Author: reon

According to a European Union report, “The transport sector causes 28% of the total CO2 emissions, wherein the road transport contributes a huge percentage of over 70% of these emissions”. This translates into global warming, disastrous climate change, and destruction on all scales of existence in the long run. The challenge is to keep the roads running while eliminating the CO2 emissions from the scenario. This is exactly where the latest innovation in the go-green culture comes into play, Electric Vehicles (EVs).
The electrification of electric vehicles in a lower Green House Gas scenario (where the carbon costs are also high to support the shift) can result in a 77% reduction of emissions by 2050, in comparison to 2015 levels . Such spectacular outcomes of zero-emission EVs can play a huge part in promoting efficient movability and a sustainable transport model.

Reon Energy, with its 1.86 MW project, completed the first SBP Category 3 Financing project in May this year. This marks a milestone for Sustainable financing in Pakistan. Find out how Reon Energy can help you avail renewable energy financing for your business.  

The State Bank of Pakistan’s Financing Scheme for Renewable Energy is an initiative designed to promote renewable integration in the economy. The Scheme has already generated significant interest among sponsors and suppliers of renewable energy.  

Under Category 3 of the scheme, energy suppliers certified under AEDB can gain financing from SBP. This provides lower-cost electricity to clients looking for “Opex Solutions” for their “Opex Problem” of rising electricity tariffs. 

The financing is available for leasing of renewable energy equipment or sale of electricity to the ultimate owners with a capacity cap of 5MW per project. 

Reon is proud to be the first energy supplier to gain financing under category 3 of the scheme to finance a Power Purchase Agreement of 1.85MW for a Multi-National Corporation in Pakistan. 

The project will result in significant savings for the client compared to Grid Tariffs and helps achieve the renewable ambition of reduced carbon emissions. 

In line with the above, Reon intends to expand its reach through this scheme and already has 10MW+ projects at different stages of the pipeline.

A decentralized energy system is where source is located closer to the demand center. At Reon, we believe that decentralized energy systems offer a range of financial, technological and societal benefits.

Decentralization in energy isn’t a new concept. The founders of electrical systems including Thomas Edison started with Decentralized systems in late 19th century.

There’s no doubt that our energy system needs to change and is undergoing a big transition.
Digitization is an essential partner of a decarbonized and decentralized energy system whether it’s for more renewable integration to add much needed flexibility to the system , for consumers to become prosumers and or to give better real time monitoring capability to utilities so they can keep this highly complex system running 24/7.

We know that renewable energy from sources such as solar and wind is intermittent and without agility in the grid, can cause instability. Reon’s Energy Management System SPARK has been designed to help industries integrate high-levels of on-site renewable sources such as a rooftop solar into their energy mix while improving operational stability through smart use of Lithium Ion based storage.

Digitization can also help reduce Total Cost of Ownership (TCO) of energy systems. This is primarily achieved through better load management, reduction of breakdowns and leakages, proactive maintenance and through smart economic order dispatch functionality that ensures lowest LCOE.

SPARK’s intelligent features offer;
– Economic order dispatch ensures the cheapest source of power is always being used in a multisource environment.
– Load optimization function for telecom towers ensures that any demand / supply mismatches are managed through internal re allocation thus deferring CAPEX.
– Proactive maintenance function ensures that reduces unplanned downtime, equipment failure, and risks associated with operating faulty equipment.

Finally, digitization offers real time monitoring of energy assets and improved transparency through technologies such as Advanced Computer Vision and Machine Learning and Block Chain.

Reon Energy chief executive officer Mujtaba Haider Khan has proposed that government should establish Rural Electrification Board and assign it to electrify 60 million off-grid rural inhabitants, which constitute some 30 percent of the country’s total populace.

The CEO of Reon Energy is a wholly-owned subsidiary of Dawood Lawrencepur Limited, floated this idea, talking to journalists at his office. Khan said that the proposed body should be separate from the existing power authorities. He said that energy policy makers had largely ignored 30 percent of the population during last seven decades and deprived them of energy that is the engine of economy. “Enough is enough,” he said, urging the PTI-led federal government to introduce appropriate incentives to encourage private sector market players who want to invest in that very sector. Reon Energy CEO said renewable energy is the best way to help reduce growing energy shortage. He said indigenous and cost-efficient power production from renewable sources would also help significantly in reducing the burden of heavy import bill. “Integration of indigenous renewable power from wind, water and solar on massive scale will boost our image in the international community as one of the frontline states in the war against climate change and global warming,” he asserted, adding that solar and battery hybrid solutions could be made available on easy payment terms to residents of sparsely populated areas. This energy solution is cheaper and environment-friendly. He said State Bank’s Green Financing Scheme is a wonderful incentive and its duration should be extended to 15 years for residential customers and independent power producers (IPPs).

Mujtaba H Khan expressed concern over poor implementation of policies of National Electric Power Regulatory Authority particularly on ‘net-metering’ and ‘power-wheeling.’ He said power-wheeling system was meant to permitting small power producers to sell directly their generated electricity to industrial and residential consumers, ending monopoly of big power distributors in the country. He noted that power distribution and transmission companies resisted power-wheeling system citing technical reasons and lack of clarity.

He said net-metering was to promote alternative and renewable energy (ARE). The initiative allows an ordinary consumer to sell surplus power that generated through solar energy or wind power to be sold to the concerned DISCOs. A streamlined net-metering is crucial for take up of distributed solar system and DISCOs must set annual net-metering targets and meet a certain percentage of their new demand from distributed solar systems.

The Reon CEO said that transmission sector should be opened to private investment to avoid idle capacity due to transmission bottlenecks. He said National Transmission and Dispatch Company (NTDC) has an impossible job of connecting every single IPP coming on stream and that’s resulting in huge amount of unutilised generation capacity in the system. He opposed awarding 20 plus years PPA at a guaranteed capacity payment and demanded that it should be abolished. He suggested that a maximum 10-year-term should be introduced under a new power policy. He said the country should encourage entrepreneurs wanting to sell power in a wholesale market after the PPA term expires. Khan called upon the policy makers to replace generation from less-efficient fossil fuel-based plants such as those on furnace oil with renewable power. He compared that Pakistan’s overall T&D losses of 17.5 percent were too high compared to Bangladesh i.e. 11.4 percent. He said utilities could also be assigned promoting energy efficiency by promoting more efficient appliances in the areas fall under their jurisdiction.

Mujtaba Haider Khan is the CEO for 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 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 environment 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 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 on 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, 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 bio gas, 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. 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 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 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 large commercial and industrial base where each industry should be able to absorb at least a MW of power.

The demand of electricity would be around 23 GW, and the installed base is slightly below that. We know that large portions of that is 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 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 usable.

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 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, Ginco 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 fits 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 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 may be phasing combustion engines out completely. Right now, 90 percent of all investments is 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 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 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.

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.

The government should arrange bank financing for users to install solar power plants at residential, commercial and industrial level, suggested CEO Reon Energy Inam-ur-Rahman, here on Monday. Talking to a group of journalists here at his office, the Reon chief said that he had been in talks with a number of banks which were showing interest to finance solar energy related projects.

“Consumers feel that the initial installation cost of a solar panel is higher, but once it is set up, it would continue to produce electricity for some 20 to 25 years. With the passage of time the cost of power generation would come down to minimum level,” he said.

The government has formulated effective policies for alternative energy-related projects in the country, but there are some technical and commercial challenges for their implementation, which need to be resolved on priority basis, he urged. For sustainable long term economic growth, Inam said, it is imperative that policy makers enable programs that support the energy demand of large scale businesses.

The government has exempted customs duty and sales tax on the imports of equipments like power panels, and inverters etc. “This incentive would help encourage the people who are keen to invest in this power sector in Pakistan,” he said. He also proposed the government to arrange bank financing for users to install solar power plants on residential, commercial and industrial level.

“National Electric Power Regulatory Authority (NEPRA) had approved the Net Metering system in September last year. The purpose of this regime was to allow consumers having surplus power from their solar panels to sell electricity to DISCOs. But the policy is yet to be implemented apparently due to concerns raised by the power distribution companies,” he deplored.

Elaborating the Net Metering system he said a consumer has to install a meter capable to record power flows in both directions. The meter will have to be purchased from an authorised company, he said. Similarly the Power Wheeling system would enable the IPPs and other power producers to sale their additional electricity to any consumer on agreed tariff, he said. Solar Energy would soon be an affordable power alternative to our country’s lingering energy needs. Reduced capital expense has made it really attractive for industrial and corporate users, he added.

“Pakistan is located in a region with ample sun energy that makes it suitable to utilise solar power technologies to overcome the energy crisis. The largest businesses today are effectively making use of solar energy to power their operations, he said. He said that financial institutions and international development organisations must play a significant role to help the renewable energy industry advance beyond its nascent stage in Pakistan.

The chief executive officer of the Reon Energy has said the solar power is the ultimate solution for producing cheap electricity to reduce the high costs of power generation and distribution. He told the media in a hotel, “It offers tremendous environmental advantages, besides providing cheap affordable and reliable power. The cost of electricity production and storage, at present, stands at an average 15 and 22 percent. But a smarter use of new solar technologies can help further decrease these costs quite significantly,” he added.

He said his company was one of the pioneering renewable energy companies in Pakistan with technical and financial expertise to design, deploy and maintain operations. “Reon is part of the Dawood Hercules Corporation – which is the single largest contributor to the private energy sector of Pakistan – that controls almost 1,800 megawatts of generation capacity, boasting large-scale ventures such as the Hub Power Company Limited, Sindh Engro Coal Mining Company, Tenaga Generasi Limited and Laraib Energy Limited,” he added.

About the scope of setting up a solar power in Pakistan, he said, “The solar power is an effective solution for producing electricity using the unlimited potential of the sun, while significantly reducing dependence on conventional mediums of energy. The backup batteries help overcome the system’s downtime, in absence of sunlight. Other than the capital expenditure at the beginning of the project, unrestricted electricity can be used throughout the life of the solution. In addition to being economically beneficial, solar offers tremendous environmental gains to the community.”

He said the solar powered cellular towers produce their own energy; hence, energy from generators that require diesel would not be needed at the thousands of telecom cell sites all over the country. In case of electricity shutdowns, cell towers would never be affected; and that their performance would remain consistent, providing uninterrupted connectivity to the whole nation.

“The objectives of moving to renewable energy resources are using natural solar power, reducing energy costs, optimising fuel consumption, minimising run-hour of diesel or petrol generators, low maintenance costs, savings in operational expenses and eco-friendly atmosphere that will minimise operational hazards. We aspire to provide this reliable source to electricity to more people in remote locations and rural areas.”