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Submitted to
UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION
Submitted by
DEVELOPMENT ENVIRONERGY SERVICES LTD
819, Antriksh Bhawan, 22 Kasturba Gandhi Marg, New Delhi -110001 Tel.: +91 11 4079 1100 Fax : +91 11 4079 1101; www.deslenergy.com
December 2016
Policy Advisory Services in Biomass Technology in Pakistan
POLICY ON BIOMASS ENERGY TECHNOLOGY
SECOND DRAFT Version 1
Client Name UNIDO DESL Project No. 9A0000005647
Project Name Policy advisory services in Biomass gasification technology in Pakistan Version 3
Report Title Draft recommendations- policy on biomass gasification and combustion technology
Page 2 of 54
DISCLAIMER
This report (including any enclosures and attachments) has been prepared for the exclusive use
and benefit of the addressee(s) and solely for the purpose for which it is provided. Unless we
provide express prior written consent, no part of this report should be reproduced, distributed or
communicated to any third party. We do not accept any liability if this report is used for an
alternative purpose from which it is intended, nor to any third party in respect of this report
Client Name UNIDO DESL Project No. 9A0000005647
Project Name Policy advisory services in Biomass gasification technology in Pakistan Version 3
Report Title Draft recommendations- policy on biomass gasification and combustion technology
Page 3 of 54
ACKNOWLEDGEMENT
This document has been prepared for the United Nations Industrial Development Organization
(UNIDO) under the project title “Policy advisory services (Biomass Energy Conversion
technologies)” under the SAP ID 100333: “Promoting sustainable energy production and use for
biomass in Pakistan”.
Development Environergy Services Ltd. (DESL) acknowledges the support provided by the
following UNIDO officials:
Mr. Alois Mhlanga, Project Manager
Mr. Ali Yasir, National Project Manager, Sustainable Energy, Biomass - Pakistan
Mr. Masroor Ahmed Khan, National Project Manager, Sustainable Energy RE & EE
Study Team
Team Leader Dr. GC Datta Roy Team member(s) Mr. R Rajmohan, Biomass technology expert
Mr. Qazi Sabir, National expert
Client Name UNIDO DESL Project No. 9A0000005647
Project Name Policy advisory services in Biomass gasification technology in Pakistan Version 3
Report Title Draft recommendations- policy on biomass gasification and combustion technology
Page 4 of 54
CONTENTS
1 BACKGROUND ................................................................................................................................... 8
2 STATUS QUO.................................................................................................................................... 10
2.1 MACRO PERSPECTIVE .......................................................................................................................... 10
2.2 ARE DEVELOPMENT PERSPECTIVES ........................................................................................................ 12
2.3 BIOMASS ENERGY POTENTIAL & MARKET ................................................................................................ 14
2.4 POLICY & REGULATORY INITIATIVES ........................................................................................................ 17
2.5 TARGET & ACHIEVEMENT..................................................................................................................... 20
2.6 SUMMARIZING .................................................................................................................................. 21
3 BARRIERS AND CHALLENGES ........................................................................................................... 22
3.1 RESOURCE AVAILABILITY & PRICE ........................................................................................................... 22
3.2 TECHNOLOGY & BUSINESS MODELS........................................................................................................ 23
3.3 POLICY & REGULATORY UNCERTAINTY .................................................................................................... 24
3.4 ACCESS TO FINANCE ............................................................................................................................ 25
3.5 SUMMARISING .................................................................................................................................. 25
4 GLOBAL CASE STUDIES ..................................................................................................................... 27
4.1 MACRO-PERSPECTIVE ......................................................................................................................... 27
4.2 ILLUSTRATIVE CASE STUDIES .................................................................................................................. 30
4.3 SUMMARISING .................................................................................................................................. 36
5 POLICY RECOMMENDATIONS .......................................................................................................... 39
5.1 BASIC FRAMEWORK ............................................................................................................................ 39
5.2 HARMONIZATION OF INSTITUTIONAL PROCESSES ....................................................................................... 40
5.3 PROGRAM PLANNING .......................................................................................................................... 40
5.4 FISCAL & MONETARY INCENTIVES .......................................................................................................... 41
5.5 REGULATIONS ................................................................................................................................... 42
5.6 PROJECT FINANCING ........................................................................................................................... 43
5.7 PROJECT DEVELOPMENT ...................................................................................................................... 44
5.8 SUMMARIZING .................................................................................................................................. 45
ANNEX I- BIOMASS RESOURCES AVAILABILITY ......................................................................................... 46
ANNEX-2 BUSINESS CASE EXAMPLES........................................................................................................ 52
Client Name UNIDO DESL Project No. 9A0000005647
Project Name Policy advisory services in Biomass gasification technology in Pakistan Version 3
Report Title Draft recommendations- policy on biomass gasification and combustion technology
Page 5 of 54
LIST OF TABLES
TABLE 1: BIOMASS ENERGY ECONOMIC BENEFITS ....................................................................................................... 13
TABLE 2: LCOE POWER FROM DIFFERENT SOURCES .................................................................................................... 13
TABLE 3: AVAILABLE BIOMASS FOR ENERGY GENERATION............................................................................................. 14
TABLE 4: BIOMASS ENERGY POTENTIAL ESTIMATE ...................................................................................................... 15
TABLE 5: SUITABILITY OF TECHNOLOGIES FOR DIFFERENT MARKETS ................................................................................ 17
TABLE 6: ARE ACHIEVEMENT-2015 ....................................................................................................................... 21
TABLE 7: BARRIER ANALYSIS .................................................................................................................................. 25
TABLE 8: POLICIES IMPLEMENTED BY VARIOUS COUNTRIES ........................................................................................... 29
TABLE 9: FINANCIAL INCENTIVE SCHEMES IN CHINA .................................................................................................... 31
TABLE 10: FINANCIAL INCENTIVE ............................................................................................................................ 33
TABLE 11: BIOMASS POWER IN INDIA ...................................................................................................................... 34
TABLE 12: SUMMARY OF POLICIES IN SELECT COUNTRIES ............................................................................................. 37
TABLE 13: SOURCE OF INFORMATION FOR THE FEEDSTOCK FOR BIOMASS POWER GENERATION IN PAKISTAN.......................... 46
TABLE 14: SOURCE OF CROPS PRODUCED IN PAKISTAN ............................................................................................... 48
TABLE 15: CRR VALUES FROM DIFFERENT SOURCES ................................................................................................... 49
TABLE 16: CALCULATION OF ESTIMATED ANNUAL SURPLUS BIOMASS PRODUCTION ........................................................... 49
TABLE 17: CALCULATION OF ESTIMATED ANNUAL SURPLUS BIOMASS PRODUCTION ........................................................... 50
TABLE 18: WOOD BASED RESIDUE .......................................................................................................................... 50
TABLE 19: TOTAL SURPLUS BIOMASS AVAILABLE ....................................................................................................... 51
LIST OF FIGURES
FIGURE 1: ENERGY MIX IN POWER GENERATION IN PAKISTAN ....................................................................................... 10
FIGURE 2: DISTRIBUTION OF UN-ELECTRIFIED VILLAGES IN PAKISTAN (2012) ................................................................... 11
FIGURE 3: DIFFERENT TYPES OF TECHNOLOGIES AVAILABLE FOR CONVERSION OF BIOMASS TO ENERGY .................................. 15
FIGURE 4: PROJECT DEVELOPMENT PATHWAY ........................................................................................................... 45
FIGURE 5: FEEDSTOCK FOR BIOMASS POWER GENERATION ........................................................................................... 46
FIGURE 6: SEQUENTIAL STEPS FOR THE ESTIMATION OF SURPLUS BIOMASS ...................................................................... 48
Client Name UNIDO DESL Project No. 9A0000005647
Project Name Policy advisory services in Biomass gasification technology in Pakistan Version 3
Report Title Draft recommendations- policy on biomass gasification and combustion technology
Page 6 of 54
ABBREVIATIONS
ADB Asian Development Bank
AEDB Alternative Energy Development Board
AJK Azad Jammu & Kashmir
AMC Annual Maintenance Contract
ARE Alternative & renewable energy
BCT Biomass Combustion Technology
BET Biomass Energy Conversion Technologies
BGT Biomass Gasification Technology
CHP Combined heat and power
CDM Clean Development Mechanism
CHP Combined Heat & Power
CPP Captive power plant
CRR Crop Residue Ratio
DESL Development Environergy Services Ltd.
DISCOs Distribution Companies
DG Distributed generation
ESMAP Energy Sector Management Assistance Program
FBR Federal Board of Revenue, Government of Pakistan
FiT Feed in Tariff
GEF Global Environment Facility
GOP Government of Pakistan
GDP Gross Domestic Product
IA Implementation Agreement
IEA International Energy Agency
IEP Integrated Energy Plan
INR Indian Rupee
IPP Independent Power Plant
LNG Liquefied Natural Gas
LCOE Levelized cost of energy
MTDF Medium Term Development Framework
NEPRA National Electric Power Regulatory Authority
NGO Non-governmental organization
NTDC National Transmission and Dispatch Company
O&M Operation & Maintenance
PLF Plant Load Factor
PKR Pakistan Rupee
PPA Power Purchase Agreement
PPIB Private Power and Infrastructure Board
PPP Public private partnership
R&D Research and Development
RE Renewable Energy
Client Name UNIDO DESL Project No. 9A0000005647
Project Name Policy advisory services in Biomass gasification technology in Pakistan Version 3
Report Title Draft recommendations- policy on biomass gasification and combustion technology
Page 7 of 54
RET Renewable energy technology
REC Renewable Energy Certificate
RPS Renewable Portfolio Standards
SME Small & Medium Enterprises
SRO Statutory Notification
THB Thai Baht
USC US cents
USD US Dollar
UNFCCC United Nations Framework Convention on Climate Change
UNIDO United Nations Industrial Development Organization
VAT Value Added Tax
WAPDA Water and Power Development Authority
UNITS OF MEASUREMENTS
Parameters UOM Kilo Calorie kCal Kilo Watt kW
Kilo Watt Hour kWh
Mega Watt MW Giga Watt Hour GWh
Thousand Metric Ton ‘000t
Tons per year TPY
Client Name UNIDO DESL Project No. 9A0000005647
Project Name Policy advisory services in Biomass gasification technology in Pakistan Version 3
Report Title Draft recommendations- policy on biomass gasification and combustion technology
Page 8 of 54
1 Background With a large population of over 182 million1 and a rapidly developing economy, Pakistan’s energy
needs are potentially huge. The country, historically a net energy importer, is confronting
perpetual energy shortages as its economy and population grow. Pakistan is facing a demand-
supply gap of 4,500 to 5,500 MW2. The stability of the power system is being maintained by
resorting to load shedding, often extending to 12 to16 hours2. A large number of industries in
Pakistan are currently dependent on liquid fuels for meeting their electricity and heating needs.
Universal energy access is also a major issue in the country. Over 20,920 villages in the country are
yet to be electrified3. Government of Pakistan (GOP) has identified alternative and renewable
energy (ARE) as one of the options for bridging the demand supply gap. ARE resources would also
help in diversifying the resource base. Pakistan plans to add a minimum of 9,700 MW of renewable
energy generation capacity by 2030 as per the Medium Term Development Framework (MTDF)4.
GOP has initiated number of policy and institutional measures for promoting ARE technologies in
the different sectors of economy.
Ninety percent (90%) of the entrepreneurs in the industrial sector classified under the SME sector
account for 80% of the employment outside of agriculture and contribute over 40% of the
country’s GDP5. Shortage of energy, more specifically power has been having major impact on their
operation and global competitiveness. Large numbers of these units depend upon expensive and
polluting diesel generation units for meeting their power requirement. Industries such as rice mills,
wood processing mills, brick kilns etc also require heat energy. They are often burning fossil
fuel/biomass in inefficient ways. SMEs are now looking for alternative ways for improving their
energy security based on locally available energy resources, such as biomass and deployment of
efficient biomass-energy conversion technologies (BET). Such technologies have been successfully
deployed in a large number of countries such as China, India, Thailand, etc.
UNIDO with funding support from GEF is working with GOP or promoting efficient and market
based biomass energy technologies (BET, excluding biological processes) in industries in Pakistan.
Preparation of a set of policy recommendations for promoting BET in industries is a component of
the UNIDO program for which DESL has been contracted as Consultant through an international
competitive bidding process.
The objectives of the consulting assignment are two fold, viz. review of the current policies on ARE
and recommendations on specific measures for promoting BET and preparation of a draft on
1 World Bank Data for 2013 2 National Power Policy 2013, Government of Pakistan 3 Energy Access Assessment Punjab (Pakistan), ADB, December 2014 4 Policy for development of renewable energy for power generation, Government of Pakistan, 2006 5 TOR of the present project
Client Name UNIDO DESL Project No. 9A0000005647
Project Name Policy advisory services in Biomass gasification technology in Pakistan Version 3
Report Title Draft recommendations- policy on biomass gasification and combustion technology
Page 9 of 54
technical quality standards for BET for sustainable performance of such technologies (imported as
well as locally manufactured) in the country.
The Consultant has carried out desk as well as field studies, including individual interactions with
a few stakeholders in order to understand the current scenario, BET opportunities and
development challenges. The first drafts on ‘quality standards’ and ‘policy recommendations’ have
been prepared based on the findings of these studies. The draft report on quality standards has
been submitted.
This report has been prepared on policy recommendations and structured under the following
sections:
Status quo
Barriers & challenges
Global review-successful case studies
Policy recommendations
The section ‘status quo’ has been prepared highlighting the current energy scenario and the GOP’s
policy initiatives for promotion of ARE technologies. The potential of BET has been assessed based
on the data available from the recently concluded study on biomass availability in the country.
Overall achievement against the set target indicates very low level of diffusion of ARE technologies
in the country. A number of barriers & challenges have been identified based on review of the
various policy documents, published papers and articles on BET market in Pakistan and informal
interaction with few stakeholders. Review of case studies on BET proliferation in China, India and
Thailand has helped in identifying specific institutional and policy measures that can help Pakistan
in overcoming the barriers and challenges. Specific policy recommendations have been prepared
taking into consideration the existing policies for promotion of ARE and lessons learned from
successful implementation of BET in the above-cited countries.
Client Name UNIDO DESL Project No. 9A0000005647
Project Name Policy advisory services in Biomass gasification technology in Pakistan Version 3
Report Title Draft recommendations- policy on biomass gasification and combustion technology
Page 10 of 54
2 Status quo Current overall energy scenario, ARE & BET potential, policies for promotion of ARE technologies
and the actual achievement of ARE capacity against the set target have been discussed in this
section as follows.
2.1 Macro perspective Fossil fuels account for 64% of energy generation in Pakistan, followed by 31% from hydro sources
and the remaining 5% from nuclear and renewable energy. The Renewable Energy Policy of 2006
had envisaged contribution of about 10% (about 2,700 MW) from renewable resources by 2015.
However, only a small capacity has so far been added based on solar technology. The country is
still heavily dependent on imported oil for generation of power. Most of the energy intensive
industries have captive power generation plants based on oil6.
Figure 1: Energy mix in power generation in Pakistan7
Water and Power Development Authority (WAPDA) of Pakistan indicate that it would not be
technically and economically feasible to expand the national rural networks to large number of
unelectrified villages8. Renewable energy can be used effectively for improving electricity access
in these areas. The break-up of unelectrified villages by province is shown in the figure below3.
6 DESL research 7 Power sector in Pakistan – Moving towards stability, presentation by Secretary, Ministry of Water & Power, GOP, at OCCI, Karachi, 8 December, 2015 8 Energy crisis mitigation through available Energy potential in Pakistan, Waqas Nawaz et al.
Oil39%
Hydel31%
Gas21%
LNG4%
Nuclear3%
Renewables2%
Client Name UNIDO DESL Project No. 9A0000005647
Project Name Policy advisory services in Biomass gasification technology in Pakistan Version 3
Report Title Draft recommendations- policy on biomass gasification and combustion technology
Page 11 of 54
Figure 2: Distribution of un-electrified villages in Pakistan (2012)
Similarly, high cost of power is adversely affecting the competitive position of the SME industries.
The cost of generation from diesel based system is touching over PKR 35.94/kWh against about
PKR 18.75/kWh for the cheaper alternative based on local gas. Government has set a target of
reducing the cost of generation to about USC 10/kWh by 2017 by moving towards cheaper fuel
including locally available coal and biomasses2.
Pakistan is richly endowed with renewable resources. Opportunities for solar energy exist in
Punjab province; wind energy in Sind and Balochistan provinces; Hydropower in north of Pakistan;
while bio-energy in all provinces. The federal government and some of the provincial governments
have been working on development and implementation of appropriate market conditions for
promoting renewable energy. The Quaid-e-Azam Solar Park in Punjab province is a major
accomplishment of these developmental efforts. Many of the development challenges such as
development of technology and local capacity, appropriate tariff, access and cost of finance and
other regulatory issues remain largely unresolved.
In case of BET, there is additional challenge of lack of information on availability of resources and
technology. The recently published biomass atlas with support from ESMAP would help in reducing
the information gap. Similarly, the feasibility studies carried out on application of biomass
gasification technologies (BGT) in rice mills and wood processing in Punjab province in the recent
past would help in specifically target the industries for promotion of BET.
With proper policy and coordinated actions from various institutions engaged in development of
power and renewable energy sectors in Pakistan, it would be possible to rapidly develop the ARE
market including market for BET in the country.
Sindh, 77%, 77%
Balochistan, 17%, 17%
Punjab, 3%, 3% KPK, 3%, 3%
Client Name UNIDO DESL Project No. 9A0000005647
Project Name Policy advisory services in Biomass gasification technology in Pakistan Version 3
Report Title Draft recommendations- policy on biomass gasification and combustion technology
Page 12 of 54
2.2 ARE development perspectives Pakistan is abundantly endowed with renewable resources including solar, wind, biomass and
others. Until recently, reliable data and information on resource availability was not available.
AEDB with support from bilateral and multilateral agencies have undertaken survey of solar, wind
and biomass resources in the country. The survey work has been completed and data are being
processed for finalizing the resource estimate. Biomass atlas has been very recently released. This
would help in assessment of BET potential in the country. Meanwhile, some idea can be had from
the following macro level information on the renewable energy potential in the country.
The policy makers in Pakistan have long recognized the need for development of ARE. Benefits are
well acknowledged, more so considering the resource rich and energy starved situation. The
integrated energy plan 2009-2022 (IEP) has highlighted the following benefits from development
of ARE technologies in Pakistan9.
Energy security & independence
Diversity of supplies
Social cohesion (by deployment in remote, off-grid areas)
Environmental benefits
Job creation
Growth of local engineering industry
Image-building of the country as a socially conscious / responsible nation
Similarly, the policy for development of renewable energy for power generation 2006 (RE policy)
has also highlighted role of ARE technology in enhancing:
Energy security
Economic development
9 Integrated Energy Plan-EAC, Ministry of Finance, GOP, March 2009
Text box 1: Renewable resource potential
Wind: 340,000 MW (Theoretical)* 1760 MW in pipeline and abundant potential for development
Solar: 2,900,000 MW (Theoretical)*
Hydro (small/mini) 3,000 MW (Approx.)
Bagasse Cogeneration: 2,000 MW (Approx.)
Waste to Energy: 1,000 MW (Approx.)
Geothermal Studies underway
Alternative Fuels Potential being determined *Initial macro level assessment by NREL, USA in 2006
AEDB-June 2015
Client Name UNIDO DESL Project No. 9A0000005647
Project Name Policy advisory services in Biomass gasification technology in Pakistan Version 3
Report Title Draft recommendations- policy on biomass gasification and combustion technology
Page 13 of 54
Social development &
Environmental improvement
The following table illustrates the magnitude of potential impact of BET system on local economic
and social development in a resource rich and energy starved country, estimated based on a case
study from India10.
Table 1: Biomass energy economic benefits
Particulars Million PKR /year Remarks
Rural income-biomass sale & employment
230,000 INR 1,500 -2,000/T of biomass (Fuel sale plus logistics); 2 to 4 man days/year/T of biomass
Fuel substitution-Agri pumps 140,000 Estimates by Petroleum Planning and Analysis Cell of Diesel consumption in agri pumps in India
Fuel substitution-lighting 140,000 NSSO Survey of kerosene based lighting in India
Carbon monetized 40,000 Corresponding to around 200 million tCO2eq
Reduction in utility T&D loss Not quantified -
Reduction in health cost Not quantified -
Total 550,000
The levelised cost of energy from BET system often provides the least cost solution as would be
seen from the following table assessed for India10.
Table 2: LCOE power from different sources
Technology LCOE-delivered electricity (PKR/kWh)
Small Hydro 7.2
Biomass 8.95-11.72
Wind 9.5
Solar PV 31.56
Diesel 33.41
Greater use of indigenous biomass resources can help diversify Pakistan’s energy mix and reduce
the country’s dependence on any single source, particularly imported fossil fuels, thereby
militating against supply disruptions and price fluctuation risks.
When properly assessed for their externalities, BET options can become economically competitive
with conventional supplies, on at least cost basis. This is particularly true for the more difficult,
10 Draft Biomass energy roadmap-Ministry of New and Renewable Energy, Government of India, 2011
Client Name UNIDO DESL Project No. 9A0000005647
Project Name Policy advisory services in Biomass gasification technology in Pakistan Version 3
Report Title Draft recommendations- policy on biomass gasification and combustion technology
Page 14 of 54
remote, and under developed areas, where biomass can also have the greatest impact and the
avoided costs of conventional energy supplies can be significant.
Local environmental and health impacts of unsustainable and inefficient traditional biomass fuels
and fossil fuel -powered electricity generation can be largely circumvented through clean, BET
alternatives. Similarly, displaced greenhouse gas emissions carry significant global climate change
benefits, towards which Pakistan has pledged action under the UN Framework Convention on
Climate Change (UNFCCC) including, recently ratifying the Paris Climate Change Agreement.
2.3 Biomass energy potential & market
2.3.1 Availability of biomass resources
Pakistan is richly endowed with biomass resources, though overall energy potential is yet to be
scientifically determined. Biomass (other than habitat and animal wastes) resources are generated
from agricultural, agro industrial and forestry operations. The main constituents from the different
sources are:
Agricultural-Stalk, straws & trashes
Agro-industrial-Bagasse, paddy husks & shells
Forestry-Wood chips, barks & trims and river side greens
Methodologies for assessment of available surplus from the different sources are now well
established. Data on actual production of crops, crop residue ratio and current uses of the residues
are used for determination of surplus biomass from the agriculture. Generation of agro-industrial
residues such as husk and wood chips can be computed taking into account the actual production
and the normative residue generation ratios. It would be necessary to carry out primary survey for
assessment of availability of riverside green and statistical information on production of this may
not be available.
Energy Sector Management Assistance Program (ESMAP) of the World Bank has carried out
detailed resource mapping for wind, solar and biomass resources. DESL has estimated the available
surplus biomass, which can be utilized for energy production taking into account production
estimates in the ESMAP report and applying various validation factors based on DESL project
experiences. The following table shows the estimate of available biomass for power generation.
Table 3: Available biomass for energy generation
Biomass type Availability (000 tons)
Agricultural waste 20,494
Agro industrial waste 25,271
Wood Based Residue 1,121
Total 46,886
This estimate has been determined taking into account the information available from the biomass
atlas and the methodology used by DESL for assessment of surplus biomass for energy. Details are
Client Name UNIDO DESL Project No. 9A0000005647
Project Name Policy advisory services in Biomass gasification technology in Pakistan Version 3
Report Title Draft recommendations- policy on biomass gasification and combustion technology
Page 15 of 54
provided at Annex-I. This methodology can be used by AEDB and prospective developed of BET
projects for assessment of biomass availability in a particular project area and configuration of the
plant capacity.
2.3.2 Biomass energy conversion technologies
Following chart shows different types of technologies for conversion of biomass to different forms
of energy.
Figure 3: Different types of technologies available for conversion of biomass to energy
In the context of the current project, combustion and gasification are more relevant. Almost all
types of biomasses can be utilised as fuel in the combustion based projects. Woody biomass such
as husks and wood chips are good fuel for gasification. Some of the semi woody biomass such as
corncobs and corn stalks can also be used for gasification. Leafy biomass such as straw and stalks,
on the other hand, would have to be densified (pellets) for gasification.
2.3.3 Biomass energy potential
The energy conversion potential has been assessed considering the following assumptions11:
Harvesting & logistics efficiency: 70%
GCV: 4,000 kCal/kg on dry basis: 3,000 kCal/kg on as received basis
Specific fuel consumption-gasification: 1.8 kg/kWh on as received basis
Specific fuel consumption-combustion: 1.6 kg/kWh on as received basis
Average plant load factor-gasification: 60%
Average plant load factor-combustion: 75%
Assuming a ratio of 70:30 between gasification and combustion overall potential has been
estimated as shown in the following table.
Table 4: Biomass energy potential estimate
Particulars Units Values
Biomass surplus estimate Mn TPY 47
Harvesting, logistics efficiency Factor 0.7
11 DESL database on BET projects
Technologies for biomass to energy
Biochemical Conversion
Anaerobic Digestion
Ethanol Fermentation
Lignocellulosic Conversion
Thermochemical Conversion
CombustionBiomass
GasificationBiomass Pyrolysis
Client Name UNIDO DESL Project No. 9A0000005647
Project Name Policy advisory services in Biomass gasification technology in Pakistan Version 3
Report Title Draft recommendations- policy on biomass gasification and combustion technology
Page 16 of 54
Particulars Units Values
Net available for conversion Mn TPY 33
Gasification@70% Mn TPY 23
Combustion@30% Mn TPY 10
Energy-gasification GWh/y 12,767
Energy-combustion GWh/y 6,156
Energy-total GWh/y 18,923
Power-gasification MW 2,429
Power-combustion MW 937
Power-total MW 3,366
The potential from biogas and waste to energy has been assessed at 1,000 MW9. Bagasse
cogeneration potential (partially included in the estimate at table above) has been assessed
between 1,000-3,000 MW as per different reports12. The above estimate includes rice husk, which
can alone contribute around 375 to 850 MW power after meeting the captive demand of the
farmers and rice mills13. Considering all the different resources including bagasse, other agro and
agro-industrial residues and biogas, the overall BET potential is likely to be 4,000 to 6,000 MW.
2.3.4 Biomass energy market
The market for biomass energy includes:
IPPs
Captive power, cogeneration and CHP in industries
Captive heating for industries
Grid connected& off-grid distributed energy system
The market and business model for bagasse cogeneration has been established in most of the cane
sugar producing countries including Pakistan. As per latest information available in the public
domain, three such projects with combined capacities of over 50 MW are already operating.
Project capacity of as low as 1 (One) MW can be a viable option under IPP model. 10 (ten) MW is
usually the higher limit taking into account the fuel logistics and hence delivered cost of fuel.
Technologies and business models for such IPPs based on straw and stalks have been well
established in China and India and can be easily replicated in Pakistan.
12 As per discussion with PSMA, out of 86 sugar mills in Pakistan, crushing around 50 million tons of cane per year, 5 are reported to be operating with high pressure systems. 20 mills are reported to be in various stages of implementation. 13 UNIDO Contract No 3000021581 (Amir Rice Mills) and 3000021527 (KDC Plywood)
Client Name UNIDO DESL Project No. 9A0000005647
Project Name Policy advisory services in Biomass gasification technology in Pakistan Version 3
Report Title Draft recommendations- policy on biomass gasification and combustion technology
Page 17 of 54
The energy demand for SME industries like rice mills, plywood-processing industries in Pakistan
were evaluated by the consultant under a previous assignment from UNIDO13. The following
project modules were identified as feasible option based on gasification technology.
Rice milling industry: 25 kW -1,050 kW
Plywood industry: 100 kW – 300 kW
Electricity demand for villages has been assessed considering average 50-60 households per village
and electricity consumption of 50 to 120 kWh/day14. The capacity of a BGT system to suit their
requirements has been estimated to range from 25 to 75 kW. Thus, the BET market is likely to be
quite diverse in nature with individual project capacities ranging from 25 kW to over 1 MW and
based on both combustion and gasification technologies.
Table 5: Suitability of technologies for different markets
Market segment Typical size of power demand (kW) Technology suitability
Independent power plants Minimum size for BCT 1 MW BCT
Industries (Captive power demand)
Rice mill – 25 - 1,050 kW Plywood Industry – 100 - 300 kW
BGT & BCT
Un-electrified villages 25-75 kW/village BGT
In the short-term period, it is expected that the uptake of the BGT/BCT technologies would take
place in the industries generating biomass resources (like rice mills, wooden furniture/plywood
industry etc.). Diffusion of BGT for rural distributed generation (DG) system on the other hand may
take time and would be largely governed by support from the government and the NGO
community and rural energy supply companies, which may get formed with fund support from
global donor communities.
2.4 Policy & regulatory initiatives Policy makers in Pakistan have duly recognized the important role of renewable resources and ARE
technologies. This is evidenced by the continued development of the institutional and policy and
regulatory processes for promoting ARE technologies. Some of the key initiatives include:
NEPRA Act-1997
Policy for development of renewable energy for power generation-2006
Bagasse cogeneration policy-2008
Integrated energy plan-2009-2022
AEDB Act-2010
14 Energy Access Assessment Punjab (Pakistan), ADB, December 2014 and “Electrification of villages: A
case study of Mastung village near Quetta (Pakistan)”, Syed Zafar Ilyas, S.M. Nasir and S. M. Raza,
Research Gate, April 2015
Client Name UNIDO DESL Project No. 9A0000005647
Project Name Policy advisory services in Biomass gasification technology in Pakistan Version 3
Report Title Draft recommendations- policy on biomass gasification and combustion technology
Page 18 of 54
Provisions in the Finance Act-2015
2.4.1 Institutional mechanism
The roles and responsibilities of the various players involved in developing the energy system in
the country and promotion of ARE technologies have been clearly defined in the various Acts &
policy documents. These are briefly summarized as follows.
Ministry of Water & Power
The federal Ministry of Water and Power is the GOP’s executive arm for all issues relating to
electricity generation, transmission & distribution, pricing, regulation, and consumption in the
country. It exercises this function through its various line agencies as well as relevant autonomous
bodies. It also serves to coordinate and plant the nation’s power sector, formulate policy and
specific incentives, and liaise with provincial governments on all related issues.
National Electric Power Regulatory Authority
The National Electric Power Regulatory Authority (NEPRA) was established under an act of the
Parliament (Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997,
also known as the ‘NEPRA Act’) to function as an independent regulator and ensure a transparent,
competitive, commercially oriented power market in Pakistan.
The authority’s main functions include, inter alia, issuing 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; approving investment
and power acquisition programs of the utility companies; and determining tariffs for bulk
generation and transmission and retail distribution of electric power.
Alternative Energy Development Board
Alternative Energy Development Board (AEDB) is the sole representing agency of the Federal
Government. AEDB was established in May 2003 with the main objective to facilitate, promote
and encourage development of renewable energy in Pakistan and with a mission to introduce
Alternative and Renewable Energies (AREs) at an accelerated rate. The administrative control of
AEDB was transferred to Ministry of Water and Power in 2006.
AEDB is tasked with implementing government policies and plans, developing projects, promoting
local manufacturing, creating awareness and facilitating technology transfer, channeling
international assistance, and coordinating all associated activities as the national facilitating
agency for development of renewable energy in the country.
Private Power Infrastructure Board
The Private Power and Infrastructure Board (PPIB) was created in 1994 as "one window facilitator"
to promote private sector participation in the power sector of Pakistan. PPIB facilitates investors
in establishing private power projects and related infrastructure, executes Implementation
Agreement (IA) with project sponsors and issues sovereign guarantees on behalf of the
Government of Pakistan.
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Provincial and AJK Agencies
Provincial and Azad Jammu and Kashmir (AJK) governments support the implementation of
renewable energy projects within their geographical jurisdiction. In most of the provinces,
institutional structure is well established and working on target oriented programs. Some of these
programs are initiated at the province level or in collaboration with the AEDB.
Power Utilities
Electricity utilities in Pakistan comprise four generating companies (Southern, Central, Northern,
and Lakhra), WAPDA Hydel wing and ten separately corporatized distribution companies (DISCOs:
Lahore, Gujranwala, Faisalabad, Islamabad, Multan, Peshawar, Hyderabad, Quetta, Sukkur and
Tribal Areas) serving different regions of Pakistan and a private integrated company, the Karachi
Electric Supply Corporation (KESC), serving the Karachi metropolitan area.
2.4.2 Transparency in regulations
Establishment of NEPRA and promulgation of NEPRA Act 1997 has cleared the pathway for
regulation of the power sector in the country in a transparent manner. Promulgation of AEDB Act
2010 has further clarified the processes for regulation of the development of ARE technologies.
Regulatory processes have been well established for determination of tariff for different types of
ARE projects. Feed-in-tariffs for smaller scale solar PV projects have been notified by the NEPRA.
Utilities are now mandated for purchase of all the energies available from the renewable
resources. Regulations on grid connectivity, wheeling and banking of power too have been
notified. Net metering has been notified for solar PV projects.
Monetary & fiscal incentives
The integrated energy plan, 2009-20229 had recommended creation of an alternative energy fund
and development of soft financing scheme for ARE projects. It also recommended incentives to the
provincial, city and local governments for development of ARE projects.
Text box 2: Regulations & incentives
Resource Risk is not shifted to Project Sponsor
Guaranteed Electricity purchase
Grid provision is the responsibility of the Power Purchaser
Protection against political risk & change in law
Attractive Tariffs – Cost Plus and Upfront Tariff Regimes
Guaranteed Return on investment is between 17% to 18% (IRR)
No Import Duties on Equipment
Zero Sales Tax
No Income Tax / withholding tax / turnover tax
Convertibility of PKR into USD
AEDB-June 2015
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The Renewable Energy Policy, 2006 foresees that a market would be developed in the long run for
ARE technologies, which would be competitive against the conventional energy projects on their
own merits. However, in the shorter term it provides for incentives consisting of:
Risk mitigation against resource uncertainty (particularly for wind projects)
Production incentives beyond benchmark output
Facilitating monetization of carbon
Payment securitization by the Government of Pakistan for the private sector investors
Permitting generating companies to issue corporate bonds
Permitting issuance of share at discounts to equity investors/venture capitals
ARE technologies have also been exempted from custom duty, sales tax, income tax
including turnover tax and withholding tax on imports.
The Financing Act 2015 provides for duty free import of large number of equipments and
components for development of ARE projects in the Solar, Wind & Geothermal segments. It also
provides for concessional duty for some equipment such as harvesting, threshing and storage
equipments, which are normally required for larger scale BET projects. The Act also provides for
inclusion of any other item approved by AEDB & concurred by FBR.
Repatriation of equity and dividends are freely allowed subject to approval of State Bank of
Pakistan.
2.4.3 Project development alternatives
Policy on development of projects under different modes (IPP, grid connected CPPs, off-grid CPPs
& other projects) has been clearly outlined in the RE policy 2006. Currently, only IPPs require
licensing from government. The policy also provides for de-licensing of small-scale projects (<5
MW for small hydro and <1 MW net export for others).
Development options for IPPs too have been well structured under the solicited and unsolicited
categories. AEDB has been empowered to provide one-window facility for project development
and regulatory powers for the same subject to approval of the rules from the Government.
The integrated energy plan envisages initiatives from public sector for development of pilot and
demonstration projects as well as off-grid projects for rural electrification. AEDB too has been
empowered for setting up such projects on its own or through PPP models.
Procedure and processes for bid evaluation, selection and implementation of bid projects have
been established and several projects already implemented.
2.5 Target & achievement The Integrated Energy Plan 2009-22 envisaged achieving 12% of the energy pie from the renewable
resources by 2012 and induction of 17,400 MW power to the grid from solar and wind power by
2022. The policy for development of renewable energy for power generation (2006) had fixed a
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more modest target of 9,700 MW by 2030 in the medium term framework. As against these
targets, about 400 MW projects have been set up by 2015 contributing to about 1.6% of the overall
installed capacity.
Table 6: ARE achievement-2015 Source MW GWh % (MW) % (GWh)
Hydro 7,115 32,074 28.3% 33.50%
Thermal 16,600 58,177 66.1% 60.77%
Nuclear 987 4,996 3.9% 5.22%
ARE
Wind 256 457 1.0% 0.48%
Solar 100 26 0.4% 0.03%
Bagasse 51 NA 0.2% NA
Total 25,109 95,730 100% 100%
ARE-total 407 483 1.6% 0.5%
2.6 Summarizing It can be concluded that large number of policy and regulatory measures have been initiated for
development of the ARE technologies in the country. The institutional framework is also there for
development of the sector. The focus of the various measures so far has been solar and wind. Even
for solar and wind, actual achievement so far is very small compared to the potential. The biomass
energy is yet to make a beginning. The current scenario in Pakistan is not unique. Almost all
countries have faced similar situations in the initial phase of development due to number of
barriers faced against development of market for ARE technologies. Some of the barriers are
universal and some country specific. It becomes critically important to identify such barriers in an
ongoing manner and take action for overcoming the same.
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3 Barriers and challenges Major barriers & challenges are faced in developing market for ARE technologies, more so for BETs
due to number of real and perceived risks such as:
Resource availability & price
Untested technology & business models
Policy & regulatory uncertainty
BET projects are also considered less attractive by Bankers/Equity & Venture funds due to several
factors such as:
Lower scalability
Smaller project investment size
Higher cost of transaction for loan processing
Major financing barriers are therefore, faced by BET project developers.
For Pakistan, these issues have to be contextualized better for development of targeted policy
and regulatory measures for promotion of BETs.
3.1 Resource availability & price Risk profile of a biomass project varies widely depending upon the biomass sourcing option and
quantitative requirement. It is negligible for bagasse cogeneration project as the entire quantity of
resources is available from internal operation. This would be somewhat true for rice mills so long
the entire requirement is met from the internal milling operation. For smaller village projects too,
the risk is low as the requirement can be mostly met locally, though pricing issues could arise. For
the IPPs, on the other hand, this risk is high as the entire quantity of fuel is sourced from outside
and mostly through informal arrangement. Seasonality of availability of agricultural residues poses
Text box 3: Financing barrier
Different RETs have different degrees of exposure to the various identified barriers and risks.
Barriers are created by underdeveloped financial markets. Examples of barriers include lack of long-
term loans, high financing costs, high transaction costs, and poorly capitalized developers.
Risks refer to the high risks and costs of RETs. They include cost competitiveness, technology risks,
regulatory risks specific to making RETs competitive, and resource risks. The paper considers how
well different financing instruments address different barriers and risks. The list of instruments
covered includes grants, equity, debt, asset-backed classes, guarantees, and insurance as well as
more targeted categories such as results-based financing, carbon financing, and small-scale project
financing.
Financing renewable energy-World Bank/Climate investment funds
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yet another challenge. The requirement for the entire year has to be procured in a short time
during the harvesting season and stored for utilization during the whole year.
Almost the entire quantity of paddy husks and wood chips are being currently utilized in boilers
and furnaces in the SME industries in Pakistan. Surplus from these sources can be generated only
by improving efficiencies of the existing systems. Opportunities for the same exist but would
require investment in upgradation.
Plentiful straws and stalks are available. Harvesting and logistics management systems for these
would have to be developed. In absence of an existing market, farmers are unlikely to make
investment for this. IPP projects would have to therefore, take into account investment in fuel
management system in addition to the power plants. This would potentially increase the risk
profile of the projects.
IPPs therefore, face multiple risks such as availability, management of logistics, price escalation
and storage degradation. The Consultants has prepared and submitted a separate report on
biomass management and pricing.
3.2 Technology & business models Biomass combustion technologies for fuels such as paddy husk and wood chips are matured and
large numbers of such plants are operating all over the world. SME industry in Pakistan too is using
these fuels in low-pressure boilers, though at much lower efficiencies. Gasification technology for
wood chips is well established. Technology for gasification of husks has also been developed and
numbers of such plants are operating in China, India, and Thailand. Technology for stalk gasification
has been developed mainly in China. Very large numbers of rural energy projects are being
operated for supply of heat and a few supplying both heat and power.
Technology for energy production from straw is still going through the learning curve. The first
such commercial project on straw outside of Europe was developed in India about a decade back.
Few such projects are operating mostly in the northern States of Punjab and Haryana. In the recent
past, China has made rapid stride in developing straw firing technology. Large numbers of such
projects with individual capacity ranging from 8 to 12 MW have been operating successfully in
paddy and wheat growing provinces11.
Strong collaboration between the research & development institutions and the local
manufacturing industries with support from Governments has been mainly responsible for success
in developing such technologies in China, India & Thailand. Such collaboration arrangements have
also helped in developing local capacity for servicing such projects, one of the key condition
precedents for sustainability of operation.
Business models for IPPs have been well established in Pakistan. It should be possible to replicate
the same for BET based IPPs too. However, such models do not exist for other types of projects.
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This would require development of technical and financial capacities of all the stakeholders
involved in promoting and developing BET businesses.
Rural distributed generation projects would face even more challenges as have been experienced
in India. Some of the major issues that have to be addressed are:
Ownership models
Operation models
Regulations
Pricing of resources & delivered energy
Affordability
Willingness to pay
Cash flow
3.3 Policy & regulatory uncertainty Review of the policy and regulatory framework indicates existence of few gaps that have to be
addressed for faster diffusion of ARE & BET. Tariff issue may remain as the single most important
regulatory barrier. Government seems to have the final say in determination of tariff as would be
seen from the following provision of the NEPRA Act 1997 on power of the NEPRA.
Section 7 (3) (a)
“Determine tariff, rates, charges and other terms and conditions for supply of electric power
services by the generation, transmission and distribution companies and recommend to the Federal
Government for notification”.
Similarly, the provincial Governments have been empowered to notify tariff for projects
implemented within the jurisdiction of Provinces.
Feed-in-tariff (FiT) has been notified only for small-scale solar and bagasse cogeneration projects.
Transparent guideline of process of tariff determination and regulations are yet to be established.
This issue would be even more complex for BET projects. Regulators would find it difficult to
determine the fuel prices for BET projects in absence of a formal market for biomass resources
AEDB Act 2010 does not provide enough administrative and financial power to the Board for
promoting ARE technologies. AEDB can as best play the role of a facilitator. IPP project developers
would have to go through the existing procedures and processes applicable for conventional
projects. Developers of small-scale BET projects would find it extremely difficult and cumbersome
to go through such processes for getting various permits and clearances. Historically, power
purchase agreements are reported to be abruptly terminated, and developers would like all
uncertainties about reliability of agreements to be removed.
The mechanisms for inter-institutional coordination have not been articulated in the relevant
documents. This concern has been highlighted in the IEP document-“If a Ministry of Energy cannot
be formed then a high powered body with legislative powers, authority and necessary
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empowerment and resources should be established at the earliest to drive Pakistan’s energy
development in the right direction and in the most optimum way possible”.
It has also been highlighted that most of the institutions involved in developing the ARE market do
not have adequate capacity to undertake the policy development and implementation related
activities.
3.4 Access to finance BET project developers in Pakistan would find it difficult to finance such projects even if all the
policy and regulatory aspects are addressed. This has been the experience in both China and India
in the initial development stages.
The IEP9 had made several recommendations for creating an enable environment for financing of
such projects. These included both financing and market mechanisms such as:
Financing mechanisms
o Alternative energy fund for setting up pilot projects & soft financing of
demonstration & R&D projects
o Monetary incentives to provincial, city and local governments for RET projects
Market instruments
o RET obligation for utilities
o RPS for DISCOs
o Mandatory use of feasible RET projects in the Government & public sector
buildings
AEDB Act has also provision for implementation of projects by AEDB on its own or in partnership
with private sector. These policy- intents are yet to be converted to implementable action
agenda.
3.5 Summarising DESL has been involved in policy related as well as project development work in the BET domain
globally including in China and India. The potential impact of the barriers discussed above on the
implementation front has been assessed for Pakistan as shown in the following table.
Table 7: Barrier analysis
Parameters Off-Grid rural electrification using BGT
IPP using BCT
Captive power generation using BGT
Resources (Biomass)
Availability & certainty
Medium High Medium
Technology
Availability High Low High
Service High Low Medium
Business models
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Parameters Off-Grid rural electrification using BGT
IPP using BCT
Captive power generation using BGT
Price of electricity/tariff
High High Low
Cash flow High Medium Low
Policy & regulatory
Processes High High Low
Regulatory Low High Low
Access to finance High High Medium
Historically, every country has faced similar barriers. The following section of the report provides
a highlight on how different strategies have been adopted all over the globe for addressing such
barriers and challenges.
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4 Global case studies
4.1 Macro-perspective Global renewable energy markets have grown rapidly in the past decade. Renewable energy
provided an estimated 19.1% of global final energy consumption in 20134. This growth has been
driven by supportive national and local policies. Declining costs have also played a significant role
in the expansion of renewable energy deployment in recent years. The global policy landscape has
driven the expansion of renewable energy technologies by attracting investment and creating
markets that have brought about economies of scale and supported technology advances.
Since 2004, the number of countries promoting renewable energy with direct policy support has
nearly tripled, from 48 to over 140, and an ever-increasing number of developing and emerging
countries are setting renewable energy targets and enacting support policies. The most commonly
used policies and their scope in brief are as followsError! Bookmark not defined.:
Resource mapping: Use of technology for real time mapping of available energy resources
Regulatory instruments
o Feed-in premium: a type of feed-in policy, where producers of electricity from
renewable sources sell electricity at market prices, and a premium is added to the
market price to compensate for higher costs and, thus, to mitigate the financial risks
of the production from renewables.
o Feed-in tariff: the basic form of feed-in policies, where a minimum price (tariff) per
unit (normally kWh or MWh) is guaranteed over a stated fixed-term period when
electricity can be sold and fed into the electricity network, normally with priority and
guaranteed grid access and dispatch.
o Net metering: a regulated arrangement in which utility customers who have installed
their own generating systems pay only for the net electricity delivered from the utility
(total consumption minus on-site self-generation).
o Mandate/obligation: a measure that requires designated parties (consumers,
suppliers, generators) to meet a minimum, and often gradually increasing, target for
renewable energy, such as a percentage of total supply or a stated amount of capacity.
Market instruments o Renewable energy certificate (REC): a certificate awarded to certify the generation of
one unit of renewable energy (typically 1 MWh of electricity, but also less commonly
of heat).
o Renewable energy target: an official commitment, plan or goal set by a government
(at the local, state, national or regional level) to achieve a certain amount of renewable
energy by a future date.
o Renewable portfolio standard (RPS): an obligation placed by a government on a utility
company, group of companies or consumers to provide or use a predetermined
minimum renewable share of installed capacity, or of electricity or heat generated or
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sold;” RPSs often include tradable certificates, and they are referred to as tradable
green certificates (TGC systems) in Europe
Monetary & fiscal incentives
o Capital subsidy: a subsidy that covers a share of the upfront capital cost of an asset
(such as a solar water heater).
o Fiscal incentive: an economic incentive that provides individuals, households or
companies with a reduction in their contribution to the public treasury via income or
other taxes, or with direct payments from the public treasury in the form of rebates or
grants.
o Investment tax credit: a taxation measure that allows investments in renewable
energy to be fully or partially deducted from the tax obligations or income of a project
developer, industry, building owner, etc.
o Production tax credit: a taxation measure that provides the investor or owner of a
qualifying property or facility with an annual tax credit based on the amount of
renewable energy (electricity, heat or biofuel) generated by that facility.
A study on ‘Taxes, incentives for renewable energy’ by KPMG describes the taxes and incentives
provided by various countries around the world to promote renewable energy from wind, solar,
biomass, geothermal and hydropower. These policies also support other areas such as increased
energy efficiency, smart-grid management, bio-fuels, carbon capture systems and storage
technologies. It includes an introduction about global trends in renewable energy, a summary of
investments in renewable energy, and a brief outline of renewable energy promotion policies in
the countries.
[The policies implemented by the countries are classified into five sections, High Income Countries,
Upper Middle Income, Lower Middle Income, Low income countries along with policies in six South
Asian Countries. This is based on World Bank’s classification of world's economies on the estimates
of gross national income (GNI) per capita for the previous year that determines the lending
eligibility. As of 1 July 2015, low-income economies are defined as those with a GNI per capita of
$1,045 or less in 2014; middle-income economies are those with a GNI per capita of more than
$1,045 but less than $12,736; high-income economies are those with a GNI per capita of $12,736
or more. Lower-middle-income and upper-middle-income economies are separated at a GNI per
capita of $4,125.]
The incentives to deploy renewable technologies depend in part on a country’s socio-economic
situation. Industrialized and emerging economies may be keen to de-carbonize their energy system
or to improve energy security. Least Developed Countries, whilst sharing such motivations, are
likely to be more concerned with improving human development, which involves increasing rates
of energy access. Many Least Developed Countries have deployed RETs as a cost-effective means
of electrifying parts of their territory
The following table encloses the policies implemented by various countries:
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Table 8: Policies implemented by various countries15
Type of Incentive No. of countries with full/partial (% of population) High
Income Countries
(43)
Upper Middle Income
Countries (41)
Lower Middle Income
Countries (30)
Low Income
Countries (24)
South Asian
Countries (6)
Pakistan
Renewable energy targets
41 (95%) 34 (83%) 25 (83%) 17 (71%) 6 (100%) Yes
Regulatory Policies
Feed-in-tariff/ premium payment
27 (63%) 21 (53%) 16 (53%) 5 (21%) 4 (67%) Yes
Electric utility quota obligation/RPS
16 (37%) 6 (15%) 6 (20%) 1 (4%) 2 (33%)
Net Metering 17 (40%) 13 (32%) 13 (43%) 0 (0%) 3 (50%) Yes
Tradable REC 20 (47%) 3 (7%) 3 (10%) 0 (0%) 1 (17%)
Tendering 21 (49%) 18 (44%) 13 (43%) 3 (13%) 3 (50%)
Heat obligation/ mandate
10 (23%) 5 (12%) 3 (10%) 1 (4%) 1 (17%)
Biofuels obligations/ mandate
29 (67%) 18 (44%) 9 (30%) 7 (29%) 2 (33%)
Fiscal incentives and public financing
Capital subsidy or rebate
28 (65%) 13 (32%) 11 (37%) 6 (25%) 4 (67%)
Investment or production tax credits
15 (35%) 11 (27%) 9 (30%) 2 (8%) 2 (33%)
Reductions in sales, energy, CO2, VAT and other taxes
28 (65%) 24 (59%) 20 (67%)
19 (79%) 3 (50%)
Energy production payment
9 (21%) 5 (12%) 6 (20%) 2 (8%) 2 (33%)
Public investment, loans or grants
25 (58%) 21 (51%) 12 (40%) 9 (38%) 5 (83%)
15KPMG:Taxes, incentives for renewable energy, 2014
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At least 164 countries had renewable energy targets.
At least 145 countries had renewable energy support policies in place.
Low income, lower middle income as well as upper middle-income countries feature
fastest policy uptake during the last decade.
4.2 Illustrative case studies Development in China, India and Thailand has been taken up for more detailed analysis for their
relevance for developing BET in Pakistan.
4.2.1 China
China leads the world in total non-hydropower renewable energy capacity, with 70 GW installed
nation-wide (excluding hydropower) by the end of 2011. The incredible growth of China’s
renewable energy sector is due in large part to intentional and calculated action and will on part
of the government. Government of China has catalyzed the development by undertaking several
actions in parallel. Major interventions include setting a legal framework through the 2006
renewable energy law, articulating time-bound goals on RE deployment including diversifying its
energy mix, developing technology and manufacturing base, remunerative tariffs and payment of
fair price to the biomass producers.
In 2005, the government sent a clear signal that renewable energy development was a priority by
setting a target of 30GW of renewable energy by 2020. More recently in 2011, after far surpassing
its 30GW target, the government has reconfirmed its dedication by increasing the number of its
technology specific installation targets.
Text box 4: Biomass power in China
Based on the medium- to long-term development planning of renewable energy, Chinese Central
People’s Government has proposed the development goals for biomass power generation: by
2010, its installed capacity would be 5.5 GW (equivalent to generating capacity of 27.28 billion
kWh); by 2020, its installed capacity will be 30 GW (equivalent to generating capacity of 148.8
billion kWh). According to the “12th Five-Year Plan” of renewable energy, the development goal of
biomass power generation capacity has been determined, to be 13 GW during the next 5 years
(2010–2015). Based on the target of the planning, biomass power generation is more popular than
photovoltaic power generation in China In April 2011, the Ministry of Finance People’s Republic of
China (MFPRC), the National Energy Bureau (NEB) and the Ministry of agriculture of the People’s
Republic of China (MAPRC) together issued the “Interim Measures on assistance fund management
of green energy demonstration counties”. According to the Interim Measures, all of the “green
energy demonstration counties” will be subsidized with a total of $ 3.9 million, mainly for biogas
generation, biomass power generation projects and so on. According to the goal of “building 200
green energy demonstration counties by 2015”, biomass industry will receive a huge investment of
more than $ 3.1 billion.
Development goal of China’s 30 GW Biomass power-Science direct, Sept 2013
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Technology development is a thrust area in the BET program in China. Every province has a
technical institute dedicated to development of technologies for conversion of locally available
biomasses and transfer of these technologies to the manufacturing companies. This has helped
China to become the most advanced technology supplier for BETs including for combustion,
gasification and waste-to-energy technologies. Financial incentive has been used as a strong policy
tool by China as would be seen from the following table.
Table 9: Financial incentive schemes in China
Year Law & Regulation Project
1999 Notice on issues of further supporting the development of renewable energy
Infrastructure loan for power generation projects of renewable energy which are arranged by bank
2% Finance discount
2006 Renewable Energy Law
Projects of poor profitability and strong public welfare. The projects in the guiding catalogue for industrial development of national renewable energy or the item meeting the credit qualifications
Free funding ; Interest payment on loans (interest rate<3%)
2009 Circular Economy Promotion Law of the People’s Republic of China
Comprehensive utilization and development of straw and gas
Establishing the relevant special fund for developing circular economy
Snapshot of the various components of China’s policy is as under:
Administrative
Mandatory market share (MMS): The National Development & Reform Commission
(NDRC) introduced mandatory market share (MMS, or “renewable portfolio standards”. In
regions served by centralized power grids, the share of power generation form non-hydro
renewable sources should reach 1% of the total by 2010 and 3% by 2020 according to the
plan.
Renewable Energy Targets: Significantly increased renewable energy targets would be set
for grid companies to provide more incentives to purchase renewable electricity.
The National Energy Administration (NEA) was given the responsibility of monitoring
compliance on a monthly basis.
Fiscal/Monetary
Government financial support for renewable energy projects: The Chinese government
also supports renewable energy projects by providing financial subsidies. Financial
funds/allowance: Special funds are made available to facilitate the development of
renewable energy relating to the following activities:
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o Scientific and technical research, standardization processes and model
engineering projects
o Renewable energy projects in rural and pastoral areas
o Construction of stand-alone electricity generation system in remote areas and
islands
o Renewable energy resource surveys, evaluation and construction of information
systems
o Localization of manufacturing facilities used in the renewable energy sector.
Financial subsidies for the development of “Model County for Green Energy” program for
the following qualified projects in rural areas:
o Concentrated provision of methane gas projects
o Biomass gasification projects
o Biomass briquette projects
o Other projects that develop and utilize renewable energies
o Rural energy service system.
China is encouraging local renewable equipment manufacturers through a range of tax
exemptions as well as direct financial support
Corporate Income Tax (CIT): A reduced CIT rate of 15 percent is granted to qualified
advanced and new technology enterprises.
The Clean Development Mechanism (CDM) Fund is exempted from CIT on some
specific Income
Regulatory
Tariff based support mechanisms for power generation from renewable energy sources:
Two main methods have been adopted—competitive tendering (government-guided
pricing; an auction mechanism) and FiTs (government-fixed pricing).
Market mechanism
Renewable energy certificates would be used to track the fulfillment of targets, but the
certificates had not yet been made tradable.
4.2.2 India
India has made rapid stride in developing renewable energy with over 28GW of installed capacity
(excluding hydropower) and representing the world’s 3rd largest renewable energy market (USA
and China being the first and second). India is the only country in the world to have a dedicated
ministry (Ministry of new and renewable energy-MNRE) to deal with development of RETs across
the country. The provinces have also their own designated renewable energy development
agencies, who work closely with MNRE for development of RETs in the respective provinces. India
has also a specialised financial institution, Indian renewable Energy Development Agency (IREDA)
directly under MNRE for funding of RET.
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MNRE has been working with various technical and management institutes for resource
assessment studies and development of technologies. Amongst the major initiatives in the BET
domain, include:
Preparation and regular updating of biomass atlas for the entire country
Spearheading several technology development programs such as biomass gasifiers, biogas,
biofuels
Development of demonstration and pilot projects in cooperation with global agencies
Supporting development of innovative business models for rural distributed generation
system
Supporting development of energy crops/plantation pilot
At the national level, renewable energy generation is facilitated through a combination of incentive
mechanisms, which include tax incentives, generation based incentives, capital subsidies, grants,
rebates, public investment. Government of India has been providing financial incentive (though
much lower compared to China) for promoting RE market particularly in the remote areas. The
incentives offered by Government of India for BGT based off-grid rural electrification projects are
as follows:
Table 10: Financial incentive16
Parameters Incentive
To the project developer
Distributed / off grid power projects in rural areas and grid connected power projects with 100% producer gas engines or biomass based combustion projects
INR 15,000 per kW
Biomass gasifier projects for distributed / off-grid for rural areas and grid connected power projects for ensuring regular availability of biomass, provision of collection, processing and storage and O&M including compulsory AMC for 5 years after guarantee period.
INR 150,000 per 50 kW
Support towards lighting devices and distribution network
Financial support to a maximum of 3 km i.e. INR 300,000 per project (@ INR 100,000 per km).
To the project developer and other stakeholders:
16 “Biomass Gasifier based Programmes”, Government of India
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Parameters Incentive
Support towards project formulation Financial incentives of INR 5,000 per project to the banks /financial Institutions, manufacturers, promoters, consultants & service providers for developing firmed up and bankable proposals for a minimum of 10 projects or above.
Service charges for Verification and Certification
INR 10,000 per 100 kW subject to maximum of INR 100,000 for a project of 1 MW capacity. Minimum service charge -INR 10,000/- per site
HRD & Training
O&M Technician’s Course
Gasifier Entrepreneur Development Course
Awareness promotions such as organization of seminars, business meets, workshops etc.
- @ INR 200,000 per course - @ INR 300,000 per course - Maximum upto INR 300,000
Support for gasifier manufacturers / suppliers for establishing service centers in areas where cluster of systems, minimum 10, have been set up in one district / region.
INR 500,000 (One-time funding)
Under the Decentralized Distributed Generation program, the villages declared to remain as off-
grid would be planned for off-grid electrification on solicited basis with an incentive of 90% of the
capital cost. Under this scheme, there is more clarity about the coverage of electrification in the
project (i.e. households and common facilities like street lights, schools, community buildings
Panchayat Bhawans, etc.17 Renewable energy development in the country has been guided by
targets set forward in Five Year National Plans, as well as the National Action Plan on Climate
Change (NAPCC). For the 12th 5-year plan (2012-2017), a target of an additional 30 GW of grid-
interactive renewable power has been put forward. Biomass power sector had also been growing
robustly until about 2012. There has been slow down after that due to collapse of the CDM market
as well as poor off-take of RECs by the Utilities. Current installed capacity is close to 6000 MW
including power and heat and estimated off-grid system of total capacity close to 1000 MW.
Table 11: Biomass power in India18
17 Guidelines for village electrification through Decentralised Distributed Generation (DDG)– Scheme of
Rural Electricity Infrastructure and Household electrification 18 Overview of biomass power in India-Biomass knowledge portal, MNRE, Government of India
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Sector Achievements (capacity in MW)
(as on 31.03.2016)
I. Grid Interactive Power (Capacities in MW)
Biomass Power (Combustion, Gasification and Bagasse Cogeneration) 4,831.33
Waste to Power 115.08
Sub-total Grid Interactive 4,946.41
II. Off-Grid / Captive Power (Capacities in MWe)
Biomass (non bagasse) Cogeneration 651.91
Biomass Gasifiers
· Rural 18.15
· Industrial 164.24
Waste to Energy 160.16
Sub-total Off-Grid 994.46
Total Biomass Based Power 5,940.87
India’s Electricity Act, 2003 has laid a very strong foundation for development of market for
renewable energy and energy efficiency technologies. The Regulators have been empowered to
take required measures for promoting RETs independent of Government. The central electricity
regulatory commission (CERC) in India has taken many pro-active measures for promoting BET
market in India. These include:
Regulatory
Upfront feed-in-tariff for different types of RETs
Determination of long term tariff guidelines and regulations for RE projects
Biomass pricing mechanism for determination tariff
Market instruments
Renewable purchase obligations (RPO) for utilities and designated consumers
Renewable energy certificates (RECs) for solar and non-solar RE RPO
Facilitating development of trading platform for RECs
Robust and transparent systems have been developed for resolution of various issues from time
to time through stakeholder’s consultation processes.
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4.2.3 Thailand
Thailand is considered one of the most successful countries in developing renewable energy
including biomass energy evidenced by19 achievement of:
2,451 MW biomass power capacity in 2014 against the target of 2,451 MW by 2012
11.9% in the country’s overall energy basket has been contributed by RE in 2014, one of
the highest globally
Thai program is characterized by simplicity in the institutional arrangement, clear target and strong
monitoring system and financial incentives. The Ministry of Energy through its department of
alternative energy development & efficiency directly manages the program. The various policy and
regulatory measures include:
Administrative
Thailand Alternative Energy Development Plan (AEDP 2015-2036)
Renewable energy Development Plan (REDP)2008-2022
Renewable Energy Target
Fiscal and Monetary
Financial incentives in the form of grants and low-interest loans.
Grants are sourced from the Energy Conservation Fund, which also provides low-interest
loans up to a maximum of B50 million and 7 years in support of small and medium-sized
projects.
Another financial mechanism is the Equity Fund, which allows renewable energy
developers to opt for credit guarantees or government shareholder participation of up to
a maximum of THB50 million in either case.
Tax incentives for renewable energy projects include exemption from or reduction of
import duties on machinery and essential materials, exemption from or reduction of
income tax, and special corporate tax allowances.
Regulatory
Feed-in Tariff for Renewable Power
Small and Very Small Power Purchase Agreements
Market instruments
Renewable purchase obligation-5% for the power utilities
4.3 Summarising Successful development of renewable energy all over the world has depended upon the
promotional policies, enabling regulatory framework and access to commercial finance. Illustrative
19 Department of alternative energy development & efficiency -Thai-German technology conference,
Bangkok June 8, 2015
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examples of China, India and Thailand indicate that every country has developed its own
framework taking into consideration the local requirement and global experiences. The following
highlights illustrate some of the common and differentiated features adopted by these countries
and having relevance for Pakistan.
The common features:
Institutional clarity
Clarity in respect of available resources & resource utilization
Clear technology specific targets (Biomass combustion, gasification, biogas, biofuel, etc)
Periodic plan, annual implementation and monitoring
Established and tested tariff & regulatory mechanisms
Financial incentives
Enabling financing mechanisms
The unique country-specific features:
China
o Top down approach (NDRC)
o Research & development
o Highly attractive incentives including tariff
India
o Institutional linkage-federal & provinces
o Dedicated ministry and financial institutions for RE technologies
o Robust and independent system of regulation
o Operating tradable certificate market
Thailand
o Mission mode
o Simplicity
o Single point responsibility-ministry of energy
The scenario in Pakistan has been reviewed against the backdrop of the different policy and
regulatory framework in these three countries to identify the gaps. The findings are summarised
in the following table.
Table 12: Summary of Policies in select countries
Type of Incentive China India Thailand Pakistan
Institutional process Top driven
Clear Simple Not clear
Resource availability-monitoring process
Strong Yes Yes Macro assessment just completed
Technology development Strong Yes Yes No
Clear target for different technologies Yes Yes Yes Only for bagasse cogen
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Type of Incentive China India Thailand Pakistan
Monitoring system Strong Yes Strong No
Regulatory Policies
Regulatory institution No Strong Yes Yes
Regulatory process Yes Strong Yes Weak
Power Purchase Agreement Yes Yes Yes Yes
Feed-in-tariff/ premium payment Yes Regulatory process
Yes Only for solar
Electric utility quota obligation/RPS No Yes Yes No
Net Metering No Yes No Yes
Tradable REC/Green Certificate No Yes No No
Monetary & fiscal
Accelerated Depreciation Tax Benefit Yes Yes Yes Yes
Fiscal incentives and public financing Strong Yes Strong Yes
Capital subsidy or rebate High Low High No
Investment or production tax credits Yes Yes Yes Yes
Energy Production payment No Optional for wind
No No
Public investment, loans or grants Yes No Yes No
Project development methodology Yes Yes Yes Yes
Considerable gaps are there almost in all the critical areas. It is likely to take time to bridge all the
gaps. However, some actions are required on priority for achieving early success, which can trigger
parallel development of the market for private sector participation. Recommendations on the
policy and regulatory measures for the same have been prepared as follows.
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5 Policy Recommendations The policy recommendations for developing market for BET in Pakistan have been developed
taking into account the current scenario and the relevant learning from the global experiences.
Specific recommendations have been provided for each of the following actionable areas:
Basic framework
Harmonization of institutional processes
Program planning & implementation
Monetary & fiscal incentives
Project financing
Project development
5.1 Basic framework The proposed policy for promotion of BET is envisaged as an addendum to the existing Renewable
Energy Policy 2006, and taking into considerations the provisions in the other Acts such as NEPRA
Act 1997, AEDB Act 2010 and Integrated Energy Policy (IEP), 2009-2022.
The existing RE policy 2006 specifically mentions small hydro, wind and solar technologies (BET
excluded-text box below). AEDB should work with the Government to get a clarificatory order
issued for inclusion of BET and other ARE technologies in the policy.
Currently, NEPRA has only recommendatory power on tariff. In the long run, the power to set tariff
for power generation from all resources including BET and other ARE technologies should rest with
NEPRA as also has been recommended by the IEP 2009-22. However, this would require
amendment of the NEPRA Act 1997. Pending such amendment, Government should issue a clear
and transparent guideline on procedure on tariff notification by Government post receipt of draft
notification from NEPRA. The methodology and process of regulation for development of ARE in
general and BET in particular and the roles and responsibility of NEPRA for the same should be
reviewed and notified.
Ministry of Water & Power, Government of Pakistan may be requested for issuing specific
notification empowering AEDB with financial and administrative power for setting up BET projects.
Provision for the same should be included in the budget and Finance Act every year.
Text box 5: Coverage under RE policy 2006
“Other RE power generation technologies—such as those based on municipal waste and landfill methane recovery, anaerobic or pyrolytic biomass gasification, co firing or cogeneration utilizing agricultural crop residues, biofuels, wave, tidal, geothermal energy, and fuel cells—are also relevant to current and future renewable energy use in Pakistan. However, these are not dealt with in this document”
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The role of provincial Governments would be critical, more so as they are empowered for both
administrative and regulatory approvals for projects within the provinces. Most of the BET projects
are likely to be developed under the jurisdiction of provincial Governments. It would therefore, be
desirable to develop a uniform administrative and regulatory process, which would be followed by
provincial Governments, NEPRA and AEDB. Indian system provides a good template for this.
5.2 Harmonization of institutional processes The following key stakeholders would be involved in development of the BET market in Pakistan:
Ministry of Water & Power, Federal Government
Energy departments, Provincial Governments
Agriculture departments, Provincial Governments
NEPRA
AEDB
State Bank of Pakistan
SME industry associations
NGOs/Rural cooperatives
AEDB should take initiative to institute a forum of stakeholders backed by Government order for
development of methodologies and procedure, which would be acceptable to all Government and
financing organizations for according approval and financial sanctions for BET projects.
5.3 Program planning A 3 to 5 years plan on program implementation should be prepared establishing clear targets and
monitoring mechanisms. The following components should be included in the plan.
Status of availability of surplus biomass in different districts in all the Provinces
Technology deployment and absorption
Targets for combustion and gasification technologies under different business models (IPP,
Captive, Off-grid)
Monitoring & evaluation framework
Biomass assessment report prepared under the ESMAP project is now available. DESL has made an
estimate on surplus availability for determination of overall BET potential in the country. It would
be desirable to carry out a few micro level surveys to validate the estimate of surplus. Eventually,
AEDB should issue guideline for locating BET projects based on biomass assessment survey reports.
A document on technology and standards has been prepared under this project. Plan for
technology import and domestic development should be prepared based on this. The need for
strong collaborating arrangement between local technical institutes and manufacturers cannot be
overemphasized. Both China and India have demonstrated how such collaborations with support
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and direction from Government have helped in rapid development of an indigenous BET eco
system in the respective countries.
AEDB should identify few such institutes and manufacturers and develop a program with
appropriate budgetary support for developing a strong manufacturing and servicing base in
Pakistan for BET equipments and systems. The following technology development MOU’s
facilitated under the UNIDO project, provide a starting point for the development of an action plan:
MOU between K-Axis Engineering, Pakistan and Knoef Consultancy for facilitating design,
modelling and fabrication of biomass gasifiers
Letter of intent for joint cooperation in the field of sustainable production and use of bio-
energy between DBFZ, Germany and NUST
Letter of intent for joint cooperation to provide market driven services in the field of
biomass to energy between Purdue School of Engineering and Technology, Indiana
University and US Pakistan Centre for Advanced Studies in Energy
Clear medium term and annual targets for each BET component should be set. A monitoring and
evaluation framework should also be developed for the entire program.
5.4 Fiscal & monetary incentives IEP 2009-20229 has made specific recommendations for providing financial incentives and soft
financing for ARE projects. It has also recommended financial support to provincial, city and local
government for the same. Success of BET program in China and to some extent in Thailand can be
largely attributed to financial incentives. Even in India, the capital subsidy for the BGT system is
about 27% of the normative cost20. Currently, fiscal incentives are available for notified ARE
technologies as the RE policy 2006.
Various fiscal incentives as per the same policy should also be specifically extended to all types of
BET projects including captive power and cogeneration projects.
“i. No customs duty or sale tax for machinery 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 power generation utilizing renewable energy resources (specifically,
small hydro, wind, and solar), subject to fulfillment of conditions under the relevant SRO.
ii. Exemption from income tax, including turnover rate tax and withholding tax on imports.
20 Considering normative capital cost of BGT of 55,000 INR/kW from Central Electricity Regulatory
Commission (Terms and Conditions for Tariff determination from Renewable Energy Sources) Regulations,
2012 issued on 31 March 2015
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iii. Repatriation of equity along with dividends freely allowed, subject to rules and regulations
prescribed by the State Bank of Pakistan.
iv. Parties may raise local and foreign finance in accordance with regulations applicable to
industry in general. GOP approval may be required in accordance with such regulations.
v. Non-Muslims and non-residents shall be exempted from payment of Zakat on dividends paid by
the company”.
The list of items required for BET projects have been provided in the ‘Technical quality standard’
document. AEDB should forward the list to FBR to get the BET project items specifically included
under the various exemption schemes.
The risk perception of BET projects are higher compared to other ARE technologies. One or more
of the following monetary incentives have helped in improving the risk profile of BET projects:
Capital subsidy
Interest rate subvention
Generation based incentive
Carbon finance including tradable certificates
China has provided extensive financing support. Even in India, which has not been more
conservative in providing concessional finance, BGT projects have generally received about 27%
capital subsidy.
AEDB should develop different incentive schemes for the three kinds of BET projects, IPP, Captive
& spill over captive and rural DG projects. Generation based incentive scheme with provision for
upfront monetization is a very effective tool for sustainable development of BET technologies.
5.5 Regulations The following provisions in the “RE policy 2006” should be specifically extended to BET projects
as detailed below:
Guaranteed off take of exportable energy by the utilities from both IPP and Captive
Spillover projects
Utilities to provide grid connection and interface for these projects
Wheeling
Net metering
The standard PPA document should include specific provisions for these.
The net metering principle for BET projects also need to be developed, as the current policy is more
suited for solar projects. This would be more relevant for spill over projects. NEPRA promulgated
the “Distributed Generation and Net Metering Regulations, 2015”, which came into force on 1
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September 2015. Currently, the regulation is meant for providing net metering facility for
promoting solar and wind energy based DG projects. The specific provisions for eligibility under
net metering are:
2 (i) “Distributed Generation Facility" means a facility set up by a Distributed Generator
using Solar or Wind energy resource for generation of electricity up to 1 MW
2 (j) "Distributed Generation" means electrical power generation by solar or wind that is
interconnected to the Distribution System of the Distribution Company at
Interconnection Point
Power demand for captive consumption in SME segments fluctuate considerably on daily as well
as seasonal basis. Captive power projects can export all the surplus power during lower captive
demand under net metering scheme. Net metering would help in increasing the viability of such
projects by improving the PLF of the plant. This would also help in increased usage of locally
available biomass instead of transporting the same for other uses. The eligibility criteria for net
metering of biomass power plant should therefore, be the exportable power rather than the
generation capacity. The relevant clauses for net metering may be amended as follows.
2 (i) “Distributed Generation Facility" means a facility set up by a Distributed Generator
using Solar, Wind energy and biomass resources for self consumption of electricity and
heat without any limit and export of surplus/spill over electricity up to 1 MW
2 (j) "Distributed Generation" means electrical power generation by solar, wind and
biomass that is interconnected to the Distribution System of the Distribution Company at
Interconnection Point
AEDB should approach NEPRA for issuing these amendments on net metering regulations.
5.6 Project financing Actions on multiple fronts are required for improving access to commercial fiancé for BET project
developers. Financing packages provided in the RE policy 2006 are more relevant for high
investment and long gestation projects such as hydro, wind and solar. Cash flow security plays a
very important role in credit enhancement for BET projects. The general provision in the RE policy
2006 on this is quite adequate and should be extended to BET projects.
Securitization package “The power purchaser shall enter into a specific Power Purchase
Agreement (PPA)2, based on a standard model agreement, with the RE power producer. The
Government of Pakistan shall also enter into an Implementation Agreement (IA), which will
guarantee the payment obligation of the public sector power purchaser because of power sales
extending over the term of the PPA. The PPAs will be much simpler than those for thermal or large
hydro IPPs, and shall be based on the purchase of all power generated at a per-kWh rate—i.e.,
there will be no capacity charge, capacity testing, no risk, and no penalty conditions implied”.
Following specific actions are recommended for creating an enabling environment for attracting
private sector investors as well commercial lenders for financing of BET projects in Pakistan:
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Assessment of the investment potential in the different BET segments on normative cost
basis
Financing few pilot projects for direct implementation by AEDB as well as PPP projects in
the SME segments to establish the technical and financial viability
Development of a harvester program for promoting fuel densification (pellets and
briquettes)
Development of specific financing packages for different types of BET projects in the
different segments (25% to 75% capital subsidy for different types of projects, lowest for
captive followed by IPP and highest for the rural DG projects in the remote areas)
Work with State bank of Pakistan for developing special financial mechanisms for ARE in
general and BET in particular
Work with NEPRA for development of market instruments such as RPO/RPS/REC/Carbon
trading
Undertake a capacity building program for commercial banks on appraisal of BET projects
Engage with Bilateral & Multilateral Donor agencies for funding support for BET projects
5.7 Project development As has been the experience elsewhere, biomass energy development in Pakistan needs to be
conceived under a phased, evolutionary approach constituting a strategic policy implementation
roadmap.
In case of China, initial focus was on use of BGT for space heating and cooking in the rural areas.
The objective was to provide clean energy in the rural areas for replacing polluting coal burning
facilities. Funding and technical supports were provided by Governments at different levels-
Central, Provincial and local bodies. History of IPPs has been more of recent origin. Reducing
pollution arising out of field burning of straws and increasing the share of bio-energy in the overall
energy baskets have been the main drivers. Beginning with few demonstration projects in 2005,
China is currently the leading nation in developing biomass energy projects.
Development of BET market in India on the other hand was triggered by the oil crisis of mid 70s.
Large number of industries in the SME segment depending upon fuel oil for process heating faced
threat of closure due to increase in price of oil. Biomass gasification technology was rapidly
developed with support from Government for providing alternative gas fuel to these industries.
During the same period, boiler technology was developed further for using various biomass fuels
for power generation. Maturation of both gasification and combustion technologies provided the
required fillip for simultaneous diffusion of BET in the industrial captive, IPP and rural DG markets.
The market conditions in Pakistan are comparable to India. Pakistan can therefore, pursue similar
development pathway illustrated by the following figure.
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Figure 4: Project development pathway
The goal and annual target for each of the activity in different phases of development should be
clearly articulated in the suggested three to five years program. The procedures defined in the RE
policy 2006 for implementation of solicitated and unsolicitated projects can be applied for BET
projects too.
5.8 Summarizing Actions are required on several fronts for kick starting a BET program in Pakistan. Actions such as
covering the BET program under RE rule 2006 should be an immediate priority. Following this, it
should be possible for AEDB to recommend to FBR to extend various exemption schemes for the
BET projects, components and equipments as per the list provided in the report on ‘MINIMUM
QUALITY STANDARDS FOR BIOMASS GASIFICATION PLANTS’. Similarly, AEDB should also approach
NEPRA for notification of FiT for power export from the BET projects to the grid.
Medium term action would include review of the policies such as NEPRA Act 1997, RE policy 2006,
AEDB Act 2010, and making recommendations to the Government for amendments required for
removal of various identified barriers.
Development of BET technologies and local manufacturing capabilities has to be carried out in a
phased manner under a longer-term plan.
Few demonstration and pilot projects should be implemented at the earliest with a view to
demonstrate the technical and financial viability of the different BET technologies, essential pre-
requisites for attracting private sector participation.
Government program
•Setting up few demonstation projects in the rural DG segments
•Provide generous financial support for development of few (say upto aggregate capacity of 50 MW) industrial captive & CHP projects and harvester programs
Attracting private
investment
•Develop few IPP projects for bidding under solicited program
•Promote captive spill over projects in the SME segment
•Defining site allocation and zoning requirements to ensure biomass availability
Sustainable BET market
•Support projects under both solicitated and unsolicited categories
•Promote technology for high efficiency BET projects
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Annex I- Biomass resources availability ‘Pakistan Renewable Energy Policy 2006’ covers the availability, mapping and policy for
generation of power through various renewable energy technologies like hydro, solar, wind, etc.
Further, the addendum to Renewable Energy Policy 2006 covers some specific points for
bagasse/biomass based power plants. This draft policy document is prepared as an extended
version of the existing policies covering the utilization of biomass resources for power generation
in detail.
The different types of biomass suitable for power generation are shown in the following diagram:
Figure 5: Feedstock for biomass power generation21
The resources considered and the sources of information for the development of this draft policy
document are as shown in the following table:
Table 13: Source of information for the feedstock for biomass power generation in Pakistan
Type of feedstock
Description of the feedstock Source of information Remarks
Agricultural Waste generated from “Final Report on Biomass Nil
21 “A review on biomass energy resources, potential conversion and policy in India”, Anil Kumar, Nitin
Kumar, Prashant Baredar and Ashish Shukla, “Renewable and Sustainable Energy Reviews” Journal, Feb
2015
Feedstock for Biomass Power
Production
Energy Crops
Agro Industrial
Waste
Agricultural Wastes
Forest Waste
Muncipal Solid Wastes
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Type of feedstock
Description of the feedstock Source of information Remarks
waste agricultural crops like straws, husk, etc.
Atlas of Pakistan” developed as a part of the “World Bank Biomass Mapping for Pakistan: Phase 1-3”
Agro industrial waste
Wastes generated from rice mills, plywood industry, etc.
“Final Report on Biomass Atlas of Pakistan” developed as a part of the “World Bank Biomass Mapping for Pakistan: Phase 1-3”
Nil
Forest waste Parts of felled trees which are not removed from the forest
“Scoping Phase Report” developed as a part of the “World Bank Biomass Mapping for Pakistan: Phase 1-3” October 2014
Nil
Municipal solid waste
Biodegradable waste such as food and kitchen waste, green waste, paper, inert waste like fabrics, clothes etc.
Nil Not included, as it is considered to be a subject for the medium / long term on account of the complexity involved in the technology selection for efficient conversion
Energy crops Plants exclusively grown for their wood from marginal lands for energy generation
Nil Not included, as it is considered to be a subject for the medium / long term on account of the need for a parallel policy development exercise on land utilization for energy plantation
Agricultural waste
The estimation of agricultural waste available for power generation is based on the crop
production (available as per agriculture statistics) and factors the crop residue ratio (CRR) –, i.e.
the ratio between the biomass produced and the crop production, competing use of biomass and
willingness of farmers to sell the biomass. The sequence of steps by which the surplus biomass is
determined is shown in the figure below:
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Figure 6: Sequential steps for the estimation of surplus biomass
Step 1: Estimated annual crop production
The estimated annual crop production for Pakistan22 is as follows:
Table 14: Source of Crops Produced in Pakistan
Crop Estimated crop production (‘000 ton)
Sugarcane 65,257
Cotton 14,531
Wheat 34,581
Rice 16,754
Maize 4,260
Total 135,383
Step 2: Estimated annual biomass production
The estimated annual crop production is multiplied with the crop residue ratio (individual values
for each type of crop) to arrive at the theoretical annual biomass production. The CRR is a
characteristic of each type of crop. The CRR values may differ from one information source to
another because of differences in understanding of the definition of the same. The differences
arise mainly because of looses during harvesting and transportation and storage. Such losses
include stumps of stalk left uncut for wheat, maize, mustard, etc. Part of the residue utilized for
captive consumption such as cane green top as fodder is also not often accounted for while
determining available residue. CRR is also dependent on the type of soil, pattern of rainfall and
harvesting season. It is, therefore, imperative to consider the CRR values for similar geographic
conditions to arrive at the representative CRR.
DESL’s database of CRR (especially for the studies conducted in regions close to the Pakistan border
22 Source: “Final Report on Biomass Atlas of Pakistan” developed as a part of the “World Bank Biomass
Mapping for Pakistan: Phase 1-3”
Step 1: Estimated annual crop production
Step 2: Estimated annual biomass production (Based on crop residue ratio)
Step 3: Estimated annual surplus biomass (Considering competing use and willingness of farmers to sell the biomass)
Client Name UNIDO DESL Project No. 9A0000005647
Project Name Policy advisory services in Biomass gasification technology in Pakistan Version 3
Report Title Draft recommendations- policy on biomass gasification and combustion technology
Page 49 of 54
in India), CRR from other literature survey (TERI – a study done for Patiala region in India & UNEP
– a study covering overall Pakistan) have been reviewed. These values differ from the figures
mentioned in the “Final Report on Biomass Atlas of Pakistan” as detailed in the below table:
Table 15: CRR values from different sources
Crop
Description of residue
CRR ESMAP Biomass
Atlas2 DESL
database TERI study for
Patiala23 UNEP
study24
Sugarcane Trash 0.12 0.065 0.10 0.3
Cotton Sticks 3.4 2.50 1.0 3.0
Wheat Straw 1 1.17 1.2 1.0
Rice Straw 1 1.42 1.15 1.1
Maize Stalk 1.25 1.29 1.96
The CRR values from the final atlas2 were considered for further analysis of power potential from biomass.
Step 3: Estimated annual surplus biomass
The above derived annual biomass production was adjusted loss due to consumption of biomass
in other competing use and willingness of farmers to sell the biomass to derive the estimated
surplus biomass. The following table summarizes the estimation of annual surplus biomass
available.
Table 16: Calculation of estimated annual surplus biomass production
Type of crop
Estimated annual crop production ('000 ton)
CRR Source: ESMAP
Biomass Atlas
Estimated annual biomass production
('000 ton)
Estimated annual surplus biomass
('000 ton)
Sugarcane 65,257 0.12 7,831 2,552
Cotton 14,531 3.4 49,405 5,039
Wheat 34,581 1 34,581 5,689
Rice 16,754 1 16,754 6,534
Maize 4,260 1.25 5,325 680
Total 135,383
113,896 20,494
23https://cdm.unfccc.int/Projects/DB/DNV-
CUK1179324777.88/ReviewInitialComments/OLEJNKZCUBK3FLFPWKGZNFB3NM64L0 24http://www.unep.or.jp/ietc/spc/activities/GPWM/data/T3/AB_4_1_BaselineReport.pdf
Client Name UNIDO DESL Project No. 9A0000005647
Project Name Policy advisory services in Biomass gasification technology in Pakistan Version 3
Report Title Draft recommendations- policy on biomass gasification and combustion technology
Page 50 of 54
Agro industrial waste
The quantity of crop-processing residues generated as by-products of the agro-industrial processes
in industries are called agro-industrial waste. The following table summarizes the estimation of
annual surplus biomass (taking 100% collection efficiency).
Table 17: Calculation of estimated annual surplus biomass production
Type of crop
Estimated annual crop production ('000 ton)
Type of Residues
CRR
Estimated annual biomass production
('000 ton)
Estimated annual surplus biomass ('000
ton) (taking 100%
collection efficiency)
Sugarcane
65,257 Bagasse 0.30 19,557 19,557
Rice 16,754 Husk 0.20 3,351 3,351
Maize 4,260
Cob 0.33 1,406 1,406
Maize Husk 0.22 937 937
Total 86,271
25,271 25,271
In addition to crop residues, wood based residue generated from the wood processing industry
are also potential energy sources. Sawdust, slabs and chips generated as residues of wood
processing are a valuable resource, which can be used as feedstock for energy generation. Wood
processing residues are often readily available and considered a cheap resource; the level of their
utilization varies considerably. Assessment of wood based residue produced is based on annual
sawnwood production, average efficiency of sawmills and current use of residues.25
The amount of roundwood used for industrial purpose is 2,989,000 m3/year26. Considering 50%27
residue production from wood processing industries, it is reasonable to consider about 1,494,500
m3 of wood-based residue available for biomass power generation. Assuming 50%28 of the existing
residue being converted to feedstock for power generation, the annual amount of wood based
residue available is summarized in the below table:
Table 18: Wood based residue
Particular Unit Value
Volume of Wood based residue produced m3 747,250
25www.fao.org/.../40588-06126445556b3b96080217e0ee63937a0.pdf 26“Scoping Phase Report” developed under the “Biomass resource mapping in Pakistan” project by ESMAP, October 2014 27http://www.bioenergyconsult.com/tag/wood-wastes/ 28To be validated
Client Name UNIDO DESL Project No. 9A0000005647
Project Name Policy advisory services in Biomass gasification technology in Pakistan Version 3
Report Title Draft recommendations- policy on biomass gasification and combustion technology
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Density29 g/cm3 1.5
Surplus Wood Residue ‘000 ton 1,121
Forest harvesting residues
The forest harvesting residues available are based on the annual round wood production, rate of
felling removal and the percentage of the residues that are already used by the poor in villages to
carry out household activities. However, reviewed literatures do not provide reliable information
either about the volume of wood harvested and processed, or about the processing efficiency and
level or residues utilization. Due to this, it is not possible to estimate whether there might be any
available surplus residues.
Summary of residues available
The following table summarizes the surplus biomass available:
Table 19: Total Surplus Biomass Available
Biomass Type Surplus biomass for electricity generation (000 tons)
Agricultural waste 20,494
Agro industrial waste 25,271
Wood Based Residue 1,121
Total 46,886
29http://www.tis-gdv.de/tis_e/ware/holz/rundholz/rundholz.htm
Client Name UNIDO DESL Project No. 9A0000005647
Project Name Policy advisory services in Biomass gasification technology in Pakistan Version 3
Report Title Draft recommendations- policy on biomass gasification and combustion technology
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Annex-2 Business Case Examples Case Study # 1
Country Pakistan
Industry Rice Mill
Context The plant generates 8000 MT/year rice husk every year, out of which about 3000 MT/year was consumed in the steam generation plant and the remaining 5000 MT/year of husk was sold. The use of the surplus rice husk for installation of a CHP system, to meet the power requirement was considered, keeping in view the increase in steam and power demand, with proposed gradual expansion of rice milling from 48,000 TPY to 99,500 TPY.
Recommended project
The project configuration was developed based on the assessment of demand (daily variation, seasonal variation) with change in production, existing demand & supply situation for both electricity and steam, cost of electricity purchased and reliability, opportunity cost for sale of surplus rice husk. A modular scheme for expansion of the plant from 525 kW to meet current demand to 1,050 kW was proposed. The system recommended comprises a downdraft gasifier, with gas cleaning and gas engine. A biomass briquetting machine was recommended for fuel preparation.
The modular approach for implementation, would help in increasing the confidence O&M of the system.
Costs and benefits
The investment estimate for the plant was PKR 145 million (2014 levels), which includes cost of plant machinery & equipment, structures and civil engineering works, pre-production capital costs and net working capital requirements. The gasification system and gas engine make up about 80% of the total investment. The operating costs includes the fuel cost and the O&M costs. Specific fuel consumption of 1.6 kg/kWh (vendor specification) was considered to estimate the variable cost. A market survey was carried out to assess the availability and price of supplemental fuel if required. Based on this, the direct fuel cost of power generation was estimated as PKR 14.68/kWh. This compares well against the weighted average cost of power (grid + diesel generation) incurred at PKR 24.68/kWh. The O&M cost was considered as per vendor specifications. The project is financially viable. The project IRR considering a discounting factor of 12.75% was 32% over 20 years with normal payback of approximately 5.12 years.
Client Name UNIDO DESL Project No. 9A0000005647
Project Name Policy advisory services in Biomass gasification technology in Pakistan Version 3
Report Title Draft recommendations- policy on biomass gasification and combustion technology
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Case Study # 2
Country Pakistan
Industry Plywood manufacturing
Context The unit manufactures about 800,000 m2 of ply wood annually yielding about 250 t/y of wood waste. In addition to the process electricity demand (about 100 kW), some amount of heat is also required in the process, which is provided using a thermic fluid heater. A Combined Heat and Power project was therefore conceptualized to help the unit independently meet the power and heat demands, using the wood waste generated.
Recommended project
The project configuration was developed based on study of production patterns, electricity demand and corresponding heat requirements. Future growth in demand with increase in production was also considered. A 300 kW gasifer plant (wood chip based) with gas cleaning and engine was recommended which would be able to meet the full demand for power (either by extending hours of operation or through net metering arrangement with utility). While a single gasifer was recommended keeping in view future load, 3x 100 kWe engines were recommended to be added as and when the load requirement increased.
Only 20% of the fuel demand for the project was met from the wood chips generated internally. A fuel survey was therefore conducted to assess the availability and cost of fuel.
Costs and benefits
The investment estimate for the plant was PKR 29 million (2014 levels), which includes cost of plant machinery & equipment, structures and civil engineering works, pre-production capital costs and net working capital requirements. The gasification system and gas engine make up about 80% of the total investment. The operating costs includes the fuel cost and the O&M costs. Specific fuel consumption of 1.4 kg/kWh (vendor specification) was considered to estimate the variable cost. A market survey was carried out to assess the availability and price of supplemental fuel if required. Based on this, the direct fuel cost of power generation was estimated as PKR 14/kWh. This compares well against the cost of power purchased from the grid incurred at PKR 22.77/kWh. The O&M cost was considered as per vendor specifications. The project was financially viable. The project IRR considering a discounting factor of 12.75% was 25.95% over 20 years with normal payback of over 6 years.
Client Name UNIDO DESL Project No. 9A0000005647
Project Name Policy advisory services in Biomass gasification technology in Pakistan Version 3
Report Title Draft recommendations- policy on biomass gasification and combustion technology
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Case Study # 2
Country Punjab, India
Industry Cosmetic manufacturing
Context The feasibility of installation of a biomass based power generation system was assessed to reduce the energy cost of manufacturing. The assessment involved a field survey of biomass availability, selection of fuel, ascertaining the likely price and fuel logistics and project configuration.
Recommended project
The current steam requirement of the plant is met by diesel fired boilers (1 x x 1.5 T, 2 x 0.6 T). It was suggested to incorporate biomass (pelletized rice husk and saw dust) based boilers. The proposed configuration on which detailed feasibility was carried out was as follows.
Proposed Fuel Rice husk and Wood chips from biomass traders and suppliers
Technology Combustion for steam generation Boiler design capacity 4 t/h (out of which 1.6 t/h for VAM and 2.4 t/h for
Process) Vapor Absorption Machine capacity
400 TR
Operation 300 days, 24 hours of operation with PLF of 75%
Fluidized bed boilers were suggested as they have
ability to burn low-grade biomass fuels, due to the high thermal inertia and high turbulence of the fluidized bed
high combustion efficiency, due to the turbulent mixing of the fluidized bed and the long residence time of the fuel in the furnace
Compared to a boiler efficiency of 55-60% achievable with stepped grate furnace, the fluidized bed combustion technology offered will give a high efficiency of the order of 75-80%.
Sized wood chips are also suitable fuel for fluidized bed technology. During interaction with suppliers it was found that the twin furnace design is also available for biomass fuels. Fluidized bed for rice husk and grate technology for wood chips, pellets and briquettes. This twin furnace design is suitable for rice husk and different biomass fuels. Based on boiler technology and fuel properties, appropriate flue gas cleaning system was selected. A combination of wet scrubber and cyclone was proposed. Vapor absorption machine was used to meet the process chilling load and the comfort cooling load in the industry. The requirement of cooling was estimated by the plant was 400 TR. In order to reduce the carbon footprint the cooling was catered by steam based VAM system.
Costs and benefits
The total project cost for the proposed system was estimated to be INR 38 Million. The project had a payback period of 1 year.