Legal and Regulatory Landscape for Energy Storage in Pakistan

Introduction:

 

In recent years, Pakistan's energy sector has attracted significant attention due to the country's ongoing energy crisis and the need for sustainable solutions. As Pakistan continues to grapple with energy shortages and an increasing demand for electricity, the role of energy storage, particularly within the Commercial and Industrial (C&I) sector, has become a focal point of discussion. This article provides an in-depth look at the legal and regulatory landscape for energy storage in Pakistan, exploring the current challenges, potential use cases, and the future of energy storage solutions in the region.

 

Electricity Sector and Energy Crisis:

 

Pakistan's electricity sector is characterized by a longstanding energy crisis, with peak demand often surpassing generation capacities. This has led to daily load-shedding of 8-12 hours even in urban centers, with the grid becoming a bottleneck for reliable energy supply. The crisis has been exacerbated by rising prices on the global energy markets and currency devaluation, compounding the difficulty of managing energy costs and maintaining stable electricity provision.

 

In response to this crisis, the government and private sector entities have been exploring the potential of energy storage solutions to provide stability and reliability to the electricity supply. With projections indicating a significant increase in total generation capacity by 2030, with renewables expected to comprise a greater share, the incorporation of energy storage systems could play a vital role in managing this transition.

 

Legal Framework:

 

The legal framework for energy storage in Pakistan is still in its nascent stages. As of the time of writing, there are no specific regulations, administrative procedures, or standards implemented for battery energy storage systems. This lack of regulation presents a significant barrier to the development and deployment of energy storage solutions within the country.

 

Relevant Ministries and Agencies:

 

Several governmental bodies are involved in the regulation and oversight of Pakistan's energy sector. The National Electric Power Regulatory Authority (NEPRA) is responsible for issuing licenses for power generation, transmission, and distribution, as well as setting electricity prices. The Alternative Energy Development Board (AEDB) issues permits and licenses to independent power producers and examines feasibility studies for new power plants.

 

Additionally, the National Transmission and Despatch Company (NTDC) operates the national power grid, which accounts for 90% of the grid-connected generation capacities. K-Electric (KE) is responsible for the Karachi region's power grid, holding the remaining 10% of national grid-connected generation capacities.

 

Regulations:

 

The current regulatory landscape for energy storage in Pakistan is limited. A significant trade barrier exists in the form of a 100% cash margin requirement on lithium-ion and lead-acid batteries, making it more challenging for businesses to invest in these technologies.

 

Historically, the Policy for Development of Renewable Energy for Power Generation 2006 was the first law in Pakistan aimed at promoting renewable energy development, but it expired in 2018. It was followed by the National Power Policy 2013, which planned the massive expansion of power generation capacities, and the Alternative and Renewable Energy Policy 2019, which set targets for renewable energy capacity by 2025 and 2030.

 

The Integrated Generation Capacity Expansion Plan (IGCEP) 2021-30 projects long-term electricity demand and plans for necessary generation capacity expansion. It is expected that future iterations of this plan will explicitly include battery energy storage systems.

 

Potential Use Cases:

 

Energy storage in Pakistan can provide a range of services, including energy arbitrage, frequency regulation, voltage support, and backup solutions. Energy arbitrage, which involves absorbing low-cost, off-peak power and selling it during peak demand, is currently not possible due to a lack of regulation. Nonetheless, services that help stabilize the power grid, such as frequency regulation and voltage support, are of significant interest, particularly to NTDC.

 

Pilot Projects:

 

Pilot projects are underway in Pakistan to demonstrate the viability of energy storage solutions. For example, Lucky Cement and REON Energy in Pezu have initiated a project featuring a 34MW photovoltaic (PV) system with a 5.589MWh battery energy storage system (BESS). This project aims to increase the efficiency of the cement production process by balancing variable energy output from waste heat recovery and the PV plant.

 

Another pilot project by NTDC in Jhimpir involves a 20MW wind energy plant with a 20MWh BESS, funded by the Asian Development Bank (ADB). This project, won by a Chinese consortium, is designed to provide frequency regulation and grid-supportive services and is expected to be operational in 2023.

 

Market Potential and Potential Partners:

 

The C&I sector in Pakistan presents significant opportunities for energy storage solution providers. The textile and garment sector, Pakistan's most important industrial sector, is under pressure from international clients to meet sustainability goals and decarbonize. The cement sector, the 7th biggest exporter of cement worldwide, also has a considerable electricity requirement and can benefit from energy storage solutions to stabilize its energy supply.

 

Market Barriers and Risks:

 

Entering the Pakistani market for energy storage solutions comes with challenges. The market is price-sensitive and highly competitive, and proximity to China, through the China-Pakistan Economic Corridor (CPEC), influences the market dynamics. Relationship-building, after-sales services, and warranty issues are crucial factors to consider.

 

Recommendations for Market Entry:

 

For companies looking to enter the Pakistani energy storage market, it is recommended to engage with local business partners, establish a local presence, and consider starting with small-scale pilot projects. Providing detailed information and case studies of technologies, as well as offering solutions and contract models that reduce first-year costs, can be effective strategies for market entry.

 

SWOT Analysis:

 

The SWOT analysis of the energy storage market in Pakistan reveals several strengths, such as the development of a resilient democratic system, good GDP growth rates, and favorable geographic preconditions for renewable energy. However, weaknesses include a lack of skilled workers, high dependency on fossil fuels, and an inefficient regulatory framework.

 

Opportunities exist in the form of increasing renewable energy capacities and the lack of established major suppliers of BESS in Pakistan. Threats include volatile currency, high public debts, and high perceived corruption, as well as the dominance of Chinese companies in the Pakistani PV sector.

 

Conclusion:

 

The legal and regulatory landscape for energy storage in Pakistan is evolving, with significant potential for growth and development. Addressing the barriers and risks will be critical to the successful integration of energy storage solutions into the country's energy infrastructure. With the right strategies and partnerships, energy storage can play a transformative role in overcoming Pakistan's energy crisis and paving the way for a sustainable and resilient energy future.

 

For further information or collaboration opportunities, interested parties can reach out to the offices and representatives of the German Energy Solutions Initiative and the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, as well as energiewaechter GmbH.

 

References:

 

Ul Haq, Pakistan's Electricity Sector Overview, 2022.

Asian Development Bank Report on Energy Storage, 2018.

National Electric Power Regulatory Authority (NEPRA) official website.

Alternative Energy Development Board (AEDB) official website.

National Transmission and Despatch Company (NTDC) official website.

K-Electric (KE) official website.

Policy documents and laws related to energy and renewable energy in Pakistan.

Pilot project information from industry sources and energy storage news websites.