The Energy Efficiency Investment Program is the first initiative in Pakistan to integrate energy security and climate change into a common strategic platform. It will establish a dynamic business environment for clean energy technology and finance priority projects. It constitutes tangible actions toward a sustainable low-carbon growth path, and it has a number of important features:
Mainstreaming Energy Efficiency. The Investment Program underpins a reform strategy that will mainstream energy efficiency into national planning and public investments, and is a critical component of Pakistan's climate change program. The Government of Pakistan (the Government) is adopting a holistic platform for strategic planning of the energy sector and climate change. The Investment Program builds on ongoing work of the Asian Development Bank (ADB) to establish integrated energy planning. It backs change management and strengthens the capacity of key participants, particularly in policy planning, gender mainstreaming, investment, and monitoring and evaluation.
Clean Energy Market Transformation. The Investment Program will break down the financial barriers to clean energy investments, and finance deployment of clean technology that has been successfully demonstrated. It will strengthen regulatory and institutional frameworks, establish fiscal and financial incentives, and enforce standards and testing.
Private Sector Engagement. The private sector will play a key role in the deployment of clean technology and energy services. It will also be a direct beneficiary (on the supply and demand sides). Sustainable business models for energy efficiency services (i.e., energy audits, performance contracts) will be established and replicated. The Investment Program will increase industrial productivity and competitiveness by lowering operating costs.
Partnerships. The Investment Program sets out a framework for effective partnership with third parties -- investors and financiers -- over the medium term. In addition to ADB, Agence Francaise de Developpement (AFD) is the first of these partners. Over time, other development partners may determine to complement ADB's financing after the Board's approval of the proposed MFF through cofinancing to be administered by ADB. The Investment Program design is directly linked with the ongoing work by other partners. German development cooperation through GTZ has been implementing industrial energy audits and appliance labeling and certification projects in support of the Investment Program. The Japan International Cooperation Agency is now developing a climate change policy program. The United States Agency for International Development (USAID) is implementing a capacity development program to strengthen energy demand-side management among the utilities and private companies, and is focusing on women's roles in energy. The World Bank is implementing utility-based demand-side management demonstration projects. The Government is discussing scaling up of such investment and technical assistance activities with GTZ, USAID, and the World Bank.
|Project Rationale and Linkage to Country/Regional Strategy
The energy gap is now one of Pakistan's most serious binding constraints to growth and jobs. It results from the rapid increase in demand and high wastage of energy, and is one of the main causes of the current economic crisis. Pakistan's dependency on oil imports results from the suboptimal energy supply mix that is a consequence of poor planning. The economy is susceptible to fuel price volatility.
Pakistan uses 15% more energy than India and 25% more than the Philippines (for each dollar of gross domestic product). Energy wastage is a high cost to the economy, businesses, and consumers; its reduction requires major and immediate shifts in policies, investment, and consumption patterns.
In 2009, the power deficit reached 5,000 megawatts (MW), and natural gas supply to industries was cut during the 4 winter months. People and businesses in many parts of Pakistan are experiencing power outages and rationing lasting more than 12 hours a day. Factory closures are causing social unrest.
Energy efficiency represents the least-cost and quickest low-carbon solution to bridge the energy gap. It cuts the high dependence on oil imports and avoids investment in expensive and inefficient rental power generation based on fossil fuels. It ultimately strengthens energy security, contributes to the environment, creates jobs, and improves industrial competitiveness. Energy efficiency is now a strategic priority for the Government.
Pakistan's total energy savings potential, through the application of clean and efficient technology, is estimated at 11.16 million tons of oil equivalent (493,304 terajoules [TJ]), or 18% of primary energy use (FY2008). This corresponds to a 51% reduction in net oil imports. In FY2008, the oil import bill was $12 billion. Savings in electricity and gas resulting from well thought out energy efficiency investments correspond to additional generation capacity of about 6,770 MW.
Energy efficiency investments can be most effective when the policy, regulatory, and pricing regime is right. Energy tariffs have historically been low in Pakistan. As such, customers have not had much of an incentive to invest in efficient technology, nor shift consumption patterns. While electricity production costs tripled from FY2003 to FY2007, tariffs were not adjusted to cover this increase. Since FY2007, tariffs increased by an average of 20% and will continue doing so until reaching cost-recovery by FY2011. As tariffs increase, so does awareness of energy efficiency and incentives to acquire new, less energy-consuming technology.