SCALING-UP RENEWABLE ENERGY

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1 SCALING-UP RENEWABLE ENERGY IN PAKISTAN FINANCING ROUNDTABLE Avari Hotel, Karachi June 9, 2015

2 SCALING-UP RENEWABLE ENERGY IN PAKISTAN FINDINGS AND RECOMMENDATIONS FROM FEBRUARY 2015 SCOPING MISSION Financing Roundtable, Karachi June 9, 2015

3 MARKET SEGMENTATION Diagram for illustrative purposes only ON-GRID Wind PPAs (250MW 50MW) Waste-to-Energy (20MW 1MW) Solar Rooftop: Public Commercial Residential (2MW 50KW 5KW) Solar PPAs (100MW 1MW) OFF-GRID Zoenergy (900MW) QASP Ltd (100MW) Zorlu (50MW) FFC (50MW) China 3G (50MW) Biomass (15MW 500KW) Small Hydro (10MW 500KW) Mini-grids (100KW 5KW) Solar tube-wells (10KW) Solar schools/clinics Solar products (1KW 100W) (100W 10W) Solar homes (500W 50W) Gul AE (50MW) Large Generation Distributed Generation Electricity Access Large-scale GENERATION CAPACITY Small-scale 1000MW 100MW 10MW 1MW 100KW 10kW 1KW 100W 10W 2 Scaling-Up Renewable Energy in Pakistan

4 LARGE GENERATION FINDINGS Strong and growing investor appetite: private sector will drive development Increasing data availability shows bigger resource potential than previously assumed Tariffs for RE appear to include a premium above standard country risk premium, but this should reduce with scale-up BARRIERS OPPORTUNITIES Uncertainty over T&D capacity and optimal share of RE is holding up approvals Multiple agencies creates delays Land availability and speed of allocation Grid constraints have led to some curtailment in output Circular debt delays payments Limited RE knowledge and capacity in Pakistani banking sector Scope for more ambitious targets for scaleup to reduce Pakistan cost premium Need for comprehensive grid constraints planning Grid upgrades need to take account of RE development zones Potential role for SBP to increase appetite of domestic banks through risk-sharing Role for publicly-commissioned pathfinder projects where exit strategy exists 3 Scaling-Up Renewable Energy in Pakistan

5 DISTRIBUTED GENERATION FINDINGS Emerging area of interest but viable business models have yet to be developed Net metering tariff could stimulate significant interest Siting solar close to load centers or end-of-grid is very attractive to DISCOs especially considering load-following characteristics Residential sector likely to be driven by reliability concerns rather than economics BARRIERS Financial viability of DISCOs Net metering policy: timeline and incentives Project financing required for larger systems Public consumers lack incentive to adopt OPPORTUNITIES Need for standardized materials and approvals Public solar installations could create model for reducing non-payment and grid flows End-of-grid strengthening to improve reliability and reduce technical losses 4 Scaling-Up Renewable Energy in Pakistan

6 ELECTRICITY ACCESS FINDINGS Community grants approach has shown success through NGO delivery mainly small hydro Several initiatives seeking to provide solar systems to schools and households Key issue is sustainability Sindh/Punjab schemes seem to involve bulk provision of solar kits with no clear O&M model Meanwhile IFC s Lighting Pakistan is just starting potential for enhancing product awareness BARRIERS The effective electricity demand is low and dispersed in off-grid areas Majority of projects not likely to be financially viable Lack of distributed supply chain public provision does not help to improve it Existing projects are unlikely to displace a budgeted cost item meaning no revenue stream for O&M Security issues a major barrier to reaching remote communities and sustainability OPPORTUNITIES Lighting Pakistan needs to be given time Possibility of expanding existing community programs and/or using NGO network Potential to pilot targeted subsidies linked to Lighting Pakistan products (social protection schemes?) Mini-grid model may have medium-term potential in denser areas will benefit from cost reductions in distributed generation 5 Scaling-Up Renewable Energy in Pakistan

7 FINANCING ISSUES FINDINGS Several existing efforts targeting large generation and DG markets but limited success Multilateral finance has played an important role so far but cannot finance all projects High appetite from developers for project finance from domestic banks State Bank of Pakistan (SBP) is interested in doing more to support commercial banks BARRIERS Banking sector has limited experience of RE and associated risk profile, so unwilling to be the prime lender Domestic loan rates are high OPPORTUNITIES Significant opportunity for SBP to promote RE scale-up in its role as financial regulator Commercial banks can perform an important due diligence role if capacity is strengthened Risk-sharing (supply-side) is a higher priority than rate reduction (demand-side) 6 Scaling-Up Renewable Energy in Pakistan

8 WORK PROGRAM FINANCING DISTRIBUTED GENERATION ENERGY ACCESS POLICY ENGAGEMENT 7 Scaling-Up Renewable Energy in Pakistan

9 RENEWABLE ENERGY RESOURCE MAPPING HIGHLIGHTS Major World Bank technical assistance activity being undertaken in partnership with AEDB Covers biomass, solar and wind mapping Preliminary and unvalidated results for solar and wind are now published on the WB website Next stage is field surveys (for biomass) and two years of groundbased data collection (for solar and wind) All results will be made publicly available via ESMAP website 8 Scaling-Up Renewable Energy in Pakistan

10 QUESTIONS AND COMMENTS?