April 8, 2014

'Wind Energy has Massive Potential,' CEO, Sachal Energy Development

"We have achieved all the major milestones. Earlier this month we signed the Energy Purchase Agreement with the NTDC, which is one of the most important milestones. Contracts including equipment and construction have also been finalised. Now we are waiting for the signing of implementation agreement, which will hopefully be done this month," says Kashif. 

For the uninitiated, the implementation agreement is an agreement between the project and the Federal Government. Not only does it set out the terms of the implementation of the project but also spells out the guarantees that come from the Federal Government. Once the implementation agreement is signed, Sachal's financial close can be expected within the ongoing financial year and Kashif says due diligence is already under way with banking institutions. "The project will commence operations within 18 months after the financial close, which means we should be online by December 2015," he said. 

"In the private sector we would be the first project in Pakistan bringing Chinese financing into the country. The Company has a debt to equity of 80:20, and about 90 percent of the debt component is from China," he said. 

The project's EPC contractor is also a Chinese firm called HydroChina, which is one of the largest companies in the power sector in China. "Our wind-turbine generator is provided by a firm called Goldwind, which stood third globally last year and the year before. Prior to that, it was first globally and the only reason it has gone down because GE's sales have gone up due to American spending on wind," says Kashif. 

Explaining the technology, Kashif said Sachal's is permanent magnet and direct drive. "Permanent magnet means that once the machine is stopped and the wind starts blowing again, this machine will not require any external excitation from the grid to start producing energy, which is a big thing." 

He says most machines coming into Pakistan at the moment require an external excitation, if and when the machine is stopped and the wind starts blowing again. This means if there is a problem with the grid, then you won't be able to start producing from the wind. "We are among the first few Pakistani projects to have this technology," he said. And how does direct drive machine help? Kashif replies by explaining that his machine has no gear box, which means it reduces the probability of breakdowns because the moveable parts are reduced. "In turn it reduces the burden on the maintenance side and it gives more reliability," he said. 

Following the completion of its ongoing project, the firm plans to explore more projects in wind. "Before exploring solar, we are looking to put up 200 megawatt wind-energy projects in total, spread over a time line of 7-8 years," said Kashif. 

Citing a study conducted by the National Renewable Energy Laboratory, America, Kashif says the theoretical potential of producing wind energy in Pakistan is 133,000MW that includes the two main corridors Nuk Kundi corridor in South Western tipof Balochistan and the Gharo-Jhimpir corridor in Sindh. He adds that the generation capacity factor in Pakistan is also decent at 33-34 percent, compared to 40 percent in the best of wind corridors in the world. 

All this is hunky dory. But how much of this potential is realistic, considering the difficulties surrounding the Nuk Kundi corridor and the usual differences between theory and reality, BR Research inquires. "For arguments' sake, even if we take a conservative estimate and say the actual potential may well be one-eighth of the theoretical potential, we are still talking about more than 20,000MW," Kashif replies. 

"In the Rajasthan corridor, India, which is the backyard of our Sindh corridor, there installed wind-energy capacity is 18,000MW," he adds. Responding to a question on size of investment, Kashif agrees that per mega watt investment required for producing is higher in the case of wind energy. 

However, he maintains that a comparison only in terms of investment is flawed; because in the case of wind there is no fuel cost. "In terms of tariff, many thermal tariffs based on fuel oil are higher than the tariff for wind projects, whereas for wind the tariffs are 13-14 cents, which is fixed for next 20 years, unlike the thermal one, where the cost of fuel may increase the tariff any time in future during the project life," he said. Surely in case of hydro the tariff is far less and gas-fired plants may be still cheaper than those of the renewable at the moment but the requirement of renewable is a must from the point of view of Energy Mix of a country. 

Kashif says a number of wind-energy projects totalling about 1,000-1,200MW are expected to commence operations in the next few years. However, he does expect much after that because of pending issues with the evacuation of power. 

"For the projects that are underway, the NTDC has started towards putting up the grid. But, it appears that for the next wave to come in, we have to gear up ourselves on that grid side," he said. He added that the NTDC had been delaying the signing of EPAs because there is no progress on the loops needed to connect the projects with the main grid. 

"If the government is really willing to push wind energy, it can privatise the grid for the section that connects wind projects to the main grid. There will be investors who will be ready to invest, as a separate project," he said. 

Explaining the nitty-gritty, Kashif says the ball park cost of connecting the upcoming cluster of wind projects, for which the government is signing EPAs these days, to the main grid would be around $50-70 million. "With a debt/equity of 80:20, the equity requirement would be $14 million, which is an easy investment for those that already have stakes in wind-power sector." 

While Kashif thinks the country's renewable energy policy is "very good" with the "right incentives", he suggests improvements in two areas. "The policy does not stipulate the time during which the EPA or IA must be signed, which means the government can delay the EPA or IA till such time it wants. If we have to improve the policy, we have to spell out realistic timelines for various processes," he said. 

The second aspect of improvement lies in what he calls the democratisation of energy. "The renewable energy policy talks about allowing households to produce solar energy and putting excess production on the grid. But, it only talks about it in one paragraph. 

"The government has simply ticked a check box. But: Is there any detail to that? No! Are there any established rules to that? No! The government has to come up with a detailed policy and regulatory framework to incentivise individual consumer to come in as a small investor in the power sector," says Kashif. He adds that Pakistan has very good radiation levels all across the country which means that "we can generate electricity at a distributed level". 

Explaining his model, Kashif says in order to reduce the requirement of the battery bank, the policy should be devised for a grid-tied system, where if there is excess energy, the producer can give it to the grid and the same producer uses the energy from the grid. And the metering can be done on a net basis. 

But: Is it economical? "The good thing is that this does not entail a huge investment on any individuals. A good system may cost you roughly $1,000 USD per kilowatt, which means Rs 300,000-400,000 for three kilowatt. This seems expensive as upfront and it might not be enough for you to have solar only. But it will take some of your load at lower cost of production. The payback will be in 5-6 years, whereas the life of the panel is 20 years. And more importantly, it will make people part of the process," he replied. 

Kashif added that the government can incentivise the setting up costs by asking banks to give loans to households to set up the solar panels, with the government picking up the interest cost. "The move will trigger investments, which when pooled together, will reduce the load on domestic consumption which is the biggest consumer," he said. 

He maintains that renewable is the only energy that can be produced efficiently at household level. "Millions of households and SME are currently producing thermal energy via generators, but at obnoxiously inefficient rates. It produces a unit at Rs 40-50. Look at the foreign exchange which is being wasted due to this; had this money been pooled, we could have had three times the power produced," he said. 

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