Pakistan's energy sector is at a critical juncture today. Inefficiencies, financial losses, and reliance on imported fossil fuels jeopardize the sector’s viability, while outdated infrastructure and fragmented policy frameworks hinder the country’s economic progress. Successfully managing the energy transition over the coming decade will be crucial for Pakistan’s energy security, economic growth, public health, and global climate commitments.
To address these issues, the Julis-Rabinowitz Center for Public Policy & Finance and the Andlinger Center for Energy and the Environment along with the Center for Economic Research in Pakistan (CERP) jointly organized the second workshop in the series on “Navigating Pakistan’s Energy Transition for a Sustainable Future.” Held on May 26-28 in Islamabad, Pakistan, the two-day event brought together industry experts to highlight essential strategies to enhance energy security, foster economic growth, and meet global climate commitments.
The workshop was designed and led by faculty and researchers from Princeton University and Pakistani institutions: Chris Greig (Princeton University), Javed Younas (American University of Sharjah), and Ayesha Ali (Lahore University of Management Sciences). Elke Weber (Princeton University) and Amy Craft (Princeton University) led a virtual session on socio-behavioral decision-making related to energy & sustainability. The more theoretical sessions were complemented by a group exercise on demand forecasting using simulation models and a wide-ranging panel discussion about the political economy challenges in the national energy sector. Panelists included Muhammad Ali (MAGM Ventures), Nida Rizwan Farid (Aerospace Engineer), Shahid Abbasi (Former Prime Minister of Pakistan), and moderator Mueen Batlay (CERP). A second panel touched on the potential and pitfalls for climate finance in Pakistan, with speakers Ekaterina Gratcheva (International Monetary Fund), Nadia Rehman (Planning Commission of Pakistan), Usman Khan (LUMS), and moderator Maroof Syed (Princeton University).
Below are key insights from the workshop to guide Pakistan's energy transition towards sustainability.
Electricity Market Dynamics
Pakistan’s energy sector is state-dominated. Government entities generate, transmit, and distribute power across the country. Most entities operate at a loss because the tariffs collected do not cover costs. The net unfunded liabilities ultimately land on the government balance sheet, leading to circular debt. A recent report from Pakistan’s energy ministry puts the total circular debt in the energy sector at roughly USD 8.5 billion (PKR 2.3 trillion) for the financial year 2023, which is about 5-6 % of the national GDP and 6-7% of Pakistan’s general government debt. Other problems include substantial government payments for unused capacity due to low levels of industrialization, an outdated grid infrastructure that drives high transmission and distribution losses, and low bill recoveries as paying consumers shift to solar energy.
Addressing supply-demand imbalances and market fragmentation requires integrated policies. Renegotiating contracts with generation companies to lower expenses and manage capacity payments is crucial. Reducing transmission losses and promoting regulatory frameworks in the energy market will better ensure economic sustainability. Integrating renewable energy, primarily hydro and solar sources, into the overall energy supply is required to expand generation capacity without increasing emissions.
Demand Forecasting and Energy Planning
Effective energy planning requires accurate demand forecasting. Pakistan’s energy forecasts have traditionally been sector-specific and reliant on conventional techniques. However, to align with net-zero carbon emission goals, integrated assessments and simulation-based models like the Long-range Energy Alternatives Planning System and the Open Source Energy Modeling System are needed to model the interactions between energy use and the environment.
Renewable Energy Integration
The national target for 2030 is to produce 60% of all energy from renewable sources, including hydropower. Prioritizing long-term energy security via renewable energy will reduce dependence on imported fuel, reduce consumer price volatility, and help ensure long-term stability. Introducing local manufacturing or assembly of renewable energy equipment can lower the import bill in the long run, create jobs, attract foreign direct investment, and open up export opportunities. Cleaner energy sources reduce air, water, and land pollution, significantly improving public health. Curbing emissions aligning with the Paris Agreement can promote global climate stability and commitments.
Political Economy Challenges and Governance
The Pakistan energy sector has been subject to periodic shifts in sectoral priorities and regulations that disrupt energy planning. Addressing financial constraints and federal-provincial conflicts requires a unified government structure for energy planning, adequate management training for officials, privatization of some state-owned operations to enhance efficiency, and addressing seasonal factors such as variability in electricity demand.
Understanding the Way Forward
The “Path to Zero: The Electricity Decarbonization Planning Game,” designed by experts from Princeton University, offered energy professionals a dynamic and immersive training experience, leveraging advanced simulation models. Participants balanced strategic investments in renewable energy, flexible storage solutions, and clean firm resources, learning to manage reliability, maximize clean energy output, and keep costs affordable. This hands-on module demonstrated the complexities of real-world energy transition planning for Pakistan, honing participants’ skills in balancing reliability, clean energy, and affordability.
Conclusion
It’s clear that in the coming decades, Pakistan can achieve a sustainable energy transition by harnessing data-driven insights, fostering collaboration, and implementing strategic policies. The insights from this workshop offer valuable guidance for policymakers seeking to balance economic and environmental sustainability. Looking ahead, the next event in this series, scheduled for January 2025, will concentrate on demand forecasting to enhance the skills of energy practitioners. This focus highlights the increasing significance within Pakistan’s energy strategy and the needs of the participants. Continuing this dialogue and knowledge exchange will drive innovative solutions and ensure Pakistan remains a leader in sustainable energy advancements.