China has announced in international fora that it won’t finance any coal power plant project outside of China anymore.
This has sent shockwaves among stakeholders in Pakistan, who were counting on technology and finance from China to utilise the huge Thar coal deposits of 185 billion tons.
China has already built a 660-megawatt power plant in Thar and is in the process of building another power plant along with a coalmine with a capacity of 1,320MW.
There are several other Thar coal projects in the pipeline, all based on technology and finance from China.
China has also built three power plants in Pakistan based on imported coal. There are other project ideas and proposals regarding coal gasification to produce diesel, gas, fertiliser and chemicals, on which considerations are at various stages.
Hopefully, China would honour its existing commitments to Thar coal, which unfortunately are not much beyond the two projects – one already constructed (SECMC 660MW) and the other under construction (SSRL 1,320MW).
Coal is not used in power sector alone in Pakistan, which is a relatively recent phenomenon. Cement sector is using mostly imported coal along with some sub-bituminous coal produced in underground coalmines in Balochistan.
Before the advent of coal-based power plants, Pakistan imported 10.7 million tons in 2017, and almost all of that went to the cement sector. Cement sector’s installed production capacity is projected to grow to 100 million tons per annum (mtpa) from the existing 55 mtpa.
Thus, cement sector’s demand for coal is going to be 20 mtpa in the near to mid-term. Cement sector is vital both for domestic construction industry and for exports.
Thus, total imported coal demand for both power and cement sectors, which appears to be touching 25 mtpa, will go up to 35 mtpa.
Based on average price of $100 per ton, the total annual import bill for 25 mtpa of coal will be $2.5 billion.
There is no economic fuel for producing cement other than coal. Cheap local gas had been used earlier for producing cement. Rising gas prices and depleting local gas resources have forced cement producers to shift to coal.
Unfortunately, now both gas (LNG) and coal are expensive. Coal prices have gone as high as $146 per ton from $70 earlier. LNG prices are exceeding $36 per million British thermal units (mmbtu), which is absolutely uneconomic and unaffordable.
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In this context, local coal production appears to be cheaper and viable. Although there has been controversy over Thar coal production costs, there have been recent estimates of $30 per ton, which is equivalent to $60 per ton for imported coal. Thar lignite coal is one half in calorific value than the imported coal.
Lignite may not be an ideal fuel for cement production as it contains 40-50% moisture. However, it can be pre-processed to fire in cement kilns.
A 20 mtpa demand for imported coal from the cement sector will be tantamount to 40 mtpa of Thar lignite. Add another 10 mtpa for other sectors, it adds up to 50 mtpa of Thar coal demand for other than the power sector.
If this import is replaced, one could save $2 billion. It is, therefore, vital to establish Thar lignite mines of 50 mtpa over the next five years, even if we forget about the use of Thar coal in power sector.
It may be plausible that the announcement of China is restricted to coal-based power plants only and there is no bar on the use of coal in other sectors such as cement.
Pakistan should also start developing indigenous mine development and operating capacity. There is now some experience already in this respect.
Chinese government may be more than willing to transfer technology in this sector, now (by reducing its direct exposure in terms of operations and finance) that it wants to improve its international image among the climate lobby of the world.
Coal power expensive
It should be noted that coal power, whether based on local or imported coal, is expensive at 8.5 US cents per kilowatt-hour (kWh) while renewable energy like solar is available at less than 4 US cents.
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International prices have gone down to even 2 cents and lesser. There is forecast for solar power going as low as 1 cent, although storage cost could double it.
The issue is how to manage the transition and avoid stranded investment. Chinese decision may ultimately prove to be a blessing in disguise. Thar area of 10,000 square km can generate 400 gigawatts of solar electricity based on 25 square km per GW.
By comparison, the Indicative Generation Capacity Expansion Plan (IGCEP) predicts 55-75GW of generating capacity by 2030. Although all electricity cannot be produced in one location, it may be reasonable to plan 5-10,000MW of solar power in Thar area.
With LNG price uncertainties, depleting local gas resources, and stoppages on coal power, very little options will be left for adding base load power plants.
Hydro is a base load power plant but it does not run in winters. Nuclear is expensive and takes a long time to materialise. There is a lot of politics involved in it too.
Furnace oil seems to be re-emerging. We may have to adopt go-slow and wait-and-see approach to closing down/conversion of furnace oil production, till the dust settles.
We should not repeat the same mistake of total foreign reliance. A local solar equipment production industry plan should be developed, not only for producing solar PV panels but other items such as inverters, etc as well.
Incentives
An incentive programme should be prepared, encouraging the local manufacturing industry. After all, huge incentives in the form of customs tariff have been given to the automotive industry. And now, there are proposals for 10% price protection for the refinery sector.
There is ample scope for incentives when coal-based electricity tariff of 8.5 US cents is compared with less than 4 cents for solar power.
As of today, no energy source is a panacea. Solar is available during the day time only while hydro and wind are available in summer. Fossil fuels such as oil and gas are exhaustible and subject to price variations, while coal is dirty and bad for the environment and climate.
The days of energy utopia are not too far ahead into 2040-50. World is moving towards the solar-wind-hydrogen chain. Hydrogen will make energy transportable and tradable across national boundaries. We have to start moving in that direction.
