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PROSPECTS OF ENERGY EFFICIENCY BUSINESS, IN PAKISTAN Muhammad Saghir Khan (Chief Executive) Energy Associates (Pvt.)

PROSPECTS OF ENERGY EFFICIENCY BUSINESS, IN PAKISTAN

Muhammad Saghir Khan (Chief Executive) Energy Associates (Pvt.) Limited.

PROSPECTS OF ENERGY EFFICIENY BUSINESS IN PAKISTAN LIST OF CONTENTS CHAPTERS PAGE NO. 1. Abstract

PROSPECTS OF ENERGY EFFICIENY BUSINESS IN PAKISTAN LIST OF CONTENTS

CHAPTERS

PAGE NO.

1. Abstract

3

2. Acronyms

3

3. Introduction

4

4. Energy Growth

7

5. Energy Efficiency Market of Pakistan with its Potentials and Barriers

9

6. Efforts of Energy Efficiency Improvement Organization

11

7. Initiative for Energy Efficiency in Governmental & Public Buildings

14

8. EEIO Long term Mechanisms

15

9. Conclusion

16

ABSTRACT: Energy Services Companies represent an eff ective tool to implement energy conservation projects. He

ABSTRACT:

Energy Services Companies represent an effective tool to implement energy conservation projects. He provides the know-how and may be finance for implementations in beneficiary enterprises. Although energy services companies have proved their effectiveness in many countries, however this industry will be new to the Pakistan market. The Energy Efficiency Improvement Organization (EEIO) under the Govt. platform says as Enercon with dedicated components to provide support, to this industry.

Support is needed to provide through different programs including, energy audit programe, trading and capacity building, loan guarantee programe to facilitate access to finance and technical support. EEIO support to ESCOs will pass through different phases to established model of ESCOs in Pakistan, based on different backgrounds and working scopes.

Regardless with this kind of institutional support, we all realized that this industry will face more challenges due to low awareness, policy of energy subsidy, and unavailability of specialized agency to resolve disputes which arise due to new this business.

To overcome these obstacles, EEIO with help of Enercon or other Govt. authority should establish Energy Efficiency Law which in many parts of it will offer a boost to this industry through tackling the after mentioned obstacles.

For there more EEIO is to open new business opportunities to these companies through an initiative for Energy Efficiency in Governmental buildings, propose new scope for co-generation projects and developing interruptible power contracts.

ACRONYMS:

EEIO Energy Efficiency Improvement Organization ESCO Energy Services Companies TPES Total Primary Energy Supply OECD Organization for Economic Cooperation and Development MVP Measurements and Verification Protocols

INTRODUCTION: Pakistan suffers from inefficient use of its ener gy resources. As shown in Figure

INTRODUCTION:

Pakistan suffers from inefficient use of its energy resources. As shown in Figure – 5, most of the

Pakistan industries suffer from high specific energy consumption compared with the

international norms. According to the statistics of the year 2006, the intensity of the Total

Primary Energy Supply (TPES) is more than three times of the Organization for Economic

Cooperation and Development (OECD) countries and around double the world average.

However, it is a little bit better than the average of the middle - east. On other hand the energy

consumption per capita is one fifth of the OECD countries as well as half of the world average.

This means that the potential increase in energy demand will be excessive with the growth in the

gross domestic product as well as standards of livings unless a corrective action is taken.

0.8 0.7 0.6 0.3 0.2 TOE / 1000 US$
0.8
0.7
0.6
0.3
0.2
TOE / 1000 US$
action is taken. 0.8 0.7 0.6 0.3 0.2 TOE / 1000 US$ Figure-1: Specific Consumption of

Figure-1: Specific Consumption of the Total Primary Supply to Generate 1000 U.S$ in the gross natural product

4.5 2.5 1.5 0.7 0.8 TOE / CAPITA Figure-2: Specific Consumption of the Total Primary
4.5 2.5 1.5 0.7 0.8 TOE / CAPITA
4.5
2.5
1.5
0.7
0.8
TOE / CAPITA
4.5 2.5 1.5 0.7 0.8 TOE / CAPITA Figure-2: Specific Consumption of the Total Primary Energy

Figure-2: Specific Consumption of the Total Primary Energy Supply per capita

Figure-3 shows that the position of power consumption in TWh in Pakistan (2005-06). The position of power consumption, the household sector has been the largest consumer of electricity, accounting for 30.7 TWh of total power consumption, followed by industrial 19.8 TWh, agriculture 7.9 TWh, other government sector 5.7 TWh, commercial 4.0 TWh and street light 0.4 TWh.

35 30.7 30 25 19.8 20 15 7.9 10 4.0 5.7 5 0.4 0 HOUSE
35
30.7
30
25
19.8
20
15
7.9
10
4.0
5.7
5
0.4
0
HOUSE HOLD
COMMERCIAL
INDUSTRIAL
AGRICULTURE
STREET LIGHT
OTHER GOVT.
Power Consumption in TWh

Figure-3: Power Consumption by ultimate user; Pakistan (2005-06)

STREET LIGHT OTHER GOVT. 10.9% AGRICULTURE 11.5% INDUSTRIAL 28.1% 0 . 5 % HOUSE HOLD

STREET LIGHT

OTHER GOVT. 10.9% AGRICULTURE 11.5% INDUSTRIAL 28.1%
OTHER GOVT.
10.9%
AGRICULTURE
11.5%
INDUSTRIAL
28.1%

0.5%

HOUSE HOLD 42.5% COMMERCIAL AREA 6.6%
HOUSE HOLD
42.5%
COMMERCIAL
AREA 6.6%

Figure-4: Consumption of Electricity (Sect oral Share) in Pakistan

Figure-4 shows that the position of electricity consumption in Pakistan (2005-06). The position

of electricity consumption in Pakistan from 1995-96 to 2004-05, on an average, the household

sector has been the largest consumer of electricity, accounting for 44.3 percent of total electricity

consumption, followed by industrial (29.1 percent), agriculture (12.8 percent), other government

sector (7.3 percent), commercial (5.8 percent) and street light (0.6 percent).

Specific Energy Consumption (KG Oil Equil. / 0.36 TOE of Project)

1800 1600 Pakistan 1400 Intl.nom 1200 1000 800 600 400 200 0 IRON AND STEEL
1800
1600
Pakistan
1400
Intl.nom
1200
1000
800
600
400
200
0
IRON AND STEEL
CEMENT
PLASTICS TIRES PAPER GLASS SUGAR
ALUMINIUM
BAKERIES
CO PPER
TEXTILE

Figure-5: Specific Energy Consumption for some industrial sectors in Pakistan compared with international norms

Pakistan 30 25.45 25 20 15.20 15 6.43 10 3.30 0.42 5 0.0 0 COAL
Pakistan
30
25.45
25
20
15.20
15
6.43
10
3.30
0.42
5
0.0
0
COAL
HYDRO
NUCLEAR
OIL
RENEWABLE
NATURAL GAS
Primary Energy Consumption (50.8 MTOE)

Figure-6: Specific Primary Energy Consumption in Pakistan

ENERGY GROWTH:

With a primary energy consumption of 50.8 MTOE in 2004-05, Pakistan ranks 30 th in the world in terms of amount of energy use. However, the per capita energy consumption (0.36 TOE) is one fifth of the world average of 1.77 TOE. The mix of primary energy supply in 2004-05 was:

gas 50.3 percent; oil 29.8 percent; hydro 11.0 percent; coal 7.6 percent and nuclear 1.2 percent. The current installed electricity generation capacity is 19,400 MW and the generation mix is: gas 50.8 percent; hydro 30.0 percent; oil 15.8 percent; nuclear 3.3 percent and coal 0.2 percent (HDIP 2005).

During the period 1980 to 2005 in Pakistan, the ratio of growth rate of primary commercial energy to growth rate in GDP was 0.97, but increased to 1.02 during, 2001-05. This ratio is expected to fall with improved efficiencies of transformation and distribution, which will be necessary as economic growth fuels higher demand for energy (oil, gas and electricity), but it is currently higher than one.

Based on historical and current trends in eco nomic growth, Pakistan envisages 7.2 percent energy

Based on historical and current trends in economic growth, Pakistan envisages 7.2 percent

energy growth up to 2010 and 8.8 percent thereafter, or a total energy need of 361 MTOE by

2030.

The use of coal, nuclear and new renewable energy source of wind and solar is very compared to the present world average shares. In addition to the above mentioned commercial energy use, some MTOE of traditional fuels (fuel wood, crop residues animal wastes) are also used by the households and industry. The use of these traditional fuels is expected to decline with due to increased availability of commercial fuels like Liquefied Petroleum Gas (LPG) and natural gas, which are more convenient. However, this decline will require reduction in prevalence of poverty. Access to electricity in the country is quite high (80 percent) but the proportion of consumers using less than 60 units per month per household is also very high; the per capita electricity consumption (402 kWh) is less than one-sixth of the world average of 2,516 kWh.

 

World

Pakistan

India

Bangladesh

China

Malaysia

Population

6393

159

1086

141

1300

25.6

(Million)

 

Per Capita

8200

2100

2200

1900

5000

9000

GDP

 

(PPP)

Per Capita

1.55

0.30

0.32

0.11

0.91

2.17

Primary

 

Energy

Supply

(TOE)

Per Capita

2657

581

561

145

1484

3500

Electricity

 

Generation

(kWh)

Table-1: World and Regional Energy Comparison, 2004

  Current Short   Medium   Long     Term Term Term   2004 2010
 

Current

Short

 

Medium

 

Long

 
 

Term

Term

Term

 

2004

2010

2015

2020

2025

2030

Total

 

50.8

79.39

120.18

177.35

255.37

361.31

MTOE

 

Oil

15.20

30%

20.69

26%

32.51

27%

45.47

25.7%

57.93

22.7%

66.84

18.5

 

%

Natural

25.45

50%

38.9

49%

52.98

44%

77.85

44%

114.84

45%

162.58

45%

Gas

 

Coal

3.30

6.5%

7.16

9%

14.45

12%

24.77

14%

38.28

15%

68.65

19%

Hydro

6.43

12.7%

11.03

13.9%

16.4

13.6%

21.44

12.1%

30.50

12%

38.93

10.8

 

%

Renewable

0.0

0%

0.84

1.1%

1.60

1.3%

3.0

1.7%

5.58

2.2%

9.20

2.5%

Nuclear

0.42

0.8%

0.69

0.9%

2.23

1.9%

4.81

2.7%

8.24

3.2%

15.11

4.2%

Table-2: Energy Mix Plan in Pakistan

ENERGY EFFICIENCY MARKET OF PAKISTAN WITH ITS POTENTIALS AND BARRIARS:

The Energy Efficiency market size is estimated at 1.2 billion U.S$, with their respective breakdown of the market size by technology. Cogeneration, process controls and power factor improvement have the highest opportunities. Considering the number of potentials implementations, power factor improvement and lighting are the highest. The industrial sector accounts for 95% of the total market opportunities, while the commercial sector accounts for only 5%, regardless the market potentials, the market suffers form many negative forces. Although many efforts have been made for improving awareness, further efforts are still needed especially at the decision making level. Lack of operating, calibrated energy measuring instruments and absence of forms and records for energy consumption add to awareness problem on the plant level. Absence of national codes and standards for energy consumption as well as energy bench marking for energy utilization efficiency in industrial processes, limits the market. On the other hand there is no incentive or rebate policy for energy conservation projects.

9

Regarding the energy prices, they have been increasing drastically, oil and gas respectively increased by

Regarding the energy prices, they have been increasing drastically, oil and gas respectively increased by 30% and evaluated according to the exchange rate of the Pak rupees against the U.S$.

Although the aforementioned increases in prices improve the attractiveness of the Energy Efficiency projects. Especially for thermal process application, as our natural resource for hydrel power generation is diminishing. The distortion between electricity and fuel prices has been increased. This has a negative effect on the financial attractiveness of the cogeneration projects.

Power Factor Improvemnts, 15% cogeneration , Steam System Improvements, 28% 8% Motor Drive, 10% Heat
Power Factor
Improvemnts,
15%
cogeneration ,
Steam System
Improvements,
28%
8%
Motor Drive,
10%
Heat
Rec overy, 7%
Process
HVAC &
Combustion
Control, 15%
Refrigration,
Control, 6%
3%
Lighting, 8%

Figure-7

Figure-7 Break down of Energy Efficiency market in Pakistan by technology. Regarding the economical barriers, the Pak rupees has been subjected to a period of instability over the past many years and in further as well is expected, which may affect for the attractiveness of energy conservation projects which rely sizeably on imported items.

The legal structure need to be established to face and risk free for asset-backing lending. Financial institutions are lacking knowledge and experience regarding efficiency projects.

All these factors limit the amount of debt and equ ity ratio for energy savings

All these factors limit the amount of debt and equity ratio for energy savings projects of one to one. The cost of finance is high. The average interest rate range between 12 to 15% limited resources are available for medium and long-term finance. However it is important to mention that many donors funded programs are available. The legal system suffers from complex and slow process for resolving legal disputes.

A lso there is a lack of experience in resolving disputes, which may arise in some cases when the Measurements and Verification Protocols (MVP) are considered for evaluating the savings.

E FFORTS OF ENERGY EFFICIENCY IMPROVEMENT ORGANIZATION (EEIO):

T here is need to established the Energy Efficiency Improvement Organization (EEIO) which is to be executed through governmental organization, such as Enercon as the project will consists of three components including loss reduction on national grid and demand side management component, market support for Energy Efficiency business, energy codes, standards components and cogeneration component. The project approach is to establish mechanisms which can ensure sustainable energy conservation activities beyond the life time of the project. EEIO to adopt the Energy Services Company “ESCO” approach as tool to provide energy efficiency know-low and enable finance to the customers. Although several variations of the ESCO models are available as shown in Table-3, EEIO has to adopt a specific model at the beginning to meet the local demand.

Table-3: ESCO Model

Sr.No

ESCO Model

Model Description

   

T

he ESCO provides a comprehensive

service including

1

Full Service ESCO

energy audit, project design, project implementation, operation and maintenance and finance through a shared saving performance contract

   

Similar to above except the

contract terms can be varied

ESCO with Variable

based on the actual savings. In case if the expected savings

2

Term Contracts

does not achieved the targeted values, the contract can be extended till the ESCO recovers it agreed payments. Also it could include what is called a “first out” model, where

    the ESCO takes all the energy savings until it has received its agreed
   

the ESCO takes all the energy savings until it has received its agreed payments.

   

The ESCO provides

a technical service without finance.

ESCO with Third Party

The customer may provide finance or the ESCO may arrange for facilitating finance by a third party. The ESCO provides guarantee that the energy savings will cover the debt services payments. This is known as performance contracts with guaranteed savings.

3

Finance

4

End-Use Out Sourcing (Energy Management Contract)

The ESCO provides only opera tion and maintenance services at an agreed price. Cost of all equipment, upgrade, repairs, etc. are borne by the ESCO, but the ownership of the equipment remains with the customers. This is usually used in running the customers utilities such as power generation, steam generation heating/cooling, where the customer pays an agreed price for the received units (KWh, tons of steam, etc).

 

Equipment Supplier

The ESCO provide f ull technical service. It verifies that the performance and energy savings matches the expectations.

5

Credit

Payment can be either on lump-sum basses or on installments based on the expected savings. Ownership of the equipment is transferred to the customer immediately.

   

Similar the supplier credit except the ESCO holds the ownership of the equipment till the end of the leasing

6

Equipment Leasing

contract. At the end of the contract the customer has three choices, renewing the contract, owns the equipment at its residual value or the ESCO takes the equipment out.

7

Technical Consultant with Performance Based Payment

ESCO conducts an audit and assist in p roject implementation. The ESCO and the customer agree on performance based fee, which could include penalties for lower savings and bonuses for higher savings.

  Technical Consultant The ESCO conducts an audit, de signs the proje ct and either
 

Technical Consultant

The ESCO conducts an audit, designs the proje ct and either

8

with fixed Payment

assists the customer to implement the project or simply advises the customer for a fixed lump-sum fee.

Os, to the market, EEIO has to establish a partially financed energy audits

program which should includes energy audits in different industrial and commercial enterprises. EEIO provides technical support to the ESCOs as well as expensive measuring instruments

including power analyzers, gas analyzers, flow, temperature and light measuring instruments as well as loggers.

T

o introduce the ES

C

P arallel to the audits programe EEIO has to provide capacity building to the ESCOs through training on energy auditing, energy efficiency technologies, projects economical evaluation and feasibility studies, financing energy efficiency projects and evaluation of project risks. EEIO issue Pakistan Measurements and Verification Protocol (MVP) to verify energy savings, which is necessary for performance contracting.

A lthough the ESCOs will be responsible to identify their customers, EEIO has to set general guide lines for customer selection including criteria such as the facility should not operate at less then 60% of its capacity and management commitment.

F urther more EEIP develop a project sales process for ESCOs.

A nother initiative may be made by EEIO through encouraging large and reputable companies to adopt energy service activities as a part of their business.

E EIO has to develop a sales process to the ESCO. This process includes following.

1

.

The ESCO will identify the potential customer.

2

.

The ESCOs to offers a cost free quick energy audit to the customer.

3. According to the audit outcome the customer will sign a Letter of Intend (LOI)

3. According to the audit outcome the customer will sign a Letter of Intend (LOI) with the ESCO requesting it to conduct a techno-economical feasibility study for the potential E.E. projects at an agreed cost. However the cost of the study will not be paid immediately, it will be considered in project cost if the ESCO is offered the project. Also the letter will confirm the acceptance of the two parties to have EEIO as a third party to resolve any disputes regarding the quality of the study.

4. If the study is acceptable and the ESCO has not been awarded the project or the customer delayed taking a decision more than three months, the ESCO will be eligible to be paid for his study.

5. If the ESCO awarded the project the customer will pay a down payment between 10%- 20% if the project cost including cost of finance. The rest will be paid on installments for a period no more than three years.

6. The ESCO will design the payment plan such that each installment will be less than generated savings during the same period.

7. The ESCO will offer technical guarantee for the equipment covering the payment life time of the contract.

In case if the customer is a public sector/governmental facility, then the legal restrictions on the public sector companies and governmental agencies. These restrictions include the necessity of having a tender for any project and the restriction of direct orders. Also they include selection of the lowest prices among the bidders, regardless some performance measures such as energy consumption.

INITIATIVE

FOR

ENERGY

EFFICIENCY

IN

GOVERNMETAL

AND

PUBLIC

BUILDINGS:

Another contribution by EEIO to support ESCO business came through its initiative to create an implementation mechanism for the government initiative to conserve energy in governmental

building and public services. This initiative includes developing a mechanism which enables governmental agencies to

building and public services. This initiative includes developing a mechanism which enables governmental agencies to request energy efficiency service through performance guaranteed contracts. To facilitate this EEIO is to standardizing this mechanism through developing the necessary procedures and formats as well as verification protocol, which are necessary for the bidding document. Also it should develop a standard performance contract, evaluation criteria and solicitation process.

EEIO LONGTERM MECHANISMS:

Improving the energy efficiency business environment represents should be one of the main targets of EEIO In addition to the aforementioned short terms activities, EEIO to create a long term mechanisms which can ensure the sustainability of the business. Regarding these mechanisms which should include, developing a draft for energy efficiency law and the development of demand side management scheme which relies on interruptible power contracts.

Regarding the energy efficiency law in addition to many measures include in the law, some measures has direct impact on boosting the energy efficiency business, these measures include:-

a. Making energy auditing in industrial and commercial enterprises mandatory every three years.

b. Developing energy efficiency bench marking system based on the local practice for different industrial and commercial sectors.

c. Requesting all energy providers (i.e. electricity and fuel) to allocate 1% of their revenue for the promotion of energy conservation concept as well as public awareness.

Establishing a mechanism through Govt. agency to implement as well as enforce the law, during the approval of any project for executions. The Energy Efficiency Improvements Organization (EEIO) project will contribute to create an energy service industry in Pakistan through in many

cases including capacity building, enabling fi nancially supported energy audits, and easing access to finance.

cases including capacity building, enabling financially supported energy audits, and easing access to finance. However the demand still has to be created for real market development.

This is attributed to many factors including the national economy and the market conditions as well as public awareness to overcome these barriers EEIO to develop different mechanisms to activate the market such as developing and implementating mechanisms for the governmented initiative for energy conservation in public building. On the long terms level EEIO to adopt as initiative for Pakistan to have its energy efficiency law it is believed that these measures will boost the energy efficiency business to a new horizon.

CONCLUSION:

Formation of Energy Efficiency Improvement Organization (EEIO) will contribute to create an energy service industry in Pakistan through many measures including capacity building, support energy audits etc.

On the long term level EEIO to adopt an initiative for Pakistan to have its energy efficiency law as well as the promotion of interruptible power contracts.

Demand side management can help in resolving energy issues in Pakistan faster than supply side.

Challenges and opportunities that will face in Pakistan include low efficiency building system design, financing and lack of awareness.

REFERENCES:

1. Energy Efficiency business profile

2. Energy Up Date

3. “Key world energy statistics” International Energy agency, 2004

4. Energy Efficiency improvements, project documents 2005

5. Hydrocarbon Development Institute of Pakistan, Energy Update 2007

6. Pakistan Energy Year Book

7. World Fact Book 2004

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