Putting Pakistan’s coal to bed

Why isn’t there enough conversation around an early coal phase out in Pakistan when a 190-country coalition has agreed to do so, when major international banks and public finance institutions have pledged to end coal financing, and when we all know for a fact that coal is the biggest contributor to global emissions?

Pakistan, being a signatory to the Paris Climate Agreement to limit global warming to 1.5°C, has set its sights on becoming a coal free power generation country in the coming years. 

Pakistan’s energy sector is in a phase of policy reform, attempting to create a balanced energy mix. 60% of the country’s energy is coming from fossil fuels, and 12.8% is coming from coal power plants alone. Not only is this mix catastrophic for the environment, but the electricity is expensive. This doesn’t even account for the transmission and distribution losses that hover at 20% - an additional burden to the consumer and the government. All of this has led to an accumulated circular debt of almost $14 billion. 

While conversations do hover around not having enough capacity off take, too much circular debt and an expensive energy mix, let’s bring the discussion on the table to create tools to implement a real coal phase out.  

Retiring coal plants requires four things: political will, alternate power sources, finances and strategy and planning for people who will be impacted due to the coal phase out. 

The Pakistan government is making efforts to reduce the reliance on imported coal as the main input in its latest policies regarding new coal plants and is also supporting renewable energy projects through the proposed budget for 2021-22.

36% of the coal for coal plants is supplied from local sources while the remaining is imported – the coal import bill for 2020 was $1.23 billion. Although the government has now banned setting up any further coal projects, there are still plants in operation and those under implementation/ construction, both types expected to stay online for the duration of their power purchase agreements (typical 25 years).

2019-2020 saw 19% of the power generation in the country coming from just four coal-fired CPEC power plants with an output of 4.62 GW. An additional 2000 MW of capacity from new coal power plants are under various stages of project implementation.

Retiring coal plants requires four things: political will, alternate power sources, finances and strategy and planning for people who will be impacted due to the coal phase out.

Ayla Majid

In December 2020, the Prime Minister of Pakistan announced the country would discontinue the construction of new coal power plants. In 2021, the premier announced the construction of 10 small and big dams in the country by 2028 to take care of electricity needs and ensure food security.

While these new projects will increase the share of renewable energy in the energy mix of Pakistan, there is a need to retire older coal plants to have a significant effect on climate change, reduction in CO2 levels, and to make energy more affordable.

But a key reason for the slow pace of the coal phase out is that the vast majority of coal plants globally are protected by the legacy forces of long-term contracts and tariff structures.

In Pakistan, power purchase is governed by contracts between the government and private power producers. Coal assets operate under (1) long-term agreements that offer a guaranteed power purchase agreement (PPAs), and (2) a regulated rate of return to the asset owner, leading to fixed (often higher) power tariffs. Due to these hurdles, Pakistan’s ambition towards decommissioning coal power plants is slow.

Recent reports show that the Levelized Cost of Electricity from renewables has declined significantly, making renewables cheaper than fossil-fuel based power. This development is important as renewables are known to be cost-effective and paramount to decarbonizing the energy system.

Pakistan’s coal phase out steps should be aligned with global best practices to achieve its climate commitments, improving its energy mix, and providing relief in energy pricing. 

The government has to adopt a three tier approach to decommissioning coal plants; reduce structural support to fossil fuel based plants by reducing tariff and subsidies, introduce innovative financing approaches for shutting down old plants, and reinvest in clean energy.

Pakistan must devise a well thought out strategy for an early retirement of coal plants and accelerate its energy transition.  It is the opportune time to do so and with recent COP26 commitments and the international net zero financial commitments of $130 trillion, the country can get the right kind of momentum behind its honest efforts.

This is a good starting point for putting Pakistan’s coal power to bed.

– Founder & CEO of Planetive, with financial advisory and governance experience across energy and infrastructure sectors. Sits on many local and global boards. Sustainability advocate. Serving on the Global Future Council on Energy Transition of the World Economic Forum. Young Global Leader - WEF. Eisenhower Fellow.