DEMAND-SUPPLY GAP ANALYSIS AND POTENTIAL ENERGY RESOURCES OF PUNJAB ABSTRACT Pakistan has been facing severe electricity shortfall since 2007. Having more than 100 million population and economic hub of the country, Punjab province hurts badly from this crisis. The most wanted challenge has been met through investment in power sector especially through CPEC to fulfil the demand without suppress. Large reliance of the power sector on fossil fuels results in high energy prices which then results in economic downturn due to increased cost of production and decreased competitiveness. The economic hub of the country, that is, the Punjab province has been injured the most. It thus calls for attention of the public policy makers to explore the potential of indigenous resources of energy at both federal and provincial tiers of government. The study analyzes the demand-supply gap and potential of energy resources. It is revealed that the province is enriched with solar resources which can be tapped to generate on- grid and off-grid electricity for supplying power to the public at large. Proportion of coal in energy mix needs to be enhanced through utilizing both indigenous and imported coal. The province is blessed with network of canals, barrages watered by five rivers. This potential is available to produce electricity through deploying small power plants at canals and barrages. Wind pressure in the province is not capable enough to produce electricity except small potential in southeastern and Kalar Kahar regions. Keywords: Fossil Fuels, Indigenous Resources, Energy Mix, Off Grid Electricity 1. INTRODUCTION1 Economies around the globe are facing high demand of energy to achieve sustained level of economic growth. However, the challenge is to not only meet the rising demand but also put less reliance on the depleting fossil fuels which also cause damaging environmental effects. Volatile price dynamics of fossil fuels and widening demand-supply gap of electricity calls for urgent search of cost effective, environment friendly and reliable energy resources. These factors result in an increasing interest of economies to develop renewable resources. Policy makers globally have largely recognized the significance of relationship between energy and economic progress. That being the case, it is also an agreed fact that economic development and energy reinforce each other. Affordable and sustainable energy supplies not only bring prosperity for the population at large but also helps eradicate poverty through various direct and indirect channels. Pakistan as a country is not an exception. Vision 2025, while accepting energy security as a challenge, aims to achieve Sustainable Development Goal 7 “Ensure access to affordable, reliable, sustainable and modern energy for all” by 2025. 1 Punjab Economic Research Institute is thankful to Professor Dr. Zafar Mahmood (HoD Research, School of Social Sciences and Humanities, NUST, Islamabad) and Dr. Faisal Jamil (Assistant Professor, School of Social Sciences and Humanities, NUST, Islamabad) for their valuable input and comments on the Policy Paper. Page | 1 Total primary energy supplies in Pakistan are 70.26 million Tons of Oil Equivalent (TOE). 52.8% of total indigenous production (24.23 million TOE, 34.5% of total demand) is met through net imports (HDIP, 2015). The basic energy products/sources are Natural Gas, Petroleum Products, Liquefied Petroleum Gas, Coal, Hydro, Nuclear and Renewable resources. Major reliance is on petroleum products and natural gas. Out of total energy supplies, 24.5 million TOE are used in transformation and the remaining 42.7 million TOE are used by domestic, commercial, agriculture, industry, transportation and government sectors. Energy is finally used in the form of electricity, natural gas, petroleum products including LPG and coal. Share of hydel and coal in primary energy supplies is only 11% and 7% whereas their shares in electricity generation comprise of 30.4% and 0.1% respectively. Pakistan is also engaged in energy generation through nuclear (2% of primary energy supplies and 5.4% of electricity generation) and renewable energy resources (0.3% of primary energy supplies and 0.7% of electricity generation). The percentage share of each source of energy in primary energy supply mix is presented in Table-1. The share of hydrocarbons (Oil and gas) is 78.1%. The increased demand of gas by the transport sector has worsen gas shortage in the country whereas it badly hit the industrial sector of Punjab along with making it unavailable for the household sector during pressure days. Table 1: Percentage Share of Energy Sources: Pakistan Primary Energy Supply Mix Percentage Share Oil 35.5 Gas 42.6 LPG 0.7 LNG 0.7 Coal 7 Hydro-Energy 11 Nuclear-Energy 2 Renewable-Energy 0.3 Imported-Energy 0.2 Source: Pakistan Energy Yearbook, 2015 (Published in June, 2016 by HDIP) Overtime, reliance of Pakistan has increased on gas and oil resources in comparison with hydel resources (Figure 1). Main reason behind is the unexplored potential of hydel, coal, renewable and nuclear resources for electricity generation. The share of hydel in primary energy supply is decreased overtime wherein share of thermal (oil and gas) resources is increased overtime. Page | 2 However, the share of renewable resources is negligible in the country. It requires attention toward abundant resources of water, coal, solar, wind and biofuels etc. 100.0 50.0 0.0 1968 1990 1960 1962 1964 1966 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Hydro Thermal Figure 1: Percentage Share of Energy Generation by Hydel and Thermal2 Land of 5 rivers, 17 barrages and 23,712 miles’ canal system, the province of Punjab is producing electricity through water resources having capacity of 1,795.3 MW only out of which 1450 MW power plant is installed at Ghazi Barotha only. Electricity production through solar resources also requires attention. The provincial governments are authorized under the constitution to generate power at provincial level. Accordingly, Power Generation Policy is framed by the Government of Punjab. There is need to work on the less-explored resources for electricity generation by both Federal level and provincial level. In this context, this study aims to identify the potential energy resources of the Punjab province along with analyzing the demand and supply gap in the province. Section two of the study analyzes the demand supply gap in the Punjab province followed by, in section three, potential of energy resources in the province. Section four concludes the study followed by recommendations in section five. 2. DEMAND-SUPPLY GAP ANALYSIS: ENERGY OUTLOOK Sustained supply of affordable and environment friendly energy supply to the population at large is the prime concern of policy makers around the globe. Punjab, population-wise the largest province of Pakistan, has been facing severe economic downturn due to unfulfilled energy needs of households and producers. The province is rich in water resources having country’s most sophisticated irrigation system. It is potentially viable to implant small capacity water power plants to produce electricity which is the cheapest primary source of energy. Solar radiation intensity, available in the province for more than 3,000 hours in a year, is capable of producing electricity. According to estimates of Punjab Bio Energy Company (Pvt) Limited, minimum 10.9 million tons’ biomasses is available for power production in the province which reflects that the potential of power production through biomass can also be explored. 2 Data Source: NEPRA, 2015 Page | 3 Reliance on expensive resources to produce power is not a rational choice to generate economic activity. Oil price variability in the international market put negative pressures on any oil importing economy primarily due to high import cost. The energy sector of Pakistan has been heavily subsidized up to 2008. Afterwards more deregulated approach and elimination of subsidies by the government of Pakistan results in energy price fluctuations in line with the oil price fluctuations in world oil market. Figure 2 depicts that growth in crude oil prices in the international market results in growth in cost of fuel on electricity generation in Pakistan. Since 2008, growth rate of the cost of fuel for electricity generation has 68% correlation with growth rate of crude oil prices. In this deregulated environment, oil price increases results in rising cost of production. As a result, economy bears high price level, low economic growth and high unemployment, that is stagflation. According to Hamilton (1983), Hamilton and Herrara (2004), Kilian (2008) and Khan (2012), high oil prices have damaging effects on the economy through high inflation and low economic growth accompanied with deteriorating balance of payments and mounting fiscal deficit. High energy prices also erode purchasing power of households because of high energy bills on one hand and low real wages on the other hand (Kilian, 2008). 60.00 40.00 20.00 0.00 2008 2009 2010 2011 2012 2013 2014 2015 -20.00 -40.00 -60.00 Growth in Real Crude Oil price Growth in Cost of Fuel for electricity generation Figure 2: Co-movement of Crude Oil prices and cost of Fuel on electricity3 Existing installed capacity of the power projects working in the territory of Punjab is 49.6% of the total installed capacity of the country whereas it will be 62.5% after 2020. Fuel mix in electricity generation, existing and after 2020 is depicted in Figure 3 which depicts that major reliance of power production in Punjab remained at thermal (Furnace Oil, Diesel, Regasified Liquefied Natural Gas(RLNG) and Natural Gas) power. One coal power project, having installed 3 Data Source: U.S. Energy Information Administration and Power System Statistics Page | 4 capacity of 1320 MW, will be commission by third quarter of this year. Summary of the installed capacity of the power projects operating in Punjab is depicted at Table 2.