Off-grid energy: Costly, inefficient for Pakistan stagnant industry

KARACHI: As the country struggles with expensive grid electricity and gas prices, industries are turning to captive and solar power systems. However, these alternatives present their own set of issues, from high upfront investments to inefficiencies, making it increasingly difficult for businesses to remain competitive on a global scale.

Pakistan’s industries may not find solace in off-grid solutions as there are severe challenges in adopting off-grid energy solutions, with rising energy costs, regulatory hurdles, and technical difficulties hampering progress.

Chairman of All Pakistan Textile Mills Association (APTMA) Asif Inam while talking about captive power plants running on gas highlighted that “gas has become prohibitively expensive for industrial use.” In February 2023, the government raised gas prices from Rs 1,100 to Rs 2,300 per MMBtu, severely impacting industries that rely on off-grid energy generation.

The area of Nooriabad, located between Karachi and Hyderabad, has seen half of its industries shut down due to these unaffordable energy costs, he said.

Chairman APTMA further emphasised the disparity in energy costs, noting that while gas-generated energy costs $0.12 per kWh, the government now offers grid electricity at six to eight cents per kWh after protests from the business community. However, this rate is still double what is available in some new industrial areas of India, where electricity costs as low as four cents per kWh. “This disparity makes it difficult for Pakistan’s export industry to compete internationally.”

The high-interest rates in Pakistan, currently at 19.50%, exacerbate the economic challenges faced by industries. Asif Inam pointed out that while the inflation rate was 9.6% in August 2024, the wide gap between inflation and policy rates raises questions about the accuracy of these figures. Over the years, 30% to 40% of mills and industries have shut down, a trend that has gone unnoticed due to new industries merely replacing old ones, indicating economic stagnation rather than growth.

Electricity sales to the industrial sector have decreased by 30% this year and are projected to decline further to 50% due to higher tariffs. Pakistan’s power plants are also suffering losses due to excess capacity in the main grid, particularly from Independent Power Producers (IPPs). The low and dwindling consumption by the industry further exacerbates this issue. Captive power plants, which are less efficient, consume gas that could be better utilised by larger power producers to generate more electricity.

When industries do not consume electricity from the main grid, fixed capacity costs increase, adding to the circular debt and making electricity more expensive for current grid users, highlighted Dr Khalid Waleed, a PhD in Energy Economics associated with the Development Policy Institute (SDPI).

Another argument on the captive power plants is that the power plants, particularly in Karachi, receive around 210 MMBtu of gas from the SSGC network, but their efficiency is lower than that of IPPs. Newer plants, whether part of the National Transmission & Despatch Company (NTDC) system or KE, achieve over 50% efficiency, while captive plants operate at around 30%. KE’s new plant, with an efficiency of 59%, can produce nearly twice the amount of power from the same quantity of gas compared to captive plants.

Solar and wind energy currently contribute only about 5% of the total power generated in Pakistan. Off-grid solutions, like captive power plants and solar systems, can be beneficial, especially in regions with unreliable grid power. However, these solutions come with significant challenges, including high upfront investments, technical complexities, and regulatory obstacles. The cost of solar panels, batteries, inverters, and installation, coupled with the need for specialised knowledge to design and maintain these systems, makes off-grid solutions a daunting option for many businesses.

Altaf A. Ghaffar, Vice President of the Karachi Chamber of Commerce and Industry (KCCI), while talking to ARY voiced concerns regarding the feasibility of captive and solar power systems. With interest rates hovering around 20%, the financial burden of installing these systems is immense, often diverting business owners from focusing on their core production activities. Ghaffar proposed that affordable electricity from the national grid or another reliable energy source would be an ideal solution, suggesting that this responsibility should fall to the government or specialised energy companies.

In densely populated areas like Karachi, the lack of available land further complicates the installation of solar panels, which require substantial space. To address this, Altaf A. Ghaffar suggested that the government establish centralised locations where industries can install solar systems, which could then be integrated into the main grid through a net metering system, allowing industries to receive credit for the energy they contribute.

However, the vice president of KCCI acknowledged the limitations of solar power, noting that solar panels provide energy for only about 4.5 hours a day. Current battery technology is inadequate for providing a 20-hour backup, making solar power impractical for many industries. The high cost of installing a solar system is another significant barrier.

Industries also face challenges with fluctuating gas pressure. Low gas pressure impairs production and adds to the difficulties of maintaining consistent energy supplies. While the government has permitted captive power for export industries, Altaf A. Ghaffar argued that local industries, which play a crucial role in job creation and state revenue, also need attention. Without access to affordable electricity, local industries may shut down, leading to higher unemployment rates and decreased government revenue.

Vice President of KCCI Altaf A. Ghaffar called on the government to develop solutions that support both export and local industries, ensuring sustainable growth and energy security for the country. He warned that while current arrangements for captive and solar power may suffice for now, they are unlikely to support future industrial growth, posing a significant threat to Pakistan’s economic development.