KE Creating a Win-Win: Green Future, Affordable Power

Renewable energy, once a distant dream, has rapidly become a global reality. It wasn't until the 1970s, when the world faced its first major oil crisis, that the idea of harnessing energy from the sun, wind, and water began to gain traction as a viable alternative to fossil fuels. Fast forward to today, and the renewable energy landscape has transformed dramatically, with countries worldwide embracing sustainable power sources to mitigate climate change and ensure energy security. Pakistan, too, is joining the renewable revolution, with ambitious plans to harness its indigenous resources. The Government of Pakistan is working diligently to increase the share of renewable in its future generation mix through the Indicative Generation Capacity Expansion Plan 2024. And the trends are quickly causing costs to decline, raising their significance as macroeconomic conditions and volatility affect prices of fossil fuels. Keeping with this shift, K-Electric, Pakistan’s only private power utility, also announced much needed respite for the people of Karachi by revealing plans to double the country’s renewable capacity in the next two years.

This green revolution is being catalyzed under the Power Acquisition Plan (PAP) prioritizing fuel mix diversification through the induction of renewable energy and local fuels, and reducing reliance on imported conventional fuels. As Karachi expands, its appetite for energy will also grow; current projections are looking at a potential peak of 5 Gigawatts required in 2030. The PAP envisages meeting at least 30% share of this generation through renewable resources, ushering an unprecedented new frontier in sustainability for the city.

Breaking Barriers and Setting New Records

The first tranche of KE’s renewable ambitions concluded their bidding process in September and has already brought in groundbreaking welcome news for the country. 640 MW of renewable energy projects were authorized for competitive bidding by NEPRA, the first time a private company was being allowed to do so. The lineup included a mix of projects across Sindh and Balochistan, including the country’s first 220 MW site neutral hybrid project, combining solar and wind energy. This historic milestone marked the conclusion of a journey where multiple stakeholders – from the regulator to the provincial governments of Sindh and Balochistan – came together on a common vision to revolutionize the sustainability space in Pakistan, signaling the power of collaboration.

The solar projects include 150 MW in Balochistan, comprising of 50 MW in Winder and 100 in MW in Bela, and 270 MW in Sindh, comprising of 120 MW at Deh Halkani and 150 MW Deh Metha Ghar, in District West, Karachi.

In this regard, the company received an overwhelming response in share of 15 technical bids from local and international players on its RFPs for solar power projects of 50 MW in Winder and 100 MW in the Bela region of Balochistan. Another feather in the cap for KE was receiving seven bids for Pakistan’s first 220 MW hybrid wind/solar project in Dhabeji Sindh.

The 220 MW hybrid site neutral project is the first in Pakistan to integrate solar and wind energy for improved operational and financial efficiency. These unique specifications also made this project technically demanding. The successful bids will undergo regulatory scrutiny and further approvals before finalization. As of now, K-Electric’s renewable energy projects at Winder and Bela in Balochistan, and the latest one in Dhabeji, Sindh, totaling to 370 MW have received 2960 MW in offers.

Record Breaking Country’s Lowest Tariff Bids Received

Building up on the momentum, the company opened the financial bids 150 MW projects in Balochistan and 220 MW project in Sindh, at separate private events and received historic lowest tariff bids. The company received PKR 11.2 per unit as the lowest proposed tariff for Solar projects in Balochistan and then broke its own record by receiving PKR 8.9189 per unit for 220 MW hybrid solar and wind project in Sindh. The most reassuring factor of this entire exercise was receiving such competitive bids from both local and internation players.

JCM Power, a Canadian-based renewable energy company, emerged as the bidder with the lowest proposed tariff for Sindh’s 220 MW hybrid project. International players are responding to easing economic conditions and choosing to work with K-Electric is an endorsement of the company’s reputation as a privatized utility in the global energy space. This momentum is especially important as the nation also looks to ramp up interest in sustainable and low-cost generation.

Moonis Alvi, CEO of KE highlighting the global interest in KE’s renewable projects, said that garnering such competitive and lowest tariff bids for our first and second cohort of renewable energy projects is a huge milestone for KE as well as for Pakistan. It is an affirmation of trust of local and international players for investing in Pakistan with KE being at the forefront for attracting large-scale bidders. “I am delighted to see several reputable firms stepping up for a resilient, robust, and sustainable energy future of Karachi. We deeply appreciate NEPRA aligning seamlessly with KE’s vision to induct renewables, reduce generation costs, and gradually reduce dependence on expensive imported fuel sources. With this level of regulator as well as investor confidence, we will be able to introduce fuel mix diversification in our generation mix sooner than anticipated and make ‘affordable electricity for all’ a reality”

“Our investment in renewable energy projects underscores our commitment to innovation and sustainable growth, ensuring reliable and eco-friendly electricity for our customers. With this kind of tariffs, we anticipate that the government will have the capacity to pass on the relief to customers as well.” He further added when addressing the audience at the financial bid opening ceremony for the 220 MW project.

Shahab Qader Khan, KE’s Chief Strategy Officer, also shared his views, reiterating his optimism that the success of these projects will encourage other local and internation firms to invest in Pakistan for various initiatives as well. This will play a pivotal role in KE's pursuit for fuel mix diversification and simultaneously contribute towards catalyzing the economic progress of the country.

Speaking regarding the hybrid solar and wind project, he shared that this is a momentous occasion as KE breaks the barrier yet again. This project is the first in Pakistan to integrate solar and wind energy for improved operational and financial efficiency. These unique specifications also made this project technically demanding requiring deeper expertise. Such a resounding response affirms our long-term strategy to make cheapest cost of generation possible.

A significant credit in this process is also due to the Governments of Sindh and Balochistan, which played crucial roles in providing land for these projects, ensuring their timely implementation.

Adding renewable sources automatically skews the economic merit order towards cheaper generation, as these projects are prioritized for power generation over more expensive options. This displacement of costlier sources comes at an opportune moment as Pakistan attempts to reduce its dependence on imported fuels such as RLNG and Furnace Oil, which have historically dominated power production.

Addressing the Energy Trilemma

The Power Acquisition Program is pivotal in KE’s strategy to enhance power supply in its service territory and directly enables the company to address the energy trilemma of sustainability, affordability, and security.

In addition to integrating renewable energy and local fuels, the PAP also caters for power off-take of 2,050 MW from the National Grid, which would not only be low cost, but will also partially address the issue of low-cost stranded capacity in the South of the country. This program aligns with NEPRA’s approved Indicative Generation Capacity Expansion Plan (IGCEP) 2022-2031, the National Electricity Policy 2021 and the National Electricity Plan 2023-2027.

Alongside this, KE has also developed a holistic Transmission and Distribution Investment Plan of approximately USD 2 billion, which outlines a comprehensive strategy to meet the expected growth in electricity demand by creating environment friendly means of energy through enhanced transmission and distribution infrastructure.

Beyond the immediate relief it provides, this investment is a catalyst for transformation. KE is not merely supplying power; it's shaping the nation's industrial landscape and leading a digital revolution. By managing supply to countless industries, KE is fueling economic growth and innovation. Its digitization roadmap guiding Pakistan towards a data-driven future where efficiency and sustainability are paramount. This plan is more than infrastructure; it's a blueprint for a greener, more resilient future, where clean energy flows freely through enhanced networks.

KE’s Imperative Steps for Strategic Investment

Channeling increased electricity requires robust infrastructure, which is where KE’s investment plan and intended projects enter the frame. In the case of the National Grid, KE is working actively to strengthen EHV interconnections at Dhabeji and Karachi-Kanupp Interconnection (KKI), respectively. The KKI Grid will be KE’s first 500 kV Grid station and is expected to come online within FY25.

In the updated plan, substantial funds have been allocated for the maintenance and protection of grid stations and transmission lines to ensure longevity and functionality. Investments also support safety measures to enhance transmission network security. Over seven years, funds are dedicated to reducing congestion and improving network reliability, particularly for new lines meeting N-I contingency provisions. Additionally, resources are prioritized for rehabilitating existing lines and addressing necessary replacements and upgrades.

In addition to the already approved and active projects totaling 640 MW as mentioned in the preceding section, KE has further planned for integrating future renewable projects in accordance with the PAP, allocating Rs 12.34 billion for a 220 kV Gharo Step-up Grid Station and Rs 5.66 billion for its associated transmission line for smooth evacuation of its renewable projects.

In the area of transmission and distribution losses, NEPRA has approved targets for Transmission and Distribution (T&D) losses for KE which are expected to successfully and gradually reduce over the fiscal years 2023-24 to 2029-30. Distribution loss percentages will decrease from 13.46 percent in FY2023-24 to 11.48 percent in FY 2029-30, while transmission losses are expected to remain constant at 1.30 percent throughout the period.

Opportunities despite Challenges

Earlier, KE and the Government of Pakistan (GoP) signed landmark agreements in January 2024 that will ensure energy security for Karachi, marking a significant step towards stabilizing the city’s power supply. These agreements focused on securing additional power supply and enhancing the overall energy infrastructure in Karachi. The agreements include commitments from the National Grid to supply additional power to Karachi, addressing the city’s growing energy demands. This collaboration aims to improve grid utilization and ensure a reliable power supply for both residential, commercial, and industrial customers.

According to Moonis Alvi, CEO of KE, these landmark agreements with the Federal Government are a testament to KE’s commitment to ensuring energy security for Karachi. The additional power from the National Grid will help stabilize the city’s power supply and support its economic growth. “This collaboration will enable KE to meet the increasing energy demands of our customers while promoting sustainable development.”

The Government of Pakistan has expressed its support for KE’s efforts, recognizing the importance of a stable and reliable power supply for the socio-economic development of Karachi. The collaboration between KE and the GoP is seen as a model for public-private partnerships in the energy sector, demonstrating the potential for joint efforts to achieve national energy goals.

Pakistan’s power generation is heavily based on imported fuel and current spending USD 27 billion on oil imports to meet its power generation and transportation needs. Pakistan’ foreign exchange reserves are valued at almost USD 15 billion which stood at USD 3.4 billion when the new government assumed office. Although the former is credited to a surge in dollar holdings, the rupee-dollar parity affects the value of imports. With the overall economy going through a tough period affecting all industries, the ‘high electricity tariffs’ need to be addressed at a national level with key stakeholders playing a pivotal role. This also provides an opportunity to create a stable and sustainable energy ecosystem.

By prioritizing renewable energy and local fuels, along with robust capital investment in transmission and distribution infrastructure, KE's represents a significant step towards a more secure and sustainable energy future for Karachi. This strategic approach has the potential to break the cycle of dependence on expensive imported fuels, reduce greenhouse gas emissions, and ultimately deliver a more affordable and reliable power supply for the city's residents and businesses.