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ENERGY ACCESS ASSESSMENT

PUNJAB (Pakistan)
FINAL REPORT

ADB Energy for All Program

December 2014

Asian Development Bank!

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Asian Development Bank

 Table of Contents
!
Acronyms and Abbreviations iii!
Acknowledgements v!
1! Background and Introduction 1!
1.1! Energy for All Initiative 1!
1.2! Objectives of the Assessment 2!
2! Methodology 2!
3! Economic and Sector Context in Punjab 3!
3.1 Socioeconomic characteristics of Punjab 4
3.2 Energy Sector characteristics 4
3.3 Access to Electricity in Punjab 6
3.4 Energy demand 7
3.5 Energy Supply 8
3.6 Current expenditures in Energy Sources 8
4! The Energy Sector’s Regulatory Framework 12!
5! Increased energy access through clean technologies 15!
5.1 PV Solar 15
5.2 Biogas digestion 16
5.3 Biomass 17
5.4 Mini-Hydro 18
5.5 Wind 19
6! On-grid distributed generation 19!
6.1 Distributed generation as solution for the energy crisis 19
6.2 Delivery models for distributed generation 20
6.3 Potential types of distributed generation actors 22
7! Lessons learned from other Energy Access programs 22!
7.1 ADB’s Rural Development in Barani Areas 22
7.2 USAID Tube Well Efficiency Improvement Program 23
7.3 World Bank Group Clean Energy programs 23
7.4 Pakistan Domestic Biogas Program 24
7.5 Other development programs 24
8! Financing and delivery models 25!
8.1 Partial Capital Subsidies and Output-Based Aid 26
8.2 Partial Guarantees 26
8.3 Energy Access Fund 27
9! Challenges 28!
9.1 Regulations 28
9.2 Taxation 28
9.3 Access to Finance 29
i
10! Proposed Pilot Projects 29!
10.1 Biogas-powered Minigrid in Mastay Kay (Kasur) 29
10.2 PV Solar Minigrid in 18/C Tukra (Sahiwal) 32
10.3 PV Solar-powered Tubewell 34
11! Conclusion and Recommendations 35!
ANNEX 1: Field Assessments of Selected Villages 37!
Mastay Kay (Kasur) 37
18/C Tukra (Sahiwal) 38
Chak 66 Dhandhara (Faisalabad) 39
Abadi Jamil Town Mohalla Ghafoor (Chiniot) 41
Arzanipur Abadi Muhammad Din (Kasur) 42
Kot Miana Azafi Abadi (Chiniot) 43
Chak 120 9/L Kamhair (Sahiwal) 44
Thatha Dewka (Chiniot) 45
Verha Muslim Sheikh Sloolky (Chiniot) 46

List of Tables
Table 1: List of villages surveyed 2
Table 2: Monthly income/consumption per capita in 2012 4
Table 3: Number of Consumers, by Distribution Company 6
Table 4: Access to energy-related infrastructure, by Province 6
Table 5: Generation of Electricity in Punjab, by source 8
Table 6: Average Monthly Fuel and Lighting Expenditure in Rural Punjab, by income level 9
Table 7: Characteristics of Selected Off-grid Villages 10
Table 8: Estimated Electricity Demand in Mastay Kay 30
Table 9: Estimated biogas yield and electricity generated for Mastay Kay 30
Table 10: Estimated Costs of Biogas System for Mastay Kay 31
Table 11: Estimated Weighted Average Cost of Capital 31
Table 12: Simplified Financial Analysis of Biogas System in Mastay Kay (in US$) 32
Table 13: Estimated Electricity Demand in 18/C Tukra 33
Table 14: Estimated cost of a 25 kWp PV Solar Minigrid System 33
Table 15: Simplified Financial Analysis for a 25 kWp PV solar system 34

List of Figures
Figure 1: Location of surveyed villages 3
Figure 2: Power Sector Structure in Pakistan 5
Figure 3: Distributed Generation 20
Figure 4: DISCO buys from VSPP 21
Figure 5: DISCO leases network to RES 21
Figure 6: DISCO sells to/buys from users 22
!
ii
 Acronyms and Abbreviations
A Ampere
ADB Asian Development Bank
AEDB Alternative Energy Development Board
Ah Ampere hour
BRI Buffalo Research Institute
CF Cash Flow
CO2 Carbon Dioxide
DC Direct Current
DISCO Distribution company
DMC Developing member country
ECC Energy Coordination Committee
ECO Economic Cooperation Organization
EMCOP Energy Management Company of Punjab
FESCO Faisalabad Electric Supply Company
GDP Gross domestic product
GENCO Generation company
GEPCO Gujranwala Electric Power Company
GIZ Gesellschaft für Internationale Zusammenarbeit
GWh Gigawatt hour
h Hour
ha Hectare
HDIP Hydrocarbon Development Institute of Pakistan
HH Household
HP Horsepower
IESCO Islamabad Electric Supply Company
IFC International Finance Corporation
IRR Internal Rate of Return
km Kilometer
KPK Khyber Pakhtunkhwa province
kW Kilowatt
kWh/m2 Kilowatt hour per square meter
kWhe Kilowatt hour of electricity
kWp Kilowatt peak
LESCO Lahore Electric Supply Company
LOI Letter of intent
m Meter
m3 Cubic meter
MEPCO Multan Electric Power Company
MFI Microfinance Institutions
MV Medium Voltage
MW Megawatt
n/a Not available
iii
NEPRA National Electric Power Regulatory Authority
NPV Net Present Value
NREL National Renewable Energy Laboratories
NRSE New and Renewable Sources of Energy
NTDC National Transmission Distribution Company
O&M Operations and Maintenance
OBA Output Based Aid
OPIC Overseas Private Investment Corporation
PEDA Punjab Energy Development Agency
PEPCO Pakistan Electric Power Company
PKR Pakistani Rupee
PPDB Punjab Power Development Board
PV Photovoltaic
REDSIP Renewable Energy Development Sector Investment Program
RETA Regional Technical Assistance
Rs Pakistani Rupees
RSF Risk Sharing Facility
SME Small and Medium Enterprises
SHS Solar Home System
TOE Tonne of oil equivalent
TV Television
US$, $ United States Dollar
USAID United States Agency for International Development
V Volt
VS Volatile Solids
WACC Weighted Average Cost of Capital
WAPDA Water and Power Development Authority

iv
 Acknowledgements

This report was developed by a team of consultants under the Asian Development Bank’s
(ADB) Regional Technical Assistance (RETA) Grant, Technical Assistance for Energy for All
Initiative Empowering the Poor Through Increasing Access to Energy (RETA-7512). The work
presented in this report was conducted from March to October 2014 in Pakistan. The team was
led by Jiwan S. Acharya (Senior Climate Change Specialist, ADB). This energy assessment
report has been prepared by Alfredo Baño Leal (Senior Energy Sector Development Expert),
and supported by Faran Shoaib Naru and Marianne Joy Vital (National Consultants).

This study has been conducted for the Government of Pakistan through financing from the ADB.
The team wishes to thank the Energy Department of the Government of Punjab for its kind
collaboration.

Disclaimer: This report was prepared by a team of consultants for ADB. The findings,
interpretations, and conclusions expressed in it do not necessarily represent the views of the
ADB or those of its member governments. ADB does not guarantee the accuracy of the data
included in this report and accepts no responsibility for any consequences of their use.

Photo credits: Cover photo by Syed Muhammad Rafiq. Photographs in the report were provided
by the field team.

Foreign exchange rate: The exchange rate used in this report is 100 PKR/US$.

v
1 Background and Introduction
Growing at an average 3.8% a year from 2006 to 20131, Pakistan’s economy has the potential
to achieve higher growth to accommodate a rapidly growing working-age population. The
country has considerable natural resources, which can be harnessed to address its energy
problems and improve economic productivity. Furthermore, given the government's target of
accelerating growth rate to 7% by 20172, much needs to be done on the energy access and
supply side to support the country’s development, including lifting 12.4%3 of the population from
poverty.

Access to clean, reliable, and modern sources of energy is a crucial ingredient in achieving
economic growth and development. Pakistan still has gaps to fill in this aspect, with 31% of the
population having no access to modern energy services, such as electricity, and about 63% of
the population still relying on traditional biomass for cooking4.

1.1 Energy for All Initiative

Given how the lack of access to sustainable modern energy services and products -described
as ‘energy poverty at World Economic Forum 2010)- remains pervasive in Asia and the Pacific,
the Asian Development Bank (ADB) started the Energy for All Initiative in 2008 to help address
the issue and launched the regional partnership ‘Energy for All Partnership’ in 2009 with the
objective of providing energy access to 100 million people in Asia by 2015.

The Energy for All Initiative promotes strategic approaches and partnerships to develop and
implement larger projects and programs that ADB has supported in the past to make clean
energy more available for the poor using modern efficient technologies. The three pillars of the
Energy for All Initiative are to (i) promote clean energy technologies; (ii) maximize access to
energy for everyone, especially the rural poor; and (iii) promote energy sector reforms, capacity
building, and good governance.

Finally, the Energy for All Initiative aims at leveraging ADB's overall investment and increasing
the number of projects that deliver access to energy for the poor, through a combination of
support to ADB's operations departments, capacity building among developing member
countries (DMCs) governments and other key stakeholders, and support for the Energy for All
Partnership. Increasing access to energy is also an important part of the ADB’s Energy Policy of
2009.

1
Calculated based on constant GDP estimates (at 2005/2006 prices) from the Asian Development Bank Key
Indicators 2014. The average growth rate is calculated using the formula for compounded annual growth rate.
2
As reported in article titled "Economic survey 2013-14: Off target", Tribune. 03 June 104.
http://tribune.com.pk/story/716748/economic-survey-2013-14-off-target/
3
World Bank. World Development Indicators. Available at http://data.worldbank.org/country/pakistan
4
International Energy Agency. 2013. World Energy Outlook.
http://www.worldenergyoutlook.org/resources/energydevelopment/energyaccessdatabase/

1
1.2 Objectives of the Assessment
The objectives of the Punjab’s Energy Access Assessment were firstly to provide a specific
analysis of the energy sector in Punjab regarding access to modern energy services in rural off-
grid communities, and secondly to propose innovative business models and renewable
technologies to increase energy access in Punjab by leveraging on private sector participation
and expertise.

The pilot project proposals in this report have been tailored to the assessed needs and current
energy sector status, as well as from the interest showed by commercial financing institutions
and private sector players willing to enter into this untapped market.

Initial findings of this study and pilot project proposals were discussed during the Consultation
Workshop organized on 24 November 2014 and inputs received from the participation and
suggestions of government agencies, private players, financing institutions, and civil society
organizations are included.

2 Methodology
In assessing the access to modern energy services in Punjab province, energy statistics and
household data were collected from official publications of government agencies and
international organizations.

Furthermore, to better capture information not typically reflected in these data, ADB consultants
carried out field assessments in selected off-grid villages identified by the Energy Department of
the Government of Punjab. The field visits were carried out during the first half of 2014.

Table 1: List of villages surveyed

Village District Suitable? Reasons

Chak 66 Dhandhara Faisalabad No Illegal settlement in public land
Abadi Jamil Town Mohalla Ghafoor Chiniot No Very close to grid
Arzanipur Abadi Muhammad Din Kasur No Informal grid connections
Kot Miana Azafi Abadi Chiniot No Close to grid
Chak 120 9/L Kamhair Sahiwal Potential Scattered households
18/C Tukra Sahiwal Yes Far from grid. Affordability
Mastay Kay Kasur Yes Far from grid. High affordability
Thatha Dewka Chiniot No Close to grid
Verha Muslim Sheikh Sloolky Chiniot Potential Far from grid. Affordability
Note: Dark green rows show the highest potential and light green ones medium potential for minigrid electrification
!
The main objectives of the field visits were to: (i) collect information regarding the overall socio-
economic characteristics of the villages and their households; (ii) assess current electricity
demand and supply as well as demand for lighting of the village households; (iii) collect current

2
household expenditure for electricity and lighting; (iv) assess the history of communities’ abilities
to organize themselves; (v) identify other electricity needs in the village; and (vi) develop
potential pilot projects to test appropriate delivery models for off-grid renewable energy
technology.

The survey was administered in focus group discussions organized with the help of the village
heads. The discussion looked into resources and current infrastructures available in these
areas, the socioeconomic background, and expenditure behavior of the residents with regard to
energy consumption.

Figure 1: Location of surveyed villages

Verha!Muslim!
Sheikh!Sloolky!
Kot Miana Azafi
Abadi
Thatha!Dewka!

Abadi!Jamil!Town!
Mohalla!Ghafoor!
18/C Tukra

Chak!66!Dhandhara!

Chak 120 9/L Arzanipur

Kamhair Abadi Mastay Kay
Muhammad
Din

3 Economic and Sector Context in Punjab

In this section, the status of access to energy in Punjab is analyzed. It starts by looking into the
socioeconomic characteristics of the province in comparison with the country as a whole as well
as its provincial counterparts. This is followed by an analysis of the supply of and demand for
energy in the country and specifically in Punjab, highlighting the level of energy infrastructure
and the consumption pattern of households with regard to energy. The results of the field survey
assessment are also presented to analyze nuances in off-grid areas.

3
3.1 Socioeconomic characteristics of Punjab
Based on latest government estimates, there are 98.3 million people in Punjab, approximately
55.6% of the total country’s population5. While Punjab has 68% of its people residing in rural
areas6, the population remains relatively better-off when compared with other provinces’ income
distribution. Nevertheless, poverty is still an important challenge in rural areas of Punjab.

Over 65% of the rural population in Punjab spend less than $1 a day7, whereas 23.5% of rural
Punjab survives with just US$0.5 per day or less, way below the World Bank’s $1.25 a day
poverty line.

Table 2: Monthly income/consumption per capita in 2012

Pakistan Expenditure Quintiles Q1 Q2 Q3 Q4 Q5

1,553 2,487 3,149 4,999

Average per capita monthly expenditure
Up to 1,552 to to to and
(PKR)
2,486 3,148 4,998 above

Punjab’s urban population (%) 9.0 13.1 17.4 21.9 38.6

Punjab’s rural population (%) 23.5 21.5 20.1 20.2 14.7

Average per capita monthly income (PKR) 1,630.76 2,272.30 2,943.57 4,115.94 9,061.78

Source: Pakistan Bureau of Statistics. 2013. Pakistan Household Integrated Economic Survey 2011-2012.

The primary sector, including livestock, agriculture, forestry, and river fishery industry is the
predominant employer in Punjab, engaging roughly 45% of the labor force (from 10 years old
and above). This is followed by manufacturing (15%), and wholesale and retail (14%). The rest
are scattered in other industries such as construction, utilities, transportation, and public
administration. In rural Punjab, reliance on agriculture sector is all the more prominent, with 85%
of the female population depending on it—significantly more than the 48% of males.

3.2 Energy Sector characteristics

The major sources that account for Pakistan’s energy mix are coal, electricity, oil, and gas. Over
the years, reliance on gas has increased on account of the large reserves of natural gas in the
country and the rising oil prices in international markets.

Power generation is the responsibility of state-owned players such as the Water and Power
Development Authority (WAPDA) and generation companies (GENCOs), as well as privately-
ran independent power producers (IPPs). All are operating within the system under the Pakistan
Electric Power Company (PEPCO).

5
Authors’ calculations based on the Punjab Development Statistics 2013. Bureau of Statistics, Government of
Punjab. Lahore, Pakistan.
6
Ibid.
7
Using foreign exchange rate of $1 = PKR102.75, as of 19 October 2014. http://forex.asiandevbank.org/fx_rate/

4
The generated energy is transmitted through the National Transmission Distribution Company
(NTDC), which is then dispatched to different distribution companies (DISCOs). NTDC is the
state-owned power utility, while the DISCOs have been privatized although with a large
participation by the government. Figure 3 beside shows the current structure of the power
sector in Pakistan.

Figure 2: Power Sector Structure in Pakistan

Source: The Lahore Chamber of Commerce and Industry. 2013. State of electricity sector in Pakistan.!
http://www.lcci.com.pk/rnd_reports/Electricty%20Report;;;LCCI.pdf!
!
The main challenges for the power sector, as defined by the National Power Policy of 2013 are
related to the massive supply-demand unbalance of 5 GW that generates 12-16 hours of load
shedding. Furthermore, the high level of technical losses of about 23-25% enlarges the supply-
demand gap.

Another important challenge is the high dependence on thermal generation and fossil fuels that
account for almost half of total generation. This high dependence on oil-derived fuels, heavy fuel
oil and diesel oil, causes that the cost of generation averages PKR 12 per kWh, or up to PKR 15
per kWh when including technical losses, and higher if accounting for commercial losses.

Furthermore, electricity tariffs are subsidized by the government to make them affordable to all
consumers, albeit do not recover costs of generation, transmission and distribution. This creates
a budget gap that curtails public investment in primary infrastructures, essential for the
economic development of the country. In 2013, electricity tariff subsidies reached US$ 3.5
billion.

5
3.3 Access to Electricity in Punjab
Throughout Pakistan, approximately 21.8 million industrial, commercial and domestic
consumers are connected to the national grid through Pakistan Electric Power Company’s
(PEPCO) and various Distribution Companies (DISCOs).8 The electrification ratio in Pakistan is
approximately 71%, with 90% connections in urban areas, and 60% in rural areas. In Punjab,
electricity access is higher with almost full electrification in cities, and around 80% in rural areas.

Five DISCOs serve over 16.5 million consumers in Punjab, as shown in the table below:

Table 3: Number of Consumers, by Distribution Company

Distribution Companies Number of Consumers Percentage

MEPCO (Multan) 4,674,095 28%
FESCO (Faisalabad) 3,214,273 19%
LESCO (Lahore) 3,579,178 22%
GEPCO (Gujranwala) 2,734,552 17%
IESCO (Islamabad) 2,306,551 14%
Total Consumers in Punjab 16,508,649 100%

While Punjab is relatively well connected to the grid, there are still 621 un-electrified villages in
the province, out of the 20,920 un-electrified villages in the entire country (Table 4). Most of the
un-electrified villages are located in the province of Sindh, where 16,198 villages are un-
electrified. The province of Baluchistan is also relatively underdeveloped in this regard as 3,496
villages of this province are yet to be electrified.

Table 4: Access to energy-related infrastructure, by Province

Punjab Sindh KPK Balochistan

/1
Unelectrified villages by March 2012 621 16,198 605 3,496
/2
Availability of cylinder gas in village (%) 68.8 25.0 87.5 n/a
/2
Availability of Sui gas in village (%) 10.4 10.0 12.5 n/a
Sources:
1/ Interview with PEPCO’s Chief Engineer of Rural Electrification
2/ Nazli, Hina and Syed Hamza Haider. 2012. Pakistan Rural Household Panel Survey 2012 (Round 1): Methodology
and Community Characteristics. International Food Policy Research Institute. November 2012.
!
!
The main factor affecting rural electrification is the increasingly higher distribution costs, and the
shortages of power generation and associated brown-outs and load shedding. Also, given the
very limited consumption in rural areas, distribution companies are reluctant to expand their
grids into rural areas, considered uneconomical, where revenues from tariffs would never be
able to provide sufficient returns to recover the investment.

8
National Electricity and Power Regulation Authority. 2013. State of Industry Report 2013. Islamabad: National
Electric Power Regulatory Authority

6
3.4 Energy demand
In the past 5 years, demand has increased rapidly due to the increasing use of air conditioning
systems in urban areas. Particularly during the summer months, when temperatures are higher
reaching 35 degrees Celsius, electricity demand Punjab averages around 2 to 3 GW higher than
the available power supply; that is, over 30% of the total installed capacity. This situation results
in massive load shedding of 12 to 18 hours a day. Thus, the only solution for industrial,
commercial and even residential consumers is to install a diesel generator back up that
increases substantially the cost of electricity in Pakistani cities.

More than 60% of the total electricity consumption in Pakistan is consumed by Punjab province,
due to its larger size and developed industrial sector. A large bulk of this consumption comes
from household demand or domestic use, mostly in cities, followed by commercial use (Figure
5). It is also important to remark the high level of losses of around 21% of energy supply in the
years 2007 to 20129 that adds challenges to reduce load shedding.

While households in aggregate account for the bulk of electricity demand, disparity in the micro-
level mirrors the earlier cited gaps in electrification. Looking at the distribution of fuel and lighting
expenditures, urban Punjab relies mostly on electricity and gas, with other energy sources
contributing less than 5% of average household fuel and lighting expenditures. Meanwhile, rural
Punjab has a more diverse mix of energy sources that include electricity, firewood, agriculture
wastes, and dung cakes.

Figure 3: Percentage of Punjab’s Electricity Consumption in 2012, by Sector

Agricultural,!!
1.3!! Public!
Industrial,!!1.4!! LighHng,!!0.0!!
Commercial,!!
11.6!!
Others!*,!!0.0!!

Domes'c,!!
85.6!!

!
Note: It includes electricity supplied under Bulk supply, Traction & Tariff `H', and revenue assessed
under these categories as well as Services and Meter Rental Charges.
Source: Authors’ calculations based on Punjab Development Statistics 2013
!
!
!

9
Government of Pakistan. Pakistan Economic Survey 2012–2013.

7
3.5 Energy Supply
The major sources of electricity come from thermal (oil and gas), hydro, and nuclear, and they
account for 67%, 29.7%, and 3.3% of the installed capacity under the PEPCO system
respectively10. The Ministry of Finance points to a critical issue in the system, as plant factor is
only about 50% of the installed capacity due to inefficient generation system, and inappropriate
fuel mix11.

Power generation in Punjab is divided in 70% thermal, which use heavy fuel oil, diesel oil or
natural gas. Hydropower plants, generate approximately 20% of electricity produced in Punjab,
while the Chashma nuclear plant generate the remaining 9%. Table 5 below shows the installed
generation capacity and electricity generated in 2012/13.

Table 5: Generation of Electricity in Punjab, by source

Source of Generation Electricity Generated in

Percentage (%)
Energy Capacity (MW) FY 2012-13 (GWh)
Hydro 1,794 8,552 21%
Thermal 7,560 28,477 70%
Nuclear 650 3,640 9%
Total 10,004 40,669 100%
Source: Authors’ calculations
!

3.6 Current expenditures in Energy Sources

Part of the disparity between urban and rural energy consumption is explained by the access to
grid electricity. Most of Punjab’s villages are connected to the grid through local distribution
companies. However, many households still lack a reliable electricity supply and are forced to
use kerosene for lighting at a cost of $5 to 8 per month. In cooking, firewood, agriculture waste
and dung cakes are widely used. While these are low-cost fuels that help reduce household
expenditures, their intangible costs are high on women and children, due to the negative impact
on health. Women and children are often the ones who spend time collecting these fuels,
around 6 hours in a day that could have been spent productively12. Furthermore, smoke and
fumes from these fuel resources increase CO2 emissions and pose risks to health such as
pulmonary diseases, respiratory infections, and asthma.13.

10
Data as of June 2013, as reported in the Pakistan Economic Survey 2013–2014. Ministry of Finance. Government
of Pakistan. http://finance.gov.pk/survey_1314.html
11
Ibid.
12
Inayatullah Jan. 2011. What makes people adopt cookstoves? Empirical evidence from rural northwest Pakistan.
Working Paper Series No. 12. The Governance of Clean Development. https://www.uea.ac.uk/devresearch/research-
themes/the-governance-of-clean-development
13
World Health Organization. 2006. Fuel for life: household energy and health. World Health Organization. Geneva :
Switzerland.

8
 Table 6: Average Monthly Fuel and Lighting Expenditure in Rural Punjab, by income level

RURAL PUNJAB Q1 Q2 Q3 Q4 Q5 TOTAL

Total average monthly expenditure
18,553 11,996 15,346 17,507 20,430 26,546
per household (PKR)
Average monthly expenditure per
1,132.3 1,521.7 1,730.4 1,958.7 2,331.8 1,751.1
household in fuel and lighting (PKR)
% of total expenditure for
9.4 9.4 9.9 9.9 9.6 8.8
fuel and lighting
Of which:
Fire wood 17.0 21.5 24.1 23.6 16.7 20.6
Kerosene Oil 1.8 0.8 0.5 0.4 0.3 0.6
Dung cakes 12.5 12.1 11.4 9.0 6.2 9.7
Gas (piped / cylinder) 1.4 3.5 4.5 8.2 15.9 8.0
Electricity 36.2 40.3 42.0 45.2 50.5 44.1
Matches, candles, etc. 2.1 1.5 1.3 1.2 1.0 1.3
Agricultural biomass waste 27.8 19.3 15.1 11.1 8.2 14.5
Electrical bulbs, plugs, etc. 1.1 1.1 1.2 1.3 1.3 1.2
Source: Pakistan Household Income and Expenditure Survey, 2011-2012

Another challenge relates to the lack of alternative energy sources (apart from diesel) for
income-generating activities in rural areas. Predominantly agricultural activities, such as
operation of chaff cutters or irrigation pumps, require expensive diesel fuel at PKR 114 per liter
or US$1.1, which reduce operating margins substantially.

On average, an average rural household would allot less at PKR 1,751, but this amount
accounts for about 8.8% of total expenditures. Generally, current expenditures show the
affordability of communities, which usually determines the threshold for the tariff to be charged
for electricity supply. However, the use of electricity for income-generating activities is rarely
include in these statistics, and therefore these data are not representative to estimate the
willingness to pay for electricity, which could be used for productive uses.

To address this concern, field assessments of nine villages in the Punjab province have been
carried out. Table 7 shows the socio-economic characteristics of these villages and the level of
their access to energy. Detailed discussions on the profile of these villages are found in
Appendix 1. Some of them have expressed the willingness to pay extra for the convenience of
electricity, and these are areas wherein people have stable sources of income through
productive uses of electricity. Such examples are Mastay Kay in Kasur and 18/C Tukra in
Sahiwal that could use electrical chaff cutters. Conversely, residents that have less stable
income are hesitant to pay for more than what they are spending for current fuel and lighting
expenditures.

9
 Table&7:&Characteristics&of&Selected&Off5grid&Villages&&
&
Village Estimated Distance to Level of access to energy Issues Willingness to
(District) Population grid pay
Chak 66 2,000 < 500 m 10-12 houses electrified through Settlers are landless poor that are (unspecified)
Dhandhara people personal cables connected to at risk of relocation, making it
(Faisalabad) (250 houses) nearby electrified locality infeasible to put up infrastructure
Makeshift poles erected to support
the lines
Abadi Jamil 300 people < 200 m 5-6 houses electrified through An operational railway track keeps (unspecified)
Town Mohalla (50 houses) personal cables connected to them from connecting to the grid
Ghafoor nearby electrified locality as the 11 Kv high-tension wire
(Chiniot) cannot be laid across
Bamboo poles erected to support
the lines
Arzanipur Abadi 350 people < 500 m Most are electrified using personal Not connected to the grid even (unspecified)
Muhammad Din (50-60 cables connected to nearby while close to the electric feeder.
(Kasur) houses) electrified locality
Use of solar power not readily
Bamboo poles erected to support accepted as residents won’t be
the lines able to use some appliances,
reducing their quality of life.
Kot Miana Azafi (19 houses) < 500 m 19 houses remain un-electrified; but Due for connection to the grid Willing to pay PKR
Abadi a public primary school nearby is through a few electric poles and 500-1,000 per
(Chiniot) electrified high-tension wires month, subject to
agreement of
whole village
Chak 120 9/L (32-40 > 2 km Use of kerosene oil for lighting at Scattered settlement, discouraging Estimated
Kamhair houses) night distribution companies from expenditure of
(Sahiwal) installing infrastructure due to high PKR 500 per
Batteries charged in a nearby
costs month
locality
18/C Tukra (20-30 2-3 km Use fuel for lanterns and lamps Scattered settlement, discouraging Willing to pay PKR
(Sahiwal) houses) distribution companies from 500-1,000 per
Use diesel for equipment such as
installing infrastructure due to high month
chaff cutters and generation sets
costs
for a few hours of household
lighting

10
Village Estimated Distance to Level of access to energy Issues Willingness to
(District) Population grid pay
Mastay Kay 700 people > 2 km 20 houses electrified through solar No public transportation available (unspecified)
(Kasur) (60 houses) across a river home solutions provided by private
Inaccessible by any road network
supplier
No need for mobile phone charging
as network signal is absent
Thatha Dewka 250 people 700 m Some informal connections to Flood-prone area Willing to pay a
(Chiniot) (40 houses) nearby village tariff of PKR 1,000
Not connected to the grid but they
per month for
Use of kerosene lamps and dry-cell are willing to pay for solar
lights and fans in
battery torches for lighting solutions for lighting and
their house.
household appliance use, as well
Generator sets are rented from a
as for their livelihood equipment. Also willing to pay
nearby city when needed like in
additional PKR
marriage celebrations
1,500 to 2,000 per
Use of diesel to power chaff cutters month for their
and ground water pumps equipment
Verha Muslim 280 people > 2 km Use kerosene lamps for and Landless poor who have unstable Not more than
Sheikh Sloolky (40 houses) candles. source of income by tilling the land PKR 500 per
(Chiniot) of farmers nearby. month, which is
Mobile phones are charged at
the maximum fuel
nearby locality.
and lighting
Utilize hand pumps to acquire water expenditure
from the ground.
Use of manual chaff-cutters for
livestock.

!
Source: Survey of Field Assessment conducted by ADB team
!

11
4 The Energy Sector’s Regulatory Framework
The power sector is a vital component of the economy, as it serves as an essential input for the
production of industries and households alike. Episodes of power crises have held back the
country’s economic progress, and so the sector has undergone restructuring to help increase
power infrastructure, improve the sector’s efficiency and resource mobilization, and widen its
consumer reach. Still, an energy crisis is witnessed at present, with supply failing to meet the
demand of its consumers. The gap has been estimated to reach 4,500–5,500 MW, leading to
load-shedding of 12–16 hours across the country14. To address this crisis, the Government of
Pakistan’s Ministry of Water and Power has developed the “National Power Policy 2013”, which
embodies the strategy of the government to support the current and future energy needs of the
country, by focusing on efficiency, competition, and sustainability. The policy outlines incentives
to attract more private investments and infrastructure development, and schemes that will allow
public-private partnership. Moreover, it pursues the diversification of the energy mix, and the
role of renewable energy is gaining significance in achieving sustainability and energy security.

Introduced in 2006, the objective laid down by the Policy for Development of Renewable Energy
for Power Generation is that renewable energies provide 10% of Pakistan’s energy supply mix
by 2015, by focusing on solar energy, wind energy and mini-hydropower plants. To achieve this
objective, the Alternative Energy Development Board (AEDB) was established as the lead
implementing agency to facilitate and promote projects on a national level.

Provinces play a role in carrying out the national strategy, either through cooperation with the
respective national agencies or through their own initiatives. They are given full authority to
develop power projects of any capacity through public or private sector, and to establish
required regulatory framework15. In the province of Punjab, the Punjab Power Development
Board (PPDB) is an autonomous entity under the Energy Department of the Government of the
Punjab with mandate to provide "One Window Facilitator" to promote and encourage private
sector participation in the power sector.

Specifically for renewable energy, the Government of Punjab has developed its own framework
—in 2006 and later a new one in 2012— laying out financial and fiscal incentives to promote
investments in the following renewable energy technologies: solar PV, solar thermal; urban,
municipal and industrial wastes; biogas digestion; gasification; wind; and new sources like fuel
cells/hydrogen/biofuels16 (see Box A).

14
Government of Pakistan. National Power Policy 2013.
http://www.ppib.gov.pk/National%20Power%20Policy%202013.pdf
15
As accorded to them by the 2002 Power Generation Policy. Government of Pakistan.
16
As defined in paragraph 2.1 of the New and Renewable Sources of Energy Policy – 2012, Government of Punjab.
26 December 2012.

12
 BOX$A:$Investment$incentives$offered$to$renewable$energy$technologies$in$Punjab$
!
Under the New and Renewable Sources of Energy Policy 2012, the Punjab State Government
provides fiscal and technical assistance for eligible power producers that use New and
Renewable Sources of Energy (NRSE).

Eligible power producers are entities that will generate electricity from small hydro projects up
to 25 MW; biomass combustion and gasification; biomass and bagasse co-generation process,
Solar PV and thermal; urban, municipal and industrial waste; wind generation; biogas
digestion; biomass gasification; biofuels, and fuel cells.

Salient support coming from the State is infrastructure and fiscal incentives. For the
infrastructure, the support includes grid interfacing, power wheeling, and participation of the
producer in the inter/intra-state open access. Fiscal incentives are in the form of exemptions
on importation taxes (recently abolished), value-added tax, registration fees, stamp duties, etc.
There are also exemptions on licenses required, such as pollution control clearance for solar
PV projects. And depending on the State’s industrial policy, NRSE projects can also qualify for
other incentives that industrial projects enjoy.

Source: Annexure III of the New and Renewable Sources of Energy Policy – 2012, Government of Punjab. 26
December 2012.

There are challenges in rural electrification, especially in connecting isolated villages to the
national power grid. Off-grid power systems provide a good, but temporary solution, with
provinces being responsible for adapting regulations and procedural arrangements to their
needs, provided they follow the guidelines under the 2006 Policy for Development of Renewable
Energy for Power Generation17. In the NRSE Policy 2012 of the Government of Punjab, the
Punjab Government has given emphasis on decentralized and off-grid solar applications to
include home lighting, police stations communication and lighting, small powered looms, solar
inverters, solar PV pumps, powering computers in schools, small milk chilling plants,
refrigeration for medicine in primary health centers, and hybrid systems for powering telecom
towers.

These supportive measures have already resulted in some accomplishments (see Box B).
Already, this indicates the potential in developing renewable energy technologies in Punjab. The
challenge now is to make this potential a reality, giving a focused view to increasing energy
access of Pakistan’s rural poor.

17
Annexure B of the 2006 Policy for Development of Renewable Energy for Power Generation provides the general
guidelines in the development of small off-grid renewable energy projects.

13
 BOX$B:$Recent$developments$in$support$of$renewable$energy$investments$
!
In pursuing energy security and sustainable development, the Government of Pakistan through the
Alternative Energy Development Board (AEDB) has undertaken the following initiatives to attract
private sector investments in renewable energy generation.

• Identification of new corridors for wind and solar energy projects development. Resource
assessment of these corridors is underway.
• National Grid Code for wind power projects has been amended. Grid Integration Plan 2010 -
2015 for wind power projects has been developed by AEDB to support NTDC.
• Local manufacturing of micro wind turbine has been started. Manufacturing for large wind
turbines is also being encouraged.
• Issues related to financing of projects have been resolved and now leading financing agencies
like International Finance Corporation (IFC), Asian Development Bank (ADB), Overseas
Private Investment Corporation (OPIC), Economic Cooperation Organization (ECO), and
Trade Bank are offering financing to wind power projects in Pakistan.

The following are project developments benefitting the Punjab province:

• AEDB issued duty exemption certificates for a large number of solar panels / solar modules to
private sector companies for installation / generation of almost 64.57 megawatts (MW) of
energy in the country. These solar panels / solar modules are deployed all over the country.
• AEDB issued tax exemption certificate for import of almost 16715 units of Solar Water Heaters
in the country. These heaters are deployed all over the country especially in Baluchistan,
Gilgit-Baltistan, Khyber Pakhtunkhwa and Northern Punjab.
• In view of the approval of the framework for power co-generation for bagasse/biomass based
sugar industry projects, letters of intent (LOIs) have been issued to following investors / sugar
mills:
o M/s JDW Sugar Mills Unit-II (26 MW), Rahim Yar Khan
o M/s RYK Sugar Mills Ltd., (19 MW) Rahim Yar Khan
o M/s Chiniot Power Plant, (15 MW), Chiniot
• Eight hydro projects have been initiated under the Renewable Energy Development Sector
Investment Program (REDSIP) with the support of ADB. These projects are being
implemented in Khyber Pakhtunkhwa and Punjab with an estimated cost of US $ 290 Million.
• The Government of Punjab issued LOIs to private investors for establishment of 10 small
hydro projects with a cumulative capacity of 142 MW at different locations.
• AEDB is building capacities for private sector investment in Punjab for 30 projects of
cumulative 240 MW capacity through Punjab Power Development Board (PPDB).
• AEDB initiated a program with the assistance of GIZ support to assist the provinces solicit
private investments in small hydro sector; under this program Pre-Feasibility Studies for 25
hydro sites in AJK, Sindh, Punjab and Khyber Pakhtunkhwa with the cumulative capacity of
284.14 MW have been completed.
• Public sector Hydro power projects initiated in Punjab worth $138.74 Million, generating
5.38MW, 4.04MW, 2.82MW, 4.16MW and 7.64MW, respectively.

Source:(Pakistan(Economic(Survey(2013–2014.(Ministry(of(Finance.(Government(of(Pakistan.(Available(at(
http://finance.gov.pk/survey_1314.html(

14
5 Increased energy access through clean technologies
The province of Punjab is blessed with large renewable energy resources, such as good solar
insolation, hydropower resources in the Northern areas, a large livestock population that
generate biomass, and strong winds in certain areas of the country. Many of these technologies
are suitable for off-grid electrification, and therefore the resource assessment of Punjab
concludes that the province has a great renewable energy potential for energy access
applications.

5.1 PV Solar
Solar insolation in Punjab ranges from 5.0 to 6.0 kWh/m2 day. There is good potential for the
use of PV solar generation for both individual household systems as well as micro- and mini-
grids. Albeit many villages are connected to the power grid, the massive load shedding and low
voltage at network boundaries make the consumers in those villages effectively unelectrified.

Therefore, PV solar panels are arguably the easiest generation technology to apply in off-grid
areas of Punjab for rural electrification, both in areas not yet connected (as the ones shown in
detail in this report) as well as others that are connected but receive power supply for a few
hours a day.

It has been identified a growing private sector in solar technologies, including traders of solar
components, such as panels, batteries, charge controllers, and the such, as well as companies
with technical capacity to install larger systems, of 30-50 kW. Moreover, some companies are
actually building large PV solar farms of over 10 MW that would be grid connected. Therefore,
local technical capacity in Punjab is not a challenge for the development of solar-powered mini-
grid systems.

PV Solar-powered Water Pumping

Water pumping is essential for farmers during the dry season, and therefore a major expense
for farmers during the dry season is electricity (when grid is available) or diesel oil in off-grid
areas.

According to the Punjab Development Statistics of 2012 compiled by Punjab Government’s

Bureau of Statistics, there are over 800,000 diesel pumps installed across the province of
Punjab. With a fuel consumption of around 3 to 5 liters per hour, the average daily expense per
pump is approximately PKR 700 per day ($7/day) in fuel costs every day. These high fuel costs
are not fully transferred to the end consumer, due to commodity market prices, but instead
absorbed by the farmers, reducing their profit margin substantially.

Solar water pumping is a modern technology that, after a higher initial investment if compared
with diesel pumps, makes pumping affordable due to reduced operating costs in the longer
term. Some estimations show that the initial investment on solar-powered pumping systems
have a payback period of about 2 to 3 years due to its substantial reduction in operating costs.

15
Solar Water Pumps provide a good solution for elevated farmlands that cannot otherwise be
irrigated through gravity with over ground water. The On Farm Water Management Section of
the Agriculture Department of the Government of Punjab was the first to explore the potential of
Solar Water Pumping for agricultural use. They initiated pilot systems to raise awareness
among farmers about the technology, and a few private suppliers have started to import this
technology to Pakistan, albeit still at a very small scale.

This technology should be promoted and the government in collaboration with donors could
support it due to large economic benefits for farmers, as well as for the positive environmental
effects of CO2 emission reduction.

5.2 Biogas digestion

Figure 4: Buffalo concentration in Punjab in 2006

According to official statistics collected in 2006,

there are more than 32 million cattle heads and
buffaloes in the province of Punjab,18 and the
theoretical potential for biogas-fired power
stations could reach up to 230 MW, if the whole
cattle manure were utilized. In reality, the actual
production would certainly be much lower, but it
would still make sense in medium-scale plants.
The Energy Department of Punjab
commissioned a feasibility study of a 200 kW
biogas-fired power plant in Kasur district,
although the project was not pursued forward.
Figure 8 shows the map of Punjab with the
different concentration of buffaloes, based on
the Livestock census of 2006. The highest
concentrations of buffaloes in the province are in
the so-called ‘dairy districts’ of Kasur, Chiniot,
Faisalabad, and Jhang. Source: Government of Punjab. (2006). Livestock Census

Biogas for domestic use

The Government of Pakistan started exploring biogas digestion technology back in 1974. About
1,700 household biogas plants were installed in remote areas in the country in the 90’s, catering
to the cooking requirements of villagers19.

The Pakistan Domestic Biogas Programme, funded by the Government of the Netherlands and
implemented by the Rural Support Programme Network (RSPN), built around 5,000 biogas
digesters (as of August 2014), trained 450 masons in the construction of these plants, and
helped establish 50 private biodigester construction companies in 12 districts of central

18
Bureau of Statistics. (2013). Punjab Development Statistics. Lahore: Government of the Punjab.
19
Khalil, Muhammad Shahid. Renewable Energy in Pakistan: Status and Trends.

16
Punjab.20 The biodigesters generated biogas for cooking purposes, which substituted the use of
firewood, charcoal or dung, with an important impact on the health of the householders. Also,
the program has recently started building 50-100 m3 units for power generation. The program is
working on microfinancing schemes to support rural households in purchasing biogas plants, as
well as providing training and technical assistance to local companies. The program aims at
developing the sector by establishing a framework of private sector companies, which will make
it sustainable after the program is closed.

A community-based model can also be adopted, similar to the project that ADB has financed in
cooperation with the provincial government of Punjab21. A total of 2,517 biogas plants were built,
which, at an estimated PKR 10,500 per plant, paved the way to save estimated $0.33 million per
year on alternate fuel. Moreover, this project freed women and children from the hazards of fuel
wood and cow dung smoke, and from the costs of putting in time and effort to collect these
resources.

Biogas for commercial use

The Government of Punjab is also planning a biogas-fired power plant near Harbanspura,
Lahore. This power plant would be set up in coordination with the Lahore Waste Management
Company that would provide organic waste (mostly buffalo and cattle manure) to the digesters.

The Energy Department of the Government of Punjab, supported by the Gesellschaft für
Internationale Zusammenarbeit (GIZ) Renewable Energy & Energy Efficiency Project,
developed a feasibility study for a 200 kW biogas-digester and power plant at the Buffalo
Research Institute (BRI) in Pattoki, Kasur District.22 The system however would not be able to
fully meet BRI’s current electricity demand, although up to 400 MWh per year would be
generated, with the associated savings in diesel oil consumption, and would not be further
pursued as of now.

Medium scale biogas digesters could be supported by the Energy for All program as a
demonstrative technology for industries or farming communities that would generate electricity
for own consumption, particularly in off-grid areas.

5.3 Biomass
The gasification of biomass is yet to be introduced to Pakistan, so almost all of biomass
collected is incinerated in boilers to generate steam for power generation.

The highest utilization of biomass is done by the sugar sector as every single sugar mill has a
bagasse boiler for electricity production. Some modern sugar mills incorporate highly

20
Rural Support Programmes Network. (2014). Pakistan Domestic Biogas Programme. Available at
http://www.rspn.org/index.php/projects/current/pdbp-2/
21
Asian Development Bank. 2014. "Biogas Brings a Better Life to Pakistan's Rural Women." 23 May 2014
http://www.adb.org/features/biogas-brings-better-life-pakistans-rural-women
22
Energy Department. Government of Punjab. (2013). Techno-Economic Feasibility Study for biogas System
Application using Cattle Farm Waste. Available at http://energy.punjab.gov.pk/downloads/Revised%20Techno-
economic%20Feasibility%20Study_Punjab_08%2002%202013%20.pdf

17
pressurized boilers to increase the steam generation and subsequent electricity production. One
example of this intervention is Al-Moiz Sugar Mills that has a generation capacity of 27 MW.

Recently, the Economic Coordination Committee of the Cabinet (ECC) approved the
‘Framework for Power Co-generation’ for bagasse and biomass-based sugar industry projects.
Under this framework, 1,500 to 2,000 MW is forecasted to be generated in the short term (2016
to 2018), and thus letters of intent (LOIs) have been issued to a number of Chiniot23.

For small scale below 1 MW, biomass gasification by using rice-husk or other agricultural or
forestry waste is an interesting application of renewable energy technologies for off-grid
electrification. ADB’s Energy for All would be interested in supporting demonstrative projects of
biomass gasification for power generation, given good results achieved by similar projects in
India and Cambodia, among other countries.

5.4 Mini-Hydro
More than 20% of electricity produced in Punjab is from hydro power stations, and there is still
large untapped potential in the province. The irrigation system of Pakistan is the world’s largest
contiguous irrigation system and there are many irrigation dams that could allow distributed
power generation by installing small hydropower stations.

The Energy Department of the Government of Punjab has compiled a list of 55 potential sites on
Punjab’s canals for small hydro stations. These potential sites offer 1.14 to 5.63 meter high falls
in canals, with electricity generation potential ranging from 11 to 1.19 MW.

Meanwhile, there have been recent developments in the province worth noting. The
Government of Punjab has issued LOIs to private investors for the establishment of 10 small
hydro projects with a cumulative capacity of 142 MW at different locations. The public sector
has also initiated hydro power projects worth $138.74 million with a generation capacity of
5.38MW, 4.04MW, 2.82MW, 4.16MW and 7.64MW, respectively24.

The AEDB is also building capacity for private sector investment in Punjab for 30 projects of
cumulative 240 MW capacity through the PPDB. It also initiated a program with the assistance
of GIZ to assist provinces in facilitating private investments in the small hydro sector, resulting in
the completion of pre-feasibility studies for 25 hydro sites in Azad Jammu & Kashmir, Sindh,
Punjab, and Khyber Pakhtunkhwa (KPK) with the cumulative capacity of 284.14 MW.
Furthermore, 8 hydro projects in KPK and Punjab with an estimated cost of $290 million have
been initiated with the support of ADB25.

Therefore, there is large potential for the use of mini-hydro plants along the irrigation canals to
generate electricity to supply neighboring communities or to help reduce the load shedding in
the national grid. The hydropower technology to be used must be adapted to the low heads of

23
Alternative Energy Development Board. Government of Pakistan (2013). Framework for Power Cogeneration 2013
Bagasse and Biomass. Available at http://www.aedb.org/frameworkbagase.htm
24
Pakistan Economic Survey 2013–2014. Ministry of Finance. Government of Pakistan. Available at
http://finance.gov.pk/survey_1314.html
25
Ibid.

18
the sites identified, as most are located along irrigation canals. Furthermore, a World Bank’s
study concluded that most of the hydropower projects in irrigation canals studied in India,
particularly those with longer flow periods (9-10 months) are profit-making ventures for the
private investors. Underperforming projects were due to inadequate engineering design and
poor construction standards.26

5.5 Wind
There is no doubt that certain areas of Pakistan, such as the Gharo Corridor in Sindh, have
great potential for wind power development. Recent wind maps developed by the Alternative
Energy Development Board (AEDB) have attracted the attention of private project developers to
invest in wind farms for power generation.

However, the wind farms being planned are large-scale grid connected, using large wind
turbines of over 500 kW each. Regarding small-scale wind-powered technologies, there is still a
gap to be filled; but the limited wind resources in most of Punjab province, as well as inefficient
wind technologies for small scale systems, make difficult the promotion and investment in wind
turbines for small-scale off-grid systems.

6 On-grid distributed generation

Pakistan is currently in an energy crisis, with a load 5 GW higher than its generation capacity;
i.e. a shortage of approximately 30% of the electricity demand. These generation shortages
have a number of negative effects: (i) large load shedding in main population centers of 12-15
hours, and even longer in rural areas located at the boundaries of the grid; (ii) instability and
system losses of about 20%; and (iii) large voltage drops in boundary areas of the grid (<180V),
effectively no power supply.

In order to improve the situation, consumers choose to install their own generation, mostly
diesel gen-sets, at a huge operating cost that reduces their margins, and jeopardizing economic
growth and development. Rural communities are the most affected due to the barely inexistent
electricity supply, and the increased fuel costs vis-à-vis urban areas.

6.1 Distributed generation as solution for the energy crisis

A potential solution, and that can be implemented in the short term, is distributed generation.
The difference of the distributed generation as compared with the traditional large-scale
generation is that generation facilities can be (i) installed in the boundaries of the grid; (ii)

26
World Bank/ESMAP. (2010). Retrospective Review of ESMAP Technical Assistance to Support Development of
Mini-Hydro Facilities on Irrigation Dams and Canal Drops in India. Available at
https://www.esmap.org/sites/esmap.org/files/Rpt_REMTI_MINI_HYDRO_KER_FINAL_27_DEC_Clean.pdf

19
connected to either MV or LV lines; (iii) executed in less than year; and (iv) invested by local
communities and private companies.

This generation would be similar to small pumps along a water supply network to keep the
pressure and flow stable, and the benefits are clear: Distributed generation would (i) reduce
load shedding, particularly around the generation facility; (ii) increase grid stability; (iii) reduce
losses; and (iv) increase the overall electricity supply, particularly in rural areas. Furthermore,
renewable energy technologies are very well adapted to this type of small- and medium-scale
generation, such as solar PV, biogas, biomass, microhydro, etc.

Figure 3: Distributed Generation

System'Load:'18'GW' 5"GW"Shortage"

Substation
Large3Scale'
Genera7on:' HV
13'GW'

MV

LV MV lines:
>30 km
Urban or
Industrial Load

Distributed"
Genera4on"

Rural Load
(Grid boundaries)

Source: Authors’ adaption

6.2 Delivery models for distributed generation

There several delivery models adequate for distributed generation. This report analyses three
common types, which can be easily implemented in the Pakistan environment. Also, the report
looks at the advantages and disadvantages for incumbent power suppliers –the distribution
companies (DISCOs)– in the case that distributed generation were implemented.

DISCO buys from a Very Small Power Producer

Similarly with other generation plants, the DISCO would enter into a bilateral Power Purchase
Agreement (PPA) with a VSPP. The users would still be paying the bills to the DISCO as usual,

20
but the DISCO would sell more electricity to the consumers of that particular area due to the
reduced load shedding and losses.
Figure 4: DISCO buys from VSPP
Thus, DISCOs would have higher revenues due to Only%Genera8on%
increase supply availability. The network would be more
stable and with reduced losses and voltage drop, and the VSPP% User%
operation would be very simple, with the DISCOs paying
just for the electricity purchased from the VSPP at an Bill%
approved tariff by NEPRA. PPA% payments%
Potential challenges could be that the VSPP tariff was
above the customer tariff, which would require subsidies DISCO%
(cross-tariff or government) and would increase payables
as collections could be below payments to the VSPP.

DISCO leases its network to a Rural Electricity Supplier

In this model, a Rural Electricity Supplier (RES) would obtain a license from NEPRA to generate
and supply electricity to a particular area at a regulated tariff. The RES would only own the
generation facility while lease the distribution network from the DISCO, and paying either a
monthly lease or wheeling charges.
Figure 5: DISCO leases network to RES
The advantages for the DISCO are (i) risk-free revenues Genera<on&&&
from the lease/wheeling charges contract; (ii) lower Distribu<on&
Bill&
costs, as billing, payment collection, and operation and payments&
maintenance ()&M) costs are carried out by the RES; RPS& User&
and (iii) reduced system technical losses due to lower
voltage drops and increased stability.

There are however some challenges, as the DISCO Wheeling&

needs to ensure that the distribution facilities are not charges&or&
damaged by the RES, as well as monitor closely the lease& DISCO&
contract to ensure equity.

DISCO sells to/buys from users

A third model would be that the DISCO sells to and buys electricity from users that have their
own generation (or outsource it to a private supplier through a Joint Venture or similar). The
user will sign a Net Metering System contract with the DISCO at the regular tariff, and purchase
electricity from the DISCO only when its own generation is not available (night time for solar
generation).

21
 Figure 6: DISCO sells to/buys from users
The DISCO would experience lower load shedding, as Community%
Only%Genera2on%
the user’s or VSPP’s generation is integrated into the Power%
grid, and reduced technical losses and voltage drops. sale/JV%
VSPP% User%
The customer aggregation would also increase, as
companies or communities would be interested in
managing their own generation system, reducing the Net%
billing/payment collection costs. However, due the Net Metering%
Metering System, revenues would also decrease for
similar O&M costs.
DISCO%

6.3 Potential types of distributed generation actors

In Pakistan, the envisioned types of market actors in the distributed generation sector would be
(i) community led; (ii) private sector led; and (iii) joint ventures (JV) between the previous two.

Community led actors could be community-based cooperates that invest and operate a
generation and/or distribution system for the supply of their own village. This arrangement is
expected in remote rural areas with no interest for private sector investors.

In less remote areas, private sector led operations could be initiated by firms and entrepreneurs
that would invest in and operate generation/distribution systems to sell either to final consumers,
to DISCOs, or for their own consumption (if captive load).

Finally, JVs between different partners, which include local communities, private investors,
provincial and local governments, and DISCOs would be feasible depending on the needs and
issues of each particular case.

7 Lessons learned from other Energy Access programs

In the past few years, the government of Punjab and other development partners piloted and
implemented a number of projects and programs that contribute increasing access to energy
across Punjab province. Some were more successful than others, but all provide important
lessons for the design and execution of the proposed projects. Some of these initiatives are
described below:

7.1 ADB’s Rural Development in Barani Areas

In 2004, ADB provided a $41 million loan to the Government of Punjab for a multifaceted
livelihood support project for poor rural communities in Punjab's 10 Barani districts. The project
supported rural development through rural infrastructures and community development. The

22
energy access components of the project focused on electricity supply and household biogas
digesters.

By the 2012 closing date, the project supported the construction of 2,517 biogas plants to
provide clean cooking services to beneficiary households, and provided electricity supply to 581
households, as well as built capacity and awareness for more communities to construct over
5,000 biogas plants with their own funding27.

7.2 USAID Tube Well Efficiency Improvement Program

The United States Agency for International Development (USAID) launched the Tube Well
Efficiency Improvement Program in 2010 as part of the Energy Efficiency and Capacity
Program. The pilot aimed at replacing 11,000 old electrical water pumps with a budget of
around $15.3 million that would subsidize 50% of the cost of substitution of old for new efficient
tube wells.

However, as of September 2011, only 963 pumps were replaced, falling far behind the 11,000
units initially targeted. The main problems faced by the project were inter alia that (i) the project
budget was based on inadequate cost estimations of $500 per unit, instead of actual $1,000 to
$4,000; (ii) installation work costs were largely underestimated; (iii) there were available in the
market Chinese pumps cheaper than the program subsidized ones; (iv) usage assumptions of
10 h per day to calculate energy savings were overestimated; and (v) decreasing water heads
created uncertainty among farmers in order to choose the right pump size.

Due to the problems described above, the amount of subsidies required to sell and install each
tube well exceeded the program budget. The average budget of $1,390 per pump resulted in
actual expenses of $8,456 each. These large miscalculations resulted in the project being
discontinued in 2012.28

This program highlights the need of appropriate cost estimations and budgeting, as well as to
account for potential impact of low-quality competition or decreased demand from beneficiaries.

7.3 World Bank Group Clean Energy programs

To help speed up expansion of sustainable renewable power generation in the country, the
World Bank's Energy Sector Management Assistance Program (ESMAP) launched in 2013 a
$4.35 million project that provided technical support to the AEDB in measuring Pakistan’s
potential for wind, solar and biomass energy29. A high precision solar measuring station was
installed at the site of the Quaid-e-Azam Solar Park, near Bahawalpur in Punjab Province on

27
Asian Development Bank. 2013. Validation Report. Pakistan: Sustainable Livelihoods in Barani Areas Project.
Available at http://www.adb.org/sites/default/files/evaluation-document/36193/files/pvr-285.pdf
28
USAID Office of the Inspector General. (2011). Audit of USAID/Pakistan’s Energy Efficiency and Capacity
Program. Available at https://oig.usaid.gov/sites/default/files/audit-reports/g-391-12-002-p.pdf
29
Energy Sector Management Assistance Program. (n.d.) Renewable Energy Resource Mapping | Pakistan.
Retrieved 19 December 2014. http://www.esmap.org/re_Resource_Mapping_Pakistan

23
October 18, 2014— the first of many solar farms being planned in Pakistan, with 100 MW of
capacity and due to begin electricity generation in early 201530.

The private sector arm of the World Bank, the International Finance Corporation (IFC) has
included Pakistan in their Lighting Asia: Solar Off-Grid Lighting Program. The program consists
in promoting private sector development of solar off-grid technologies across seven countries in
South and Southeast Asia, including Pakistan. The IFC is providing technical assistance and
capacity building to the government and private sector to establish technical standards, product
quality assurance, and best practices to improve technology reputation and reliability, following
the successful business model used by the Lighting Africa program.

7.4 Pakistan Domestic Biogas Program

In 2009, the Dutch Government provided funding from SNV and the Embassy of Netherlands to
the Rural Support Programme Network (RSPN) in support of the 10-year Pakistan Domestic
Biogas Programme aimed at building 300,000 biogas digesters across the country. As of August
2014, around 4,987 plants have been constructed in 12 districts of Central Punjab, 450 masons
trained, and 50 private biodigester construction companies established31.

The main application of household biodigesters under the program was for cooking, which
substitutes the use of firewood, charcoal or dung, with an important impact on the health of the
householders. The program is working on microfinancing schemes to support rural households
in purchasing biogas plants, as well as providing training and technical assistance to local
companies. The program aims at developing the sector by establishing a framework of private
sector companies, which will make it sustainable after the program is closed. Also, the program
has recently started testing 50-100 m3 units for power generation.

7.5 Other development programs

Since 2005, GIZ provided support through the Renewable Energies & Energy Efficiency (REEE)
Program for the improvement of public and private sector capacities in promoting renewable
energy as part of rural electrification and in implementing energy efficiency in small and
medium-sized enterprises. Apart from technical assistance, the program also developed
financing mechanisms to encourage investments. At present, GIZ reported that around 100
villages have been electrified through solar energy, and villages are making use of a
hydropower generation to build up their business activities, due to their policy support32.

30
World Bank. 2014. Global Renewable Energy Mapping Program Gets Underway in Pakistan with First Solar
Measurement Station. 12 November 2014. http://www.worldbank.org/en/news/feature/2014/11/12/global-wbg-
renewable-energy-mapping-program-gets-underway-in-pakistan-with-first-solar-measurement-station
31
RSPN. (n.d.). Pakistan Domestic Biogas Programme. Available at
http://www.rspn.org/index.php/projects/current/pdbp-2/
32
GIZ. (n.d.). Renewable Energies and Energy Efficiency. Available at http://www.giz.de/en/worldwide/17995.html

24
8 Financing and delivery models
Access to electricity and other modern energy services in rural areas of developing countries is
a major challenge to governments and development organizations. Rural off-grid areas are
usually uneconomical for grid electrification due to the low consumption and high infrastructure
costs. The Government needs to allocate public funding and subsidies in order to expand the
power grid to these areas, as distribution companies do not have economic incentives to do so.
However, public funding is limited and therefore many villages across the country will remain off
the grid for years to come.

Given limited public and donor funds for energy access infrastructure, private sector money is
essential to achieve the objectives of universal electrification that all countries have. Private
players on the other hand are risk averse when venturing into rural areas. Payment defaults
from consumers are the main risk faced by private developers who might not be able to recover
their capital investment. Furthermore, high borrowing costs are major hurdle for project
developers to undertake access to energy initiatives.

The following delivery models proposed aim at addressing the main challenges that both public
and private players face when developing energy access operations.

There are a number of potential delivery models that can be used to support energy access
projects including, but not limited to:

(i) Partial capital subsidies to beneficiaries;

(ii) Risk Sharing Facility through partial guarantees;
(iii) Establishment of an Energy Access Fund;
(iv) Provide financing to government for equity or subordinated debt investment in
projects;
(v) Provide grant funds providing rolling seed capital to private sector investors;
(vi) Provide viability gap financing for O&M; and
(vii) Provide seed capital and rolling working capital for leasing.

Government of Punjab could mobilize financing from various development partners, such as
ADB for seed money, guarantees, subsidies to facilitate the private investor financing, and
technical assistance to commercial financial institutions, microfinance institutions, and private
developers subject to meeting further due diligence and approval requirements. Finally, ADB
through the Energy for All program could organize workshops and investor forums to scale up
these initiatives by putting in contact private developers, equipment suppliers, private equity
investors, commercial financing institutions, and government agencies to expand access to
electricity in rural Pakistan. The following sections describe in detail the first three delivery
models proposed.

25
8.1 Partial Capital Subsidies and Output-Based Aid
A widespread option to incentivize private or public investments in innovative technologies is by
using partial capital subsidies. The use of capital subsidies increases effectively the return on
investment by the private developer. However, the risks, associated to the investment of the
developer’s own capital, are still present. Nevertheless, partial grant subsidies are still an
effective way of supporting the development of renewable and off-grid technologies at initial
stages.

This type of grant support is blended with debt and equity undertaken from the investor and/or
developer, as well as with community contributions. In fact, this type of donor subsidies is a tool
used in operations that are almost bankable, with a small financing gap that the subsidies come
to fill. However, subsidies would not be used to establish projects that are not viable, as the
sustainability factor is lost.

There are a long number of energy access projects that were fully subsidized but deemed to
fail, as the due diligence was not appropriately done. Based on past experiences and lessons
learned, the main factors of failure are that (i) beneficiaries do not contribute financially, so there
is no sense of ownership; (ii) private developers are not incentivize to make the project
sustainable, as they do not put their skin on the game; (iii) performance indicators for donors
and government are not appropriate, so count as successful projects that fail after a few
months. These issues are addressed by the use of partial subsidy structures, where private
sector, commercial financing institutions, consumers, donors and government are pulling
resources together with the right incentives to make the operation work in the longer term.

A specific way of providing subsidies is through Output Based Aid (OBA) programs. OBA
ensure that capital subsidies will be paid to the service provider once the services have been
delivered, reducing the risk that the service provider fails to deliver. OBA has been successfully
implemented worldwide in the past 10 years, and ADB has started supporting the use of OBA
and Results-Based Financing programs in Asia where applicable.

8.2 Partial Guarantees

A key issue is the risk associated to payment collection from rural poor population, as well as
the affordability of the consumers along the year. Project developers are concerned of the risk
that consumers do not paying the bills, and therefore revenues are not enough to service the
loan. In this case, donors need to undertake some of the risk in order to attract private investors.

Credit and loan guarantees are a useful tool to stimulate new investments rather than subsidize
already available sources of capital. Thus, if a loan would have been approved without the
presence of a guarantee, then the guarantee is effectively a subsidy to the lender and does not
address the objective of the guarantee in the first place. Therefore, efforts should be made to
ensure loan guarantees result in additional lending, not in lender subsidizing.

In this regard, access to electricity in off-grid areas has not been undertaken by the private
sector extensively in Pakistan. Among other reasons, such as lack of an enabling regulatory

26
framework, private players face high investment risks due to high financing costs and limited
experience in off-grid electrification. A potential way of encouraging private investors to tap in to
the off-grid market is to use partial guarantees that would absorb part of the risks undertaken by
commercial financing institutions and private developers.

A potential solution could be to establish a Risk Sharing Facility (RSF) where selected
commercial banks (after a due diligence of their financial management processes) would be
offering loans to private developers and investors for Energy Access projects. The RSF would
carry out due diligence, both technical and financial, of each project proposed in the pipeline
and mobilize first-loss partial guarantee from development partners.

In this way, banks would see their risk reduced as part of the default risk is absorbed by the
RSF, while private investors and developers would see their financial costs reduced as banks
would charge lower interest rates due to the lower risk undertaken.

8.3 Energy Access Fund

An alternative option to leverage private funding in off-grid energy operations is by the use of a
Government-operated Fund that would earmark funds for energy access and clean
technologies.

The idea is that donors provide grants and concessional loans to the government, which would
transfer to the Energy Access Fund, and disburse to private developers that have passed a due
diligence process of the projects proposed.

Development partners could provide technical assistance to the government to carry out
technical and financial due diligence of projects proposed, in order to produce a pipeline of
eligible projects to be financed under the Energy Access Fund.

The Government of Punjab plans to establish such a fund, through a State-owned entity, the so-
called Energy Management Company of Punjab (EMCOP), specifically created for this role.
Government and donor funding would be channeled through this structure, after a seamless
review and due diligence process to ensure transparency and good governance.

27
9 Challenges

9.1 Regulations
Under the current electricity regulation, any private company that intends to provide electricity
supply to rural communities in off-grid areas needs to apply for a distribution license from
NEPRA, paying fees for about $400 for systems below 1 MW33.

Albeit this is advisable a priori in order to maintain the sector regulated, it has reduced the
appetite from private investors to tap into the off-grid market. The main reason is the time and
costs involved in obtaining licenses, as well as the need for NEPRA to approve the tariffs.

Off-grid electrification is usually a more a social service than a utility business. Private
developers that supply electricity to a small village of 30 households with 10 kW of power are
taking more risk than usual, due to the poverty levels of the consumers and limited regulatory
coverage against consumer defaults. However, the current regulation forces these developers
to secure licenses and follow approved tariffs by NEPRA that may not be reasonable for the
type of project.

In order to promote private investments in Energy Access projects, it is essential for the
government to establish a platform where developers are welcome to invest and licenses are
processed rapidly and efficiently. The approval of tariffs should also take into account the social
service provided, and perhaps include subsidies. But most importantly, licensing should not be a
challenge for private companies that want to invest and provide electricity to the rural poor.

9.2 Taxation
Being a basic service, energy is usually subsidized by governments in order to make it
affordable to all citizens. However, many countries tend to misuse subsidies in a non-
sustainable way, such as subsidizing fossil fuels instead of promoting renewable energies.

Electricity in Pakistan is subsidized, as the tariff charged to consumers does not cover for the
costs of generation, transmission and distribution. In 2013, around US$3.5 billion were used to
subsidize electricity34, of which a substantial proportion was directed to pay for the high costs of
fossil fuels.

However, when the Pakistan 2014 Financial Act came into force in July 2014, clean
technologies were not only unsubsidized, but also heavily taxed. The 2014 Financial Act
imposes an import tariff of 30% to PV solar panels and other related components, such as
inverters and batteries35. The rationale is to protect local assemblers of panels, although many

33
National Electricity Power Regulatory Authority (NEPRA). Applicable Fees up to 1 December 2014. [online]
Available at http://www.nepra.org.pk/applicable%20fees.htm
34
Ministry of Finance. Government of Pakistan (2014). Pakistan Economic Survey 2013/14. Chapter 14: Energy.
Available at http://finance.gov.pk/survey/chapters_14/14_Energy.pdf
35
Source: PV-Tech News. 22 July 2014. Pakistan solar industry faces total collapse if shock solar tax continues.
[online]

28
have argued that the industry is not yet developed and quality is deficient, and therefore imports
of higher quality panels should not be so penalized. Thus, it is advisable that renewable
energies should be promoted by the government, and not penalized through taxation, especially
when the clean energy sector is still at early stages.

For the Energy for All initiative in particular, the higher the tax on solar panels, the more
unaffordable will be the electricity for rural poor households. The import tax on solar
technologies, instead of protecting the country solar industry, is punishing those more in need.

9.3 Access to Finance

Another important challenge for the kickstart of private investments in off-grid technologies is
the limited access to finance by private firms, particularly small and medium enterprises (SMEs).
The banking sector in most developing countries is very conservative and the lending conditions
are not reachable by SMEs.

In Pakistan is usual to find annual interest rates of 16-18% (Kibor + 5-7%) with over 100%
collateral requirements (usually property) for tenors below 5 years. With these conditions, it is
very difficult for a company to take the risk of investing in an electricity supply project, without
the ability to use project finance structures or with more benign borrowing conditions.

Thus, a program could be establish to support private companies in accessing finance by

working together with the commercial banking sector and microfinancing institutions (MFIs),
through partial guarantee schemes, or by building capacity and awareness in the profitability of
minigrid operations.

10 Proposed Pilot Projects

10.1 Biogas-powered Minigrid in Mastay Kay (Kasur)

A potential project to supply electricity to Mastay Kay village is through the installation of a
medium-size biogas digester and gas engine to generate electricity for the village consumption.
The proposed project does not consider hybridization of other technologies (solar PV or diesel)
for the sake of analysis simplicity. Nevertheless, if the detailed technical analysis recommends a
hybrid system due to better system reliability or economic returns, the project will be
implemented accordingly.

Based on the field survey undertaken in April 2014, the team identified the following energy
needs. The maximum load is estimated at 28 kW, assuming that chaff cutters would not be used
at night, when the electrical appliances at home (lighting, TV, fans, etc) are used.

29
 Table 8: Estimated Electricity Demand in Mastay Kay

Type of load Load (kW) Time (h) Energy (kWh)

Home (60 HH) 12 5 (mostly evenings) 60
Milk refrigeration 5 12 (intermittent) 60
Chaff cutters (30 units of 1 HP) 23 3 (only daylight) 68
TOTAL 28 188
Source: Authors’ estimations

Fortunately, all Mastay Kay villagers own cattle (5-10 heads per household) and the amount
seems sufficient to allow for a medium size biogas digester. The following table shows the
estimated generation of biogas by the manure produced by 150 cows, assuming all manure is
fed to the digester. The figures were calculated based on a feasibility study for a biogas system
installation at the Biogas Research Institute (BRI) of Kasur, commissioned by Government of
Punjab, and supported by GIZ36.

Table 9: Estimated biogas yield and electricity generated for Mastay Kay

Cattle heads 150 cows

Fresh manure per year 2,500 kg/day
Volatile Solids (VS) content 13%
Average biogas yield 0.3 m3/kg VS
Biogas generated 98 m3/day
Efficiency 90%
3
Biogas available for generation 88 m /day
Engine efficiency 2.2 kWhe/m3
Power generated 193 kWhe
Source: Authors’ calculations, based on Biogas Feasibility Study

Therefore, the digestion of the waste of 150 cows would generate approximately 88 m3 per day
and when burned, 193 kWh of electricity, which are enough for the electricity needs of the
village; not only for lighting at home, but also for productive uses of electricity, such as milk and
meat refrigeration as well as for chaff cutting.

The estimated costs of this system, based on the costs proposed in the abovementioned
feasibility study are:

36
Source: Punjab Energy Department. (2013). Feasibilty Study of a Biogas System using Cattle Farm Waste.
http://energy.punjab.gov.pk/downloads/Revised%20Techno-
economic%20Feasibility%20Study_Punjab_08%2002%202013%20.pdf

30
 Table 10: Estimated Costs of Biogas System for Mastay Kay

Component Units Cost (US$)

3
Reactor (2,200 m ) 25,000
3
Storage pond (500 m ) 6,600
Contact tank 1,100
Pumps 1,200
Piping 7,000
Biogas filter 1,500
Land moving 3,867
Generator (50 kW) 25,000
Sludge drying pond 4,400
Misc 5,000
TOTAL 80,000
Source: Authors’ calculations, based on Biogas Feasibility Study

The socioeconomic impact of the proposed system could be further improved by supplying each
household with a gas stove for cooking purposes. In this way, households would not only have
electricity, but also would be able to cook with a clean energy source, rather than burning
firewood or dry dung cakes.

A simplified financial analysis based on current affordability and energy expenses of Mastay
Kay village is shown in the table below. The weighted average cost of capital (WACC) of 12%
used in the financial analysis was estimated as follows:

Table 11: Estimated Weighted Average Cost of Capital

Share Estimated cost Cost of Capital

Equity beneficiaries 20% 0% 0%
Equity investor 30% 15% 5%
Debt investor 50% 15% 8%
WACC 12%
Source: Authors’ calculations

Without subsidies, the project would not generate positive returns after 10 years. In order to
achieve this positive returns, it was estimated that 10% of the capital investment is subsidized
by grand funding. With these assumptions, the project would generate a positive Net Present
Value (NPV) after 10 years of operation, and the Internal Rate of Return is almost 13%.

31
 Table 12: Simplified Financial Analysis of Biogas System in Mastay Kay (in US$)

Year Subsidy Investment O&M Revenues Net CF ($) PV ($)

0 8,000 80,000 (72,000) (72,000)
1 1,200 14,400 13,200 11,786
2 1,200 14,400 13,200 10,523
3 1,200 14,400 13,200 9,395
4 1,200 14,400 13,200 8,389
5 1,200 14,400 13,200 7,490
6 1,200 14,400 13,200 6,688
7 1,200 14,400 13,200 5,971
8 1,200 14,400 13,200 5,331
9 1,200 14,400 13,200 4,760
10 1,200 14,400 13,200 4,250
NPV 2,583
IRR 12.9%
Note: The discount rate of 12% used for the NPV calculation is based on the WACC estimation at Table 11.
Source: Authors’ calculations.

Assuming:
Nr. of consumers 60 HH
Avg monthly bill 20 $/HH
Total monthly revenues 1,200 $/month
Total yearly revenues 14,400 $/year
O&M costs 100 $/month
Capital Subsidy 10% of investment

10.2 PV Solar Minigrid in 18/C Tukra (Sahiwal)

The village of 18/C Tukra in Sahiwal is located along the banks of the Ravi River. Households
are scattered in small clusters of 10-12 households. Due to the distribution of the households, it
would be possible to either install a centralized generation for all 3 clusters, or distributed
generation in each group of households. Nevertheless, it would not make much difference when
using PV Solar generation, due to its modularity.

PV Solar is suggested for 18/C Tukra village, due to the lower income levels, if compared with
Mastay Kay. Based on the field surveys undertaken in April and October 2014, the team
identified the following energy needs, as shown in the table below. The maximum load is
estimated at 15 kW, assuming that chaff cutters would not be used at night, when the electrical

32
appliances at home (lighting, TV, fans, etc.) are used. The installed PV Solar capacity is
recommended to be 20 kWp, because the use of chaff cutters during the day would reduce the
charging level of batteries for the evening supply (estimated at 10 kW for 5 hours). Therefore, it
is assumed that 25 kWp of PV solar panels would enough energy to meet the demand, and
equivalent to 3.8 hours of full generating capacity.

Table 13: Estimated Electricity Demand in 18/C Tukra

Load Energy
Type of load Time (h)
(kW) (kWh)
Home (50 HH) 10 5 (mostly evenings) 50
Chaff cutters (20 units of 1 HP) 15 3 (only daylight) 45
PV Solar capacity (peak) 25 95
Source: Authors’ estimations

The cost estimation provided below is based on a quotation of components provided by a local
company and experience of projects in other countries.

Table 14: Estimated cost of a 25 kWp PV Solar Minigrid System

Component Unit cost ($) Qty Subtotal ($) %

PV Panels (per kWp) 800 25 20,000 28%
Array frame 2,000 1 2,000 3%
Batteries 12V (per 100Ah) 140 80 11,200 16%
Inverter (per 6 kW) 2,500 4 10,000 14%
Charge controller (per 20 A) 50 80 4,000 6%
Battery room 2,000 1 2,000 3%
Distribution system 8,000 1 8,000 11%
Balance of System 5,000 1 5,000 7%
Labor costs 10,000 1 10,000 14%
TOTAL 72,200
Source: Authors’ estimations

A simplified financial analysis based on current affordability and energy expenses of Mastay
Kay village is shown in the table below. Villagers spend average $5 per month in lighting
sources (kerosene and candles) and around $10 per month in diesel oil to use the chaff cutters.
Therefore, the revenues from the system are assumed to be $15 per month per household.

Without subsidies, the project would not generate positive returns after 10 years. Therefore, in
order to reach a positive return, it is estimated that at least 40% of the capital investment should
be subsidized by grant funding. With these assumptions, the project would generate a positive
Net Present Value (NPV) after 10 years of operation (and battery refurbishment in year 5), and
the Internal Rate of Return is 12.4%.

33
 Table 15: Simplified Financial Analysis for a 25 kWp PV solar system

Year Subsidy Investment O&M Revenues Net CF PV

0 28,080 70,200 (42,120) (42,120)
1 300 9,000 8,700 7,768
2 300 9,000 8,700 6,936
3 300 9,000 8,700 6,192
4 300 9,000 8,700 5,529
5 11,200 300 9,000 (2,500) (1,419)
6 300 9,000 8,700 4,408
7 300 9,000 8,700 3,935
8 300 9,000 8,700 3,514
9 300 9,000 8,700 3,137
10 300 9,000 8,700 2,801
NPV 682
IRR 12.4%
Note: The discount rate of 12% is based on the WACC estimation at Table 11
Source: Authors’ calculations.

Assuming:
Nr. of consumers 50 HH
Avg monthly bill 15 $/HH
Total monthly revenues 750 $/month
Total yearly revenues 9,000 $/year
O&M costs 25 $/month
Capital Subsidy 40% of investment

It is noted here that these are rough estimations for the sake of discussion among stakeholders.
There is need of a price identification exercise, that may happen through competitive tenders,
as well as a clear assessment of the discount rate to apply based on cost of debt in Pakistan,
and required return by investors (cost of equity).

10.3 PV Solar-powered Tubewell

During the dry season, irrigation requires of water pumps to bring up underground water to
produce an extra crop each year. The traditional diesel-powered pumps are inefficient, require
high maintenance, and the cost of fuel is prohibitive for farmers, particularly small-scale ones
with limited income.

A possible solution for them is to install solar-powered water pumps that only need sunlight as
energy source. The initial investment for solar-powered tubewells is higher than for a

34
comparable diesel pump, while they are more suitable for medium to low heads (<50 m) for
irrigation, unless the flow pumped is only used for village water supply or drip irrigation.

A solar-powered tubewell that pumps water from a depth of 15 meters, can provide a daily flow
of approximately 500 m3, while lower flows can easily be pumped from deeper sources. It is
interesting to combine a solar-powered tubewell with a capacity building component for farmers
to use drip irrigation, as the range of usage for solar tubewells can increase substantially, as
lower flows would allow higher heads of up to 120 m.

Based on quotations by a local company, the investment required for a low head (15 m) high
flow (500 m3) would be around $25,000, approximately 5-7 times higher than the investment in
a similar diesel pump. However, the operating cost of a solar tube-well is virtually zero, whereas
a diesel pump would require costly maintenance, more frequent overhaul and replacement, and
the high cost of diesel consumption. The expected payback period is usually below 2 years.

Already back 8 years in 2006, a detailed comparative study37 between solar and diesel water
pumps found that the payback period of switching from diesel to solar small flow medium head
water pumps would range from 1 to 3 years. Considering the recent price decrease of PV Solar
technologies, the payback has been probably reduced as well, and be competitive with
traditional technologies.

It is therefore recommended that ADB’s Energy for All promote the use of this technology
through 2 or 3 demonstrative projects, where the investment undertaken by beneficiaries is
partially subsidized, in order to incentivize them to switch from diesel to solar. Special attention
would be given to cost estimation and consumer demand at the time of project design and
preparation to avoid the issues suffered by the USAID tube well project (see Section 6.1).

11 Conclusion and Recommendations

While Punjab has made significant progress on providing energy access, there are still many
villages lacking modern energy services, in addition to those who are suffering from unreliable
and insufficient energy supply. There are several lessons that can be learned from experiences
within and outside of Pakistan to demonstrate innovative ways of providing energy services in
rural areas that could involve private sector and communities in a more sustainable way. The
sites and models proposed in this report could be tested in the pilot projects and their outcomes
and results would be helpful in designing scaled up projects and programs for energy access in
Punjab and other provinces of Pakistan.

37
Ministry of Mines and Energy of Namibia. (2006). Feasibility Assessment for the Replacement of Diesel Water
Pumps with Solar Water Pumps. Available at http://www.mme.gov.na/energy/pvp.htm

35
ANNEXES

36
ANNEX 1: Field Assessments of Selected Villages

Mastay Kay (Kasur)

Coordinates: 31.0669, 74.6656

Location: Mastay Kay is located in a remote region isolated from the rest of the country by a
river. The village is not accessible by road, and located at a distance of six kilometers from the
river and few kilometers from the Indian border. In the absence of any paved road or proper
bridge, most of the motorized traffic is managed through river rafts. There is no public
transportation from the villages to the main road. Due to its socioeconomic characteristics,
Kasur’s District Officer of the Planning Department, Government of Punjab, recommended
Mastay Kay village to pilot a mini-grid project.!

Figure A1: Location of Mastay Kay village$

Mastay Kay

!
Figure A2: Unpaved roads and rafts lead to Mastay Kay village

37
Socio-Economic Characteristics: There are about 60 households with an estimated
population of approximately 700 people. The villagers only cultivate during one season of the
year, and the land is left unexploited during the monsoon season. According to the estimate of
Qanungo (tax collector), the total land area of this village is 1,000 acres.

Mastay Kay is a relatively well-off village due to the sale of milk. The land holding of the
residents is also significant. Villagers are willing to pay up to $10-12 per month for a basic
electric connection.

Energy Used: A private supplier of Solar Home Systems (SHS) is active in the village and 20
out of 60 houses already have solar home solutions. According to the field survey, 100 Wp SHS
costs around PKR 27,000 to 40,000. To market the SHS, the supplier installed solar panels in
the village mosque for free. The lighting in the mosque triggered the demand for such solutions
and now one third of the village has solar home solutions installed. The solar home solutions in
most of the village houses operate two LED lights, one DC fan and a 14-inch DC TV. There are
no mobile phone coverage in Mastay Kay, so charging mobile devices are not a concern here.

The District Government of Kasur organized a focus group discussion in Mastay Kay Village in
April 2014. In that event, the representatives of the village expressed their interest in receiving
electricity supply for in-house lighting as well as for productive uses, such as to power their chaff
cutters and milk refrigerators.

18/C Tukra (Sahiwal)

Coordinates: 30.585305, 72.710689

Location: The village of 18/C Tukra is situated in along Ravi River. Households are realtively
scattered across an area of around 1 km radius. Because of this, MEPCO did not provide
electricity to the entire village, but only to households located closer to the main road, and there
are no plans for further grid extension in this area. Around 20-30 houses are located within 50-
100 meter radius of where a potential mini-grid could be setup.

Figure A3: Location of 18/C Tukra$

18/C Tukra

38
Socio-Economic Characteristics: The un-electrified locality of 18/C Tukra is roughly 1-2
kilometers from the grid. None of the residents have attempted to lay down their own lines to
connect to the grid, due to long distances. This village is relatively poor with landholding of
roughly only 2-3 hectares per house. The total households are approximately 50 in clusters of
10-12 spread over an area of 600-800 meter radius. The livestock ownership per house is 5-8
milking cows, goats and sheep.

Energy Used: The residents use diesel-based equipment to operate their chaff cutters and
other water pumps. Their 4.5 HP chaff cutters consume an average of 10 liters per month ($10
cost).

Figure A4: 18/C Diesel operated Chaff cutter at 18/C village

Residents of this village consume around 2-3 liters of kerosene per month in their wick lamps,
with an associated cost of PKR 200-300 per month ($2-3). Finally, villagers interviewed would
be willing to pay up to PKR 500-1,000 per month for electricity, if their chaff cutters would be
electric powered, given their current expenses in diesel.

Chak 66 Dhandhara (Faisalabad)

Coordinates: 31.390806, 72.969240

Location: The village of Chak 66 is close to Faisalabad city’s airport. It is established on

government-owned land and the residents of this village cultivate vegetables over a sewage
water pond. Since land is government-owned, the residents are landless poor. Although all
nearby vicinities are completely electrified, this village of more than a thousand people lacks any
formal connections. A probable reason might be that the government would not want these
people to settle permanently. If all facilities are provided to them, then that might informally
legitimize their occupation. Since there is a probability of these people’s relocation, only a
portable alternative energy solution would work for them.

39
 Figure A5: Location of Chak 66 Dhandhara$

Socio-Economic Characteristics: Chak 66 Dhandhara has an approximate population of

2,000 people residing in 250 houses. The people living in these houses hardly own any
livestock and do not own any land. The vegetables that they cultivate are grown on land
apparently rented from Pakistan Air Force. Its a peri-urban locality, established on an illegally
held government land. This land is expensive, so the government does not want to encourage
this illegal occupation of land by providing them electricity. The 100 households of Chak 66 are
daily wage earners with average daily earnings of PKR 450 per house ($4.5).

Figure A6: Substandard electric pole $

Energy Used: Out of a total of 250 houses, 10-12 of

them receive electricity supply. Around three lines
from that locality bring electricity to 10-12 homes of
the village. According to one resident of a house
electrified this way, the average bill they pay is
between PKR 500-600, which is shared between the
houses sharing the supply.

Most of the households are not electrified, and spend

around PKR 300 per month to light their kerosene
lamps for three hours every night. Chak 66 is not
recommended for any intervention due illegal
occupancy and relatively close to the power grid.

40
Abadi Jamil Town Mohalla Ghafoor (Chiniot)
Coordinates: 31.713956, 73.003896

Location: The village of Abadi Jamil Town Mohalla Ghafoor is located across the Railway lines
from the main city. The 11 Kv high tension wire cannot be laid across an operational railway
track, so although there are proper electric connections on one side of the track, the other side
of Mohall Ghafoor is totally deprived of it.

Figure A7: Location of Abadi Jamil Town Mohalla Ghafoor$

Abadi Jamil Town

Mohalla Ghafoor

Socio-Economic Characteristics: Mohalla Ghafoor has about 40-50 houses that do not have
any access to electricity. Approximately 300 people live in this locality. Since this is a suburban
setting, there is hardly any livestock presence in the area. The locality is in very close vicinity of
the electric feeder. According to the officers of Energy Department, the electrification of this
locality would only require two poles and 300-400 meter of MV conductor, at a total cost $3000-
4000. An independent mini-grid would cost more than 10 times that amount, so proper
electrification of this locality in very close vicinity of the feeder seems a more practical and cost
effective solution.

Energy Used: Some of the residents of Mohalla Ghafoor have laid electric cable from an
electrified locality about 200 meters from the locality. The residents of the village have erected
bamboos to serve as pillars for the electric cable travelling from that distance. According to
locals around 5-6 out of a total of 50 houses have been electrified this way. The remaining
residents lack any direct access of electricity.

It’s a peri-urban locality alongside railway line. A small focus group of villagers was held. This
village of daily wage earners has 50-60 houses and two of those houses laid down their own
lines by paying roughly 25,000 rupees, connecting themselves to the grid. The rest of the
houses burn a candle worth 5 Rs every day; making their lighting expense 150 Rs. As the

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village is only 100-150 meters away from the electric pole, it is not recommended for minigrid
electrification.

Arzanipur Abadi Muhammad Din (Kasur)

Coordinates: 30.851021, 73.988555

Location: The village of Arzanipur Abadi Muhammad Din is located on the road from Kasur to
Dipalpur, Okara. The distribution company did not provide formal connections, although
residents have laid down their own informal electric lines to get electricity supply.

Figure A8: Location of Arzani pur Abadi Muhammad Din$

Arzanipur Abadi
Muhammad Din

Socio-Economic Characteristics: Abadi Muhammad Din is a small locality of greater Arzani

Pur village, the second largest village of Chunian Tehsil, Kasur District. The locality is home to
around 350 people living in 50 to 60 houses. The average land holding is considerably low here
with approximately 2,700 acres of land for 2,000 houses of greater Arzani Pur village. There is,
on average, one cow or buffalo in each household. The locality is in very close vicinity of the
power grid, although the households are not yet connected.

Energy Used: The energy usage of the residents is quite high, as they have strung wires from a
neighboring village, supported by bamboo poles.

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 Figure A9: Electric cable propped up with bamboo poles

Kot Miana Azafi Abadi (Chiniot)

Coordinates: 31.769930, 73.052797

Location: The village of Kot Miana is partially electrified. It is located North-East of Chiniot City.
The village is also in close vicinity of river Chenab. An additional locality of 13-20 houses has
never been electrified. A government primary school adjacent to the un-electrified houses has a
proper electric connection.

Figure A10: Location of Kot Miana Azafi Abadi$

Kot Miana
Azafi Abadi

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Socio-Economic Characteristics: The additional locality of Kot Miana is in very close vicinity
of the power grid, however it is not yet connected. There are approximately 19 unelectrified
houses in this vicinity. Residents own an average of 5 cows per household, which allow them to
increase their income by selling milk.

Energy Used: The residents use diesel-based equipment to operate their chaff cutters and
other equipment. Similarly to other villages, the consumption of kerosene for in-house lighting
average 3-4 liters a month. The villages would be willing to pay PKR 500-1,000 per month for
the electricity.

Chak 120 9/L Kamhair (Sahiwal)

Coordinates: 30.424771, 73.017919

Location: This is a peri-urban settlement with 32-40 households that are quite scattered. These
houses are located near the town of Kamhair, between a water channel named Sukh Biyaas,
and the Link Canal. There is a distance of 200 meters between three clusters of approximately
15 houses each. The considerable distance between the houses is the reason why MEPCO has
rejected the electrification of these settlements.

Figure A11: Location of Chak 120 9/L Kamhair $

Chak 120/9L
Kamhair

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Energy Used: The residents on the village use kerosene for lighting in the evenings. Their
estimated expenditure on lighting is about PKR 300-400 per month. The electricity is available in
nearby towns, so the residents also use electric appliance that they can charge in the vicinity.

Thatha Dewka (Chiniot)$

Coordinates: 31.698875, 72.754397

Location: The village of Thatha Dewka is situated on the banks of Chenab River. It is a
relatively compact village with all houses situated within a 100-meter radius. There are roughly
40 houses with a total population of around 250 people. The village is situated at a distance of
about 700 meters from the village of Kamarkot, which is electrified; so the residents of three
houses and the prayer leader of the village mosque have connected informally to the nearby
village.

Figure A12: Location of Thatha Dewka Village, along the bank of Chenab river

Thatha Dewka

Socio-Economic Characteristics: There are 40 households in the village and each house
owns on average 8-9 acres of land and 18-20 buffaloes or cattle. Their agricultural income is
seasonal, however the sale of milk provides roughly PKR 600 per house every day. The sale of
milk covers their day-to-day expenditures, and the sale of their agricultural production allows
them to buy pumps, chaff cutters, diesel engines, etc. The respected community leader of the
village is the prayer leader of the village mosque. There are no other community-shared places,
such as school or clinic.

Energy Used: The current energy use for home use is limited to kerosene lamps and dry-cell
batteries. The villagers spend approximately PKR 200-300 in kerosene for lighting, and around
PKR 300 in dry-cell batteries, for a total of PKR 500-600 per month ($5-6).

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Due to high livestock ownership in every house of the village, there is roughly one chaff cutter
per household. The chaff cutters are powered with 6-12 HP diesel engines. Similarly, villagers
use 16 HP diesel engines to power water pumps, as the water table is only 4-5 meters below
the ground.

Due to the high cost of diesel, they are interested in paying extra for the solar solutions that
might operate their chaff cutters and pumps. The villagers are willing to pay up to PKR 1,000
per month for lights and fans in their house, and an additional PKR 1,500 to 2,000 per month if
the solar power supply can operate their equipment.

Verha Muslim Sheikh Sloolky (Chiniot)

Coordinates: 31.722490, 72.765602

Location: The village of Verha Muslim Sheikh Sloolky is located on the road to River Chenab
from the city of Rabwah (Chenabnagar) in Chiniot district. Residents are lease farmers that do
not own land. Only one of the 40 households of the village has a Solar Home System that
operates two lights and a fan. This stand-alone SHS was provided to a student in the village by
the Government of Punjab as a grant.

Figure A13: Location of Verha Muslim Sheikh Sloolky

Verha Muslim
Sheikh Sloolky

Socio-Economic Characteristics: There are a total of 40 houses in the village and estimated
population of the village is 280. The village is inhabited mainly of laborers that do not own any
land, and therefore their income is seasonal depending on crop cycles. The livestock ownership
is considerably low with only a few houses owning 1-3 animals. The average disposable income
is estimated at PKR 300 per day ($3). They are dependent upon finding work on the farms of
nearby landowners.

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The villagers utilize hand pumps for drinking water supply, which is at 60-65 feet below the
ground. There is one mosque in the village, but no schools, health clinics or other public
facilities.

Energy Used: The residents of Verha Muslim Sheikh Sloolky use kerosene wick lamps. A
single household burns between 3-5 liters of kerosene oil per month for lighting. They also use
occasionally 2-4 candles per day at a cost of PKR 20 per candle. Their current energy use is
rather limited and at cost of around PKR 300-400 per month. Similarly, the willingness to pay is
similar to the current expenditures of maximum PKR 500 per month.

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