PROSPECTS OF ENERGY

EFFICIENCY BUSINESS, IN
PAKISTAN

Muhammad Saghir Khan

(Chief Executive)
Energy Associates (Pvt.) Limited.

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 PROSPECTS OF ENERGY EFFICIENY BUSINESS IN PAKISTAN
LIST OF CONTENTS

CHAPTERS PAGE NO.

1. Abstract 3

2. Acronyms 3

3. Introduction 4

4. Energy Growth 7

5. Energy Efficiency Market of Pakistan with its Potentials and Barriers 9

6. Efforts of Energy Efficiency Improvement Organization 11

7. Initiative for Energy Efficiency in Governmental & Public Buildings 14

8. EEIO Long term Mechanisms 15

9. Conclusion 16

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ABSTRACT:

Energy Services Companies represent an effective tool to implement energy conservation

projects. He provides the know-how and may be finance for implementations in beneficiary
enterprises. Although energy services companies have proved their effectiveness in many
countries, however this industry will be new to the Pakistan market. The Energy Efficiency
Improvement Organization (EEIO) under the Govt. platform says as Enercon with dedicated
components to provide support, to this industry.

Support is needed to provide through different programs including, energy audit programe,
trading and capacity building, loan guarantee programe to facilitate access to finance and
technical support. EEIO support to ESCOs will pass through different phases to established
model of ESCOs in Pakistan, based on different backgrounds and working scopes.

Regardless with this kind of institutional support, we all realized that this industry will face more
challenges due to low awareness, policy of energy subsidy, and unavailability of specialized
agency to resolve disputes which arise due to new this business.

To overcome these obstacles, EEIO with help of Enercon or other Govt. authority should
establish Energy Efficiency Law which in many parts of it will offer a boost to this industry
through tackling the after mentioned obstacles.

For there more EEIO is to open new business opportunities to these companies through an
initiative for Energy Efficiency in Governmental buildings, propose new scope for co-generation
projects and developing interruptible power contracts.

ACRONYMS:
EEIO Æ Energy Efficiency Improvement Organization
ESCO Æ Energy Services Companies
TPES Æ Total Primary Energy Supply
OECD Æ Organization for Economic Cooperation and Development
MVP Æ Measurements and Verification Protocols

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INTRODUCTION:
Pakistan suffers from inefficient use of its energy resources. As shown in Figure – 5, most of the
Pakistan industries suffer from high specific energy consumption compared with the
international norms. According to the statistics of the year 2006, the intensity of the Total
Primary Energy Supply (TPES) is more than three times of the Organization for Economic
Cooperation and Development (OECD) countries and around double the world average.
However, it is a little bit better than the average of the middle - east. On other hand the energy
consumption per capita is one fifth of the OECD countries as well as half of the world average.
This means that the potential increase in energy demand will be excessive with the growth in the
gross domestic product as well as standards of livings unless a corrective action is taken.

0.8
0.7
0.6
TOE / 1000 US$

0.3
0.2

Figure-1: Specific Consumption of the Total Primary Supply to Generate 1000 U.S$ in the
gross natural product

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 4.5
TOE / CAPITA

2.5

1.5

0.7 0.8

Figure-2: Specific Consumption of the Total Primary Energy Supply per capita

Figure-3 shows that the position of power consumption in TWh in Pakistan (2005-06). The
position of power consumption, the household sector has been the largest consumer of
electricity, accounting for 30.7 TWh of total power consumption, followed by industrial 19.8
TWh, agriculture 7.9 TWh, other government sector 5.7 TWh, commercial 4.0 TWh and street
light 0.4 TWh.

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Power Consumption in TWh

30.7
30
25
19.8
20
15
10 7.9
4.0 5.7
5
0.4
0
HOUSE HOLD COMMERCIAL INDUSTRIAL AGRICULTURE STREET LIGHT OTHER GOVT.

Figure-3: Power Consumption by ultimate user; Pakistan (2005-06)

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 STREET LIGHT
0.5%
OTHER GOVT.
10.9%

AGRICULTURE
11.5% HOUSE HOLD
42.5%

COMMERCIAL
INDUSTRIAL

AREA 6.6%
28.1%

Figure-4: Consumption of Electricity (Sect oral Share) in Pakistan

Figure-4 shows that the position of electricity consumption in Pakistan (2005-06). The position
of electricity consumption in Pakistan from 1995-96 to 2004-05, on an average, the household
sector has been the largest consumer of electricity, accounting for 44.3 percent of total electricity
consumption, followed by industrial (29.1 percent), agriculture (12.8 percent), other government
sector (7.3 percent), commercial (5.8 percent) and street light (0.6 percent).

1800

1600
(KG Oil Equil. / 0.36 TOE of Project)

1400
Pakistan
Intl.nom
1200
Specific Energy Consumption

1000

800

600

400

200

0
T

S
L

LE
M
R
R
S
S

SS
EN
EE

E
PE
RE

A
IC

IU

RI

I
PP
LA

XT
T
ST

IN
M

PA
TI

SU

KE
AS
CE

CO
G

TE
M
ND

BA
U
PL

AL
A
N
O
IR

Figure-5: Specific Energy Consumption for some industrial sectors in Pakistan compared
with international norms

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 Pakistan
Primary Energy Consumption (50.8 MTOE)
30 25.45

25

20 15.20

15

10
6.43
3.30
5 0.42 0.0

E
AR
O
AL

AS
IL

BL
DR

O
E
CO

G
A
CL
HY

L
W

RA
NU

NE

TU
RE

NA
Figure-6: Specific Primary Energy Consumption in Pakistan

ENERGY GROWTH:

With a primary energy consumption of 50.8 MTOE in 2004-05, Pakistan ranks 30th in the world
in terms of amount of energy use. However, the per capita energy consumption (0.36 TOE) is
one fifth of the world average of 1.77 TOE. The mix of primary energy supply in 2004-05 was:
gas 50.3 percent; oil 29.8 percent; hydro 11.0 percent; coal 7.6 percent and nuclear 1.2 percent.
The current installed electricity generation capacity is 19,400 MW and the generation mix is: gas
50.8 percent; hydro 30.0 percent; oil 15.8 percent; nuclear 3.3 percent and coal 0.2 percent
(HDIP 2005).

During the period 1980 to 2005 in Pakistan, the ratio of growth rate of primary commercial
energy to growth rate in GDP was 0.97, but increased to 1.02 during, 2001-05. This ratio is
expected to fall with improved efficiencies of transformation and distribution, which will be
necessary as economic growth fuels higher demand for energy (oil, gas and electricity), but it is
currently higher than one.

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Based on historical and current trends in economic growth, Pakistan envisages 7.2 percent
energy growth up to 2010 and 8.8 percent thereafter, or a total energy need of 361 MTOE by
2030.

The use of coal, nuclear and new renewable energy source of wind and solar is very compared to
the present world average shares. In addition to the above mentioned commercial energy use,
some MTOE of traditional fuels (fuel wood, crop residues animal wastes) are also used by the
households and industry. The use of these traditional fuels is expected to decline with due to
increased availability of commercial fuels like Liquefied Petroleum Gas (LPG) and natural gas,
which are more convenient. However, this decline will require reduction in prevalence of
poverty. Access to electricity in the country is quite high (80 percent) but the proportion of
consumers using less than 60 units per month per household is also very high; the per capita
electricity consumption (402 kWh) is less than one-sixth of the world average of 2,516 kWh.

World Pakistan India Bangladesh China Malaysia

Population 6393 159 1086 141 1300 25.6
(Million)
Per Capita 8200 2100 2200 1900 5000 9000
GDP
(PPP)
Per Capita 1.55 0.30 0.32 0.11 0.91 2.17
Primary
Energy
Supply
(TOE)
Per Capita 2657 581 561 145 1484 3500
Electricity
Generation
(kWh)

Table-1: World and Regional Energy Comparison, 2004

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 Current Short Medium Long
Term Term Term
2004 2010 2015 2020 2025 2030
Total 50.8 79.39 120.18 177.35 255.37 361.31
MTOE
Oil 15.20 30% 20.69 26% 32.51 27% 45.47 25.7% 57.93 22.7% 66.84 18.5
%
Natural 25.45 50% 38.9 49% 52.98 44% 77.85 44% 114.84 45% 162.58 45%
Gas
Coal 3.30 6.5% 7.16 9% 14.45 12% 24.77 14% 38.28 15% 68.65 19%
Hydro 6.43 12.7% 11.03 13.9% 16.4 13.6% 21.44 12.1% 30.50 12% 38.93 10.8
%
Renewable 0.0 0% 0.84 1.1% 1.60 1.3% 3.0 1.7% 5.58 2.2% 9.20 2.5%
Nuclear 0.42 0.8% 0.69 0.9% 2.23 1.9% 4.81 2.7% 8.24 3.2% 15.11 4.2%

Table-2: Energy Mix Plan in Pakistan

ENERGY EFFICIENCY MARKET OF PAKISTAN WITH ITS POTENTIALS AND

BARRIARS:

The Energy Efficiency market size is estimated at 1.2 billion U.S$, with their respective
breakdown of the market size by technology. Cogeneration, process controls and power factor
improvement have the highest opportunities. Considering the number of potentials
implementations, power factor improvement and lighting are the highest. The industrial sector
accounts for 95% of the total market opportunities, while the commercial sector accounts for
only 5%, regardless the market potentials, the market suffers form many negative forces.
Although many efforts have been made for improving awareness, further efforts are still needed
especially at the decision making level. Lack of operating, calibrated energy measuring
instruments and absence of forms and records for energy consumption add to awareness problem
on the plant level. Absence of national codes and standards for energy consumption as well as
energy bench marking for energy utilization efficiency in industrial processes, limits the market.
On the other hand there is no incentive or rebate policy for energy conservation projects.

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Regarding the energy prices, they have been increasing drastically, oil and gas respectively
increased by 30% and evaluated according to the exchange rate of the Pak rupees against the
U.S$.

Although the aforementioned increases in prices improve the attractiveness of the Energy
Efficiency projects. Especially for thermal process application, as our natural resource for hydrel
power generation is diminishing. The distortion between electricity and fuel prices has been
increased. This has a negative effect on the financial attractiveness of the cogeneration projects.

Power Factor
Improvemnts,
15%
Steam System cogeneration ,
Improvements, 28%
8%
Motor Drive, Heat
10% Recovery, 7%
HVAC & Process
Combustion
Refrigration, Control, 15%
Control, 6%
3%
Lighting, 8%

Figure-7

Figure-7 Break down of Energy Efficiency market in Pakistan by technology. Regarding the
economical barriers, the Pak rupees has been subjected to a period of instability over the past
many years and in further as well is expected, which may affect for the attractiveness of energy
conservation projects which rely sizeably on imported items.

The legal structure need to be established to face and risk free for asset-backing lending.
Financial institutions are lacking knowledge and experience regarding efficiency projects.

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All these factors limit the amount of debt and equity ratio for energy savings projects of one to
one. The cost of finance is high. The average interest rate range between 12 to 15% limited
resources are available for medium and long-term finance. However it is important to mention
that many donors funded programs are available. The legal system suffers from complex and
slow process for resolving legal disputes.

Also there is a lack of experience in resolving disputes, which may arise in some cases when the
Measurements and Verification Protocols (MVP) are considered for evaluating the savings.

EFFORTS OF ENERGY EFFICIENCY IMPROVEMENT ORGANIZATION (EEIO):

There is need to established the Energy Efficiency Improvement Organization (EEIO) which is
to be executed through governmental organization, such as Enercon as the project will consists
of three components including loss reduction on national grid and demand side management
component, market support for Energy Efficiency business, energy codes, standards components
and cogeneration component. The project approach is to establish mechanisms which can ensure
sustainable energy conservation activities beyond the life time of the project. EEIO to adopt the
Energy Services Company “ESCO” approach as tool to provide energy efficiency know-low and
enable finance to the customers. Although several variations of the ESCO models are available
as shown in Table-3, EEIO has to adopt a specific model at the beginning to meet the local
demand.
Table-3: ESCO Model
Sr.No ESCO Model Model Description
The ESCO provides a comprehensive service including
energy audit, project design, project implementation,
1 Full Service ESCO
operation and maintenance and finance through a shared
saving performance contract
Similar to above except the contract terms can be varied

ESCO with Variable based on the actual savings. In case if the expected savings

2 Term Contracts does not achieved the targeted values, the contract can be
extended till the ESCO recovers it agreed payments. Also
it could include what is called a “first out” model, where

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 the ESCO takes all the energy savings until it has received
its agreed payments.
The ESCO provides a technical service without finance.
The customer may provide finance or the ESCO may
ESCO with Third Party
arrange for facilitating finance by a third party. The ESCO
3 Finance
provides guarantee that the energy savings will cover the
debt services payments. This is known as performance
contracts with guaranteed savings.
The ESCO provides only operation and maintenance
services at an agreed price. Cost of all equipment, upgrade,

End-Use Out Sourcing repairs, etc. are borne by the ESCO, but the ownership of

(Energy Management the equipment remains with the customers. This is usually
4
Contract) used in running the customers utilities such as power
generation, steam generation heating/cooling, where the
customer pays an agreed price for the received units (KWh,
tons of steam, etc).
The ESCO provide full technical service. It verifies that the

Equipment Supplier performance and energy savings matches the expectations.

5 Credit Payment can be either on lump-sum basses or on

installments based on the expected savings. Ownership of
the equipment is transferred to the customer immediately.
Similar the supplier credit except the ESCO holds the
ownership of the equipment till the end of the leasing
Equipment Leasing
6 contract. At the end of the contract the customer has three
choices, renewing the contract, owns the equipment at its
residual value or the ESCO takes the equipment out.

Technical Consultant ESCO conducts an audit and assist in project

with Performance implementation. The ESCO and the customer agree on

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Based Payment performance based fee, which could include penalties for
lower savings and bonuses for higher savings.

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 Technical Consultant The ESCO conducts an audit, designs the project and either

8 with fixed Payment assists the customer to implement the project or simply
advises the customer for a fixed lump-sum fee.

To introduce the ESCOs, to the market, EEIO has to establish a partially financed energy audits
program which should includes energy audits in different industrial and commercial enterprises.
EEIO provides technical support to the ESCOs as well as expensive measuring instruments
including power analyzers, gas analyzers, flow, temperature and light measuring instruments as
well as loggers.

Parallel to the audits programe EEIO has to provide capacity building to the ESCOs through
training on energy auditing, energy efficiency technologies, projects economical evaluation and
feasibility studies, financing energy efficiency projects and evaluation of project risks. EEIO
issue Pakistan Measurements and Verification Protocol (MVP) to verify energy savings, which is
necessary for performance contracting.

Although the ESCOs will be responsible to identify their customers, EEIO has to set general
guide lines for customer selection including criteria such as the facility should not operate at less
then 60% of its capacity and management commitment.

Further more EEIP develop a project sales process for ESCOs.

Another initiative may be made by EEIO through encouraging large and reputable companies to
adopt energy service activities as a part of their business.

EEIO has to develop a sales process to the ESCO. This process includes following.

1. The ESCO will identify the potential customer.

2. The ESCOs to offers a cost free quick energy audit to the customer.

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3. According to the audit outcome the customer will sign a Letter of Intend (LOI) with the
ESCO requesting it to conduct a techno-economical feasibility study for the potential E.E.
projects at an agreed cost. However the cost of the study will not be paid immediately, it will
be considered in project cost if the ESCO is offered the project. Also the letter will confirm
the acceptance of the two parties to have EEIO as a third party to resolve any disputes
regarding the quality of the study.

4. If the study is acceptable and the ESCO has not been awarded the project or the customer
delayed taking a decision more than three months, the ESCO will be eligible to be paid for
his study.

5. If the ESCO awarded the project the customer will pay a down payment between 10%- 20%
if the project cost including cost of finance. The rest will be paid on installments for a period
no more than three years.

6. The ESCO will design the payment plan such that each installment will be less than
generated savings during the same period.

7. The ESCO will offer technical guarantee for the equipment covering the payment life time of
the contract.

In case if the customer is a public sector/governmental facility, then the legal restrictions on the
public sector companies and governmental agencies. These restrictions include the necessity of
having a tender for any project and the restriction of direct orders. Also they include selection of
the lowest prices among the bidders, regardless some performance measures such as energy
consumption.

INITIATIVE FOR ENERGY EFFICIENCY IN GOVERNMETAL AND PUBLIC

BUILDINGS:

Another contribution by EEIO to support ESCO business came through its initiative to create an
implementation mechanism for the government initiative to conserve energy in governmental

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building and public services. This initiative includes developing a mechanism which enables
governmental agencies to request energy efficiency service through performance guaranteed
contracts. To facilitate this EEIO is to standardizing this mechanism through developing the
necessary procedures and formats as well as verification protocol, which are necessary for the
bidding document. Also it should develop a standard performance contract, evaluation criteria
and solicitation process.

EEIO LONGTERM MECHANISMS:

Improving the energy efficiency business environment represents should be one of the main
targets of EEIO In addition to the aforementioned short terms activities, EEIO to create a long
term mechanisms which can ensure the sustainability of the business. Regarding these
mechanisms which should include, developing a draft for energy efficiency law and the
development of demand side management scheme which relies on interruptible power contracts.

Regarding the energy efficiency law in addition to many measures include in the law, some
measures has direct impact on boosting the energy efficiency business, these measures include:-

a. Making energy auditing in industrial and commercial enterprises mandatory every three
years.

b. Developing energy efficiency bench marking system based on the local practice for different
industrial and commercial sectors.

c. Requesting all energy providers (i.e. electricity and fuel) to allocate 1% of their revenue for
the promotion of energy conservation concept as well as public awareness.

Establishing a mechanism through Govt. agency to implement as well as enforce the law, during
the approval of any project for executions. The Energy Efficiency Improvements Organization
(EEIO) project will contribute to create an energy service industry in Pakistan through in many

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cases including capacity building, enabling financially supported energy audits, and easing
access to finance. However the demand still has to be created for real market development.

This is attributed to many factors including the national economy and the market conditions as
well as public awareness to overcome these barriers EEIO to develop different mechanisms to
activate the market such as developing and implementating mechanisms for the governmented
initiative for energy conservation in public building. On the long terms level EEIO to adopt as
initiative for Pakistan to have its energy efficiency law it is believed that these measures will
boost the energy efficiency business to a new horizon.

CONCLUSION:

• Formation of Energy Efficiency Improvement Organization (EEIO) will contribute to create

an energy service industry in Pakistan through many measures including capacity building,
support energy audits etc.
• On the long term level EEIO to adopt an initiative for Pakistan to have its energy efficiency
law as well as the promotion of interruptible power contracts.
• Demand side management can help in resolving energy issues in Pakistan faster than supply
side.
• Challenges and opportunities that will face in Pakistan include low efficiency building
system design, financing and lack of awareness.

REFERENCES:

1. Energy Efficiency business profile

2. Energy Up Date
3. “Key world energy statistics” International Energy agency, 2004
4. Energy Efficiency improvements, project documents 2005
5. Hydrocarbon Development Institute of Pakistan, Energy Update 2007
6. Pakistan Energy Year Book
7. World Fact Book 2004

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