Corridor of Opportunities for Energy
by
Nadeem Babar
Orient Power Company Ltd
January 2016
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Global Trends in Electricity
All developed nations, and many developing nations
have sufficient electric generation capacity
Net load growth is there is very small, and is either to
replace old plants or for environmental reasons
Natural gas is fuel of choice for base load
Coal is cheap and abundant, and while coal based
generation will continue, its share will decline
Oil reserves will comfortably meet demand for foreseeable future; however, it will have limited use for power
Safety factors will dictate future of nuclear power.
Renewables growth is high for peaking or displacement;
improvement in storage technology will decide future
Outlook beyond 2030 will be driven by technology, with
storage technology costs expected to drop by 50%+
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BTU Convergence
The global energy economy is moving
towards BTU convergence
The cost of usable form of energy =
Primary Energy*+Capital Recovery+(Ops Cost*)
In a deregulated market, the cost of final
form of usable BTUs is converging
R&D for technological development takes
cue from market pricing
Convergence results in cheapest price for
consumer: usable BTU (kwh) is a
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commodity regardless of source
South Asia Trends
Over 29% population without electricity; this is 37% of
the world population w/o electricity (50% in Africa)
Per Capita consumption shows tremendous repressed
demand even for those who have access
GDP growth of 3%-7% p.a., requiring 5%-10% load
growth to support it even to maintain status quo
Shortages of approximately, 5%-30% even for
connected load depending on the country
Many energy assets still under heavy regulation and/or
government control leaving a lot of room for
improvement in efficiency of existing assets
Region is a net importer of oil, gas, and coal
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Population Without Electricity
11%
2 Million
People
31%
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Million
People
25%
304 Million
People
40%
60 Million
People
Per Capita Electricity Consumption
United States
Germany
World
12,272 kwh (2013)
7,270 kwh(2014)
2757 Kwh (2014)
China
4,295 kwh (2014)
India
Pakistan
Bangladesh
952 kwh (2014)
495 kwh (2014)
260 Kwh (2013)
Sources: India: CEA, China: IndexMundi, Pakistan: NEPRA, USG, IEA, IMF, World Bank
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Per Capita Income (PPP$ 2014)
United States
Germany
World
54,370
46,216
14,982
China
13,224
India
Pakistan
5,808
4,749
Sources: IMF, World Bank
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Per Capita Electricity Vs Income
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Privatization / Deregulation
Privatization
Change ownership from public to private
Objective is to improve efficiency
Concept is that private ownership will result in
better performance and/or lower cost
Will attract more capital; frees up public finances
Deregulation
Creates open competition by removing barriers
Eliminates “rent seeking” by doing way with
approvals
Creates level playing field (public or private)
Market Directs capital flows and forces inefficient
suppliers to shut down; lowers cost as a result
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Historical Perspective
For the first 100 years, electricity industry was treated as
a natural monopoly
Exclusive service territory was defined
Integrated Generation, Transmission & Distribution
were treated as essential
Governments often owned utilities because of the
monopoly structure
Customer rate allowed recovery of cost plus a
return as decided by regulator
No real commercial incentive by the integrated
utility to reduce cost
This model was challenged in last 30 years
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Electricity: Commodity or Service ?
Deregulation of demand and supply
Financial independence/sustainability of parties
Physical Infrastructure (grid, pipes etc)
Maturity of financial market
Affordability of customers
Price for a monopoly service is based on the ability of the
seller to charge what it can or decided by Fiat by government
A traded commodity in a deregulated market, where supply
can freely respond to demand will finally settle at lowest price.
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Fuel Trends
Natural gas is insufficient for the needs of the region;
needs to secure long term supplies
Coal is available, and new coal based generation will
continue but after Paris 2015, some impact will happen
Region is net importer of oil of more than 60% of its oil.
Oil prices in the near term will be affordable, but the
region has to contain oil based growth in the long term
Nuclear power production will increase
Renewables will grow but be constrained because of
comparative costs
BUT
SOUTH ASIA SITS IN A UNIQUIE NEIGHBORHOOD
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The neighborhood we live in
42%of the worlds gas reserves are next to South Asia
38% of the oil reserves are in the neighborhood
24% of the coal reserves (including South Asia, SE
Asia, China) are within short distances
The largest watershed outside of polar caps is within its
territory in the north
Much of South Asia has plentiful sunshine (average 300
days) in its plains in the middle
Southern coastal parts of it have good wind corridors
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What does the future hold?
The energy mix in 2050 will mainly be fossil based
Electricity as a percent of total energy was 17% in
2010; will increase to about 30% by 2050
Global electricity supply will increase from 21.5
billion MWh in 2010 to about 50 billion MWh in 2050
Per capita electricity use will increase by 80%-110%;
much of it coming from developing nations
Energy efficiency is crucial in deal with demand
outstripping supply in the future
Functioning Energy markets, where electricity is a
traded commodity, need investments and Regional
Integration to deliver benefits to all consumers
Investment needs in electric generation will be
between $19 - $26 trillion worldwide upto 2050 20
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South Asia: Big Picture
Checklist
Pool of Labor:
Technical Skill-set of Labor:
Technology Own or Available:
Capital: Self and In the Region:
Demand Growth:
Purchasing Capacity:
Legal Frameworks:
very high
moderate to high
moderate to high
moderate to high
very high
increasing rapidly
good
Free deregulated markets:
Regional Integration
Poor to Moderate
Poor
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South Asia: Capitalize on it
Confluence of global economic and
demographic factors in the energy
sector have created a unique situation
It is one of the only regions with high
demand while the rest slowed down
At its doorstep are huge reserves of
primary energy
Capital within and in the region
It has its own renewable resources
But its markets are heavily regulated
and its integration level is very poor 25
Corridor of Opportunities
At a macro level, if the region does not
integrate, it will be left behind
At national level, if the leaders do not enter
the corridor NOW, the door may shut soon
If legislators and politicians do not deregulate
NOW, regional economic history will be
narrative of missed opportunities
If the Corporate Leaders do not capitalize on
these opportunities NOW, their companies
will become irrelevant on world stage
If the people do not demand a better energy
future, they may not get one
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