The development of the electricity transmission and distribution (T&D) network is crucial for Pakistan as 25 percent of the population is not grid-connected and thus has no access to the electricity network, says the Asian Development Bank (ADB).
The bank in its report “CAREC Energy Outlook 2030”, has recommended a decrease in energy subsidies for generation and distribution and revising the existing tariff structure to allow higher returns for T&D companies, thereby decreasing circular debt while enabling larger infrastructure investments. The T&D system in Pakistan is outdated and suffers from constant underinvestment. The resulting poor technical condition of the infrastructure leads to substantial losses.
The total installed power generation capacity in Pakistan is 34.5 gigawatts (GW), and consists mostly of thermal generation, reaching around 66 percent of the total. The significance of thermal generation is expected to decrease in the future since the government has set a course to shift toward increasing renewable energy (including hydropower) generation. Pakistan’s massive renewable energy potential—about 3.0 terawatts (TW)—is one of the key drivers of this shift.
Pakistan’s domestic energy production consists of oil, natural gas, and coal. However, insufficient investment in exploration and development activities has made the country rely heavily on imports—nearly 40 percent of its total primary energy supply is imported. Having insufficient cross-border infrastructure and no operating cross-border pipelines for the transit of natural gas and oil, Pakistan imports energy sources mostly via coastal terminals.
Energy demand in Pakistan was about 96 million tons of oil equivalent (toe) in 2018 and is projected to reach 108–126 million tons in 2030, depending on the scenario. Natural gas is expected to increase its share in the total energy supply, while reliance on biomass will decrease, leading toward a cleaner future for residential consumers.
The country has vast renewable energy resources, with total technical potential reaching 2,900 GW for solar, 340 GW for wind, and 60 GW for hydropower.
Increasing the share of hydropower could help in terms of grid balancing, and solving the issue of solar and wind intermittency.
In addition to the development of renewable energy and alternative sources, such as nuclear power, priority investments in Pakistan include the introduction of smart metering and smart grids, as well as energy efficiency measures.
Further development of the transmission and distribution (T&D) network is crucial for the country, as 25 percent of the population is not grid-connected and thus has no access to the electricity network.
Total investment needs for the energy sector vary significantly across all three scenarios—from $62 billion to $155 billion—illustrating the significant requirements for transitioning to more sustainable sources of energy generation and implementing extensive energy efficiency measures.
Energy investment needs until 2030 vary significantly across the three scenarios, with estimates ranging from $62 billion to $155 billion. The most significant investments are required in the power generation and energy efficiency sectors because of the rapidly growing demand and low baseline efficiency. In all three scenarios, the largest investments are needed for the development of the country’s hydropower capacity, ranging from $11 billion to $26 billion. Investment needs for wind and solar energy are expected to reach nearly $12 billion in the BAU scenario, $36 billion in the Government Commitments scenario, and $57 billion in the Green Growth scenario, which illustrates the country’s ambitious plans for harnessing its large renewable energy potential.
Moreover, in accordance with the country’s targets for nuclear power generation, investments needed for the expansion and rehabilitation of nuclear facilities account for nearly $12 billion in the BAU scenario, $21 billion in the Government Commitments scenario, and $31 billion in the Green Growth scenario. Generation rehabilitation and expansion are the investment categories estimated to require the largest share of the total—ranging from 60 to 75 percent, or $38 billion to $115 billion, varying across scenarios.
The second biggest category is energy efficiency measures on the consumption side, requiring $12 billion in the BAU scenario, almost $21 billion in the Government Commitments scenario, and over $26 billion in the Green Growth scenario. The modernization and expansion of the power and gas grids and the introduction of advanced metering equipment require investments of approximately $13 billion to $14 billion.
Pakistan’s energy sector presents significant investment opportunities because of its efforts to transition to a more competitive energy market structure, its continued support for private projects, and the government’s commitment to significantly develop renewable energy sources in the future.
Several challenges need to be addressed to introduce a more favorable investment climate, including circular debt issues, and the overall condition and coverage of the T&D grid.
Pakistan has taken steps toward introducing efficient regulatory and policy frameworks that will create more opportunities for the private sector. However, several areas that would provide further development have been identified as follows:
Gradually decrease energy subsidies for generation and distribution. This can potentially be achieved by revising the existing tariff structure to allow higher returns for T&D companies, thereby decreasing circular debt while enabling larger infrastructure investments. The revised subsidy strategy for power consumers devised in 2021 is an important step in this direction.
Continue the expansion of and support for the renewable energy sector. The tremendous potential for solar PV and wind power generation should be developed rapidly. A transition away from thermal generation would reduce both emissions and supply risks, decreasing the country’s dependency on imports.
Introduce carbon pricing, specifically an emissions trading scheme. Carbon pricing is an effective policy instrument to mitigate GHG emissions, mainly by passing the cost of emitting to the emitters and thereby giving them financial incentives to reduce their emissions. Launching the National Committee on Establishment of Carbon Markets in December 2019 was the first step in this direction.
Introduce a detailed energy plan for the energy sector that establishes concrete actions and measures. The successful adoption of a detailed energy plan for the energy sector will improve transparency and help guide private investors in their search for investment opportunities.
Clearly define resource categories to ensure proper development. Categorizing hydropower as a renewable energy resource is crucial for the successful implementation of further projects, and for attracting more investment via incentives for renewable power projects.
Continue energy sector reforms via privatization and develop competitive markets further. The shift toward a competitive energy market for both electricity and natural gas should continue, with clearly adopted legislation to ensure efficient implementation.
Establish development plans for the transmission sector and rural electrification. One of the key challenges is high T&D losses, which is also a primary cause of circular debt in the market. The successful implementation of the country’s transmission line development plan will provide a defined strategy for the reduction of losses. In addition, strategy planning for the electrification of rural regions is of great importance, as it will introduce more customers to the grid and enable further economic development.