Friday, August 24, 2018

Indigenization of energy investments in Pakistan


Indigenization of energy investments in Pakistan
Pakistan still relies very heavily upon imported technology in the energy sector, there is need to put in place policies and procedures to encourage increase in local content in energy investments. Pakistan must develop indigenous capability for the planning, designing, manufacture, installation and commissioning of power plants and other energy infrastructure .CPEC provides an opportunity; Chinese rising labor costs have prompted relocation of some industries to other countries, and Pakistan is an intended target. This opportunity should be used to increase the local content of capital equipment amongst other industrial activity. Incentives to local industry and disincentives to imports in the form tariff and non-tariff barriers would have to be created.
 Chinese have played a major role in building our engineering industry in days when they were not commercialized. However, they can still be persuaded to rebuild our local engineering industry when tremendous demand is building up in the sector. Indigenization has suffered due to the fast tracking dictates of the energy crisis. Now that the crisis is about to end, some stress and emphasis should revert to it. Local engineering industry is heavily underutilized and its human resource base is contracting due to low market demand. Currently we place orders and foreigners provide it all from EPC and O&M contractors to IPPs. Iran and Turkey have done otherwise and are reaping the benefits of their policies. They are increasingly getting active in export markets including Pakistan. India is the fifth largest manufacturer of wind turbines, China is the third largest manufacturer of solar panels,, Adani an Indian Group Specializing in hi-tech solar PV cells and modules using advanced Multi, Mono PERC and Bifacial cell technology aims to become a fully-integrated solar PV manufacturer with a capacity of 3 GW by 2020.  Spain and Canada have mandated the incorporation of local content in wind turbine installations .Specific measures to promote indigenization in energy and power sector installations are:
1.                  Indigenization -Key objective of any energy or power sector policy should be “Development of a domestic manufacturing base of energy and power technology.” Provision of (say) 15% preference may be considered in energy and power policies. Competitive bidding for capacity addition should also provide for such preferences.
2.                  PAEC had developed considerable local capability. Design and Engineering of NPP was initiated in 1980 and a formal Design and Engineering (DED) was set up within CHASNUPP in 1985. Over 100 engineers and were trained in Europe and China. PAEC had developed non destructive testing (NDT) and Quality Assurance (QA) capability .National Center for Non Destructive Testing (NCNDT) and Pakistan welding Institute (PWI) were established .A large number of personnel in both public and private sector were trained. PAEC had also achieved construction of the development facilities at CHASNUPP site and civil construction of all plant buildings /structures was carried out by local industry, Local industry developed capability to carry out all local civil works with considerable contributions in installation activities as well Some capability existed in the public and private sectors for manufacture of thermal power plant boiler equipment, heat exchangers. . PACE also had developed some capability n instrumentations and controls. Spare parts for KAHUPP were also manufactured.  Out of many phases of building nuclear had attained self-sufficiency in some stages; Pakistan was preparing as many as 500 instruments used in atomic reactors with its own resources
3.                  Tube wells -Government of Punjab carried out a tube well conversion to bio mass program with the University of Agriculture Faisalabad (UAF). This effort used locally manufactured gasification equipment.   Punjab Government will encourage the UAF for setting up a power plant to generate one megawatt of electricity using solar and solid waste technologies in a bid to promoting technology in the country.   UAF is to    establish model biogas plant from the UAF’s farm containing 300 animals.  A 100 kW biomass power plant for demonstration purposes has been established at PARS Campus in collaboration with Guangzhou Institute of Energy Conversion Technologies, Chinese Academy of Sciences, China. The unit is for demonstration/research purposes but the electricity produced during operation will be used to run the turbines for irrigation purposes. UAF will now establish a hybrid renewable energy system including solar and biogas power generation for drip irrigation and energy efficiency at training block of PBI.UAF has also developed : biogas operated tube wells 25 cm and 40 cm floating drum , Solar drying for fruits, vegetables, medicinal plants and cereal crops; solar distillation system for the processing of medicinal plants ; solar roasting machines for peanuts and ground nuts ; solar cookers for community kitchen applications ; stand alone solar PV systems; biomass gasifies  for power generation ; biomass boilers for power generation .
4.                  Wind turbines are sophisticated pieces of equipment and attempts to manufacture these may be not the recommended route, there must, however, be potential of support and auxiliary equipment locally. M/S China Three Gorges has established a tower manufacturing facility which will be upgraded to wind turbine assembly in future. M/S DESCON is also manufacturing wind turbines towers. In China Newly installed facilities such as wind turbines must contain 70 percent content that is manufactured in China. As a result, the Chinese now produce about 40 percent of wind turbines sold in China and 3 percent of wind turbines sold globally.
5.                  Renewable. To maximize  indigenous content and participation in renewable energy investments requires : custom duly and sales tax exemption on  raw materials, equipment and machinery used for the manufacture or servicing of RE plants; exemption from income and withholding taxes on  imports of materials and equipment related to manufacturing of RE plants , repatriation of equity and dividends  for investments in RE  manufacturing facilities ; facilitation of foreign collaboration in manufacturing and engineering industries ; promotion of local training on manufacture, installation , and maintenance of RE plants in joint ventures and technology transfer agreements . Six private companies have established plants for assembly of solar PV panels in different parts of the country.
6.                  HMC.  Heavy Mechanical Complex (HMC) ,during the sixth plan period
Have Invested Rupees 20.0 million. This was in additional plant and machinery for producing Power boilers.  HMC also entered into technical agreement with Deutche Babcock (DBW) of Germany. HMC secured orders for power boilers for Bin Qasim Units 3 and 4. Share was about 26% of the works including some high value items like convention tube bank, super heater re-heaters, and economizer coils, headers etc. The job was competed to the entire satisfaction of the customer and the foreign partners, thereby developing capability to partially manufacture boilers up to 200 psi. Capacity building in shape of training at the partners’ works in Germany was a part of the package. About 31 engineers for a total 176 days were provided with in job training. Equipment was also added .HMC also secured order for Bin Qasim 3 and 4.
7.                  Oil and Gas Projects.  Taxila had also entered into manufacture of oil and gas producing equipment which was mostly installed at the well head . HMC manufactured a sulphur recovery plant for the Meyal oil field. In 1985 HMC secured order for turn-key contract with OGDC for the supply of complete installation of Dhakini oil and gas field  including , gas dehydration plant , sweetening plant, sulphur recovery plant, LPG/NGL recovery plant and  crude stabilizing plant
8.                  Mini Hydros.  HFF Taxila acquired technology for manufacture of mini hydel power pants , capability to manufacture Pelton machines was acquired
Technology options for energy sector
·                     Medium to long term following technological options for energy sector are essential:
1.                  Technology for exploration and exploitation of shale gas and tight Gas
2.                  Offshore oil and exploration
3.                  Lignite coal development keeping in view that local coal which has high moisture    and sulphur content. 
4.                  Development of Coal bed methane
5.                  R&D on Gas hydrates (long term)
6.                  LNG and imported natural gas: These projects will require intensive technological and infrastructure development in the country  
7.                  Wind Power Development: Manufacturing Base
8.                  Co-Generation in sugar industry
9.                  Energy efficiency and energy conservation in energy generation to end use level
10.              Use of Efficient Appliances.
11.              Solar PV and solar thermal
12.              Development of Geothermal Resources
13.              Energy generation from Biomass including  municipal waste, biogas
14.              Bio-fuels (only from non-edible oil crops) keeping in view food security. 
15.              Technologies for optimum utilization of energy resources

Pakistan Council for Renewable Energy Technology (PCRET) Initiatives’
1.      Establishment of lab facilities to produce high efficiency silicon solar cells and PV modules.
2.      Establishment of micro hydro power, biogas and wind energy research labs with workshop facilities.   
3.      Vertical Axis type concepts offer a large area of further R&D for improvements. These turbines have the unique characteristic of remaining independent of the directional changes of the wind, as they catch wind from all directions. They are therefore simpler to build and operate. Further, their generators are fitted on the ground, permitting much easier maintenance and trouble shooting. PCRET    desires to design and test some of these concepts during the year 2015-18, and install models in the PCRET head office and the regional office. Also the capability to produce more conventional Horizontal Axis wind turbines, their generators and other associated components will be acquired through R&D at PCRET.
4.      The Pakistan Council of Renewable Energy Technologies (PCRET) is working on micro hydropower (MHP) technology in Pakistan. It’s the national focal point for the development and dissemination of renewable energy technologies in Pakistan, especially in the field of development and promotion of mini/micro hydropower plants in isolated/neglected areas of the country. The PCRET has been demonstrating and disseminating MHP Technology after indigenization, on micro level in the far-flung, inaccessible and remote hilly areas of the Khyber Pakhtunkhwa (KP), Gilgit–Baltistan, Fata and AJK since 1976. In pursuance of rural electrification program of the federal government the major objective of the MHP program has therefore been rural electrification of the areas which are away from the national grid, and where restoration of ecological balance along with protection of environment is imperative. The council has so far successfully installed 538 decentralized MHP plants with consolidated installed power generation capacity of 8 MW. Out of 538 MHP plants, 152 plants have been installed through launching various Public Sector Development Program (PSDP) schemes in the off-grid, far-flung and remote areas while 280 MHP plants have been installed in collaboration with individuals/communities.  106 plants have been installed in collaboration with various government organizations, Non-Government Organizations, Volunteer-Based Organizations providing technical assistance and post-installation supervision.

5.      The polycrystalline silicon solar cell technology is yet to be established in the country. At present PCRET is working on research and development of 2nd, 3rd and 4th generation of solar cells and have successfully fabricated the 2nd and 3rd generation of solar cells. Research work for fabrication of 4th generation solar cells is in progress by involving 06 PhD students from different universities of the country. During next 03 years PCRET plans to execute the followings in the field of PV Technologies:
i)Fabrication of 4th generation solar cells.
ii) Present research collaborations will be enhanced with different universities of the country by involving greater numbers of PhD students.
iii) Power conversion efficiency of indigenously fabricated silicon solar cells will be enhanced from the current range of nearly 13.5% to 16% through PSDP Projects.
iv)  Fully equipped mechanical workshop will be establishment under the ongoing extension project.
v) Trainings will be provided in the field of silicon solar cell fabrication and PV module fabrication.
i) The PV products testing lab will be upgraded to enhance the purpose of certification for private sector importers to ensure quality of the imported PV panels.
vii) Installation of 200 kW solar PV systems at PCRET is planned, under PSDP project to acquire partial self sufficiency in power consumption.

RE Plant Manufacture
Various aspects are discussed as follows:

1.      Blades for the wind turbines constitute 60 percent to 70 percent of the total facility (project) therefore the margin for local manufacture is limited.
2.      It makes little sense concentrating energy and resources on the manufacture of silicon wafers in a country with no economies of scale or agglomeration.
3.       The recent decline in solar PV technology prices and the manufacturing glut experienced in the global wind turbines market has made the implementation of local content requirements a big challenge for foreign contractors.
4.                  A stable and sizable home market is a prerequisite for luring leading foreign manufacturer to establish local manufacturing facilities, to develop local joint ventures partnerships. A stable local market signals to both local manufacturers and to foreign forms that they have the long term planning horizon necessary to allow them to reasonably invest in the market .Companies facing unstable or small markets on the other hand will be less willing to spend money on R&D, product development, and local manufacturing facilities.

Taxes withdrawn: Jan., 30, 2019: The federal government has proposed to eliminate taxes associated with manufacturing of solar and wind energy equipment in the country. The proposed tax reduction should boost that by encouraging greater local manufacturing of equipment needed for renewable power expansion,   but manufacturers said the tax breaks would not be sufficient to spur expansion of local renewable energy industries but Pakistani manufacturers would still struggle to compete with tax-free, low priced imports of foreign-built solar panels and other renewable energy equipment. Local manufacturers should work with the government to determine which components should be manufactured locally and which imported to ensure that costs of locally made wind and solar systems were competitive. Cheap imports of renewable energy systems from China remained the main barrier to building more such systems in Pakistan. The local industry is facing pricing issues because of low quality solar energy appliances being imported that are very cheap as compared to the local market,`  That might be resolved in part by the government starting a certification system for renewable energy products to grade them according to quality






Recommended changes in Text of Power Policy   
 Indigenization, Research & Development:
While the indigenization spans across all the sectors of the electricity business, R&D over-arches all the principles established under this policy framework for the envisaged vision, The Federal Government will take all measures to ensure promotion, of Transfer of Technology and R&D across the value chain. Federal government will consider offering preferences for local technology in competitive bidding /reverse auction of potential power plants in the interim period ( single buyer plus period) and offering tax rebates on use of local technology in the post interim period ( Open Access period) .
5. Conclusions
Failure to promote indigenization of energy and power investments further delay investments and hamper Pakistan’s economic growth. Energy sector investments need to be made with the long term objectives in view. Small steps that will encourage local manufacture of energy and power equipment and plants will deliver significant benefits in the future.
Key objectives of Pakistan’s energy policy must include: “Development of domestic manufacturing base of renewable energy technology along with rapid market inception through private investments”. The objective will ensure that Pakistan becomes an active participant in the energy market in the future rather than be a passive recipient of technology.

:Indigitization : June,30,2019: India has placed special emphasis on harnessing the abundant Solar energy the country receives and producing power through it. With the government of India’s focused efforts in democratising the use of Solar energy, the International Renewable Energy Agency (IRENA) survey in its research found out that India is the world’s cheapest producer of Solar power.

Owing to low-cost panel imports from China, abundant land and low wage labour, the cost of building large-scale solar installations in India fell by 27 per cent in 2018, Year-on-Year. The cost of large-scale installations in Canada is highest amongst the countries involved in producing power using Solar energy, almost thrice that of India’s cost. 
More than 50 per cent of the total cost in building a solar installation in India involves costs related to hardware, racking and mounting, while the remaining cost is divvied up between soft costs such as system designing and financing.  Considerably cheap labor and lower service expenses have also aided in the steep fall in the finance needed to establish large-scale solar power-generating projects. The setup cost in India fell by about 80 per cent between 2010  to 2018, the most remarkable reduction observed in any of the other countries.
ARE policy: Aug., 24, 2019: Local participation in Alternate Renewable Energy  policy review  also proposed incentives to encourage localization of cost factors like concrete poles, transformers, motors and generators etc to bring back manufacturers who had left the market or promote local job creation and least cost energy sources. Under the existing arrangement, the foreign investors would be utilizing indigenous resources like wind, solar, land, steel poles, batteries etc and taking out foreign exchange in profits.

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