Off-grid energy: Expensive and ineffective for Pakistan’s stagnant sector

Enterprises are resorting to solar and captive power systems as the nation suffers with high gas and electricity rates. It is getting harder for companies to stay competitive on a global basis as a result of these options’ drawbacks, which range from high upfront costs to inefficiencies.

Off-grid energy adoption faces significant obstacles due to rising energy costs, regulatory barriers, and technological limitations; therefore, Pakistan’s enterprises may not find comfort in off-grid alternatives.

“Gas has become prohibitively expensive for industrial use,” stated Asif Inam, Chairman of the All Pakistan Textile Mills Association (APTMA), in reference to captive power plants that run on gas. Businesses that depend on off-grid energy generation suffered greatly when the government increased petrol rates in February 2023 from Rs 1,100 to Rs 2,300 per MMBtu.

Due to these exorbitant energy expenses, half of the industries in the Nooriabad area, which is situated between Karachi and Hyderabad, have closed, he claimed.

In order to highlight the discrepancy in energy prices, Chairman APTMA pointed out that although energy generated by gas used to cost $0.12 per kWh, the government now provides grid electricity at a rate of six to eight cents per kWh in response to business community objections. In certain new industrial areas of India, however, the cost of power is as low as four cents per kWh; thus, this rate is still double what’s available there. The export sector in Pakistan finds it challenging to compete globally because of this discrepancy.

Industry-related economic difficulties are made worse by Pakistan’s high interest rates, which are at 19.50%. The accuracy of the numbers regarding inflation and policy rates is called into question, as Asif Inam said, even if the rate of inflation in August 2024 was 9.6%. As new industries just replace the old ones, there has been a trend of mill and industry closures ranging from thirty to forty percent over time. This indicates economic stasis rather than growth.

Increased rates are expected to cause a further 30% loss in electricity sales to the industrial sector, which have already dropped by 50% this year. Excess capacity in the main grid, especially from Independent Power Producers (IPPs), is also causing losses for Pakistan’s power plants. A contributing factor to this problem is the industry’s low and declining demand. More energy could be produced by larger power producers by using the gas that is wasted by inefficient captive power plants.

The Development Policy Institute’s (SDPI) PhD in Energy Economics, Dr. Khalid Waleed, emphasised that fixed capacity costs rise as companies divert from the main grid, compounding the circular debt and driving up energy prices for existing grid users.

One more argument against captive power plants is that, although they receive about 210 MMBtu of gas from the SSGC network, their efficiency is not as high as that of IPPs. This is especially true for the power plants in Karachi. Modern plants, whether they are owned by KE or the National Transmission & Despatch Company (NTDC) system, reach above 50% efficiency, compared to about 30% for captive plants. By using the same amount of gas, KE’s new plant, which has an efficiency of 59%, can generate almost twice as much power as captive facilities.

Approximately 5% of Pakistan’s total power generated today comes from solar and wind energy. Particularly in areas with unstable grid electricity, off-grid options like solar panels and captive power plants can be advantageous. The large upfront costs, intricate technological requirements, and regulatory barriers associated with these solutions, however, present serious difficulties. Several organisations find off-grid solutions to be a scary alternative due to the high cost of solar panels, batteries, inverters, and installation; in addition, maintaining these systems requires specialised skills.

The Karachi Chamber of Commerce and Industry’s (KCCI) vice president, Altaf A. Ghaffar, expressed doubts about the viability of solar and captive electricity systems in an interview with ARY. Because establishing these systems comes with a huge financial cost (interest rates are typically about 20%), business owners are frequently forced to take their attention away from their primary production tasks. The best course of action, according to Ghaffar, would be to provide the government or specialist energy corporations with access to reasonably priced electricity from the national grid or another dependable energy source.

Because solar panels need a lot of room to be installed, the scarcity of land in heavily populated regions like Karachi makes the process even more difficult. To solve this, Altaf A. Ghaffar proposed that the government set up centralised places where businesses could install solar systems. These systems could then be connected into the main grid via a net metering system, enabling businesses to get credit for the energy they produce.

Though solar energy is only available for roughly 4.5 hours a day, the vice president of KCCI acknowledged the drawbacks of solar electricity. For numerous sectors, solar power is not feasible due to current battery technology’s inability to provide a 20-hour backup. An additional important deterrent is the high cost of solar system installation.

Variations in gas pressure are another problem for industries. Consistent energy supply is made more difficult by low gas pressure, which also reduces production. According to Altaf A. Ghaffar, local industries are vital for creating jobs and generating cash for the state, even though the government has allowed captive power for export industry. If local businesses cannot afford to run their operations, unemployment will rise and government revenue will decline.

In order to ensure sustained growth and energy security for the nation, KCCI Vice President Altaf A. Ghaffar urged the government to create policies that encourage both domestic and export sectors. Though the current systems for solar and captive power might be adequate for the time being, he cautioned that they are unlikely to support future industrial growth, which would be a serious danger to Pakistan’s economic progress.