China Leads in Renewables
China has emerged as the leader in the development of renewable energy and by the year 2017, China’s wind and solar power capacity reached 168 GW and 130GW respectively, generating 5.3 percent of China’s electricity supply. Correspondingly in photovoltaic (PV) technology the price of PV modules decreased from about 30 Yuan per watt in 2007 to about 2 Yuan by 2017. A report of the United Nations Environment Programme reveals that in 2017, renewable energy comprising wind, hydro and solar was responsible for meeting 12 percent of global energy needs and the solar sector exclusively drew US $ 160 billion investment. An analysis by Lazard cantered on a scale known as the level zed cost of energy analysis (LCOE) works out the total production cost of building and operating an electricity generating plant and one-megawatt per hour of electricity from coal costs USD 102 ,which is higher than that of solar at US$50.
Subsidies
A complementary rise in subsidies matches China’s investment in renewables in terms of installed capacity. The average on grid electricity tariff increased on wind and PV from about 60 billion yuan in 2012 to 170 billion yuan by 2017. China’s renewable surcharge collected from end consumers was 0.015 yuan/kWh in 2012 and increased to 0.019 yuan/kWh in 2016, translating a surplus of 15 billion yuan in 2012 into a renewable energy subsidy deficit of about 80 billion yuan. At one end of the spectrum is the brisk progression in end consumer tariffs as in Germany and at the other end a significant subsidy deficit as in China. Germany has the highest electricity tariffs in Europe with the greatest increment being in renewable energy surcharges presently hovering at 0.8 yuan/kWh or €0.11 being almost equal to the average end consumer tariff of China, which has hampered the development of renewables in Germany.
Sustainability of Subsidies
The subsidies provided by China are not sustainable. China embarked upon a policy of installation of renewable electricity generation centring in Western China. But on account of the inability of the region to absorb electricity China is compelled to curtail generation from renewables. Any downgrade in subsidies may convince manufacturers and renewable power plant investors to shift to other areas with assured profits. Policymakers can deploy subsidies for renewables to inspire technological innovation for cutting costs as businesses of renewables are not financially in a position to survive sans subsidies. Research and capital in the upstream industrial value chain in critical technologies including storage is sorely needed.
US Coal & Renewables
The LCOE of solar does not factor in storage. Hence grids continue to rely upon an unabated supply of electrical energy from coal or natural gas. Perhaps that is why the US prudently gets only two percent of the country’s total electricity needs from renewable. One must not lose sight of the fact that as energy storage is not 100 percent efficient, energy storage systems are a net energy drain. Solar-based renewables need battery storage pricing to be in the range of US $ 200 to US $ 300 per kWh of storage capacity (for lithium battery backed by a ten-year warranty being the preferred choice) to be attractive enough for an investor. The lowest prices remain currently in the range of US $ 750 to US $ 800/kWh of storage capacity. Renewables are posing a threat to generation from coal and fossils fuel on account of remarkable downwards cost spiral in solar and wind technologies and the threat will be intensified if battery storage technology for renewables sees any breakthrough. In the developing world Morocco, which imports more than 90 percent of its energy needs has established a solar power plant at the cost of US $ 9 billion, which is expected to generate 580 megawatts (MW). The solar potential of Morocco is 3600 hours annually. After sunset electricity is produced for up to three hours through the mechanism of storing of energy in molten sands. Portugal achieved a complete switch to renewables this year with generation from hydro and wind at 55 percent and 42 percent respectively. Portugal still dishes out annual subsidies of around €20 million for guaranteed power supplies to fossil fuel plants ,what are termed as Independent Power Producers (IPP’s) in Pakistan , in a reserve mode to complement electricity produced from renewable sources as the country had faced drought-like conditions.
Pakistan is finding it exceedingly difficult to pay the power sector’s accumulated dues and will be ill-advised to incur further liabilities in the form of subsidies for renewables
Energy Source Wise Tariff in Pakistan
When factoring in batteries to these projects, wind-plus-battery costs US $ 34 to US $ 208/MWh and solar-plus-battery costs US $ 47 to US $3 08/MWh. Pakistan policymakers need to keep in mind that electricity generation from renewables is viable in remote and off-grid areas mostly. Excessive reliance upon solar is risky in the sense that cloud cover leads to a drastic drop in production and as backup renewable energy should be stored on a massive scale or fossil fuel generation should be available as a standby. If electricity generated from remote areas is transmitted to load-bearing areas, considerable capital investment in transmission and distribution lines and grid infrastructure is needed.
Transfer of Technology
Pakistan does not manufacture wind turbines or PV cells. Hence we will add to our import bill as we acquire the components and no transfer of technology maybe involved.
Circular Debt Spirals Out of Control
Going one step further and acquiring storage for renewable energy on a large scale may be disastrous from a return on capital perspective.The solar and wind generation plants in Bahawalpur and Gharo exemplify a case of extraction of higher tariff from NEPRA , the electricity regulator. Pakistan has yet to explore the major portion of its sedimentary basin for hydrocarbons. Pakistan is finding it exceedingly difficult to pay power sector accumulated dues in the range of PKR 400 to PKR 500 billion annually and will be ill-advised to incur further liabilities in the form of subsidies for renewables. The only exception can be large hydro projects (capital intensive investment or even nuclear ) as it serves the twin objective of water storage and electricity production at lower tariffs then fossil fuel. Ominously, the share of hydro in the renewable composition may decrease as the catchment areas of the rivers are under increasing threat from the co-riparian countries. The energy mix has to be worked out on realistic expectations and not merely by replicating models of other countries.
Published in Daily Times, June 2nd 2018.
Authored by Nadir Mumtaz
Source: Credit & Attributed to Daily Times
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