In a previous article, this writer had noted that the global energy market was in flux and the landscape was changing dramatically. It was also pointed out that these were not mere aberrations or cyclic adjustments. A fundamental transformation was underway that posed vexing challenges to developed and developing countries alike in their quest to secure economic, affordable, and sustainable energy supplies for their economies and people (Pakistan & Gulf Economist, 03 June 2019).
If the Covid-19 pandemic and Russia-Ukraine conflict and the disruptions in energy supplies and price shocks in their aftermath were not enough to make the turbulent global energy landscape slippery, the recent and ongoing clash in the Middle East has turned it even more muddy, complex, and uncertain. This warrants a revisit of the challenges we face in the energy sector and seriously rethink our strategic choices in dealing with them.
A quick glance through three prominent global energy outlooks, IEA’s World Energy Outlook 2023, bp’s Energy Outlook 2023, and BloombergNEF’s Energy Outlook 2022, though slightly different in their approaches towards reaching the common goal of decarbonization of the world’s energy system by 2050, appear to have consensus among them that the global energy scene will be dominated in the future by the following eight strategic drivers:
First, the society’s environmental concerns, and specifically that of climate change and energy’s central role in combatting it—as over 75 percent of greenhouse gases emissions originate from the energy sector—will continue to force most nations to strive for efficient and less energy- and carbon-intensive development pathways. The much-touted role of natural gas as a transition fuel was short lived only as the supply cuts by Russia to its gas exports to Europe after its invasion of Ukraine exposed their vulnerability and forced them to seek alternatives elsewhere.
Second, renewable power generation technologies, mostly solar and wind, will play an increasing and critical role in serving future energy demands of society in more economic and sustainable ways. Between 2010 and 2022, the levelized cost of electricity fell by about 90% for solar PV, 70% for onshore wind and 60% for offshore wind, making them top contenders for future electricity supplies. However, the present rate of growth in wind and solar PV generation to 2030 is far below the level needed to meet the Net Zero Emission limits, highlighting the need for further measures to achieve the goals.
This trend is set to continue at an elevated pace, with investments in the pipeline set to raise global solar module manufacturing capacity from about 640 GW in 2022 to over 1 200 GW by 2030 to serve the demand that is poised to accelerate around the world. IEA estimates the global power sector investments to rise from USD 1.0 trillion on average at present to USD 1.4 trillion by 2030 and maintains that level through to 2050.
Third, electric vehicles (EVs) are making rapid inroads into the energy sectors of most countries. Globally, their sales have gone up from 3 million in 2020 to over 10 million in 2022 (15 percent of new sales) and are expected to reach 100 million (40 percent of new sales) by 2030. EVs will not only reduce our appetite for oil but will also contribute significantly to provide backup storage to regulate the demand on the power grids. This will need efforts to deploy EV charging facilities and strengthening of electricity networks also and will put additional pressure on the deployment of renewables in power generation.
Fourth, stationery and utility-scale storage technologies, encouraged by successful technical and economic developments in the EVs area, will also dominate the energy market, especially electricity markets enabling the society to meet its energy demand by relying on stand-alone electric generating systems based on renewable sources, mainly solar and wind.
Fifth, society is under pressure to reduce its dependance on fossil fuels in the industrial sector. Currently, electricity in industry is largely used to drive motors (roughly 65 percent). It has the potential to power a range of other industrial processes, especially heating. This can reduce energy demand because it is generally more efficient to use electricity than the use of fossil fuels for the processes that it replaces. To the extent that it draws on low-emissions sources of power, electrification also drives down CO2 emissions from the industrial sector.
Sixth, the expanded, modernized and cybersecure transmission and distribution grids are critical to electricity security in a world where the share of solar PV and wind in electricity generation is rising rapidly. Investment will be needed to provide adequate system flexibility (the ability of a power system to reliably and cost effectively manage the variability of demand and supply to ensure stability and security). Batteries, other storage technologies, and demand response can play a critical role in meeting demand or supply side and smoothing out the resource variability across different time horizons.
Regional integration of electricity grids will improve security and stability and will also alleviate the variability and intermittency of renewable power generation schemes. Flexibility needs will be reduced by such linking if they rely on wind and solar PV to varying degrees and have different production profiles. Supply flexibility will even further enhance by facilitating the pooling of resources, including hydropower, fossil fuel-based capacity and energy storage. Better integrated systems could also mitigate the risk of outages and increase system resilience.
Seventh, following the footsteps of developed countries, developing nations will also strive to reduce energy intensity of their energy and power systems. The energy intensity improvement rate is defined as the annual reduction of energy intensity, or the ratio of energy supply to GDP. There is considerable scope of realizing this potential in built environment and appliances used in them and will form an important component of most countries to squeeze more value from their resources and lessen their environmental footprint.
Eighth, uninterrupted, reliable, and economic supplies of critical minerals and metals such as lithium, nickel, cobalt, and copper will be critical to keep clean energy transitions affordable. These supply chains today are highly concentrated, in fact more so than the distribution of fossil fuel resources. As such, these will continue to pose risk for any country that will largely depend on the systems that rely on these materials and minerals.
Pakistan, being a low-income and import-dependent country, cannot remain immune from the above trends. Knee-jerk reactions and moving from crisis to crisis is no way to deal with such clear and imminent threats. We must seriously rethink, prepare, and re-orient our energy strategies to reflect the new market realities and turn them into opportunities, as Louis Pasteur notes, “Chance favors the prepared mind”. Fortunately, we have a broader range of options and a wealth of policy choices available. The crucial step will be to put these into action.
Pakistan’s new energy vision in the above backdrop, should build at least on seven strategic pillars: (i) deployment of clean, renewable, and sustainable technologies; (ii) shifting of its transport to renewable-derived electricity; (iii) development and deploying of energy storage technologies; (iv) production of alternative fuels from sustainable energy sources, in particular hydrogen; (v) electrification of as many industrial processes as practicable; (vi) seeking interconnection with neighboring electric grids; (vii) enhancement of energy conservation and efficiencies; and (viii) building a flexible, modular, and enabling energy transportation and delivery infrastructure, mainly intelligent and smart power grid.
There is nothing novel in the above list. Our leaders may already be aware of these global trends and the options before them. They may already be considering some of these in their future plans. The real and critical issue, however, is how quickly and effectively they can put these on ground. In this writer’s view, the following five enabling and complementary efforts will be required to successfully manage the desired transition.
First, Pakistan will require a clear blueprint (roadmap) that defines the ultimate shape and structure of the energy sector, by clearly laying down the various building blocks of the structure and how these are to tie and support each other, and charting out a set of clear, concrete, and time-bound strategies for realizing the strategic objectives of the nation.
Situation seems to be ripe for our leaders to reconsider the existing institutional arrangement in the energy sector which is largely fuel-based and issue-specific. The country is in dire need of having an organic and closely-tied institutional structure that can steer the country through these troubling times via a holistic and integrated effort.
As we noted earlier, the world is moving to gradually phase out its dependence on fossil fuels and switch to electricity derived from renewable and more sustainable as the main carrier for serving the needs of the economy and society. This demands holistic thinking, close coordination, and collaboration. It will be wise to merge the existing entities in a new entity (say for instance a “national energy commission”) and entrust it with the task of strategic planning, policy formulation, and regulation in the country.
Second, an umbrella legal framework will be required to guide the required transition by laying down the nation’s strategic priorities and establishing ground rules and regulations to encourage schemes that are responsive to and supportive of the nation’s strategic energy vision. Future decision must not be based strictly on least cost in any part or subsector but from a broader value addition to achieving the strategic goals such as security (national and cyber), affordability, and sustainability.
Third, we will need to build a strong modelling capacity (preferably within the new entity recommended above) to regularly study the threats and challenges posed by global trends and their implications for us over various time horizons. Local capacity for planning of efficient, clean, and renewable energy generation, transportation, and delivery schemes will be critical. A necessary ingredient of this capacity building will be acquiring the necessary tools for planning and design of such schemes and the data and information bases to aid this process.
Fourth, suitable financial schemes will be needed to encourage investments in small-scale and distributed energy supply and demand management projects that might otherwise appear unattractive or high-risk to private investors and customers. These can be introduced from the platform of public utilities to cover, or at least share, the initial costs of such projects and later recovering these in customers’ monthly bills.
Fifth, a supportive R&D setup will need to be put in place in various universities to inform energy sector decision-making. These R&D programs should be tasked to explore the scope of different potential strategies to realize each energy option, identifying any potential hurdles and how these can be overcome, and the potential effectiveness of these strategies. The new entity proposed under the first recommendation will be the best platform through which such R&D can be assigned and managed.
The world around us is turbulent and is expected to remain so for many years to come. Uncertainty, unpredictability, and instability is feared to rule the global energy markets. Prudence demands that Pakistan should prepare itself for navigating through these turbulent times by avoiding the locking in of its energy sector into any long-term fossil fuel-based schemes, especially those that are subject to disruption and price shocks resulting from geopolitical tensions and conflicts.
As Henry Mintzberg, a distinguish professor of management at Canada’s McGill University aptly notes, “When the world is predictable, you need smart people. When the world is unpredictable, you need adaptable people.” Remaining flexible, adaptable, and robust to any geopolitical upheaval is the best approach for Pakistan to secure affordable, economic, and sustainable energy supplies for its economy and people.
(Note: Unless specified otherwise, most data and statistics used in this article are from IEA’s World Energy Outlook 2023. The argument is also built based on the IEA Outlook’s Stated Policy Scenario (STEPS) which is the most conservative of the three scenarios used by IEA for developing its latest Outlook.)
The writer is an independent consultant, specializing in sustainable energy and power system planning and development. He can be reached via email at: msrahim@hotmail.com