wind, both at the local level and the utility level are the cheapest. The short answer is uncertainty. In an uncertain market, people will keep the cash and not invest it. Similarly, in Pakistan, over the past 6-8 months, we have gone through elections, even before that, we were in a fairly uncertain environment. Since elections, people are waiting for policies to be announced to come up with a plan.

As a nation, we have been playing safe and there is a reluctance to go to something new, even though it’s not new around the world. In Germany, these plants have been running for 30 years, still operating at 80 percent capacity. It’s a safe, robust technology but in Pakistan, since we are so behind the curve, the comfort level the industrial sector has in this technology is lower. It’s only after players such as Fauji Cement have taken the first step to install 12.5MW of Solar Power that others are exploring it as a big move in the local industry. When they see a plant at this scale, getting integrated at a local level successfully, then you will see momentum.

BRR: Can the existing captive power plants be switched to solar?

MHK: One of the things we specialize in is integrating solar and battery with the client’s legacy power access. We recently started a 2MW extension project for Kohinoor Textile Mill. Local fuel sources such as gas and furnace oil and solar fit seamlessly with them. Most of our projects have an element of integration for existing captive power plants.

BRR: Prices of solar technology have come down. Where do you see the prices of solar moving?

MHK: There are two elements of the prices coming down in the past few years. One is that panels are getting more efficient. For the same space, you can pack in more power, so they are becoming land and cost-efficient. Secondly, as they scale, production efficiencies kick in and prices come down. In terms of efficiencies, we are approaching the maximum which is around 30 percent for the current set of products. Volumes are also significantly up.

Over the short term, we see prices stabilizing at this level at least for the next 3-4 quarters. In the long term, the projection is downward but not at the same pace as we previously witnessed because of the cap on the efficiency of these panels. Unless there is new technology which can be made commercially available, the cost curve will become less steep.

But as volumes grow costs of production declines. This is called the Swanson’s law which says, if solar capacity is doubled, costs of production will be down by 18-20 percent. The similar law applies for batteries. There is a big surge in demand for batteries where a lot of countries are moving toward battery-run electric cars and maybe phasing combustion engines out completely. Right now, 90 percent of all investments are going toward lithium-ion batteries (which we use in our mobiles). It’s scalable and we are betting big on it.

BRR: Why hasn’t off-grid electrification picked up given such a large population in the country has no access?

MHK: Nearly, 60 million people are off-grid with no access to any sort of network. There is a clear lack of policy in that area. We are talking about a population the size of Turkey which is without power at this point. If you consider, Pakistan’s average consumption is 471 kWh per capita per year. If you want to bring those people up to the level on the same system, it would require at least $2 billion annually in terms of power generation cost. To extend the distribution and transmission system to those people will be disproportionately more expensive. There is a reason why the network is not there.

The only viable way to solve that problem is through renewable power. It can be solar-battery hybrid solutions and island mini-grids which are distributed grids set up for a particular village or district that is off-grid. These grids have solar power potentially combined with biomass and other renewable sources at the local level.

Second, we need to follow Bangladesh’s example. The country set up a Rural Electrification Board specifically for the off-grid population. The sole purpose of that organization is to provide power to areas where it is not available. The country has reached a penetration level of 85 percent compared to Pakistan at 70 percent.

So, the government needs to clarify the policy. Secondly, the current incentives are toward IPPs who for decades have received tax holidays and special dividend rates for more investment into large scale power projects. I believe, there should be even better incentivization for the off-grid investors. It is cheaper, more effective, it gets past the transmission and distribution problem, and it’s the only solution available to the off-grid population.

As published on Business Recorder, Dec 14, 2018

BRR: Why hasn’t off-grid electrification picked up given such a large population in the country has no access?

MHK: Nearly, 60 million people are off-grid with no access to any sort of network. There is a clear lack of policy in that area. We are talking about a population the size of Turkey which is without power at this point. If you consider, Pakistan’s average consumption is 471 kWh per capita per year. If you want to bring those people up to the level on the same system, it would require at least $2 billion annually in terms of power generation cost. To extend the distribution and transmission system to those people will be disproportionately more expensive. There is a reason why the network is not there.

The only viable way to solve that problem is through renewable power. It can be solar-battery hybrid solutions and island mini-grids which are distributed grids set up for a particular village or district that is off-grid. These grids have solar power potentially combined with biomass and other renewable sources at the local level.

Second, we need to follow Bangladesh’s example. The country set up a Rural Electrification Board specifically for the off-grid population. The sole purpose of that organization is to provide power to areas where it is not available. The country has reached a penetration level of 85 percent compared to Pakistan at 70 percent.

So, the government needs to clarify the policy. Secondly, the current incentives are toward IPPs who for decades have received tax holidays and special dividend rates for more investment into large scale power projects. I believe, there should be even better incentivization for the off-grid investors. It is cheaper, more effective, it gets past the transmission and distribution problem, and it’s the only solution available to the off-grid population.

As published on Business Recorder, Dec 14, 2018

BRR: Why isn’t the private sector lobbying with the government to get solar going and to get these incentives for investors in this tech?

MHK: We are publishing papers and we are using platforms such as Pakistan Business Council (PBC) to get some policy papers out to the government. We have met officials individually but there is only so much a private company can do.

There is a battle on our hands. We know that these contracts on fossil fuels are not done. There is a lobby active right now to get more of these IPPs into the system. We also know there is a lot of effort to get these large scale IPPs on 20-25 years contracts.

BRR: What are two things the government needs to do immediately?

MHK: The government must make one policy with all efforts to maximizing renewable power—especially incremental as well as replacement power. Second, it must set up the industrial base and incentivize the investors and industrialists in Pakistan to cater to that future.

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Do Solar Panels Perform Well in Winters?

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Solar Energy generation is gradually gaining popularity in Pakistan as more individuals begin to realize the benefits that renewable energy has to offer. But while the concept of meeting energy needs through solar is quite simple, there are various myths around it with the most common being that solar panels cannot perform well in winters. Hence, we shall try to answer one of the most frequently asked questions regarding the performance of solar panels.

Do Solar Panels Perform Badly in Winters?

To answer this question, it is important to explain the mechanism on which the solar panels work. Most people believe that a hot sunny day will contribute to a higher energy generation than a cold sunny day. This is certainly not true. The good news is that the panels are powered by light, not heat, so they can easily continue to fuel industries, households, and workplaces irrespective of the increase or decrease in temperature.

Solar panels work on a simple mechanism. They absorb light energy from the sun and convert it into electrical energy. The inverter then converts DC energy to AC energy that can be fed into a grid, or can be used locally. The panels that absorb the sun’s energy are not sensitive to heat. This means that regardless of the temperature being high or low, the panels work equally well. In fact, high temperatures tend to diminish the panel’s capability.

 Blazing summers are harsher on the board and may cause frequent damage to the system. Therefore, cold sunny days are perfect for maximum solar output. However, during darker months, when there is shorter daylight, production of energy is proportionately lesser. Luckily, Pakistan is a country that enjoys adequate sunshine all year round and has a strong potential for solar power generation to meet its energy requirements.

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How Large Should a Solar Solution Be?

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How big should a solar plant be? How many solar panels do I need for a 3-acre space? Such questions often arise when industries decide to go solar. However, before jumping to a number, it’s important for businesses to identify their solar plant production goals and understand that the ideal PV system size may vary based on several factors.

Factors that determine the size of the Solar PV system

Installing the desirable size of a PV system may be determined by the following factors:

 

Annual Energy Consumption

The size of a solar solution is highly dependent on the load pattern of the industry as well as the sanctioned load. The first step to determine an industry’s annual consumption is by estimating the total kilowatt hours (kWh) of electric usage from the electricity bills. Large scale industries in Pakistan may have varying power consumption; for instance, a cement industry producing 1 million metric tonnes of cement will be consuming 30-40 GWh of power per annum, and these quoted figures are modest. The solar capacity of such a plant may vary from 5-6 MW.

 

Available Space

Businesses may not possess huge acres of idle land or even when they do, they might not be willing to allocate all their space towards solar panel installation. Generally, under ideal conditions, one kilowatt of PV solar will cover an area of 150 square feet approximately. This is where a solar installer’s expertise might come into play as they have the technology and knowledge to maximize the space allocated for solar power generation.

 

Solar Panel Type

The type of solar panel selected also affects the size of the solar solution. A thin film or polycrystalline panel will need a lot more space for producing per kilowatt of energy compared to a monocrystalline panel but will be much cheaper. For a rough idea, monocrystalline panels require 20% lesser space compared to polycrystalline panels for producing the same amount of energy.

Solar System Efficiency

Solar plant efficiency is greater in the regions of Sindh, Punjab, and Balochistan as compared to Northern regions (including Azad Kashmir) and Khyber Pakhtunkhwa. Moreover, solar system efficiency may vary with panel placement and shading. It is important for the installer to foresee any concerns that might arise due to dust deposition or shade from nearby buildings and trees before determining the size of the solar solution.

 

Conclusion

While all industries would want their PV system to offset the entire power usage, this may not be practical. A wise decision in selecting the size of the solution would be devising a power production strategy that works on maximizing the yield from solar and keeps in check the factors affecting the system size.

 

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Integration of Solar With Your Current Generation Set-Up

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Maximum reliability and energy availability are required in energy-intensive industries especially in mining, raw material processing, dairy, and agriculture. To be prepared for grid power outages, industries in Pakistan rely heavily on diesel gensets. Integrating solar with your current energy mix hence offers a reliable, cost-effective and a clean energy power source.

For solar to integrate seamlessly with your industry’s current power mix, there may be two combinations available:

1. Grid and Solar Hybrid with Diesel Genset

Solar energy acts as the main supply during day time backed up by the grid and diesel generators. This helps in peak shaving of the total energy consumed.

An integrated setup like this offers low maintenance costs and energy reliability as now the energy is provided from three different sources. Another feature which can be introduced in this setup is the PV Genset Controller program that helps save on fuel by bridging the gap between a PV power plant and a generator run power plant. The PV Genset controller helps keep the energy consumption from the generator within the recommended threshold.

Furthermore, being connected to the grid allows you to benefit through licensed net- metering by selling the excess solar energy produced back to the grid.

 

2. Remote Hybrid with Diesel Genset and Battery Backup

This set-up comprises of a PV system, diesel genset and a storage solution. The objective of Remote Hybrid System is to reduce the cost of operation and maintenance and cost of logistic by minimizing diesel consumption. To achieve cost efficiencies, the gensets only run as needed to recharge the battery and to supply excess load. Introducing batteries in this energy mix also helps in efficiency gains.

This system offers 24/7 reliable energy supply to meet the industry energy needs. A remote monitoring tool can be extremely beneficial in this case as it can help industries in monitoring their energy consumption and load so that they can devise a strategy to obtain maximum benefit from their PV system.

 

Conclusion

Installing PV solutions for your company means moving a step closer towards taking your energy consumption and production into your own hands. However, one of the greatest hurdles that most industrialists face when going solar is how to integrate PV technology with their current power production set-up, be it the grid, diesel, HFO or gas run generators or a combination. It is hence important to remember that it is always essential to integrate solar with another primary energy source so that it can generate optimum power. An expert Solar Energy consultant can devise the best technical and financial strategy for your business based on your energy objectives.

 

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Intersolar Europe 2019

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Abdul Rab Shaikh
Sales Engineer, Reon Energy Limited

Intersolar Europe 2019 was held in Munich, Germany from 15th to 17th May. Intersolar is the largest PV Solar Exhibition in the world that attracts more than 50,000 attendees including manufacturers, project developers, renewable energy experts, and policymakers. This year the event covered various aspects of the Solar PV market and subsequent innovations in the Solar industry.

Day 1

Sleep deprived and starved, I rushed from Munich International Airport to Messe München just in time for the Intersolar exhibition. On stepping out of the airport, I was met with some cool breeze, enough to wash away my weariness.

I started off my first day exploring the Smart Solar PV Inverters and battery storage solutions. The most common PV inverters are still string and central inverters; however, these are not commercially feasible options for large scale solar solutions. The winner on Day 1 was smart battery storages mostly based on the lithium and zinc ion technologies. These smart storage options came with compact container sized solutions with a battery life of at least 5000 to 6000 cycles and flexibility to get charged from either grid or solar, based on availability.

 

Day 2

If I ever have a least favorite beverage, it must be sparkling water. Sticking with Soda to keep myself hydrated, I spent my second day at the exhibition exploring innovations in the field of PV modules. An interesting development that caught my attention was the Bifacial Solar Modules that can help produce power from both, the front and back, of the module. Such modules are especially ideal for desert regions where fine sand particles create maximum albedo effect and contribute towards an estimated 30% increase in energy generation with a negligible increase in manufacturing cost.

Day 3

If you consider yourself street smart, do try taking the train in Munich. I was lost between U-Bahn and S-Bahn terminologies, making navigation a huge challenge. After spending a good amount of my morning trying to decode the city map, I finally managed to reach the Intersolar exhibition. Here, I discovered smarter Operations and Maintenance (O&M) techniques that included heavy vehicles and remote-controlled robotic cleaners. Another interesting find was the manufacturing of structures based on concrete ballasts without the use of aluminum or galvanized steel. These structures are cost-effective, more reliable and sustainable, especially for harsher rooftops. Moreover, cables can now easily be laid out in open behind the panels that cut down on manhours for digging trenches.

 

Attending the Intersolar Europe 2019 offered a vivid perspective to the solar industry innovations and developments from across the globe. While not all innovations were cost-efficient in the Pakistani scenario, I intend to put better ideas especially for structures and cabling to test. And hopefully, prepare for another visit to attend the Intersolar Europe 2020..

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Are Solar Microgrids a Solution to Pakistan’s Energy Crisis?

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The IEA (International Energy Agency) survey suggests that more than 20 million Pakistanis have no access to electricity. Besides, another 75 million Pakistanis with access to grids are forced to live without power for an average of 15 hours a day due to severe load shedding. With the country facing an estimated 4,000-5,000 MW of power shortage, according to the Ministry of Water & Power, it does not come as a surprise that households located in off-grid and bad grid areas tend to rely heavily upon gas and diesel gensets to meet their daily energy needs.

How Can Microgrids Solve the Problem?

For the majority of the off-grid communities, financial restrictions and operational inefficiencies of the system further amplify the challenge of electrification for Distribution Companies (DISCOS). Rural set-ups with lower electricity demand and lower capacity to pay as opposed to their urban counterparts make urban centers the priority for DISCOS. Moreover, for those rural set-ups connected to the grid, insufficient energy access is widened due to inter-province electricity distribution and rural-urban divide. In such instances, microgrids present a viable alternative to the centralized grid infrastructure. Microgrid enhances energy resilience and recovery, reduces energy costs for customers and businesses as energy is now produced near to the consumer that helps reduce line losses and theft.

 

What is a Solar Microgrid?

A solar microgrid comprises an independent power distribution unit with its own energy generation, storage solution, and demand management system. It is a compressed version of the main electrical grid used to power a smaller geographic area except that it uses solar energy to generate power and supply it to the end user. Solar microgrids can run independently of the main grid; however, in situations where a grid and microgrid co-exist, Solar could be used to provide electricity during peak hours and by charging batteries in periods of lower demand. The grid could be used to support the variable Solar supply.

 

Are There Any Successful Microgrid Models?

The Bangladesh Rural Electrification Board (BREB), established in 1977, works with the key objective of extending electricity supply in rural areas. BREB has established 77 Rural Electricity Cooperatives to implement its electrification program and continues to offer financial, technical, management support while monitoring their progress. BREB alongside has also invested in private energy generation projects in selected areas of the country injecting 600MW of electricity in the rural set-up. BREB’s success in enhancing socio-economic development in the country has received immense support from government and donor agencies.

How can it help Pakistan’s Energy Sector?

It is imperative to modernize distribution systems and introduce smarter grids to allow for the decentralization of energy generation and improve efficiency. Alongside, a rural electrification board like the one in Bangladesh must be set-up to help power the 32,000 villages’ in the country without access to the electric grid. There is also a need to develop some level of market liberalization, ownership models, and structural operations that can attract investments in the microgrid set-up. It is equally important to develop a favorable environment for private investors to procure low-cost finance at the right terms and conditions for scaling-up microgrids and to offer incentives in power generation, especially from renewable energy resources.

Certain policy and regulatory changes working with a key objective of last mile connectivity could help create a conducive environment for implementation of microgrids across Pakistan.

Certain policy and regulatory changes working with a key objective of last mile connectivity could help create a conducive environment for implementation of microgrids across Pakistan..

*According to the National Electric Power Regulatory Authority (NEPRA) State of Industry Report 2016

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