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Corridor of Opportunities for Energy by Nadeem Babar Orient Power Company Ltd January 2016. Global Trends in Electricity. All developed nations, and many developing nations have sufficient electric generation capacity
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Corridor of Opportunities for EnergybyNadeem BabarOrient Power Company LtdJanuary 2016
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 foresee-able 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%+
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 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
Population Without Electricity 11% 2 Million People 25% 304 Million People 31% 56 Million People 40% 60 Million People
Per Capita Electricity Consumption United States 12,272 kwh (2013) Germany 7,270 kwh(2014) World 2757 Kwh (2014) China 4,295 kwh (2014) India 952 kwh (2014) Pakistan 495 kwh (2014) Bangladesh 260 Kwh (2013) Sources: India: CEA, China: IndexMundi, Pakistan: NEPRA, USG, IEA, IMF, World Bank
Per Capita Income (PPP$ 2014) United States 54,370 Germany 46,216 World 14,982 China 13,224 India 5,808 Pakistan 4,749 Sources: IMF, World Bank
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
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
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.
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
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
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
South Asia: Big Picture • Checklist • Pool of Labor: very high • Technical Skill-set of Labor: moderate to high • Technology Own or Available: moderate to high • Capital: Self and In the Region: moderate to high • Demand Growth: very high • Purchasing Capacity: increasing rapidly • Legal Frameworks: good • Free deregulated markets: Poor to Moderate • Regional Integration Poor
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
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