This document discusses developing modern electricity markets in Pakistan through distributed generation and localized electricity grids. It analyzes different village scenarios based on population density and economic conditions to identify appropriate electrification models. Various financing options, business models, and roles for government, private sector, and local communities are considered. The key takeaway is that bespoke, localized solutions tailored to village characteristics can effectively electrify rural communities in a sustainable and affordable manner compared to traditional centralized grid expansion.

1. Developing Electricity
Markets for the Future
Pakistan Institute of Development Economics,
Islamabad,
3rd July 2020
Prepared By:
Amer Zafar Durrani, Zahid Nawaz

2. Key Qs in developing modern Electricity Markets in
Pakistan
Necessary Reforms? Regulatory System?
Electricity Pricing? Government Guarantees?

3. Thinking Forward—modernize existing,
localized, think energy=electrons,…
• Existing centralized GenTranDis System to be modernized
• Consumer choice through open competition even for base load
• Implies independent DISCOs/ESCOs with own contracts with GENCOs
• Industries think separately—possibly the only real future for current Grid
GENCOs
IT IS NOT ABOUT SURPLUS RATHER ABOUT WHERE IT IS
• My focus today will be on localized electricity markets both for “rural and
urban”
• No single broad-brush approach, rather considered bespoke markets need
to be developed

4. Connecting the Grid is not only obsolete, leads to
power sector debt, but also expensive and will take
too much time…
• Power sector debt exists due to the
basic issue of losses and need for full
cost recovery ( generation+
transmission+distribution+losses)
which implies unaffordable tariffs.
• e.g. South Africa’s power sector debt is
27bilUSD (Pakistan is at 10bilUSD)
• Connecting MEMs to grid and
addressing circular debt almost
accumulates to 1/4th of Pakistan’s
current external debt!
15 Billion USD (if
done in a single
investment)
Time to connect a HH
to grid
9 years
Cost to connect a HH
to grid
1500 USD (SSA
Estimates)
Cost to Connect 70
Million MEMs to grid
Time to connect
MEMs to the grid with
current 9 Yrs. /HH ….
Quarter of a century
or more!
Almost tripled the
cost!

5. Mini-grids more affordable on the average for peri
urban and rural communities…

6. Global policy makers predict that 7th SDG—energy
access to all—will be met primarily by Distributed
Generation (DG) relying on localized grids
Bloomberg NEF estimates that micro grids relying on solar alone will be a USD 64bil
market by 2030..
Global DG Capacity & Revenue..

7. This is how we will get electricity to the Missing
Energy Millions (MEMs) in Pakistan—the new
electricity market!
A case of poor accounting or
poor planning?!—but in the end,
only the poor MEMs suffer!
> 1 bil missing energy
globally, > 135 mil in
developing Asia, ~ 80 – 100
mil in Pakistan = 1/10th of the
MEMs!
 70 million rural Pakistanis
not grid connected
 75 million urban and rural
grid connected Pakistanis
face daily 12 hours of
rotational blackouts
 >140 million Pakistanis are
directly and indirectly
impacted!
Sources: IEA Statistics, OECD, NEPRA,IFC

8. Average
Electricity
Provision in
Lasbela
Towns is
8 Hours
Quality
of
Service
Provided
0%
10%
20%
30%
40%
50%
60%
1 to 2
hours
2 to 4
hours
4 to 7
hours
7 to 10
hours
>10 hours
Hours of Load-Shedding
Bela Hub Uthal Winder
01
97%
90% HUB
More than
4 hours
93% UTHAL
More than
2 hours
92% WINDER
More than
4 hours
BELA
More than
2 hours
During the month of low
electricity supply, average
electricity provision was 10.3
hours across the four cities

9. Dissatisfaction
equal between
Quality & Cost

10. People are
Willing to Pay
for Quality
Electricity

11. Majority in Urban
Areas are Ready
for Alternate
Sources of
Electricity

12. Industry in Lasbela
is Ready for DG

13. In rural/off-grid Pakistan alone, we have a ‘11,200’ MW
(and growing) market in distributed generation for
Pakistan..
Current Access Gap
Market of 70 Million Individuals without
electricity access!
National Demand
33,000 GWh demand if electrified
communities rise to average national level
of consumption
Market Size
Demand translates to a market size of $ 3.4
billion/ year at current domestic consumer
tariff rate—actual size up to $9 billion!
Comparative Global Demand
130,000 GWh demand if un-electrified
communities rise to average global level of
consumption
Grid extension
expensive; Matiari I
and II not helping
Grids need
updating; up to 25%
losses!
Grid connected do
not have enough
power—4-12 hour
load shedding
Access to electricity
70% of population
only
Rural access to
electricity is much
lower—40 percent
of Pakistan has no
grid access
Rural implies
dispersed, lower
demand and poor
ability to pay
Sources: IEA Statistics, OECD, NEPRA,IFC

14. The MEMs market in Pakistan is primarily rural…
A few semi-urban footprints
10,400MW CPEC plan
for on-grid population.
Nothing for 70 million
energy-impoverished!
72%
5802 Villages
81%
48%
63%
5927 Villages
7432 Villages
13541 Villages
Village Percentage
Number of un-electrified villages
GB >90% HHs with
access to fluctuating
quality of electricity..
Pakistan currently does not
account for the missing
energy millions (MEMs) and
will need to deliver on this

15. Yet poor in Pakistan are
spending on traditional
energy sources is $2.3
billion annually!!—
MEMs?
Planners and policy makers say that the MEMs are
not supplied as they are too poor to afford
electricity!...are they?

16. ..and our recent study in Pakistan also proved that
distributed generation has a competitive LCOE
Rank Potential Sector
Final
Score
Matrix
Key
1 Wind IPP (Tier 1) 7.73 L
2 Solar IPP (Tier 1) 7.67 K
3 Sugar Mills (Tier 1) 7.27 A
4 ESCOs (basic bankable entities) (Tier 2,3) 6.85 R
5 Solar distributed generation (Tier 2) 6.80 M

17. Distributed Energy Markets - Key Takeaways from Global
Experiences
Three major forms of business models
Under Government ownership,
the after sales service and
maintenance costs are high and
unsustainable due to high rate of
default
 Government or donor funded
 SHSs handed over to community
 Minimum fees charged for O&M
Flat Subscription Fee
 Private sector
 Profit driven model
O&M costs are sustainable as
chances of default are low
Pay As You Go
The end user is responsible for
O&M hence no financial burden
is borne by the implementing
agency or the government
 Government and Private sector
 Micro-credit
 Micro-Finance Institutions involved
Rent to
Own
Inclusion of local
community in O&M
positively impacts
community’s skill set
and livelihood
Entrepreneurship is
encouraged and fostered
in programs where local
community members act
as lending agents or
suppliers
Government’s role should be
minimized to financing. The
projects where government took
the responsibility of installation
and O&M turned out to be
unsustainable.
Decentralization Entrepreneurship Government as Financers

18. Distributed Energy Markets - Key Takeaways from
Pakistan’s Scenario
2.3 billion dollars per
year spent on kerosene
and candles by off-grid
communities
Loss of economies of
scale due to high
generation costs
associated with SHSs.
Microfinance loans have short
payback period (1.5-2 years)
and the interest rate is high
25-40 percent
Multiple types of capital are
required to scale up the micro/mini-
grid projects in Pakistan.
Community contribution and
timely collection of revenues is
vital for the sustenance and
expansion of these projects
Government’s funding support
schemes for RE projects have
stringent conditions making it
difficult for private organizations to
obtain funds
Villages with better existing
socio-economic
infrastructure gain more
from access to electricity
Tremendous
latent growth potential
of off-grid energy demand
There is a dire need to uplift
lives and finances of
households in off-grid areas
Local communities should be
mobilized into community
organizations and saving groups
should be introduced at village
level.

19. SIDE NOTE: Solar Home Solutions are
Comparatively Expensive Because of high
Generation Cost
Generation Cost of Basic SHS
is 33 PKR/kWh.
Generation Cost of Basic SHS
at 10 % mark up (Solar
Financing) is
48 PKR/kWh.
1. LED Bulbs X 3
2. Pedestal Fan X 1
3. Cell Phone Charger X 1
Solar Home Solution
SHS Package includes basic amenities:

20. Summary of Learnings
Thematic Area
Affordability Economic
Return
Reliability of
Supply
Sustainability
Factors
Inclusion of local
communities for O&M
Bespoke system designs
for each village
Involvement of local
entrepreneurs
Tariff legislation
for off-grid
Government Financing
support
Government O&M
Technical Support
Availability of micro-
finance

21. Finance
• All grant
• Public Private
Partnership (PPP) -
Government with Local
Community (LC)/
Private Agency (PA)
• Microfinance Institutions
+ Local Community
Business Model
• Pay as you go
(PAYG)
• Rent to own
• Postpaid
Design
• Mini-grid
• Solar Home
Systems (SHS)
• Central Grid
Connectivity
O & M
• Private Agency + Local
Community (PA+LC)
• Local Community
trained by the service
provider
• End User
Villages Scenarios
• Private Agency + Local
Community (PA+LC)
• Local Community
trained by the service
provider
• End User
Options Formulated Based on Following Parameters

22. Village Scenarios in terms of population density and
economic conditions
Low income-densely
populated-cluster of
villages
Relatively High income-
sparsely populated-
single village
Relatively High income-
densely populated-
cluster of villages
Low income-sparsely
populated-cluster of
villages
Same models can be developed for
urban areas or semi-urban areas,
e.g. for Karachi (Lyari,
SuperHighway, Goths…)
Example is our work with Karachi
Electric

23. [CELLRANGE], 33, 10
[CELLRANGE], 27, 15
[CELLRANGE], 27, 5
[CELLRANGE], 21, 15
[CELLRANGE], 21, 15
[CELLRANGE], 30, 15
[CELLRANGE], 21, 15
[CELLRANGE], 36, 10
[CELLRANGE], 24, 15
[CELLRANGE], 27, 5
[CELLRANGE], 21, 15
[CELLRANGE], 30, 10
[CELLRANGE], 21, 15
[CELLRANGE], 30, 5
[CELLRANGE], 24, 5
[CELLRANGE], 33, 15
[CELLRANGE], 24, 15
[CELLRANGE], 18, 15
[CELLRANGE], 33, 10
0
5
10
15
20
10 15 20 25 30 35 40
AVAILABILITY
OF
MODEL
(LOW
TO
HIGH)
LIKELIHOOD OF SUCCESS (LOW TO HIGH)
E4 CG, 18, 15
BCG
analysis of
options
and
availability
of energy
markets
models for
Pakistan

24. • Single brush approaches will not work at the national level
• DG/MG in dense villages and clusters while SHSs in sparse locations to
take advantage of economies of scale
• There is a space for the home solutions in parallel with the DG/MG, and
both are not competing options
Bespoke Solutions Are Required For Scale-Up

25. • Sustainability of rural electrification projects depends on the socio-economic
conditions of the villagers
• Efficient capacity utilization is highly dependent on livelihood creation
Sustainable Rural Electrification and Economic
Development are Correlated

26. • Models being developed by microfinance service providers need to
understand that they are expensive and are not considering the household’s
pathway to the complete energy access spectrum
• Microfinance service providers are not looking at collective models of
electrification
Models Offered by MFIs are Small Scale and
Expensive

27. • The current models in off grid rural electrification in Pakistan are missing a
critical partner—the technical partner—ideally a common equity partnership
between the local PO and the community and a technical partner requires
nurturing
Involvement of Private Agency Required for Better
O&M Management

28. • There is a need to develop a off-grid electrification policy based on the
learnings of this study
• There is a need for entities like PPAF/RSPNs/other CSOs to aggregate their
entire electrification effort under one roof for better response to energy
poverty in Pakistan
• Rural electrification models need to learn from micro-finance: need/utility
results in payment, willingness to pay higher interest rates, social capital
leading to better recovery
Policy Interventions Are Critical

29. Renewable Energy Market Financing
Household
Products
Household Solutions
(Grid Quality Access)
Alternating Current (AC) Direct Current (DC)
Prevalent Worldwide Mostly Africa
Grid Off Take Distributed Generation/Community Power Household

30. Types of Financing in Renewable Energy
Project Development Capital
Equity Finance
Debt Finance
On-balance sheet
corporate finance
Corporate finance
(small projects; less than $15 million)
Off-balance sheet
project financing

31. Mini-grid Business Model Actors..
Demand Management
Promoting Income-
Generating End Uses
Quality of
Electricity Service
Tariff Design Revenue Collection End User
Finance
Securing financing for mini-grid development is challenging, partly because of the inherent weaknesses of mini-grid financial models and
partly because of risk perceptions

32. Paidartwanai proposes a
Mini-Grids pooling facility
• PT and communities and
RSPs will: own all assets
real estate, equipment,
etc.; and own all debts
and operate all mini-grids
• PT will be further broken
down into an operating
company and property
company: OpCo leases
assets from AssetCo (see
below) and makes money
by operating all mini-
grids; AssetCo owns all
assets and liabilities and
makes money by leasing
assets to OpCo

33. Questions?

34. Key For Village Scenarios
Economic Status Population Density Village Design
Based on poverty score
ranges developed by
World Bank
Mean score 0-34
Mean score 35-100
Compared to Pakistan’s
average population
density
Based on mini-grid
transmission design
Less than 281
inhabitants per square
km
More than 281
inhabitants per square
km
Village falls within
500-700 meters radius
for transmission
No other village within
500-700 meters design
radius
High income
Low income
Dense
Sparse
Cluster
Single Village

35. Options Finance Design Model O&M Likelihood of Success (Score)
Availability of Model
(Score)
Village Profile 1: Low Income-Densely Populated-Cluster of Villages
A1 MG All grant Mini-grid PAYG PA+LC 33 10
B1 MG PPP+PA Mini grid Postpaid PA+LC 27 15
C1 MG MFI+LC Mini-grid PAYG LC 27 5
D1 MG MFI+LC Minigrid PAYG PA+LC 30 5
E1 CG Govt Central Grid Postpaid DISCOs 21 15
F1 MG PPP+LC Mini-grid Postpaid PA+LC 30 15
Village Profile 2: Relatively High Income-Densely Populated-Cluster of Villages
A2 MG PPP+LC Mini-grid PAYG PA+LC 36 10
B2 MG All grant Mini-grid Post Paid PA 24 15
C2 MG MFI +LC Minigrid Postpaid PA 27 5
D2 MG Govt Central Grid Postpaid DISCOs 21 15
Village Profile 3: Low Income-Sparsely Populated-Single Village
A3 SH All grant SHS PAYG PA 30 10
B3 MG PPP +LC Mini-grid Postpaid PA+LC 21 15
C3 SH MFI +LC SHS PAYG PA+LC 30 5
D3 SH PPP+PA SHS Rent to own PA 24 5
Village Profile 4: Relatively High Income-Sparsely Populated-Single Village
A4 SH MFI +LC SHS Rent to own PA+LC 33 15
B4 MG PPP +PA Minigrid PAYG PA 24 15
C4 MG All grant Mini-grid Postpaid LC 18 15
D4 SH PPP+LC SHS PAYG PA 33 10
E4 CG Govt Central Grid Postpaid DISCOs 18 15
Scale
Up
Deliver
y
Models