IFC TAsk 2 Final draft of 23 March by IH

http://en.wikipedia.org/wiki/Build–operate–transfer
SCOPING BOO/T BUSUNESS OPPORTUNITIES IN CAPTIVE
RENEWABLE ENERGY MARKET SEGMENT IN PAKISTAN
A Study Conducted for IFC
By:
Izhar Hunzai,
Ghulam Mehdi, and
Ghulam Nabi Justaro
Consultants:
INTEGRATION, GERMANY
April 2014

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Task 2
ABBREVIATIONS
AEB: Area Electricity Board 
BOO: Build, Own,Operate
BOOT: Build, Own,Operate, Transfer
DISCO Distribution Company 
FSA: Fuel Supply Agreement
GENCO: Generation Company 
GB: Gilgit-Baltsiatn
GOP: Government of Pakistan  IAImplementation Agreement 
IPP: Independent PowerProducers 
KESC: Karachi Electric Supply Company 
LOS: Letter of Support 
MYT: Multi Year Tariff 
NEPRA: National Electric PowerRegulatory Authority
NTDC: National Transmission and Distribution Company
PC: PrivatizationCommission
PEPCO: Pakistan Electric PowerCompany 
PPA: PowerPurchase Agreement
PPIB: PrivatePowerInfrastructure Board 
PPP: Public Private Partnership
PPS: Pakistan PowerSector
SBP: State Bank of Pakistan 
T&D: Transmission and Distribution
WAPDA: Water and PowerDevelopment Authority

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TABLE OF CONTENTS
1 INTRODUCTION..............................................................................................................................................6
1.1 Energy Sector Overview...................................................................................................................6
1.2 Market Actors..........................................................................................................................................6
1.3 Captive Market Overview................................................................................................................8
2 METHODOLOGY..............................................................................................................................................9
3 CP OFF-TAKERS MARKET.........................................................................................................................9
3.1 Market Overview...................................................................................................................................9
3.2 Market Segmentation......................................................................................................................11
3.2.1 Cement Industry.......................................................................................................................11
3.2.2 Sugar Industry............................................................................................................................13
3.2.3 Textile Industry.........................................................................................................................15
3.2.4 Leather Industry.......................................................................................................................16
3.3 Captive Power Projects..................................................................................................................17
3.3.1 CP Dedicated................................................................................................................................17
3.3.2 Captive Power +........................................................................................................................18
3.3.3 Off-grid power projects........................................................................................................18
3.3.4 BOO/T Businesses in the CP-RE Segment.................................................................18
3.4 CP-RE policy and projects in the pipeline...........................................................................21
3.5 Conclusion – Off-Takers Market...............................................................................................22
4 CP BUSINESS MODELS AND SERVICE PROVIDERS................................................................23
4.1 Market segmentation ......................................................................................................................23
4.1.1 CP as a sole supply source (S1)........................................................................................23
4.1.2 CP complementing grid supply, excess power not fed to the grid (S2)..24
4.1.3 CP complementing grid supply, excess power fed to the grid (S3)...........25
4.1.4 CP as least cost source of electricity (S4) ..................................................................27
4.1.5 Captive energy for process heat supply (S5)...........................................................27
4.2 Service Providers Summary........................................................................................................29
5 CP Energy Sources and RE Technologies.....................................................................................29
5.1 Energy Mix.............................................................................................................................................29
5.2 Solar PV....................................................................................................................................................31
5.3 Concentrated solar power systems (CSP)..........................................................................33
5.4 Solar thermal........................................................................................................................................33
5.5 Solar water pumps............................................................................................................................34
5.6 Wind Power...........................................................................................................................................35
5.7 Hydropower..........................................................................................................................................36
5.8 Biomass to power..............................................................................................................................36
5.9 Geothermal............................................................................................................................................37
6 FINANCING AND SECURITY REGIMES...........................................................................................37
6.1 Policy for Private Sector Participation in the RE segment.......................................37
6.2 Feed-in-Tariff.......................................................................................................................................37
6.3 Financial and Fiscal Incentives..................................................................................................38
6.3.1 Fiscal Incentives........................................................................................................................38
6.3.2 Financial Incentives ................................................................................................................38

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6.4 Risks...........................................................................................................................................................39
6.4.1 Economic Risk:...........................................................................................................................39
6.4.2 Market Risk:.................................................................................................................................39
6.4.3 Political Risk:...............................................................................................................................39
6.4.4 Completion and Cost Overrun Risk...............................................................................40
6.4.5 Performance Risk:....................................................................................................................40
6.5 Success factors and lessons learned...................Error! Bookmark not defined.
7 CONCLUSION .................................................................................................................................................40
8 Annexes:.........................................................................................Error! Bookmark not defined.

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ACKNOWLEDGMENT
The report has benefitted from valuable input from a spectrum of industry leaders,
managers and service providers, and from comments and guidance from regulators and
sector experts of energy market in Pakistan.

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1 INTRODUCTION
This (Task 2) part of the global and Pakistan-focusedstudy explores market conditions for
scalable BOO/T businesses in the captive renewable energy segment. To describe this
under-developed market, this study looks at the broader energy context and sector
organization, and how off-takersand service providers are responding to supply and
service shortages. The study also looks at BOO/Tlike business models and relevant
technologies, and security and risk issues.
1.1 EnergySectorOverview
Pakistan has a significant natural endowment and comparative advantage in renewable
energy (RE),including hydropower,solar, wind, and being an agricultural country,biomass
that add up to a total energy potential of more than 500,000 MW.In the non-renewables, its
Thar Coal reserves, estimated to be 175-2000 billion ton, are said to be higher in value than
all the oil reserves of Saudi Arabia and Iran combined.
Despite this potential, Pakistan is facing an acute energy crisis with a peak electricity supply
deficit of 6,500 MWs, and a natural gas supply deficit of 2 billion cubic feet per day (source).
The widening demand-supply gap has resulted in regular load shedding of eight to ten
hours in urban areas and eighteen to twenty hours in rural areas.
Rapid growth in demand, high system losses, and inadequate generation capacity are
among the major reasons forthis huge gap. Seasonal reduction in the availability of
hydropower,declining indigenous gas resources, and high costs and dependency on
imported fuel forpower generation are primarily responsible forthe current crisis.
The political economy and slow policy response have created a mountain of circular debt,
whicha financially strained new government in Islamabad is trying to tackle. The market is
large and currently under-performing, but it is also opening up. And, there is some evidence
to suggest that the policy frameworkis on the mend, whichcan create new opportunities
for the private sector to engage withthis under-served market and develop Pakistan’s
enormous energy potential.
1.2 MarketActors
The followingpublic and private sector actors are of relevance in power generation,
transmission, and distribution services in Pakistan.
Table1:Instit
# Intuitional Entity Functions
1 Ministry of Water
and Power (MoWP)
GOP authority for policy making and execution and coordination with
investors and other market actors
2 National Electric
Power Regulatory
Authority (NEPRA)
Issues licenses for generation, transmission and distribution of electric
power; establishing and enforcing standards to ensure quality, safety,
and proper accounting of operation and supply of electric power to
consumers. Approval of investment and power acquisition projects of
the utility companies and determining tariffs for bulk generation and
transmission and retail distribution of electric power

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3. Alternative Energy
Development Board
(AEDB)
Implements GOP policies and plans, develops projects, promotes local
manufacturing, and coordinates all associated activities as the national
facilitating agency for the development of renewable energy in the
country.
4 Private Power
Infrastructure Board
(PPIB)
Acts as a ‘one-window’ facilitator for conventional private sector power
generation projects, including hydropower projects of more than 50
MW.
5 Provincial/ Special
Administrative
Authorities
Four provinces, Azad Jammu and Kashmir (AJK) and Gilgit-Baltistan (GB)
governments have their own authorities to facilitate development and
implementation of renewable energy projects within their geographical
jurisdiction.
National
Transmission and
Dispatch Company
(NTDC).
A public sector company that owns the national grid and provides
transmission and distribution services.
6 Independent Power
Producers (IPPs)
Electricity utilities in Pakistan comprise nine separately corporatized
distribution companies (DISCOs); the Karachi Electric Supply
Corporation (KESC). In addition, there are four generation companies
(GENCOs): and the Water and Power Development Authority (WAPDA)
Hydel Wing. Control of power transmission and despatch is allocated to
NTDC.
7 Captive Power
Projects (CPPs)
Integrated CPPs for self-supply and for spillover to the grid. Traditional
industry-owned CPPs, as well CPP/IPP hybrid business models
Figure 1 depicts the institutional and functionalorganization of Pakistan’s power sector.
Supply-DemandOverview
Pakistan's energy consumption in has grown 80 percent over the last 15 years, according to
the Pakistan Institute for Petroleum, and energy prices have increased more than doubled
during the last 10 years. A big part of the energy crisis is dealing with massive inefficiencies
in the system, such as huge numbers of customers whodon't pay their bills and widespread
theft and losses due to inefficiencies across the energy grid. In Pakistan, electricity losses
are phenomenal: 25% + as opposed to an average of 4% in advanced countries. More than
half of these losses are composed of theft and pilferage and about half or slightly less are
technical losses, whichcould be brought down. Very poor or very powerfulare involvedin
electricity theft. Utility employees are usually partners in such a process.
The persistent shortage of electricity in the country has adversely affectedthe national
economy.Industrial production has been severely hit. According to one estimate power
shortages have resulted in an annual loss of about 2 percent of GDP [Abbasi (2011)].
Another recent study reports total industrial output loss in the range of 12 percent to 37
percent due to power outages [Siddiqui, et al. (2011)].
Figure: Supply/Demand Situation

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Source:
Moreover, the power sector in Pakistan has created serious problems forfiscal managers
given the limited available budgetary resources; a substantial portion of revenues has been
consumed in subsidies given to the powersector. As much as 7.6 percent of total revenues
were used up in providing subsidies to the power sector in the FY 2007-08; while this share
stood at 5.9 percent and 8.6 percent in the FY 2008-09 and FY 2009-10, respectively. The
present government is removing these subsidies in a phased manner, whichhas created a
new dynamic in the market, creating room forprivate investment in the energy market.
1.3 CaptiveMarketOverview
Industry owners have responded to an energy-deficit market and softening government
policy by installing captive power projects (CPPs),based on available and affordablefuels.
The Government first encouraged gas for such initiatives as a low cost fuel choice,but after
realizing rapid depletion of developed resources, it is now placing emphasis on coal fired
power generation in anticipation of developing the Thar Coal Field’s huge lignite reserves in
Pakistan’s Sindh Province.
Energy-intensive industries across Pakistan are increasingly relying on captive power
generation to meet their energy requirements. Lackof reliable power supply fromthe grid
and higher tariffsare key reasons forindustrial consumers to consider the CP option.   The
choiceof captivepower type depends on a number of factors,including baseload and back-
up power requirements, industrial processes, location, access to fuel sources and size of
CAPEX and OPEX investments.
Almost all industries are connected with the National Grid. Large industries like cement and
sugar typically have invested in multi-fuel CPPs forbaseload and back-up powerneeds,
while smaller units, such as textile spinning and tanning industrial units, use lower
threshold diesel or gas-fired gensets.  
CPPsprovide a hedge against uncertainty and increasing cost of grid-supplied power to
energy-intensive industries, especially in cases where the cost of energy forms a significant
part of the productioncosts. Capacity addition plans have moderated over the last two
years, primarily due to gray areas in policy and regulation, and slowdownof industrial
growth in the country.Further, fuelsupply issues have aggravated in recent years leading to
developers holding on totheir capacity addition plans.

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2 METHODOLOGY
The study looks at a sample of CP off-takersfrom pre-selected industries that require
uninterrupted powersupply to run their production processes. These include sugar,
cement, textile, and tanneries. The study documents integrated or independent CPPs, their
capacity and investment thresholds, business models used, fuel sources and technologies
employed, their energy cost/pricing structures, and future power sourcing strategies and
development plans. The study also documents growth areas, likely investment models, risks
and transactional procedures in place, financing mechanisms, business models, service
providers, and technology choices available.
The study design comprises of three key elements: a) collectionand analysis of primary
data through a questionnaire survey of energy intensive industries and captiveplant off-
takers; b) interviews with industry insiders, business owners, experts, and regulators; and
c)secondary research on financing, technology providers and ECP contractors.
The questionnaire was designed to understand various factors that influence decisions
about “generation and purchase of captive powerin general and in the renewable energy
(RE)segment, in particular; the technology and service provider selection procedure;
financing options, and the reasons for low off take of RE solutions, and BOO/BOOT
arrangements. The interviews also helped to bring forththe various institutional and other
factorsthat influence changes in CP-RE segment.
The questionnaire was emailed to 140 potential off-takers,with a brief description of the
background and purpose of the study. This was followedup withtelephone calls, and help
was taken from friends/professional networks to get appointments for conducting formal
interviews. In addition to questionnaire survey, semi-structured interviews were held with
industry leaders, regulators including Private PowerInfrastructure Board (PPIB),Ministry
of Water and PowerMoWP),Alternative Energy Development Board (AEDB);Gilgit-
Baltistan PowerDevelopment Board (GBPDB),and other stakeholders connected withthe
captive powersector. More than 40 sector experts from industry, regulatory authorities,
and service providers were interviewed to capture the various aspects and dynamics of the
captive powermarket. The analysis is based on primary information gathered froma
sample of twenty-threequestionnaires. The sample was selected to covercaptive power
projects both by type of industry and by fuel type. The data and information was augmented
and validated by semi-structured interviews and secondary research.
In addition to these key elements, the study draws on an extensive survey of available
service providers and literature. While the questionnaire and interviews explain ‘why’
industries commission CPPs and the choiceof technology and fuel sources, the service
providers survey and literature review provides research guidance and lessons on ‘how’
these market dynamics and trends can be facilitated.
3 CP OFF-TAKERS MARKET
3.1 MarketOverview
Captive Powermarket in Pakistan is evolving and BOO/T typebusinesses are at present
limited, but appear to have a potential market in the energy, infrastructure and other
service sectors. This is because public sector financing remains insufficientfor long-term
projects, and supply from public utilities is becoming more erratic and expensive due to
poor policy and fiscal constraints. Mature and emerging markets around the world are
increasingly adopting innovativebusiness solutions, such as captiveand BOO/Tmodels,

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and the industry in Pakistan is sensitive to these market signals.
The concept of BOO/Tis new in Pakistan and the policy and institutional infrastructure is
still evolving.In 2010, the Ministry of Water and Power(MoWP) approvedthe ‘Short Tem
Capacity Addition Initiative’, under whichqualified parties were invited to establish energy
generation projects on BOObasis. Under this initiative, the interested parties could offer
one or multiple projects of any capacity,above 50 MW, based on any technology and fuel in
consultation with the PowerPurchaser.
This policy was formulated to expand and regulate existing CPPs, installed by the
industry in capacity close to 3,000 MW,but were operating below their full capacity
because there was no policy to sell their surplus to the grid. Out of some 120 CPPs,
more than 30, witha cumulative capacity of 637 MW,are now selling their surplus
electricity to the NTDC/ Distribution companies (DISCOs).Many industries have also
installed Co-Generation (CoGen) power plants (combined heat and power plant), which
capture process heat for power generation.
With the exception of sugar industry, whichuses bagasse, these CPPsare mostly based on
natural gas, heavy fuel oil (HFO),high-speed diesel (HSD),and dual fuels. Textile industry,
alone, accountsfor 1,800 MW, of which1,300 MWs are on natural gas and 500 MWs on
high-speed diesel. Other major industrial units, including cement, paper, chemical and steel
sub-sectors have also in-house power generation facilities. Besides saving on energy costs,
these CPPsensure that industrial units get uninterrupted, reliable and stable supply of
electricity for smooth production operations.
These CPP plants have so far helped to sustain the profitability of various industries,
despite the countrywideshortage and high cost of electricity provided by power utility
companies. An annual addition of 70-100 MW in the captive powersegment is
projected during the next fiveyears. However,these additions are not enough to meet
the total powerrequirement of these industries. Adding additional capacity is
constraint by chronic shortages in the supply of domestic gas and the high cost of
imported fuels, as wellas delays in developing an appropriate feed-in-tariff (FIT)
structure for renewables.
These CPPsare almost exclusively integrated in the core businesses, and CPPsin the
renewable segment are few and farapart. The only notable exceptions are cement
factories, whichgenerate electricity from waste heat recovery (WHR) technologies and
sugar industry, whichuses bagasse.
Industry insiders interviewed forthis report provided the followingexplanation when
asked to identify key barriers on the uptake of RE technologies in the captiveenergy
market.
i) Wind and solar energy is costly and varying too! Although wehave wind corridors
for up to 50,000 MW capacity withan average 7 to 8.6 meter per second of wind
speed, it is estimated that power generation in Wind Powervaries in between 10 to
85% with30 to 33% average in a year and thus its utility as captive power plant is
not possible we can say until weshould have wheeling agreement with national
transmission grid utilization facility.
ii) Similarly, solar power from radiation exposure is a remarkable and unlimited
resource, but again an expensive / costly source and affectedby weather / seasonal
changes whichmakes it questionable for certain periods as captive power
generation where a constant power is required.

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iii) The cheaper versions like Biomass, biodiesel, municipal waste, bagasse are used to
produce electricity in conjunctionwith coaloperated power plants through
cogeneration at various locations can be considered in our country
iv) Hydropowersites are far away in the north from industrial areas, not connected
with the grid.
3.2 MarketSegmentation
CP overlaps on-grid and off-grid market segments in different geographies. These are
briefly described below.
In off-gridgeographies, captive market includes entire towns and districts, mostly in the
mountain areas, where captive market is further divided into public and community
utilities. Captive power is also the last resort forindustrial mining companies in interior
Sindh and Balochistan.
In the grid-connected areas, CP market is quite diffused and most of the current captive
power generation is based on a mix of conventional energy sources. The RE segment is
limited to bagasse-based technologies, WHR systems and microhydels and small-scale
hydropowerprojects in the north.
Captive market emerged in Pakistan as a reaction to shortages in grid-supplied energy, and
it is largely unregulated. It ranges from individual gensets of >5 kWused by private homes,
officesand small businesses, to baseload-capacity CPP plants of higher than 40 MW
installed by large industries. Almost all types of businesses and industries are connected to
the grid, and have some formof in-house powergeneration capacity as a back up.
A new incentive for the captive off-takersis the willingness of government to buy surplus
energy and pay an upfront price. This is good news for captivepower developers and
service providers, who can step in and offerwell-structured solutions to off-takersto add
capacity and upgrade to new technology.
Policy-wise,captivepowerfits well into the current fiscally-constraintenvironment in
Pakistan, and also provides a cost-effectivealternativeto the inefficientpublic sector
generation and distribution system run on unsustainable subsidies. The choice of
technology and fuel source is criticalfor captivepower.
The RE segment in CP market is very small, but appears to have the most potential. This is
because Pakistan has a huge comparative advantage in renewables, including hydro, solar,
wind, and being an agricultural country,biomass. The potential of all these RE resources
equals to more than 500,000 MW of power. This potential has not be been realized so far
because energy policy is highly politicized and fragmented in Pakistan, whichmakes
rational policy development an uphill task.
The present and likely early off-takersof more structured captive power models are
industries that rely on regular supply of energy for their production processes, or where
energy cost forms a large part of their production cost. Sugar, cement and textiles industries
are at present are major players in captive energy market.
3.2.1 CementIndustry
Cement production is one of the most energy-intensive industries. Pakistan’s cement
industry has an installed annual production capacity of 44,768,250 tons, but it is
utilizing 75-85 per cent of this capacity.It consumes about 720 MWelectricity,or 11
per cent of the total industrial energy usage. Average electricity consumption is in the

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range of 90-130 kWh per ton of cement, depending on the technology and the age of the
cement plant. Its total fuel and electricity constitute about 74 per cent of the production
cost. The industry relies on both grid-supplied and captive energy, and sources include
coal, gas and furnace oil, and WHR.
To optimize power generation at their plants, and keeping in view future opportunities
in domestic and export markets, the cement industry has recently embarked upon an
ambitious plan to constructCPPs run on multiple fuels. Lucky Cement’s 175-MW
natural gas-based plant at its Karachi and Pezu plants; a 100-MW oil-based plant at
AttockCement, a 27-MW HFOand diesel-based plant at Cherat Cement, a 16.3-MW
dual-fired (gas and oil)and a 6 MW gas-based plant at Fauji Cement, DG Khan Cement’s
82-MW gas-oil-based plant at DG Khan and a 33-MW plant at Khairpur, are pioneers of
CPPsin Pakistan. Many cement factories have further diversified their fuel sources and
switched to coaldue to gas shortages and rising cost of oil forpower generation.
Coal is emerging as a priority fuelin government policy,because of huge Thur Coal
deposits. This region of Thur is a remote and impoverished desert area in Sindh
province, withpoor infrastructure, and was recently spotlighted in Pakistani media as
more than 150 children died because of a two-yeardrought hitting this under-
developed area. For technical and other reasons, the workon Thur coalfields has not
even started, except exploratory projects.
Using imported coal, FectoCement is installing a 15-MW plant, while Bestway Cement
is planning to construct an 18-MW one at Chakwal. Fauji Cement will install a 36-MW
plant. Cherat Cement plans to set up a 14-18 MW powerplant, and Zealpak Cement a
35-MW coal-firedCPP.Kohinoor Maple Leaf Group plans to establish a 30-MW power
plant at Mianwali, which willuse indigenous coal.All these power plants will initially
use a blend of imported and indigenous coal, and may further diversify their energy
sources.
In the RE segment, Bestway Cement has installed a 15-MW waste heat recovery power
plant at its Chakwal plant – the first of its kind in the localcement industry. The plant
utilizes waste heat (exhaust gases fromthe cement production process) through a heat
recovery system that captures this heat. A steam turbine is then used to generate
electricity from the captured heat. There is no additional fuel consumption, and as such,
the cost of fuel comes out to zero.
FectoCement operates a 6-MW waste heat recovery plant, while DG Khan Cement has
an 8.5-MWunit. Lucky Cement generates 25-MWelectricity,and Cherat Cement has a 7
MW installation in the works.
These WHR powerplants give an edge to cement plants by making their cost of
production more competitive. WHR technology is increasingly integrated in cement
plant designs. Globally, cement industry is not allowedto operate a plant unless a waste
heat recovery powerplant has been installed. Cement industries in many developing
countries generate more than 50 MW on average from their own plants. But not all
cement factories in Pakistan are willing to invest in new technology. A plant of up to 50
MW, whichis the most economical,can be commissioned within 18-24 months, costing
$ 1.2-1.5 million per MW.
Table?:Summaryfor Cement

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Off-Taker Gross Capacity
(MW)
Fuel type
Lucky Cement (2 Plants) 175 NaturalGas
Cherat Cement 27 HFO
Attock Cement 100 FO
Fauji Cement 16 FO/Gas
Fauji Cement 6 Gas
D.G. Khan Cement 33 GAs
D.G Khan Cement 82 FO/Gas
Bestway Cement 18 Coal
Zealpak Cement 35 Coal
Kohinoor Maple Leaf 30 Coal
Facto Cement 15 Coal
Fecto Cement 10 Coal Water Slurry
Bestway Cement 15 WHR
Facto Cement 6 WHR
D.G Khan Cement 15.5 WHR
Lucky Cement 25 WHR
Cherat Cement 7 WHR
Source: Off-takers survey for this report.
Market opportunity
 High efficiency wasteheat recovery powergeneration technology
 Energy efficiency steam turbines and insulation equipment
Market barriers
 Wait and see attitude: industry owners are hoping that the government is able to
overcomethe current energy crisis, and improve the quality of grid supply
 A majority of industry owners are used to public subsidies and price manipulation
of factors of production, and are largely immune to internal competition, and not
willing to invest in technology up-gradation.
3.2.2 SugarIndustry
Pakistan's sugar industry, one of the largest in the world,comprises 81 sugar mills with
an annual capacity of about six million tons of sugar, and an estimated annual turnover

14
of PKR 200 billion. The industry crushes 30-40 million tons of sugarcane that yields
about 12 million tons of sugarcane waste knownas bagasse. The potential of bagasse-
based co-generation power is estimated at over2,000 MW.
Bagasse, termed as a captivebiomass, is fibrous in nature. It has a calorific valueof
2,300 kcal/kg.Bagasse is an excellent raw material for power generation. It already
provides a stable and reliable source of electricity and steam topower the sugar mills.
The surplus electric power generated by the sugar mills can be sold to national or local
grids. A sugar mill crushing 2,000 tons of sugarcane can generate 11 MW of powerper
day, of which twomegawatts will be its ownconsumption and the rest can be marketed.
Bagasse co-generation is an important element of the government's alternative energy
strategic plan. Pakistan Electric PowerCompany (PEPCO) hasrecently signed a Power
Purchase Agreement (PPA)for328 MW of captive powerfrom sugar industries and is
now negotiating foran additional 256 MW from under-construction CPPs. Almost all
Sugar Mills are operating bagasse-based co-generation plants, with an average capacity
of 18 MW, and are ready to sign PPAs withPEPCO.Table ? gives a sample list of these
industries
The “National Policy forPowerCo-Generation by Sugar Industry”,notified on January
24, 2006, offers attractiveincentives tothe sugar mills, similar to those available to
Independent PowerProjects (IPPs),includingguarantees for power purchase and
payment for it, income tax holidays, concessional duties on import of machinery,
guaranteed rate of return on investment, etc. NEPRA offersup-front tariff of 9.28 cents
per kWhfor bagasse-based power.
Bagasse is an ideal fuelfor CP-RE segment. The power generation cost is very low as the
energy source is available virtually at no cost. Second, the fuel is available on site and
transportation infrastructure is not required. Third, transmission losses are reduced as
the bagasse co-generation power plants are decentralized. Fourth, there is net zero
emission of carbon dioxide. Finally, the sugar mills have decades of experience of
related technology.
The only downside is that most sugar mills are using old, low-pressure 23 bars based steam
power systems, whereas other countries have abandoned low pressure boilers and
switched to high-pressure boilers (minimum 60 bars) in cogeneration power systems.
Resultantly, sugar mills in Pakistan are unable to optimize and sell more surplus electricity
to the grid.
Additional power generation through a readily available renewable biomass fuel will not
only help the country reduce its chronic power shortages during this critical period, but can
also save precious foreign exchange spent on import of furnace oil. Furthermore, efficient
use of a biomass fuel like bagasse is environmentally friendly and wouldhelp mitigate
greenhouse gas emissions from the country'spower sector.    
Table ?: Summary of CCPs for Sugar Industry
(MW)
Fuel type
Al-Abass Sugar Mills 15 Imported Coal
Al-Noor Sugar Mills 37 Bagasse/FO

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Ashraff Sugar Mills 8 Bagasse
BandhiSugar Mills 12 Bagasse/biomass
Brother Sugar Mills 13 Bagasse
Chamber Sugar Mills 5 Bagasse/FO
Colony Sugar Mills 36 NaturalGas
Deharki Sugar Mills 18 Bagasse/FO
Digri Sugar Mills 6 Bagasse/FO
Ittehad Sugar Mills 22 Bagasse/FO
Faran Sugar Mills 13 Biomass/FO
Fatima Sugar Mills 24 Bagasse/FO
Gotki Sugar Mills 12 Bagasse
H.M Ismail Sugar Mills 4 NaturalGas
HAmza Sugar Mills 24 Bagasse
Indus Sugar Mills 11 Bagasse
Ittefaq Sugar Mills 11 Bagasse/FO
Nishat Mills (3 Factories) 78 HFO/Natural Gas
Source:
Market opportunity
 Bagasse based cogeneration in sugar industries with high pressure boilers
 Insulation of pipes and improved WHR
 Biomass based (agriculture residue such as rice husk)
3.2.3 TextileIndustry
Pakistan has one of the largest textile industries in the world,and shipped 1.3 trillion
rupees (USD13.8 billion) worthof textiles in the year 2013, mostly to the U.S. and Europe.
Textiles accountfor 63 percent of Pakistan’s exports, and mills employ 20 percent of the
nation’s workforce.Faisalabad, whichgenerates the most tax revenue after Karachi,
accounts forhalf of all textiles shipped from Pakistan. But textile industry is passing through
a difficulttime due to powercrisis. All Pakistan Textile Mills Association (APTMA) members
interviewed for this study say that the industry is loosing market share due to prevailing
energy shortage.
Heavy investments were made in CPP projects back in 2002 to generate electricity
through gas, whichhas now become short in supply due to high demand of gas from
other sectors. In the textile sector, spinning and weaving of fiber are electricity-
intensive, whereas dyeing and finishing are heat-intensive processes, for whichgas is

16
the cheapest energy choice.Most large spinning units are now run on back-updiesel
generators, whereas in weaving sector a large number of units in Faisalabad, use
power-looms forfabric manufacturing; some medium-sized power-looms have
installed diesel generators.
A number of textile processing units have installed boilers that can run on bio-fuelslike
cottonwaste, rice husk and other waste. Big units such as Nishat, Gul Ahmed, Sitara and
Sapphire have captive power plants. More importantly, these companies use gas-fired
combined-cyclepowerplants, which generate power from gas; and the waste produced
is automatically utilized to generate steam.
According to APTMAmembers, about 30 percent of industrial capacity is closed down since
the energy crisis has hit the country and chances of revivalare bleak due to energy
shortages, especially gas and high cost of imported furnace oil. Gas supply to the textile
industry was cutby100 days during the last fiscalyear. Textile industry is bracing for the
gas supply to worsen in the coming years, as the planed Gas pipeline from Iran is almost but
shelved by the current government.
A series of meeting have recently taken place in APTMA, where the members have evolveda
consensus to seriously look forrenewable energy sources forpower generation,
particularly the solar.
Table ?: Summary for Textiles Industry
(MW)
Fuel type
Nishat Mills (3 factories) 189 HFO/Gas/Diesel
Din Textiles 9 HFO/Gas/Diesel
Gadoon Textile Mills 47 HFO/Natural Gas
InternationalIndustries 4 NaturalGas
Roomi Fabrics 16 NaturalGas
Saleem Yarn Mills 2.7 NaturalGas
Shadman Cotton Mills 9.25 RFO/Gas/Diesel
Prosperity Textile Mills 7 HFO
Source:
Market opportunity
 Solar thermal solutions 
 Use of alternative fuels (Rice husk, cottonwaste, etc)
3.2.4 Leather Industry
The leather sector is Pakistan's second most dynamic sector after textiles. It contributes 5
percent to manufacturing GDP,about 7 percent to export earnings and provides
employment to more than 200,000 workers.The leather industry consists of six sub-sectors
namely, tanning; leather footwear;leather garments; leather gloves; leather shoe uppers,

17
and leather goods, and uses low cost gas for most of these processes.
In Pakistan there are more than 2,500 tanneries (registered & unregistered) and footwear-
manufacturing units. Overthe years, the number of registered tanneries in the country has
increased. Located in Karachi, Hyderabad, Lahore, Multan, Kasur, Faisalabad, Gujranwala,
Sialkot, Sahiwal, Sheikhupura and Peshawar,the increase in the number of tanneries can be
attributed to increase in demand of tanned leather in the worldmarkets. However,power
shortages are hurting a vibrant industry. Against a capacity of 90 million sq. m per year, the
tanneries are producing 60 million sq. m.
Table?TextileIndustrycapacityandproducts
Products Estimated
annual capacity
Tanned leather 90 millionsq. m
Leather garments/
apparels
7 million
Leather Gloves 10 million
Leather footwear 200 million
Source: Pakistan Tanneries Association, 2011)
The leather industry requires both electricity and steam. Most firms are using diesel-run
generators as a back up forelectricity. The tanning industry in Pakistan uses machinery,
whichare out dated and believed to be imported from various countries in the 1970’s and
1980’s. Generally, a leather unit consumes over 0.97-1.87 MJ i.e. 270-300 KWh of energy to
produce 100 sq. ft. of finished leather. The absence of energy efficienttechnologies and lack
of proper maintenance of steam pipes; steam traps and insulation are causing wastage of
significant amount of energy in most leather processing units (UNIDO,2006).
3.3 CaptivePowerProjects
From the off-takers’survey results and secondary research, we came across at least two
business models that fall in the captivepower market, but are not necessarily BOO/T, or
strictly in the renewable segment. In the RE segment, one model we found was RE and
captive, but not BOO/T.A fourthmodel was BOO/Tin RE segment, but not exclusively
captive.
3.3.1 CP Dedicated
The first model is integrated captivepower projects for self or dedicated use. These are a
large number of businesses of all sizes that primarily depend on the grid-supplied power
but also have in-house generation capacity,whichthey switch ‘on’ or ‘off’, on needs basis.
Energy intensive industries in this model are simply switching to their own generation
during load-shedding hours. Low energy consuming industries, such as textiles and
tanneries are alternating between power and gas utilities and back up diesel generators, as
well as moving their shifts around to adjust to unpredictable supply schedules of utilities.
Those with sufficientopen space or roof area are also looking forefficient and sustainable
solutions, especially solar PV and solar thermal technologies. This segment can grow with
the right policy frameworkand further falling of PV prices, supported by innovative

18
business and financing models.
3.3.2 CaptivePower+
The second model is captivecum grid spillover power projects. (i.e., for self-use and sale to
utility).This model uses bagasse for co-generation, especially in sugar industry, and can
easily outcompete the grid by going multi-fuel, and producing year-round energy, by
burning hybrid and other low costfuels during nine months of the year, when bagasse is not
available. Using bagasse and more efficientWHR technology,they can produce energy at a
discounted rate for themselves and for a captive buyer, that is national grid, which is now a
state owncompany. The fuel type is neutral in this model, rather skewed towards
conventional power.
Sugar makers are an influential lobby in Pakistan, and it is normal for ministers and
parliamentarians to own a couple of sugar mills on the side. As such, they can influence the
policy and can be champions and early off-takersforCP if they see profitin it, and they can
either internally finance or access investment capital from diverse sources.
3.3.3 Off-gridpowerprojects
Isolated grid power projects (i.e., small, stand-alone). This model is mostly dispersed and
used by a variety of corporate developers, such as mining companies operating in off-grid
areas, and off grid public and community-ownedutilities in remote towns and villages in
the mountain areas of northern Pakistan. The northern part of the country is endowed with
rich hydrologicalresources for generating low costhydropower, but without industrial
consumers and grid connectivity,withoutwhich this resource cannot be developed.
These areas may be ideal forcaptive power projects coupled with energy intensive
industries, such as marble and granite quarrying and processing, as well as other industrial
mineral. At present, industries are reluctant to move to these areas because of poor
communications and under-developed infrastructure, but this may change under the
planned Economic Corridor Projectbetween China and Pakistan.
3.3.4 BOO/T Businesses intheCP-RE Segment
We found the followingcompleted or under implementation BOO/Ttype business models.
These RE projects are being developed in an IPP mode and are intended to supply to
DISCOS, and are not strictly captive.
 Laraib Energy Limited (“Laraib”) is the owner and developer of 84 MW
hydroelectric power-generating complex known as the New Bong Escape
Hydroelectric PowerComplex Jhelum River in Azad Jammu and Kashmir (AJ&K).
The Projecthas been developed on BOOT basis, whereby it would be transferred to
the Government of AJ&K free of cost at the end of a 25-year term. Laraib is a
subsidiary of The Hub PowerCompany Limited (“HUBCO”),whichowns75% of the
shares of the Company. The parent company owns the 1,292 MW Hub Power
Station, itself a private capital-financed IPP in Pakistan (Box1).
 Financial closing was achieved in 2012 forthe Sapphire wind power plant, a 50
MW wind powerproject with the credit facility of $95 million from the Overseas
PrivateInvestment Corporation (OPIC) of the United States in the wind corridor
of Sindh. It is expected to go into operation by the end of 2015. The project is
designed to generate 133 gigawatt hours of emission-free electricity annually,
using General Electric wind turbines.

19
 OurSun Solar PowerLimited, a subsidiary of the Meeco Group closed a Power
Purchase Agreement (PPA),foran initial capacity of 3 MW,with a possibility to
extend the capacity up to 8 MW in the near future. The solar installation willbe built
with tier one PVpanels and tier one European inverters. Within the PPAcontract
scheme, OurSun Solar Powerwillgenerate RE,which it will sell to Packages Limited
at a price fixed by the contractfor a period of 10 years on BOOTbasis.
 Green Power(Pvt)Limited (GPPL) hasdeveloped a 50 MW wind farm Independent
PowerProducer(IPP)ProjectonBOO basis in Sindh, Pakistan. The project
company’s original sponsor is Tapal Group (AVS enterprises). Recently,FUAJI
Foundation has acquired the enterprise and changed its name to Foundation Wind
Energy-II(Private)Limited (FWEL-II).
 FWEL-IIprojectsite is located at KhuttiKun New Island in the Taluka Mirpur Sakro
of Thatta District. Projectlies within the wind corridoridentified by AEDBfor
commercial wind projects. The Government of Sindh, through AEDB,has allocated
Land to the project. The total site land area is 1,656 acres. The total investment
required for FWEL-IIis around US $ 127 million with debt equity ratio of 75 %:
25%. The Lending for the project is arranged from foreign and localbanks witha
distribution of 66 % & 34%, respectively. Asian Development Bank and Islamic
Development Banks are the Lead Foreign Lenders while National Bank of Pakistan is
the Lead Local Lender. The equity financing forthe project is being arranged by
Fauji Foundation (20%), Fauji Fertilizer Bin Qasim (35%), CapAsia (A Malaysian
PrivateEquity Firm 25%) and Tapal Group (20%).
 The EPCContract of FWEL-IIwassuccessfully signed off on August 23, 2011 with
M/s Nordex Germany (Lead) & M/s Descon Engineering Limited consortium. The
EPCcost is USD110 million. The electricity generated will be sold to the Central
PowerPurchasing Agency (CPPA) at 132 KVA National Transmission and Despatch
Company (NTDC)Thatta grid station.
 Goldwind, a subsidiary of Chinese hydropowerdeveloper China Three Gorges
Corporation (CTG)has begun constructionworkon a 49.5 MWwind farm in Jhimpir,
Thatta DIstrict, Sindh, at a costof $130 million on BOTbasis. Goldwind is also
offering a two-yearoperations and maintenance service.
 Fauji Fertilizer Company limited (Subsidiary of Fauji Foundation) is also developing
a 50 MW Projectin the same area.
 A new BOOTproject, Khairpur Waste-to-Energy PowerProjectlocatedat Khairpur
Special Economic Zone(KSEZ), is envisaged to be the first of its kind projectutilizing
Municipal Solid Waste and Agricultural Waste to generate 20MW (Approx.). The
scope of this project includes:
 Detailed Design, Finance, Development /Construction, Operation,
Maintenance and Transfer of 20MW PowerPlant
 Electricity generated by the PowerPlant willbe sold to the industrial units
operating in KSEZ on priority basis (including “Khairpur Khjoor Mandi
Project” whichis also carried out under PPP Mode) and any surplus
electricity produced will be sold to Sukkur Electric PowerCompany (SEPCO)
 Collection of revenue receipts, including but not limited to, tariff charges
from KSEZ industrial consumers and SEPCO.

20
Other turnkey and BOO/Ttype CP installations include the following:
 The National Parliament Building in Islamabad will soon be retrofitted with a 1.8
MW, $ 60 million solar PVinstallation, under a friendly gift from China. The
investment willsave the Parliament at least $1 million in utility bills.
 China is also supporting a 10,000 acre solar park sponsored by the provincial
government of Punjab that, once fully operational, could generate up to 1,000 MW of
solar energy.
 The Pakistani newspaper TheNation has recently reported that the governments of
Pakistan and Canada have reached an agreement to develop a 500 MW solar project
in the Cholistan desert of Balochsitan.
 German company AEGis setting up a 50MW to 100 MWplant in Punjab on turnkey
basis, and this can expand to 300 MW in the next phase.
Box1: LaraibBusinessModel
The Project achieved Financial Closing on December 20, 2009. USD financing has been provided
by Asian Development Bank (ADB), Islamic Development Bank (IDB), International Finance
Corporation (IFC), and the French origin Société de Promotion et de Participation pour la
Coopération Economique (“PROPARCO”), whereas PKR financing has been provided by Habib
Bank Limited (HBL) and National Bank of Pakistan (NBP).
A single buyer purchases the energy generated by this Boot business i.e. Pakistan’s National
Transmission and Dispatch Company Limited (NTDC), which runs the national grid, under a long
term PPA. Under the PPA the hydrological risk is borne by the Power Purchaser through
guaranteed payment for fixed costs like debt servicing, O&M, ROE and insurance. A cost plus
tariff mechanism is in place under the PPA and the Project has been allowed a tariff of PKR
6.8362/KWh (US cents 8.5453/KWh) at Financial Closing, which will be adjusted for certain
allowed reopeners at the Commercial Operations Date (COD).
Other Concession Documents package includes the Implementation Agreement between
Governments of Pakistan and AJ&K, and among AJ&K partner entities (i.e. Government of AJ&K
and AJ&K Council), Water Use Agreement with Government of AJ&K and Land Lease
Agreements with Government of AJ&K.
Under its guarantee (i.e., the GOP Guarantee), the Government of Pakistan has guaranteed the
payment obligations of NTDC, Government of Pakistan and Government of AJ&K under the
Concession Documents.
The construction of the Project started on December 29, 2009 under a fixed price, time certain
EPC Contract executed with Sambu Construction Company Limited of South Korea (Sambu) on
June 2009. The water to wire E&M equipment package has been supplied by a leading E&M
supplier, namely, Andritz Hydro under a subcontract with Sambu. Hyundai Engineering is the
design subcontractor of the EPC Contractor. The Project has achieved commercial operation
date on March 23, 2013, which is about two months ahead of the required commercial operations
date under the PPA.
Owner’s Engineer, comprising of joint venture of Montgomery Watson Harza (MWH), monitored
construction of the project and National Engineering Services of Pakistan (NESPAK), while Mott
MacDonald of UK are the Technical Advisor to the Financiers and were responsible for
construction and environmental monitoring on their behalf.

21
The Operation and Maintenance (O&M) of the Project is being carried out by TNB REMACO
Pakistan (Private) Limited, a wholly owned subsidiary of TNB Repair and Maintenance SDN BHD,
which is ultimately owned by Tenaga Nasional Berhad, Malaysia.
The Project insurances have been placed offshore with leading insurance companies through
AON, UK who are the Insurance Advisor and Broker of Record for the Project.
The Project was registered as a Clean Development Mechanism (CDM) project by CDM
Executive Board under the United Nations Framework Convention on Climate Change
(UNFCCC) on January 31, 2009, thus achieving the distinction of becoming the first Hydropower
Project in Pakistan/AJ&K to have been registered with UNFCCC as a CDM project.
3.4 CP-RE policyandprojectsinthe pipeline
Around 22 solar powerprojects witha combined capacity of 772.99 MW are under different
stages of development and can achieve commercial operation by 2015-16, according to
AEDBdocuments. These projects willachieve commercial operation by stipulated period
subject to Grid connectionand finalization of tariff by NEPRA.
Additionally, there are some 30 clean energy projects in the pipeline, witha total output
of 1,947 MW. The government wants to attract foreign investment up to $2.7 billion in
order to expedite some of these clean energy projects. The main motivation is high costof
yearly oil imports and the burden oil places on the national economy.
The CP-RE Policy allows consumers to avail features like Net-Metering and Wheeling of
Energy, whichrequire interconnection with the grid. However,such schemes require
regulatory frameworkenabling the domestic, commercial and industrial users to use net
metering and wheeling facilitiesfor solar and wind energy. The AEDBhas prepared draft
rules fordistributed generation, covering electricity generation from solar at domestic level,
and submitted the same to NEPRA forannouncement. An important component of this
policy is feed-in-tariff (FIT)program, whichAEDB has developed withtechnical assistance
from GIZ. The financial model of PV-FITis based on 25% equity and 75% debt, calculated at
US$ 0.2329/kWh, fora period of 25 years, withan internal Rate of Return of 17%.1
At the provinciallevel, the government of Sindh (GoS) is developing a special economic zone
in the district of Khairpur, by the name Khairpur Special Economic Zone (KSEZ). The zone
will use wind hybrid power generation for industrial development in the Provinceof Sindh.
The Government of Punjab (GvoP has developed a new powerpolicy to facilitateinvestment
in the CP-RE market. Punjab PowerPolicy 2009 provides a framework forthe development
of power plants in both public and private sectors, as well as for joint venture projects. The
policy is intended to promote all types of technologies, including canal-hydel,solar, wind
and biomass. These projects wouldbe implemented by the private sector on BOO/Tbasis.
A Memorandum of Understanding (MOU) has been signed between the Government of
Balochistan (GOB) and CK Solar Korea for installing a 300 MW solar power plant near
Quetta. The project will cost around $900 million and will be completed by 2016. The
government has procured 1,500 acres of land in Khuchlak and Pishin on lease.
The Gilgit-Baltistan Council (GBC) has passed a new Act, establishing the Gilgit-Baltistan
PowerDevelopment Board (GBPDB).The Board has drafted a new policy to attract
investment capital for captivehydropowerprojects on the tributaries of Indus River. The
1"Working Paper for Solar PVUpfront Tariff Development”,NEPRA (2013)

22
Chinese Government is assisting GOP in establishing twoindustrial parts in GB that can
support CP-RE in high quality and low cost hydropower.
In KPK, PhaktookwaHydelDevelopment Organization (PHYDO),previously knownas
SHYDO,is a publically owncompany that provides policy,facilitationand development
services in the hydropowersector.
3.5 Conclusion– Off-TakersMarket
Industries and individual consumers that need uninterrupted supply of power have
responded to energy shortages by installing their ownprivate powergeneration systems—
or CPPs. These CPPs range fromsmall gensets of >5 kW,to baseload capacity CPPs of <10
MW, and are integrated with the coreindustries forself or dedicated use. CPPs are used as a
back up for the grid-supplied power, meaning that they are switched ‘on’ during powercuts,
and switched ‘off’,during supply hours from the grid.
The total size of this market is roughly proportional to the current power deficitof 5,000-
6000 MWduring peak hours, whichthey meet for an average of 8 hours a day in cities and
industrial areas, and 15-18 hours in rural areas. Cement, sugar and textile industries alone
have an installed in-house capacity of 3,000 MW, withan actual generation of 2,000 MW.
The remaining installed capacity is distributed widely among other consumer groups, from
private homes, officesand small businesses.
This large and widely distributed CP market includes both on-grid and off-gridgeographies.
The on-grid CPPscan be further divided into at least three segments, namely a) dedicated
and self-supply CPPsconnected with the grid but not selling their surplus to it, b) dedicated
and self-supply CPPs+that sell their surplus power to the grid and, c) dedicated and self
supply CPPs that are not inter-connected to the national grid. This last segment tends to be
largely in the RE segment.
In the RE segment, bagasse and WHR based CPPs are common in sugar and cement
industries, and hydropower is the main energy choicein off-gridCPPs. Solar and wind
based CCPs are being developed under various BOO/T typearrangements in a changing
policy environment, but with the exception of a few, most are designed as hybrid businesses
of CPPs and IPPs,withthe purpose to sell to the grid.
The policy for CP-RE is still evolving, and it is moving in a direction in whichdedicated CPPs
can sell their surplus powerto the grid foran agreed price. Under these policy conditions,
existing CPPs can use their idle capacity and add at least 3,000 MW of power to the system.
However,this policy also puts CPPs in direct and, some say, unfair competition, with IPPs
and other sectors, such as domestic consumers, transport and fertilizer industry, for low
cost natural gas, the fuel of choice under the current scenario in Pakistan, which is also in
short supply. Fuel sources and prices are tightly controlled by NEPRA.
Potential off-takersinclude industries with existing CPPsthat need new technology to
achieve higher efficienciesand add capacity and benefit from selling their surplus
generation to other industries and grid. Industries having a comparative advantage, such as
co-generation, as in the cement and sugar industries are likely to be the lead off-takersfor
the next generation of CPPs,with important BOO/Tfeatures, and specialization in hybrid
fuels and RE market segment
The BOO/Tis a new concept in Pakistan, and both policy and markets are still evolving. A
variety of turnkey and EPC contractsare used forprocuring infrastructure projects and
services across the public sector in Pakistan.

23
Emerging BOO/Tmodels currently include procuring thermal power projects, small pilot
projects in CP-RE,such as bagasse, waste to energy, and solar, wind and hydropower.
The BOO/Tmarket in captive RE is currently a very small segment, but it has the most
potential to grow.
4 CP BUSINESS MODELS AND SERVICE PROVIDERS
4.1 Marketsegmentation
Based on our assessment of off-takersmarket and outlook in the short to medium terms, we
looked at service providers and their capacity and relevance. Formarket segmentation, we
have considered the followingfive off-takescenarios. These scenarios are based on the
three segments/business models identified in the off-takersmarket survey. These scenarios
are, however,subject to policy changes in the national energy strategy, particularly likely
improvements in the grid-supplied power,and transmission ad distribution systems.
4.1.1 CP asa solesupplysource(S1)
A captive energy business tied to an off-grid single customer. Apart from off-grid
geographies, very few businesses rely on CP as a sole supply source. Some industries, such
as sugar mills use co-generation and generate sufficientCP power to meet their baseload
needs, without needing any significant amount of powerfrom the grid, except to meet
auxiliary needs, such as lighting and air conditioning requirements. But this is an exception
rather than a norm, as sugar making is a seasonal activity,lasting just three months of the
year. This sole supply scenario applies to remote mining operations, and mini grids owned
by public or community hydel units in remote mountain valleys.
Key features:
 Industry does not exist in off-grid areas, except mining operations in remote areas
 In grid connected geographies, CP is most suited when grid supplied power is
highly erratic, or available at a higher costthan CP.
Off-takescenarios:
 Relocation of energy intensive industry to off-gridareas where CP from low cost
hydropoweris possible (likely,in the medium term under Economic Corridor
planning in GB)
 Build new industrial estates closer to sources of raw material, whichalso have
solar or wind potential, and use hybrid CP, solar/wind/coal (examples include new
CP/IPP models in Sind and Balochistan, reported in off-takersmarket section)
 Further hikes in the cost of grid supplied power can justify sole supply CP segment
to grow and substitute grid supply in clusters of industry (likely,in the medium to
long-term, as energy subsidies are gradually removed)
Market-size:
 Currently very small segment of the market in off-gridgeographies, but growth
potential under most off-takescenarios.
 Bagasse based CPPsalone can generate 3000 MWwith investment in more
efficienttechnology
 A more structured approach to CP development, through BOOT/Tbusiness
models, similar to RE examples reported in the off takers market section, can lead
to cost efficienciesand better demand management.

24
Relevant service providers:
Company
Name
Product/Services Capacity
Range
ECO GREEN EPC contractor, waste to energy technology 1-10 MW
BOSCH EPC contractor, for process heat technologies, such as high pressured
steam and heat boilers
5-20 MW
AEG EPC contractor for RE solutions, and end use energy efficient technologies 1-50 MW
TOSHIBA EPC contractor for generators, turbines and current control systems 1 – 50 MW
SIEMENS EPC contractor for hydropower electrochemical equipment 1 – 1000 MW
4.1.2 CP complementinggridsupply,excesspowernotfedto the grid(S2)
An increasing number of companies are investing in self-supply power systems, from>10
MW diesel gensets and baseload capacity CPPs used by industry as grid supply becomes
erratic and more expensive. At higher thresholds of 10 MWto 40 MW-capacity,CP is used
by energy intensive industries, such as cement, sugar, and heavy manufacturing, while
textiles and sports industries use lowerthreshold CPPs that meet their baseload and
auxiliary needs.
CP in this segment is dominated by conventionalenergy sources, and with the exception of
bagasse in sugar industry and WHR in some cement plants, most energy sources used are
fossil fuels. As the cost of conventionalfuels rises and the price of grid-supplied power
increases, these industries, especially low-energy consuming industries, such as textiles
and tanneries are expected to opt forRE options, particularly in the solar PVand thermal
segments.
The main barriers are financing for some industries, such as textiles and leather that are
loosing market share for reasons of energy cuts and other reasons, and are not attractive
for lenders.
Key features:
 A very large number of auxiliary/ back-up /baseload generators run on various
fuels
 High idle capacity of these CP systems during poweravailability from the grid
 Competing demands from differentsectors, such as fromLPG run transport sector
whichis very large with over3.5 million vehicles, fertilizer industry, domestic
consumers; industry, SMEs and cottage industries, on low cost but depleting fuel
sources such as natural gas
Off-takescenarios:
 Energy-industry coordination and clustering to better utilize the excess and idle
capacity
 Improved policy environment favorableto a distributed and demand-led model of
generation

25
 Investment in new fuel-efficienttechnologies to off-setrising costof imported and
indigenous fuelsources
 Without market guarantee forsurplus power, CPPs have no incentive to add
capacity and upgrade technology
Market size:
 Potentially,very large market forall categories of CPPs,nearly equal to the current
deficit of about 6,500 of powerduring peak hours, for 8-18 hours a day/ 365 days a
year
 Current installed capacity is 3000 MW from old CPPs installed by industries,
excluding small units by small consumers, but actual generation is about 2000 MW
 Future outlookdepends on whathappens to the grid supply.
Table ?: Relevant service providers
Company Name Product/Services Capacity
Range
GE EPC contractor, waste to energy technology 10-50 MW
FUJI ELECTRIC EPC contractor, for process heat technologies, such as high
pressured steam and heat boilers
5-20 MW
UNITED COOLING
SYSTEMS
EPC contractor for steam power production equipment 1-10 MW
TOSHIBA EPC contractor for generators, turbines and current control systems 1 – 50 MW
HAYUNDAI EPC for generators 1 – 20 MW
4.1.3 CP complementinggridsupply,excesspowerfedto the grid(S3)
Regulation is catching up to allow a producer to generate power for its own consumption,
as wellas to sell the surplus to utilities. Under the 2002 policy,NEPRAhad allowed
industries that have set up CPPs to sell to and buy from the grid, using a net metering
system. However,due to disagreements overupfront tariff and other terms, this policy is
not implemented.
NEPRAhas developed a new policy frameworkfor ‘new’ Captive Power(N-CPP)
generating units built, owned and operated by industrial sector in Pakistan that can now
sell their surplus energy to the grid, while fulfilling their own energy needs (2013). The
eligibility thresholds for this program range froma minimum of 10 MW and to a maximum
of 49MW under the umbrella of Captive Power.This sale and purchase of New Captive
power willbe transacted through bilateral agreement between PowerProducerand the
PowerPurchaser.
The financial cost will be recovered by N-CPPs through kW/h delivered to DISCOs, during
the 1st phase of the agreements (07 years) on the pattern of Front Loaded Tariff.This is a
new concept,close to Public-Private-Partnership(PPP),buta bit differentfrom the
previous concept of CPPs, as those were never installed to sell power and earn revenues.
The first and foremost rationale of the new scheme is to benefit both the powerutilities
and the industrial sector of Pakistan. Under this policy,old CPPs that are generating
dedicated energy for a captive consumer, as a self-supplying unit, can also become a
supplier to the grid, under a new license. The policy is currently under review to include
RE on lines similar to many European countries, where the grid purchases RE from
individual producers at a premium.

26
There is also draft policy forenergybanking(drawingenergyfromthe gridand returning
surplusto it andpayingor gettingpaidfor the net balance),and energy wheeling (where a
captive energy producer adds an x amount of energy produced at a different location to the
grid and draws the same at its point of utilization, and pays wheeling charges to the grid.
These policies and underlying concepts are still under review and not implemented in
Pakistan.
Table?:TariffstructureforN-CPPs
Scenario Fuel Cost
Component at
Ref. Gas Priceof
PKR 238.38/
MMBTU HHV
Fixed Cost
Component
(PKR/kWh)
Financial Cost
Component
(PKR/kWh)
Total Cost
(PKR/kWh)
Total Cost
(USD
Cent/kWh)
With Guaranteed
Despatch
3.468 3.468 1.536 1.536 8.55
Power Producer
Ready to Deliver;
but No Despatch
By DISCOs
0.00 0.312 1.536 1.848 2.31
Non Gas
Months/No
Despatch
0.00 0.144 1.843 1.68 4.04
Source: NEPRA (2008); 1 USD= PKR100
Key features:
 Grid-connectivity removes threshold limitations and incentivizes investment in
new technology and higher capacity utilization
 In this scenario, the risk is more evenly divided among the public utility, off-taker
and sponsor
Off-takescenarios:
 If implemented, the N-CPP policy can be a great improvement on the current IPP
model withbetter competition
 Feed-in-tariff incentivizes capacity addition, technology up gradation and year-
round generation forN-CPPs >50 MW
 However,this model can only workif the public utility that purchases excess
power does not default on payments as is the case with IPPs
Market size:
 The CP/IPP hybrid business model removes the monopoly of IPPsand opens the
entire energy market forcompetition to meet the demand
 The N-CPP model provides a pathway forold CPPsto up-grade to new technology,
utilize idle capacity,and allows BOO/Tbusinesses to crowd-in
 For some CP owners, such as sugar industry, it is easy to graduate from seasonal, 3
moths of bagasse based generation, to becoming year round producers and
suppliers of energy to the grid, effectively becominghybrid, sugar-cum energy
businesses
Table ?: relevant service providers

27
Company Name Product/Services Capacity Range
NORDEX EPC contractor, wind turbines and other energy projects 5-50 MW
BOSCH EPC contractor, for process heat technologies, such as high
pressured steam and heat boilers
5-20 MW
DESCON EPC contractor for supply of power production equipment and
installation
5-50 MW
Harbin Power
(China)
Hydropower electromechanical equipment supplier and ECP
contractor
50-2000 MW
TOSHIBA EPC contractor for generators, turbines and current control
systems
1 – 50 MW
SIEMENS EPC for automation equipment in 1 – 20 MW
4.1.4 CP asleast cost sourceof electricity(S4)
This scenario cuts across all segments described above, with a focuson hybrid solutions and
designing business models that use differenttrade offsin capex/opex investment decisions.
The latest Energy Strategy of GOP (2013) provides for “affordablepower” as a policy goal.
The GoalIII of the strategy calls for“ensuring the generation of inexpensive and affordable
electricity for domestic, commercial & industrial use”. The strategy focuses on shifting
Pakistan’s energy mix towardlow cost sources, such as hydel, gas, coal, nuclear and
biomass. Local and foreign investors and service providers are sought and facilitated to
implement this strategy.
Off-takescenarios:
 Expensive RFO and HSD plants are convertto low cost and available fuels, if feasible
for certain industries
 Shift tariff incentives towards low cost energy sources (hydel–runof the river, gas,
coal, biomass, etc.)
 Proliferatemining across the country and expedite coalprojects at Thar Coal Fields,
and shift industry closer to low-costhydropowersites
 Increase price forgas consumption forall users, and incentivize transition to solar
thermal solutions forheating, cooling and steam requirements.
The service providers are the same as in the previous segments
4.1.5 Captiveenergyforprocessheatsupply(S5)
Thermal energy in the form of hot air, water and steam is used in a wide variety of
industrial processes. Process heat accountsfor a significantly higher share of energy in
Pakistan, and considered as a key area where significant economies are possible in a short
period of time. In the cement industry, part of the process heat is captured and recycled,or
used to generate electricity.In the textile sector waterheating can accountfor as much as
65% of the total energy consumed. The most important industrial processes using heat at a
mean temperature level are summarized in Table ?.
The most widely used method forprocess heat in Pakistan is to generate steam employing
boilers by using either coal or furnace oil. These technologies are quite outdated and result
in high inefficiencies. Solar thermal technologies are well developed and ideally suited to
obtain hot water,especially at lower temperatures, and for cutting energy bills in getting to
high temperatures needed forhigh temperature processing. At present, very little uptake of

28
this technology is observed in most industries in Pakistan, despite good potential.
Table ?: Temperature ranges for differentindustrial processes .
Industry Process Temperature (◦
C)
Dairy Pressurization
Sterilization
Drying
Concentrates
Boiler feed water
60–80
100–120
120–180
60–80
60–90
Tinned food Sterilization
Pasteurization
Cooking
Bleaching
110–120
60–80
60–90
60–90
Textile Bleaching, dyeing
Drying, degreasing
Dyeing
  Fixing
Pressing
60–90
100–130
70–90
160–180
80–100
Paper Cooking, drying
Boiler feed water
Bleaching
60–80
60–90
130–150
Chemical Soaps 
Synthetic rubber
Processing heat
Pre-heating water
200–260
150–200
120–180
60–90
Beverages  Washing, sterilization
Pasteurization
60–80
60–70
Timber by-
products
Thermo diffusion beams
Drying
  Pre-heating water
Preparation pulp
80–100
60–100
60–90
120–170
Bricks and
blocks
Curing 60–140
Plastics Preparation
Distillation
Separation
Extension
Drying
Blending
120–140
140–150
200–220
140–160
180–200
120–140
Sources: KalogirouS (2010)
Off-takescenarios:
 Greater exposure and incentives to traditional industries, such as textiles and
tanneries toadopt more cleaner and efficienttechnologies
 This market segment is ready for new solar thermal technologies, and innovative
investment solutions.
The service providers are the same as mentioned in the previous Tables in this section.

29
4.2 ServiceProviders Summary
All types of EPC,turnkey and general O&M service contactorsare operating in Pakistan’s
energy market, and many have specialized products and services forRE segment. Pakistan’s
energy market is closely linked to bilateral investment agreements. With a large part of FDI
coming from China, Qatar and Saudi Arabia, companies withownership or established roots
in these countries are well placed to do business in Pakistan.
A sample of service providers and their capacity thresholds have been provided in the
previous section, whose products and services are relevant to that market segment. The
followinglist includes main international players that are well connectedto national sub-
contractors,and have experience and capacity and financial muscle to play a major role and
transform Pakistan’s energy market.
A longer list of relevant national and international service providers is provided in Annex?.
Company Name Product/Services Capacity
Range
Three-Gorges Project
Cooperation (China)
Contractor and technical advisor for implementing the energy
part of USD 20 billionplanned Chinese investments in key
sectors of Pakistan in the next five years
1,000-
20,000
MW
ABB (Switzerland) EPC contractor for turnkey solutions for power and
automation technologies, particularly relevant to multi-fuel
captives, i.e., cement, sugar, and textile industries (S1)
50-500
MW
Alstom (France) EPC and turnkey contractor for power generation and
transmission projects and green energy technologies. Highly
relevant to last-mile solutions in grid-connectivity for S2 and
S3 scenarios
1-50 MW
Areva (France) Contractor for a broad range of solutions for RE generation,
including engineering, construction, equipment, consulting
and maintenance services, relevant to self-supply and
spillover captives (S3-S4)
1-200 MW
Descon (Pakistan) General contractor for integrated technologies and services in
RE and thermal energy, including heat efficiency (S1, S2, S3,
4, S5)
1 – 5 MW
General Electric
Company – GE (USA)
General contractor for energy generation and efficiency
technologies (SS, S4, S5).
1 – 2000
MW
Harbin Power
equipment company
Ltd. (China)
Contractor and supplier of technology and services to Chinese
ventures in energy sector in Pakistan, particularly captive
hydropower projects for industrial zones in the off-grid north
(S4-S5)
50-2000
MW
Siemens (Germany) Turnkey /EPC contractor for large and small hydropower
development technology (S4-S5)
1-2000
5 CP ENERGY SOURCES AND RE TECHNOLOGIES
5.1 EnergyMix
For power generation, oil (36%) and gas (29.2) form the bulk of primary commercial
energy supply mix of Pakistan, contributing roughly 65% to the total production as shown
in Figure?.

30
Figure?: Pakistan’s energy mix.
During FY 2012-13, Pakistan imported oil worthUS$ 15.2 billion, of which furnace oil and
diesel used for thermal power generation was 52 percent. According to the Planning
Commission (PC)of Pakistan, the import bill under the present scenario would increase to
USD 41 billion by the year 2022, based on crude oil price of USD70 per barrel.2 It is,
therefore, imperative that the energy mix be changed to provide a more affordableand
sustainable energy model forthe country,whichmaximizes the use of indigenous resources.
Historically, Pakistan’s energy balance sheet has relied on indigenous natural gas, which
formed almost 40% of the energy mix in 2005, and reduced to 29.2 percent by 2013. This
important resource has been dwindling in relation tothe demand. Today the gas production
is 1.3 TCF per annum (4 billion cftper day) as against a demand of 2.0 TCF per annum (6
billion cftper day). It is a cheap indigenous resource that used to be abundant forseveral
decades.
The government of former President PervezMusharraf began promoting the use of
compressed natural gas, or CNG, in private vehicles nearly a decade ago. The idea was to
reduce the import bill on buying oil internationally and instead rely on Pakistan's domestic
natural gas reserves. So the previous government kept the price of CNG low,and promoted
the importation of equipment forcars to run on natural gas and rapidly gave out licenses to
open stations. The use of CNG has an added benefit of being less polluting, since it tends to
burn cleaner than gasoline.
The policy was incredibly successful in the short-term, but not sustainable in the long-term.
Pakistan has 3.5 million private vehicles running on CNG, more than 80 percent of vehicles
in the country and more than any other country in the world. But Pakistan's gas supplies
can'tsupport this demand while also feeding power plants, fertilizer companies and other
businesses that rely on the fuel.
So officialsare now grappling with the painful task of trying to reverse the policy,trying to
wean cars back onto gasoline to redirect the limited supplies of natural gas to other sectors
where they believe it will be more productive— power plants, for example.
Gas reserves are depleting in the country and the current controlled prices have served as a
disincentive for the exploration and production in Pakistan. Pakistan has proven reserves of
840 billion cubic meters (28 TCF)with an annual consumption of 40 billion cubic meters
(1.3 TCF). However,artificially kept lower prices, worsening security situation and
2 Integrated Energy Plan 2009-2022 (Planning Commission,2010)
Installed C apacity (MW)
Hydro
6444
Thermal
13072
Nuclear
425

31
uncertainty in policy environment are keys barriers formajor investments in exploration
and development of gas fields. Pakistan has all but shelved the planned Iran-Pakistan Gas
Pipeline Project,under American and Saudi pressure.
Pakistan has only one coal-firedpower plant that supplies to the grid, but imported and
indigenous coalis used by many industries for CP. Pakistan has huge coal deposits in Thur
desert, but it is of low quality, and the country needs new technology and investment for
infrastructure to process this resource forpower generation. The government policy favors
large-scale open cast mining and development of mine-mouth power generation plants in
stages to generate 350-600 MW,through joint private/public partnership forfuture
industrial utilization of coal. In subsequent phases, chemical and fertilizer plants would be
set-up as part of a Mega Petro-Chemical Complex, which wouldbe supported by additional
coal mining
However,no private firm has comeup to develop an integrated coalbased project. A 50 MW
pilot project is currently being built as a test case, whichwill use gasified coal forpower
generation. If successful technology forgasification of low quality lignite will be a major
growth area in Pakistan for powergeneration and supply to the grid, but not so useful for
CP.
For the next fiveyears, the government policy is to reduce dependence on imported oil and
increase the share of indigenous coal, hydropowerand other renewable resources.
Table?: CP basedonconventionalenergysources
Resources Key characteristics CP Off-take scenario
Diesel/
Furness oil
High dependency on imports; higher import bills, subject to
global market volatility
 Low for capacity addition
 High for energy efficient
technology
Gas Resource depletion, artificially low pricing under political
economy; competing demands from different sectors of the
economy; security and policy barriers on exploration and
development (E&D)
technology
 Low for E&D)
Coal Huge reserves but low quality, not ideal fuelsource for most
CP plants
technology
5.2 SolarPV
SPV technology is making a slow but steady entry into energy market in Pakistan. The
government has set a target of 5% of total powergeneration fromsolar and other
renewables by 2020. In the near term, the government is seeking to develop at least 500
MW of solar powerplants. However,the market is still at an early stage of development, and
largely led by public sector. The good news is that this market though dominated by the
public sector, has already created a competitive serviceindustry in the private sector.
The followingexamples give a rough idea of the current trends in the growth of SPV
segment in the CP market.
Pakistan is estimated to possess a 2.9-TW solar energy potential. In view of the scarce fossil
fuel reserves in the country and high costs of imports, energy security and climate change
concerns, it is expected that renewable energy willplay a significant role in Pakistan’s

32
future energy mix.
Source: USAID/NREL (2010)
Covering initial investment cost on solar is key as, in a country with around 300 days of
sunshine a year, subsequent costs are largely limited to maintenance and repairs.
The PV technology is wellsuited to off-grid generation, and tomarket segments where
consumers are willing to pay a premium for stable supply. More important, it is subject to
less political and environmental concerns than nuclear, wind or hydro. With broad public
support and proactivepolicies, the global industry has grown exponentially. Global
production capacity of silicon solar cell increased from 52 MWp in 2000 to 12.0 GWp in
2008 (source).Eventhough PVsystems can offercleaner and plentiful energy, the major
obstacle they faceis that their energy cost is still too high. But generation costs are falling
dramatically. In Pakistan, the cost of importing one PV watt is now just $1, compared to $2
just overa year ago, and downfrom $4 in 2008 (Mehboob, 2013). Globally, it is 75 cents a
watt today,and it will see 50 cents a watt by 2017," (Ahmad Chatila, 2013).
PVis a highly elastic and modular technology. It is installed house-by-house and business-
by-business. In these settings, the cost of generation has to compete with the retail price of
electricity,whichgives solar a considerable edge. The high up-front capital cost is one of the
adoption barriers forsolar projects. Although SPV is more expensive on upfront cost basis,
diesel gensets turn out to be more expensive on full-costbasis, as cash outlays for the fuel
are deferred. Different cash outlays fordiesel and solar sources make the difference in the
investment choices.

33
5.3 Concentratedsolarpowersystems(CSP)
CSP plants consist of twoparts: one that collectssolar energy and convertsit to heat, and
another that converts the heat energy to electricity.All CSP technologicalapproaches
require large areas forsolar radiation collectionwhen used to produce electricity at
commercial scale. But CSP plants have a much simpler system than a coal or nuclear power
plants. Plus, they don’t have fuel costs. So, under the Life CycleEnergy (LCE) cost, CSP plant
(like in the case with a PV plant) can cheaper than diesel over a 20-year plant life.
CSP technology is highly relevant to many off-gridparts of Pakistan, such as vast desert-like
areas in Balochistan, Cholistan in Punjab, and Thur region of Sind, all rich in mineral
resources, but with no infrastructure and grid connectivity.However,at present, this
application is not in use in Pakistan.
5.4 Solarthermal
There are a large number of applications in whichsolar energy can be utilized directly by
exploiting its heat characteristics. Solar thermal technologies are comparatively simple,
relatively low cost and easy to adopt. The potential applications in solar thermal
technologies in Pakistan includes cooking, heating and cooling of buildings, heating water
for domestic and industrial applications, generation of high temperature steam, and drying
agricultural products under controlled temperatures.
Solar waterheating technology is quite mature but its use in Pakistan has so far been quite
limited because of relatively higher capital costof solar water heaters as compared with
conventional ones operating on natural gas. A number of public sector organizations are
actively working on the development of low costsolar water heaters that have now started
gaining popularity in some geographical markets. The production and commercialization of
such heaters has already been started in the private sector. Evaluation done by AEDB
reveals that using solar water heaters instead of conventional (gas and electric) water
heaters has great economic benefits (saving fuel costs), environmental benefits (reducing
fossil fuel consumption and pollutants emission) and social benefits (cheaper, cleaner and
safer hot water for daily life).
Solar waterheating is a potential candidate to replace the conventionalenergy sources in
textile industry and can be an economicalchoice. Adopting this technology can also
substantially reduce the environmental impacts. The payback period for solar water heating
incorporated within textile industries in Pakistan is estimated to be 6 years (Muneer, 2010).
The current and potential applications are explained in the followingChart.
Figure?: End-usesandtechnologiesforuseofsolarenergy

34
Source: A.W. Bhutto et al. / Renewable and Sustainable Energy Reviews 16 (2012).
5.5 Solarwaterpumps
Farmers in Pakistan are facing serious difficulties in irrigating their crops under severe
energy crisis and ever increasing diesel costs. One of the economical waysis the solar
pumping which can bring a revolution in agriculture and provide farmers energy
independence through solar pumping. According to one estimate, more than one million
pumps are in use Pakistan, out of which750,000 are diesel pumps. If solar pumps replace
10% of existing diesel pumps, a saving of about 1,428 MW of electricity is possible.
The key issue in the growth of solar pumps is the high upfrontcost of solar pump. Diesel
driven pumps have low initial costbut high operational, maintenance and environmental
costs. Solar pumps have high initial costs but almost zero operational, maintenance costs
and environmental costs. If calculations are done on LCE cost basis forboth pumps, then
diesel pumps are on average twoto four times more expensive over a 20-year period, which
is the minimum life of a solar pump, forpumping the same average amount of water per
day! At low hydraulic load the solar pump LCE costis as low as 20% of the Diesel Pump. At
higher hydraulic loads, this value reaches 55%, which means that the solar pump option
still provides a solution at half the life cyclecost of the diesel driven pump option.
Table? Advantages and disadvantages of Solar Pumps
Advantages Disadvantages
Fuel source is vast, widely accessible and essentially
infinite  Modular (smallor large increments) 
Fuel source is diffuse (sunlight is a relatively low-
density energy)  
No moving parts (nowear); theoretically everlasting High installation costs 
Ambient temperature operation (nohigh-temperature
corrosion or safety issues).
Solar cells donot generate electricity at night, and in
places with frequent and extensive cloud cover,
generation fluctuates unpredictably during the day

35
Can be integrated into new or existing building
structures 
Lack of economical efficient energy and storage
Can be very rapidly installed at nearly any point-of-use Off-take scenarios
No moving parts (nowear); theoretically everlasting Favorable government policy and milestones
High reliability of solar modules (manufacturers’
guarantees over 30 years) 
Financial products by private banks for industry,
amortizing the capital cost and staggering repayment
over several years
No emissions, combustion or radioactive waste (does
not contribute perceptibly to global climate change or
air/water pollution) 
Rural electrification projects
5.6 Wind Power
Pakistan Meteorological Department (PMD) has conducted a detailed Wind PowerPotential
Survey of coastal areas of Pakistan and identified potential wind corridors where
economically feasible wind farms can be established. AEDBis in the process of getting this
data validated by Rise National Laboratory of Denmark. Potentialareas cover9700 sq. km
in Sindh, withsuitable average annual wind speed of 7 m/s at 30 meters. The gross wind
power potential of this area is 40,000 MW and keeping in view the area utilization
constrains etc. the exploitable electric power generation potential of this area is estimated
to be about 11,000 MW.However, this segment is still at an early stage of development.
Key challenges in wind powerdevelopment include:
 Wind power projects require higher capital investment, have longer gestation and
construction periods and are prone to more construction risks (inflation, cost
overruns, delays, geological surprises, floods,extreme weather, socio-political,wind
risk, sometimes environmental and resettlement rates, etc.) compared to thermal
plants.
 Due to their capital-intensive nature, wind power plants have higher tariff in the
initial years.
 Wind power plants are very site specific and require more time forsite
investigations, planning,   studies, design, project review,appraisal and approval,
before start of construction.
 The main plant and equipment (turbines, generators, spiral casing, etc) is site
specific and no “off-  the-shelf” or standard equipment/machines are available as in
case of thermal plants.
 Wind power is subject to operational risks such as; metrological, conflictof interest
among multi   sector users (power generation, environmental, etc.),future
developments, etc.
 Politicalrisks due to environmental and resettlement issues, required
consents/clearance from  provincial departments.
 As wind powerprojects are mostly located in remote areas with no or little
infrastructure facilities   available (i.e. access roads, bridges, electricity,telephone,
colony,etc.)new infrastructure would  need to be built beforestart of construction.
 Most of the wind power installations require construction of new roads and bridges
and/or their   widening (if exist) to enable transportation of heavy equipment ad
machinery from the nearest port   ormanufacturing facilities.
 Firm/dependable capacity is substantially lowerthan the installed capacity in most
of the cases.   Powerand energy yields depict considerable seasonal and year to

36
year variations and are subject to   metrological risk.
 ProjectAgreements (IA,PPA) are different and complex compared to thermal
plants.
 The security package requires special provisions to address wind specifics.
 One of criticalfactors is that there is very limited international experience for
private wind power   projects in Pakistan.
5.7 Hydropower
Pakistan has an installed hydroelectric capacity of 5,928 MW of large (>250 MW), 437 MW
of medium (>50 MW and <250 MW),and 253 MWof small to micro (<50 MW) plants,
mostly in the northern parts of the country. This amounts to 6,608 MWof total capacity,or
less than 15% of the identified potential.
Key barriers include higher upfrontcost of hydropowergeneration, as well as locational
mismatch, such as industry and markets are located in the plains of Pakistan, while suitable
sites for low cost hydropowerare locatedin off-gridareas, such as in GB. However,consider
potential also exists in KPK, AJK, and large canals in Punjab and Sindh.
Realizing hydropowerpotential through private investment and through BOO/T requires
streamlining the coordination between the various national and provincialagencies.
Specifically,as hydropowerdevelopment projects below 100 MWof capacity fall under
provincial authority,the capacity of provincial technical and regulatory institutions to
process investment proposals needs to be enhanced.
Off-takescenarios:
 Simplified regulation and institutional capacity,including a one window service and
specified turnaround time forprocessing investment proposals
 Creating synergies with wider economic development goals and sector development
policies, such as mineral development, irrigation, industrialization, and achieving
seamless   integrationindevelopmentstrategies
 Targeted incentives and concessions, linked to specific targets and outcomes
 Provisions formulti-scaled investments, from micro, community-based utilities, to
captive powergeneration and export
 Fostering responsible investor behavior, incorporating corporate social
responsibility (CSR) and encouraging localequity participation in joint ventures
 Incorporating sustainable development principles in investment policy,maximizing
positive and minimizing negative impacts of investment
 Promoting a partnership approach among public, private and community sector
stakeholders
 Opening up multiple opportunities for investment forsector development, such as
generation, distribution, technology development, skills and professional training
5.8 Biomassto power
Sugar mills in the country use bagasse for cogeneration purposes and have recently been
allowed to sell surplus powerto the grid up to a combined limit of 700 MW. The total
potential is estimated to be 3000 MW. No other significant commercial biomass-based

37
technology is presently employed forenergy production/use in the country beyond
experimental deployment of biogas digesters, improved cooking stoves, and other small-
scale end-use applications. Use of biogas digesters in rural households, after a promising
start, has stagnated due to withdrawalof external subsidies.
Bagasse is burnt to produce energy even in low efficiency boilers. In the bygone times of
low oil prices, Bagasse was almost a liability and a mere disposal issue. Low efficiency
boilers adequately consumed bagasse for the self-requirements of the sugar mills. New
technology with almost twicemore efficiency (high temp and pressure boilers and steam
turbines) and higher energy prices has generated interest and rationale for replacing the
existing low efficiency equipment by higher efficiency equipment, and sell the surplus to the
Grid.
The major problem is the limited season of sugar cane availability. Sugar mills in Pakistan
have a crushing season of only 3-4 months. Storage could probably be done for another two
months requirement, but it is expensive. Thus the plant and facilities are potentially
available for eight months. Although this is not a unique problem, hydropoweralso suffers
from the same difficulty of seasonality. Howeverno fuel cost in case of hydropoweris a
major redeeming feature.
Off-takescenarios:
 Utilization of captive power plants capacity through Feed In Tariff
 Incentives to sugar mills to install high-pressure boilers on existing plants to
increase efficiency
 Hybridization of bagasse with other renewable of conventional sources, such as rice
husk, corncoband shrubs etc., coal, gas and furnaceoil, during 8 months of the year
when bagasse is not available.
5.9 Geothermal
Unknownpotential
6 FINANCING AND SECURITY REGIMES
6.1 PolicyforPrivateSectorParticipation inthe RE segment
The private sector can undertake CP-RE projects falling in any of the followingcategories,
according to existing and emerging government policy:
 CPs as IPPs,based on new plants (forsale of power to the grid only)
 Captive and grid spillover power projects (i.e., self-use and sale to utility)
 Captive power projects (i.e., for self or dedicated use)
 Isolated grid power projects (i.e., small, stand-alone)
6.2 Feed-in-Tariff
A draft policy is available under which a CPP of capacity greater than 1 MW of RE may be
able to supply surplus electricity to the powerutility (grid spillover),while at other times
drawing electricity fromthe utility to supplement its ownproduction. The energy supplied
by the utility to the power producer in a month, (i.e., units received by the producer minus
units supplied by the producer, if greater than zero),shall be paid for by the producer at the
applicable retail tariff (e.g., industrial or commercial rates, depending upon the type of user

38
connection).In the reverse scenario, where the producer supplies a net amount of energy to
the utility, the formula recommends a tariff equal to the average energy costper kWhfor
oil-based power generation (as determined by NEPRAfor GENCOs/IPPsoverthe applicable
quarter of the year)less 10%. However,this policy is still not approved and not
implemented.
6.3 Financial andFiscal Incentives
All renewable energy-based power projects technically enjoy the followingfiscal and
financial incentives. These facilities are equally applicable to private, public-private, and
public sector renewable energy power projects.
6.3.1 Fiscal Incentives
No customs duty or sale tax formachinery equipment and spares (including construction
machinery, equipment, and specialized vehicles imported on temporary basis) meant for
the initial installation or for balancing, modernization, maintenance, replacement, or
expansion after commissioning of projects for powergeneration utilizing renewable energy
resources.
Specifically,forsmall hydro, wind, and solar, the followingfacilities are available:
 Exemption from income tax, including turnover rate tax and withholding tax on
imports
 Repatriation of equity along with dividends freely allowed, subject to rules and
regulations prescribed by the State Bank of Pakistan
 Parties may raise local and foreign equity and debt finance in accordance with
regulations applicable to industry in general
 Non-Muslims and non-residents shall be exempted from payment of Zakaton
dividends paid by the company.
6.3.2 Financial Incentives
 Permission forpower generation companies to issue corporate registered bonds
 Permission to issue shares at discounted prices to enable venture capitalists to be
provided higher rates of return proportionate to the risk.
 Permission forforeign banks to underwrite the issue of shares and bonds by private
power companies (CP-IPPs)tothe extent allowed under the laws of Pakistan
 Non-residents allowed purchasing securities issued by Pakistani companies without
the State Bank of Pakistan’s permission, subject to prescribed rules and regulations.
 Independent` rating agencies available in Pakistan to facilitateinvestors in making
informed decisions about the risk and profitability of the project company’s
bonds/TFCs.
In the case of unsolicited proposals, a Letter of Intent (LoI) shall be issued to enable the
sponsors to carry out a feasibility study and obtain tariff determination and a generation
license fromNEPRA. Thereafter, a Letter of Support (LoS) shall be issued to assist the
sponsors in achieving financial closure forthe project.
In the case of solicited proposals, bids shall be invited by AEDB/Provincial/AJKAgency from
IPPsto participate in a competitivebidding process. After completion of evaluation of bids,
a LoS shall be issued to the successfulbidder to facilitate the project’s financial close. The

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