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Financing renewable energy projects.

The recent decision by the State Bank of Pakistan to extend financing facility for power projects using renewable energy, is likely to spur development of alternative sources of energy. Sources in the industry say that the decision was long awaited.


With the announcement by the Alternative Energy Development Board (AEDB) early last year that it had provided land to 24 potential investors in Sindh for installing wind energy mills to produce l,200mw of power, Pakistan had joined 65 other countries that have made a commitment to accelerate the use of renewable energy. The SBP decision will provide due momentum to such moves that have seen almost negligible progress so far.

The need to diversify the national energy profile has been stressed by all and sundry for long. As things stand today, around half of the country's needs are met through use of indigenous gas, another 28 percent through domestic and imported oil, and some 13 percent through hydro-electricity. Coal at seven percent and nuclear energy at one percent stand at the periphery of the energy mix. In contrast, the renewable energy industry is gaining momentum worldwide. According to a recent report by the Renewable Energy Network for the 21st Century (REN21), global wind generating capacity is estimated to have increased by 28 percent, while that of solar panels has surged by as much as 52 percent. The sector now accounts for 2.4 million jobs globally, and has doubled power-generating capacity in the last three years to 240 giga watts.

Applauding the SBP decision, Irfan Afzal Mirza, a renewable., energy consultant based in Islamabad, said there is no denying the fact that Pakistan is geographically well-placed to make use of natural resources like wind and sunlight. But because of lack of vision over the years, energy production is still based on fossil fuels even though the world has moved swiftly to diversify its energy profile.


According to Mirza, who has served as AEDB's director-general (technical), the ground work has been completed and the only hitch delaying the installation of renewable energy projects, especially those involving windmills, was the availability of finance. "With the State Bank coming into the picture, the scenario is likely to experience a positive change," he said. The SBP circular--SMEFD No 19 -has extended financing facility for new power projects using renewable energy with capacity of up to 10mw. Sponsors of power projects can avail financing facility through banks/DFIs for new imported and locally-manufactured plant, machinery and equipment.

While giving preference to projects in less developed areas, the SBP financing will be available to sponsors who have completed prescribed AEDB and other requirements in line with the renewable energy policy which encourages wind, hydro, biogas, bio-fuels, bagasse cogeneration, solar power and geo-thermal as fuel. The financing will be available for LCs established for import or purchase of equipment between December 1 this year and June 30, 2012.

Describing the SBP circular as timely, those active in the field of renewable energy take it as a big step forward in this direction thus far. Renewable energy, they stress, is the future and no country can afford to ignore it. In the absence of required alternative energy, they point out, the lone way out of the power crisis is the country's dependence on expensive Rental Power Plants (RPPs) and even they have not yet been of help.

Four RPPs with about 600mw power-generation capacity, for instance, were expected to go operational by the end of the year. Director-General of Pakistan Electric Power Company (PEPCO) is on record having assured the addition of another 1200mw by March next year, taking the total RPP input to 1800mw.

Just days later, the government missed the deadline of November 2009 for making operational the 232mw RPP that was to be set up at Port Qasim by a Turkish firm.

In April this year, Federal Minister for Water and Power Raja Pervez Ashraf had given the November deadline for commissioning of what he had said was a fast-track project to meet Karachi's power shortage that at the time ranged between 200mw and 300mw.

While missing the RPP deadline is disappointing in itself, it has to be seen in the backdrop of similar happenings in the realm of renewable energy. According to ADEB targets, for instance, there had to be 680mw of windmill energy on the national grid by 2010. This is a target that the country is all set to miss by miles by 99, 66 percent, to be precise.

The ground position today is that Pakistan has three turbines of 1.2mw each for a total installed capacity of 3.6mw and 3mw of actual power generation. This is 0.44 percent of the short-term target that was set by the AEDB a few years ago. Keeping in view the lack of progress, AEDB officials expected to have no more than 50mw on the grid through windmills, but the current position is a mere six percent of even the revised target.

Irfan Mirza, who was with the AEDB when these targets were set, defended the decision. "No one realized the enormity of teething problems in the project. We had set the targets high because we wanted to get as much on the grid as possible. Since private sector was the focal point of the entire activity, it worked out a high estimate of the required investment in order to get enough bank loans to cover their side of the deal. This made it a tricky path for the bankers and the investors to tread together," he said Now that these problems have been taken care of, the country may have everything in place within a couple of years. "We may not meet the target in 2010, but I don't see any reason not to touch that point in, say, 2012, even earlier," he added.

Likewise, the long-term target of having 9,700mw from windmills by 2030 is something that Mr. Mirza still finds "perfectly practical". Adding on an average 500mw every year is not a big task once the basic infrastructure is there, he said, pointing out that India was adding close to l,500mw per year for the last few years.


The financing facility now made available by the State Bank of Pakistan will surely be a big help in this regard,
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Author:Ishtiaq, Humair
Publication:Economic Review
Geographic Code:9PAKI
Date:Feb 1, 2010
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