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The Government of Pakistan's (GOP) Renewable Energy Policy 2006 emphasizes the development of renewable and clean energy in the country.

    Renewable Energy Market in Pakistan

    Page 1 of 8

    Aftab Qamar

    03/2007

     ID: #14261502

    Summary

The Government of Pakistan‘s (GOP) Renewable Energy Policy 2006 emphasizes the development of

    renewable and clean energy in the country. In fiscal year 2005-06, Pakistan‘s consumption of energy generated through renewable energy (RE) sources stood at only 180-MW. Development of the power

    generation potential of existing RE sources, solar, biogas, biomass, micro-hydel, and windmills, offers

    substantial business opportunities for American manufacturers and exporters. Due to in-country depletion of

    conventional energy resources and an expanding gap between power demand and supply, the development

    of RE sources in the country has gained momentum over the past 3-4 years. The GOP has decided to

    encourage and invest in the development of the infrastructure necessary for power generation through RE

    sources through its Alternate Energy Development Board (AEDB). The goal is to have power generation from

    RE sources contribute approximately 10 percent of the country‘s overall energy requirements by 2015.

    American companies already dominate the foreign-owned portion of the local RE power generation market

    with almost 25 percent of market share, followed by European and Chinese companies, which have 10

    percent and 5 percent of market share respectively. The remaining 60 percent of current RE power generation

    is in the hands of domestic companies. AEDB and the Pakistan Council of Renewable Energy Technologies

    (PCRET) are playing a major role in promoting the development of infrastructure for RE power generation in

    Pakistan.

    Market Demand

Energy demand in Pakistan is accelerating rapidly and the power generation sector requires massive

    investments of private sector capital to meet this demand. With the economy experiencing high rates of

    growth -- 6.3 percent and 8.4 percent respectively in the last two years -- Pakistan‘s energy requirements have expanded at a rate of between 7 and 8 percent annually. Pakistan‘s current annual power generation of

    approximately 19,500-MW is insufficient to cover the growing gap between supply and demand. Daily load

    shedding of up to 700-MW occurs due to the current power supply shortage and poor transmission

    capabilities. Projections by various energy experts indicate that Pakistan would need to add at least 2,000-

    MW of power generation every year during the period 2007-2015 to meet the increasing demands generated

    by GDP growth target of 6 to 7 percent per annum. The GOP plans to meet the country‘s power generation

    requirements by allowing the private sector to develop 12 hydropower projects with a projected generation

    capacity ranging between 53-MW to 600-MW. In addition, existing independent power projects (IPPs) a

    Pakistani government euphemism for private sector-owned investments in this sector -- are being asked to

    expand their existing capacities. IPPs currently generate approximately 5900-MW of power annually, mostly

    through conventional thermal methods. In November 2006, the Private Power and Infrastructure Board (PPIB),

    a department of the Ministry of Water and Power, announced seven new licenses that would be made

    available to private sector companies to develop hydropower generation at pre-selected sites. The award of

    such licenses to successful bidders is to be made during this fiscal year. Further details may be viewed at the

    PPIB website: http://www.ppib.gov.pk. The website also provides information on the GOP‘s overall Power

    Policy and provides the standard documentation necessary for setting up an IPP operation in Pakistan.

Although conventional thermal power generated by coal, oil, and gas is expected to meet a large percentage

    of future demand, there is also enormous scope for more environmentally friendly options. The GOP has

    adopted a systematic development plan called ‗Vision 2025‘ that targets a long-term capacity increase of around 35,000-MW by the year 2025. This planned expansion will cost approximately US$30 billion.

    Renewable Energy Market in Pakistan

    Page 2 of 8

Conventional Energy Sources: Pakistan, despite the enormous potential of its energy resources, remains

    energy deficient and has to rely heavily on oil imports to satisfy its requirements. Pakistan spends $3.5 billion

    every year on the importation of oil. 38.3

    Primary Energy Supplies by Sourcepercent of the electric power currently Nuclear consumed in Pakistan is generated from Hydro ElectricityElectricityCoal11.0%oil (largely imported), while 43.8 percent is 1.4%5.1%Oilgenerated by natural gas, mostly from 38.3%Nuclear Electricitydomestic sources. During fiscal year Hydro ElectricityLPG2005-06, the total installed capacity of Coal0.4%electricity generation stood at 19,439-MW. LPGOf this, Hydel accounts for 56.9 percent, GasGasand thermal accounts for 43.1 percent. Oil43.8%The Water and Power Development Authority (WAPDA), the Karachi Electric Total Installed Generation Capacity Supply Company (KESC), the Karachi Name of Installed % Installed % % Change Nuclear Power Plant (KANUPP) and the Power Capacity Share Capacity Share Firms 2004-05 2005-06 Chashma Nuclear Power Plant are the

    four main public sector power utility WAPDA 11298 58.2 11363 58.5 0.6

    Hydel 6463 57.7* 6463 56.9* 0 organizations and are involved in power Thermal 4835 42.3* 4900 43.1* 1.3 generation, transmission, and distribution IPPs 5873 30.3 5858 30.1 -0.3 of electricity. Independent power projects Nuclear 462 2.4 462 2.4 0 (IPPs) are involved only in power KESC 1756 9.1 1756 9.0 0 generation that is distributed over one of Total 19389 100 19439 100 0.3 the public sector organization‘s ? Share in WAPDA system transmission and distribution grid. The Source: Hydrocarbon Development Institute of Pakistan share of power generated by the WAPDA

    system stood at 58.5 percent followed by the IPPs at 30.1 percent, KESC at 9.0 percent, and nuclear at 2.4

    percent.

Renewable energy accounts for only 180-MW of Pakistan's present power output. Small to medium-sized

    hydropower plants offer the greatest renewable energy potential for Pakistan; possibilities also exist in

    promoting greater use of wind, solar, and biomass power projects. The GOP‘s current infrastructure

    development program, officially called the Renewable Energy Development Sector Investment Program,

    is targeted to expand the country's power supply, especially in rural areas, such that it will permit

    approximately 600,000 new domestic connections for 4.8 million people. The investment program in RE

    development will consist mainly of small to medium-sized hydropower plants in the NWFP and Punjab

    province. This program will be implemented in the following three major areas:

    Renewable Energy Market in Pakistan

    Page 3 of 8

I) Clean Energy Development: The GOP is seeking foreign or domestic power firms to bid on contracts to

    expand its small hydropower generating New Hydropower Projects capacity. The main projects to be completed

    under this phase of the program include Province Name of Hydropower Plant Capacity (MW) construction of thee grid-connected plants in Dharal Khwar 36.6 NWFP ranging from 2.6 MW to 36 MW and NWFP Ranolia Khwar 11.5 five hydropower stations in Punjab ranging

    Machai 2.6 from 3.2 MW to 7.2 MW. The total capacity

    will be about 75 MW, which will generate Chianwali 5.4 about 400 GWh of annual energy output. Deg Outfall 5.0 Punjab Pakpattan 3.2

    Okara 4.0

     Marala 7.2

II) Feasibility Studies and Other Due Diligence of New Sites: The GOP is further seeking domestic or

    international firms to conduct various research activities into the feasibility of developing new potential

    hydroelectric generation projects. The first New Raw sites for Hydropower Projects pre-feasibility report (PFR) will support

    preparation of eight additional feasibility Expected Capacity Province Name of Hydropower Plant studies involving new sites in NWFP (three) (MW)

    and Punjab (five). The feasibility studies Koto 18.0 include due diligence on technical, financial, NWFP Jabori 8.0 commercial, regulatory, operational,

    Karora 7.5 governance, legal, safeguards, procurement,

    and implementation matters. ADB will advise BS Link RD 106 10.0 on the terms of reference for the experts BS Link Tail RD 316 10.0 conducting these studies. All studies will be Punjab LBDC RD 258 6.0 required to comply with ADB operating rules

    LBDC RD 461 3.5 and procedures.

     LCC RD 0 5.0

III) Capacity Development: This component will support work at the federal, provincial, and project levels to

    strengthen administrative oversight of the other two components of this project. The GOP is seeking

    domestic or international firms to assist federal and provincial government authorities in developing their

    technical skills relating to the management of development of the RE sector. Specific areas of support are to

    include better planning, policy work, training, financial management, fiduciary oversight, tariff setting,

    institutional strengthening, project management, safeguards, evaluation, monitoring, and reporting. Support

    will also include provision of information on international developments in the hydroelectric sector and

    technical backup expertise.

During fiscal year 2005-06, GOP has initiated several new projects in the renewable energy sector through its

    AEDB designed to promote, implement and execute alternative renewable energy technologies. Most of

    these projects are to be developed through private sector investment. The government has approved the

    following operating guidelines for the AEDB under the Energy Security Action:

    ? Wind and solar energy power generation should be developed such that at least 5 percent of total

    power generation capacity will be met through these resources (i.e. 9,700-MW) by 2030.

    ? A 100-MW wind power project should be installed by June 2008 at Keti Bandar and Gharo towns of

    Sindh province and its capacity should be increased to 700-MW by 2010.

    ? The GOP‘s Roshan Pakistan Program‘s goal of electrification of all villages in the country within the

    next three years should be carried out through RE power generation.

    Renewable Energy Market in Pakistan

    Page 4 of 8

    ? Solar products like solar fans, solar cookers, solar geysers, etc. must be developed on a priority basis

    by the private sector.

    ? Laws and taxes should be designed to encourage household self-energy generation through such

    technologies as solar heating, solar geysers, etc.

    ? Solar water heating systems at the household level should be promoted in order to save energy.

    Solar water desalination plants should be installed in areas having brackish water.

    ? Efficient cooking stoves in villages should be promoted in order to conserve wood.

    Medium Term Development Framework (MTDF)

    ? The AEDB should encourage the utilization of renewable energy, such as solar, wind and biomass,

    especially in remote areas.

    ? The AEDB will implement projects based on renewable resources, to develop small size, isolated

    solar/wind units in remote areas of the country, unlikely to get electricity through the national grid.

In December 2006, the Asian Development Bank (ADB) launched a development program of renewable

    energy in Pakistan through a multitranche financing facility (MFF) of US$510 million. This program is the first

    of its kind in Pakistan and also one of the first to be developed under the ADB's evolving clean energy and

    efficiency initiative. Contracts for the construction of the hydropower plants to be financed under this loan will

    be made available in accordance with ADB's Procurement Guidelines through international competitive

    bidding (ICB) procedures.

    Market Data

The formal exploration and development of RE sources in Pakistan began in 1997 under the auspices of the

    Pakistan Council of Renewable Energies Technologies (PCRET) with the objective of addressing growing

    energy demands from household and industrial consumers. In order to provide electricity to rural areas that

    would otherwise not have electricity in the foreseeable future (because they are either too remote and/or too

    expensive to connect to the national grid), Pakistan is turning to solar power. Pakistan has worked with

    WorldWater, an American company, to install solar-powered water pumps that can help address the water

    needs of people in rural areas without electricity.

Photovoltaic (PV) Technology

According to an AEDB study, Pakistan is located in the ―sun-belt region,‖ ensuring sufficient sunlight for RE

    purposes. The annual average solar radiation on a horizontal surface available in the country varies from 224.7Km/m to 6.2 Km/m. According to the Pakistan Energy Book 2004-05, the 20 percent use of efficient

    device solar energy falling on 0.25 percent of Balochistan province would be adequate to meet the current

    energy requirements of the country. The AEDB plans to electrify the country‘s remaining 400 remote villages,

    300 of them in Balochistan and 100 in Sindh, utilizing solar energy. The Government has sanctioned an

    amount of Pak Rupees 450 million (US$1.00 equals to Pak Rupees 60 at the current exchange rate) for solar

    electrification projects countrywide.

Biomass

Biomass in Pakistan comprises fuel wood, agricultural waste and animal dung, which is available in surplus in

    all parts of the country. The production of energy through biogas was started in Pakistan in early 1997 by

    PCRET with the installation of 4,000 plants in several major cities of the country, having a capacity of

    between 5-15 cubic meters per day. During FY 2005-06, AEDB installed 1,200 new family-size biogas plants,

    which will meet the domestic needs of 1200 households in the rural area of the Punjab province.

Micro Hydropower (MHP)

    Renewable Energy Market in Pakistan

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     The GOP is also focused on exploring the country‘s available micro-hydel resources. In this context, AEDB

    has designed a number of projects to install micro and hydro power plants as part of its efforts to generate

    cost effective electricity and mechanical power. According to an AEDB source, the recoverable potential of

    hydroelectric power in the country is estimated to be around 40,000-MW. At present, only 16 percent of this

    potential is being exploited. AEDB has already installed 300 micro and mini hydro power plants (with an

    installed capacity of 3-MW) in northern areas of Pakistan, and the construction/civil work on 100 new sites is

    under progress. In addition, the Pakistan Council for Appropriate Technologies (PCAT) is playing a proactive

    role in developing hydel energy resources. In this regard, PCAT has installed 253 ―run of river type‖ hydel

    plants in North-West Frontier Province.

Wind Energy Technology

According to PCRET, Pakistan has a considerable potential of wind energy in the coastal belt of Balochistan

    and Sindh provinces, which is sufficient to electrify all remote coastal villages in the country. Energy

    generation through windmill technology is relatively new in Pakistan. During FY 2004-05, PCRET installed

    134 wind power turbines for pilot projects in the remote coastal areas of Sindh and Balochistan provinces. In

    addition, PCRET is collaborating with the private sector and the United Nations Development Program (UNDP)

    for the development of a network of small windmills with a capacity ranging from 0.5-KW to 5-KW to meet the

    electricity demand of coastal areas in Pakistan. The AEDB has also identified a wind corridor between the

    towns of Gharo and Keti Bandar in Sindh province. This corridor has the potential to produce 40,000-50,000

    MW of electricity. The AEDB has conducted a pre-feasibility study of the site and has invited the private

    sector to setup wind turbines there. So far, eight companies have been short listed to execute the projects on

    a build, own, operate, and transfer (BOOT) basis. These projects are scheduled to start producing 100-MW

    of electricity by June 2007. The AEDB issued 28 Letter of Interest (LOI) to prospective investors that allow

    them to set up windmill farms of about 50-MW each in the coastal areas. This production is scheduled to

    increase to 700-MW by 2010 and to 9,700-MW by 2030. Companies from the USA, Canada, Germany,

    Holland and China have expressed interest in wind energy projects in Pakistan. The following table shows the

    current installed capacity of RE sources in the country:

    Technology Net Installed Unit Size 3 Bio-Mass 5,357 units 3-15 m/Day Improved Chullahs (Stoves) 60,000 units 12-28 % efficient Microhydel HHLD 300 units (3 MW) 3-300 KW LHHD 550 KW- in pipeline 25-75 KW Wind Mills 30units 150-8,000 gph (For water lifting) Wind Turbines 134 units 0.3-0.5 KW (For power generation) Photovoltaic 650 KW 5-56 KW 60 KW- in pipeline Solar Water Heaters Limited production Family size Solar Cookers 3,000 units 250-750 watts Solar Desalination 15,000 gal/day 250-6,000 gal/day Solar Dryers (For fruits) Effectively being used in northern mountain regions.

    Best Prospects

With a population of approximately 162 million people and a rapidly growing GDP of more than US$130 billion,

    Pakistan continues to offer significant trade opportunities for U.S. businesses in the following sectors.

    ? Solar cells and solar wafers

    ? Solar energy equipment and solar desalination equipment and accessories

    ? Windmills/turbines sizeable market exists for small to large-scale energy generation (from 100 KW

    up to 2 MW)

    Renewable Energy Market in Pakistan

    Page 6 of 8

    Energy storage technology for intermittent generation ?

    ? Biomass generating technology including waste to energy and bio-fuel manufacturing

    ? Equipment and accessories for geothermal and hydro power generation

    Market Entry

American products and services enjoy an excellent reputation in the local market based on their quality and

    durability. However, American companies face tough competition from European, Chinese, Japanese and

    Korean competitors, which generally have a larger presence in the country and are able to offer their products

    and services at competitive prices. Providing after-sales service is essential and U.S. firms are advised to

    establish this service either through a local agent/distributor or through their own presence in the local market.

Recently, Pakistani firms have shown a strong interest in collaborating with American firms to expand their

    access to the latest technology and expertise. The best way for American manufacturers and suppliers to

    penetrate the Pakistan market is to utilize the benefits of the network services and programs of U.S. Export

    Assistance Centers (USEAC, visit http://www.export.gov/comm_svc/eac.html) in association with the U.S.

    Commercial Service offices located in Islamabad, Karachi, and Lahore. Seeking the assistance of USEACs

    before exploring an opportunity in this market is highly encouraged. We recommend that interested American

    firms use an agent/distributor relationship with a locally registered company.

Using an Agent/Distributor: Many foreign firms in Pakistan appoint local agents to provide market

    intelligence and to facilitate distribution. These agents typically work on a fixed commission, which can range

    from two to 10 percent for plant and equipment purchases and from 15 to 20 percent for spare parts.

    Commissions may be computed on f.o.b., ex-factory, or c.i.f. basis, as mutually agreed. Some agents prefer

    to have suppliers quote net prices to them and they, in turn, add the commission to arrive at their selling price.

    Other agents operate as consultants on a retainer ship basis, receiving their fee regardless of the volume of

    total sales. Many foreign principals appoint one or more agents/distributors to cover the entire country; at

    times foreign principals work through a regional office to cover this market. Several U.S. firms cover Pakistan

    through their Dubai, Singapore or London offices.

Probably the most common arrangement is the exclusive agency agreement, under which the supplier agrees

    neither to appoint another dealer/distributor, nor to negotiate sales through any other party. In return, the

    agent is barred from handling similar items produced by other companies. Under this arrangement, the agent

    receives commissions on all sales of the product regardless of the channels through which the order is placed.

    The agent often imports and stocks the spares most frequently required by the end-users. Agency

    agreements typically extend for a term of one to three years and generally require 30 to 90 days notice by

    either party for termination.

Joint-Ventures/Licensing: Joint ventures can be an attractive option in Pakistan, as there are many local

    entrepreneurs who have built a substantial base in their industrial enterprises and are seeking to combine

    their knowledge of local markets with foreign capital and technological know-how. The foreign joint venture

    partner limits its initial country exposure while enjoying the support of a local partner in a new market.

    Prominent joint ventures have been established in the automobile, fertilizer, electronic, financial services, and

    food and consumer product sectors.

Firms wanting to delay direct entry into the Pakistani market should consider licensing arrangements with

    Pakistani firms, an option that permits them to enter the market in stages if the initial response is promising.

    Market Issues & Obstacles

    ? The main challenge that the AEDB is facing in the execution of its projects is the availability of

    equipment. Wind turbines are not available off-the-shelf in the world market. This is due to the fact

    that the United States has an extensive wind energy program that offers tax rebates until the end of

    Renewable Energy Market in Pakistan

    Page 7 of 8

     2007. All leading manufacturers of wind energy equipment have fully committed existing supplies to

    the American market. However through extensive marketing efforts, the AEDB states that it has

    convinced the four top OEMs GE of USA, VESTAS of Denmark, Gamesa of Spain and Fuhrlander

    of Germany to reserve the equipment needed to produce 50-MW in Pakistan.

    ? A similar supply problem exists with the components of solar energy systems. Due to current high

    demand, there is a shortage of solar power systems in the world market.

    ? As wind and solar power systems will be in direct competition with the GOP‘s Vision 2025

    hydropower generation program, interested American firms must offer price competitive wind and

    solar power systems, in order to ensure profitability and competitiveness in the local market. Although,

    the development work on the proposed 3,600-MW Kalabagh Dam and the Thar Coal power projects

    has not been initiated, the current delays are mainly due to political controversies, environmental

    concerns, and downstream economic impacts that could hold less sway over time. Once these

    projects become operational, they may offer low cost energy supplies that would obviate the need for

    renewable energy sources.

    ? Pakistan is a diverse and challenging market requiring adaptability and persistence. Careful planning

    and patience are the prerequisites for success in this emerging market. American firms that are

    willing to invest time to develop market presence should expect to be rewarded in the long-term.

    Trade Events

Alternative Energy & Power Asia Exhibition

    Date: 09-MAR-07 to 11-MAR-07 Alternative Energy & Power Asia Exhibition is the biggest specialized exhibition in Pakistan, covering power

    generation, transmission and distribution, as well as energy saving technologies and renewable energy

    development.

    Venue: Karachi Expo Centre, Karachi, Pakistan

    Visitor's Profile:

    Target visitors include foreign companies seeking joint ventures, foreign & local investors / industrialists, trade

    delegations from various countries, high level government officials, policy and decision makers, foreign

    missions, business magnates of Pakistan, top executives and professionals from local industry, opinion

    leaders & consultants.

    Organizer:

    E- Commerce Gateway Pakistan Private Limited

    18, C.P Berar Society, Off Amir Khusro Road

    Karachi, Pakistan.

    Tel: +(92)-(21)-222444/4536321/4536330

    Fax: +(92)-(21)-4536330

    American firms should also consider participation in regional events (focusing on either South Asia or the

    Middle East) in order to reach potential Pakistani purchasers, agents, and distributors.

    Resources & Key Contacts

    Renewable Energy Market in Pakistan

    Page 8 of 8

     Federal Government:

    Mr. Mujahid Sadiq

    Director General for International Cooperation

    Alternative Energy Development Board

    B-344, Prime Minister's Secretariat

    Constitution Avenue

    Islamabad, Pakistan

    Tel +92-51-9207594

    Fax +92-51-9205790

    E-Mail: mujahid@aedb.org

    NWFP:

    Mr. Ishtiaque Hussain Shah

    Managing Director

    Sarhad Hydel Development Organization (SHYDO)

    372-WAPDA House

    Shami Road

    Peshawar, Pakistan

    Tel +92-91-9212034, 9212026

    Fax +92-91-9211988

    E-mail: bshah786@hotmail.com

    Punjab Province:

    Mr. M. Yaqoob

    Chief Engineer (Power)

    Irrigation and Power Department

    1ST Floor, Central Design Building,

    Irrigation Secretariat near Old Anarkali

    Lahore, Pakistan

    Phone: +92-42-921-2794

    Fax: +92-42-921-2796

    E-Mail: engrmmy@hotmail.com

For More Information

    The U.S. Commercial Service at the Consulate of the United States of America in Lahore can be contacted via e-

    mail at: Aftab.Qamar@mail.doc.gov; Phone: (92)-42-603-4000; Fax: (92)-42-603-4229 or visit our website: www.buyusa.gov/pakistan.

The U.S. Commercial Service Your Global Business Partner

    With its network of offices across the United States and in more than 80 countries, the U.S. Commercial Service of

    the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S.

    companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the

    U.S. nearest you by visiting http://www.export.gov/.

Disclaimer: The information provided in this report is intended to be of assistance to U.S. exporters. While we make every

    effort to ensure its accuracy, neither the United States government nor any of its employees make any representation as to the

    accuracy or completeness of information in this or any other United States government document. Readers are advised to

    independently verify any information prior to reliance thereon. The information provided in this report does not constitute legal

    advice.

International copyright, U.S. Department of Commerce, 2006. All rights reserved outside of the United States.

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