Renewable Energy: Clean Electrification of Pakistan's Economy

[Riaz Haq]

Access to abundant and cheap electricity is essential for running a modern competitive economy. The best way to ensure it is in switching to renewable energy sources. That is why Pakistan is in the midst of a renewable power boom. It is ramping up generation of clean energy with solar, hydro, wind and nuclear power. 13 gigawatts of solar panels have been imported in the first half of this year alone. Another 10 gigawatts of hydroelectric power projects are under construction for completion by 2030, bringing the total hydropower capacity to 20 gigawatts. Pakistan's total nuclear energy production capacity rose to 3,620 MW, when the country's sixth nuclear power plant opened two years ago. Pakistan and China have recently signed a $4.8 billion deal to build another 1,200 MW nuclear power plant. There are 36 private wind projects producing approximately 1,845 MW in the country.  Pakistan is phasing out old fossil fuel power plants. It has negotiated the termination of power purchase contracts with five independent fossil fuel power producers (IPPs), including Hubco, the largest IPP currently operating in the country. More negotiations are underway to terminate additional IPP contracts. Payments to these IPPs are a huge burden on the nation’s economy and ordinary consumers alike. There have been violent protests against high electricity rates across the country. 

Renewable Energy. Source: Easy-Peasy.AI

A number of auto companies have announced plans to manufacture electric vehicles. Pakistani automobile joint ventures with Chinese automakers BYD and Changan have recently launched several all-electric and plug-in hybrid models of automobiles in Pakistan. Honda Atlas Cars Pakistan Limited has announced plans to build a hybrid electric vehicles plant in the country. Other major brands like Toyota, Haval, and Hyundai are already offering similar models in the country. It all began with the 2019 electric vehicle policy approved by the government of Prime Minister Imran Khan to incentivize the electrification of the auto industry. Pakistan EV policy goal is to achieve 30% of new cars sales, 50% of new 2-wheeler and 3-wheeler sales and 30% of new truck sales by 2030. By 2040, the target is 90% of all new vehicle sales to be electric. The main incentive is the reduction of sales tax from 17% for internal combustion engine (ICE) vehicles to 1% for all-electric (EV) vehicles.

Pakistan is currently experiencing a huge economic drain in terms of fossil fuel imports. In the first two months of the current fiscal year, Pakistan's oil import bill increased by 23% compared to the same period in 2023. Paying for huge amounts of imported coal, gas, and oil in US dollars has become disastrous, particularly after 40% depreciation of Pakistani currency over the last two years. Switching to cheap renewable sources will have a salutary effect on the country's climate and economy. It will help grow the nation's exports by increasing its exporters' competitiveness. It will also make it easier to manage inflation and reduce the need for recurring IMF bailouts. 

The GenAI revolution is another factor that will dramatically increase global power demand. Wall Street investment bank Goldman Sachs forecasts that the new high-performance AI data centers alone will grow electricity demand by 160% by 2030. Pakistan needs to prepare for it if it wants to be competitive in this brave new world of generative artificial intelligence (Gen AI). 

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