Amid the 75 action commitments that different countries put forward at the United Nations Climate Ambition Summit last weekend, the Institute for Energy Economics and Financial Analysis (IEEFA) is pointing to a pledge from Prime Minister Imre Khan that Pakistan “will not have any more power based on coal”.
As of earlier this week, it wasn’t yet clear “whether the statement means that existing coal projects that have not yet begun construction will be cancelled, or that no new coal proposals will be added to the current development pipeline,” writes IEEFA Energy Finance Analyst Simon Nicholas. But “on the face of it, this is a highly significant statement for a nation that was until now intending to exploit its domestic coal reserves and reach 38,000 megawatts (MW) of coal-fired power by 2047.”
At very least, he adds, it looks like Pakistan is stepping back from a recent long-term power plan, the Indicative Generation Capacity Expansion Plan (IGCEP) released in April, that called for 27 gigawatts of new coal capacity between 2030 and 2047, much of it financed by China.
IEEFA’s assessment indicates that the decision would make good economic sense, even in the absence of an urgent push to cut carbon pollution.
“Although it is a developing nation with growing power demand, Pakistan can easily do without more coal-fired power plants. The nation already has surplus capacity—its thermal power fleet operated at just 37% utilization in 2019/20,” Nicholas explains.
And “this overcapacity looks set to worsen going forward,” with the IGCEP indicating that a new generation of coal plants totalling 5.3 GW will only be used 17% of the time when they’re brought online in 2030.
“Under this scenario, these coal plants are stranded—they cannot operate commercially at such a low utilization rate without very generous capacity payments paid to them whilst they sit idle most of the time,” he writes. And to make matters worse, “the IGCEP is overestimating future power demand growth. The base case demand forecast is based on annual GDP growth reaching 5.5% in 2025 and remaining at that level out to 2047. This is despite GDP growth of just 3.3% in 2019, before the impacts of COVID-19 were felt.”
Nicholas digs into the positives and negatives in Khan’s summit statement, including a promise to direct domestic coal reserves to coal-to-liquid (CTL) and coal-to-gas (CTG) production. “If the plan is to capture and store carbon during these processes, they will be unviably expensive,” he states. “If not, it’s hard to see how carbon emissions are being significantly reduced relative to coal-fired power.”
Nor is there much ambition in a promise to bring renewable energy to 60% of the country’s electricity supply by 2030, when the previous plan in the IGCEP already stood at 59%.
But even so, Nicholas says Khan’s promise to put an end to new coal-fired power production will have “meaningful” implications for the China-Pakistan Economic Corridor (CPEC), under which most of the coal plants are being developed.
“CPEC is the centrepiece of China’s Belt and Road Initiative (BRI), which has been criticized for pushing the development of outdated, expensive, and polluting coal power plants on developing countries in Asia and Africa,” he explains. But “if coal power is being de-prioritized within CPEC, it can now happen right across the BRI program,” and that’s precisely the trend that seems to be developing.
“In Kenya, the Industrial and Commercial Bank of China has reportedly withdrawn from the controversial Lamu coal-fired power project, leaving the proposal teetering on the edge of cancellation,” Nicholas notes. “Japan and South Korea have both indicated that they will end the financing of coal-fired power overseas in 2020.” So “if China is now moving in the same direction, then all three of the main enablers of coal power in developing nations are shifting.”