Rock solid

Assad Ahmad argues Thar's coal is not a trap

Rock solid
Coal is easy to hate. Who wouldn’t hate such a ghastly relic? Generate electricity by burning dirty coal? Crazy. Crazier still, because, as we were reminded in a wildly popular cover story carried last month by Dawn’s EOS Magazine (Pakistan’s Coal Trap, Feb 4, 2018), solar power is actually now cheaper than coal power. Referring to the massive coal deposits found in Thar, which will be used to fuel new power plants, the essay audaciously concluded that “Thar coal is best left buried as it is”. The glorious, free sun on the one hand, ugly expensive fossil fuels on the other. Easy choice.

Except it’s not.

With frequent episodes of nightmarish smog in major cities rightfully angering the urban elite, it is unsurprising that the opposition to coal power generation is getting louder. Debate on issues should always be welcome, and is a sign of civil society’s growing influence. An activist court, that avidly follows the news, amplifies this influence. But it is important that debates about coal power be based on a sound understanding of what is at stake. Fuzzy math and spurious reasoning will lead us to the wrong choices. And the logic of many influential voices arguing against the development of Thar’s tremendous underground wealth is as fuzzy and spurious as can be.

The fuzziness starts with the cost comparisons. The logic being peddled is this: large-scale solar power can now be bought by the national grid for marginally less than power produced by coal, therefore we should build solar power plants instead of coal power plants. QED.

Sounds good, until you talk to anyone who knows anything about power. Or anything about the sun.

As it happens, the sun doesn’t shine at night. Therefore, power plants that sell solar electricity to the national grid, sell nothing after dark. This is an especially big hurdle for solar power adoption in countries like Pakistan, where day-time air-conditioning demand, and industrial activity are still relatively low. How so? Because it means that our peak power usage is usually after dark—precisely when solar power plants stop working.

Many homes with solar panels on their roofs are equipped with batteries to counter this (to store excess power to be used when the sun goes down). But on a utility-scale, with current technology, this is so expensive as to be impossible. This is mainly why, globally, solar power makes up less than 2% of total power generation, and is projected to remain under 3% even by 2025 (US EIA, International Energy Outlook). Even countries leading the solar pack, such as Germany and Italy, only generate 6% to 7% of their total electricity needs from solar power (nearly 40% of Germany’s electricity is produced with coal, much of it from projects built near, and using, low quality lignite, like Thar’s).

This means, roughly, that of the 25,000 additional megawatts of capacity the International Energy Agency reckons we need to meet expected demand growth by 2025, the equivalent of more than 20,000 megawatts must come from non-solar sources. The bottom line is: drawing utility-scale conclusions from the fact that solar power can be cheaper than thermal generation is a mug’s game.

OK, say Thar’s opponents, why not use cleaner thermal energy for round-the-clock generation. Like natural gas which, in general, isn’t a whole lot more expensive than coal. Good idea. One slight problem: as a country, we are massively short of natural gas.

On the margin, new natural gas-fired plants use imported RLNG (re-gasified liquified natural gas). By most estimates, two-thirds of the cost of electricity generated in this way will go to importing fuel, linked to the international price of oil. Effectively, this means we would be importing energy, much as we do in the case of oil-fired plants.

Of course, the same is largely true for any coal plants based on imported coal. These plants, of which one is in operation in Sahiwal, and others nearing completion at Port Qasim, are a colossally foolish idea. The only difference between the two is that the Sahiwal plant is dumber, because it actually requires the imported coal to be lugged halfway across the country by train, where it is used to produce something that literally travels at the speed of light. Either way, both these plants add to the poor environmental picture, while still using an imported resource, at a trivial cost advantage to other imported thermal sources. Arguments against these plants, must be separated from arguments against local coal. Imported RLNG should almost certainly be preferred over imported coal.

But what about Thar coal? The single most important point about this, which neither the EOS article considers, nor most coal-power opponents seem to grasp, is that it is ours. We already have it.

Estimates of how much we have vary widely—from 2 billion to 200 billion tons. Using the Sindh government’s low estimate of 2.3 billion tons of reserves, and a conservative coal price assumption (based on NEPRA figures) of 40 dollars per ton, we have at least 90 billion dollars of treasure lying under the Thar desert. And likely several times that. Even accounting for sizeable extraction costs, and a generous profit for the mine operators, this is an astonishing amount of wealth. And once we get it out, we need to generate electricity with it because the nature of the lignite reserves makes export effectively impossible.

This is the main reason why looking at the power purchase price from Thar coal projects, and comparing it to those of other thermal options is meaningless: most of the power price is being paid to ourselves!

The Sindh government, in addition to owning half the mining project, owns the coal and will be paid royalties for it. Such arrangements will eventually generate hundreds of millions of dollars a year in profit, and save billions of dollars a year in foreign exchange payments. This is so important to understand that it has to be re-stated.

The power purchase price of Thar coal plants includes a fuel component. For most thermal power plants, this is the largest component of the power price, and represents the cost of buying imported fuel. In Thar’s case (current, and likely future developments), that fuel price will be paid to a mining company, half owned by the Sindh government (which will also receive royalties directly). This financial benefit cannot be gauged from simply looking at the power purchase price. Far from a “silly, blighted scheme”, that “a few may fleetingly benefit from”, as the EOS piece characterizes it, this is a scheme that will help pay for the health and education of Sindh’s children for years to come. The only thing silly about Thar is that it took us this long to get this far.

Thar opponents claim that we are somehow single-handedly marching against the tide of history by embracing coal late. Yet, despite the much trumpeted (and exaggerated) death of coal in the western world, it is telling that non-OECD (read, non-rich countries, with faster growth) coal electricity production continues to grow and is expected to continue to do so. According to the International Energy Agency (as reported in the Financial Times), coal’s share of power generation in South-East Asia (more comparable to Pakistan than, say, the UK) rose from 21% to 35% between 2000 and 2016. They expect an even higher share for coal in 2040.

None of this is to say that environmental concerns need not be an important state priority. This is why, in addition to unlocking Thar’s wealth, the state must continue to encourage renewable energy projects based on solar (including distributed solar) and wind energy. This is not an either-or question—we are a developing country with low energy usage that is set to expand by many multiples. We need to use whatever we can. Policy-makers would also do well to use the breathing room that a short-term surplus affords, to develop large-scale hydro projects with long lead times. It is such projects that form the backbone of renewable energy the world over.

Advocates for clean air, which all thinking citizens should be, must also push for aggressive enforcement of existing environmental laws, alternatives to crop and waste burning, better motor fuel standards, re-forestation, and emergency measures in peak smog season. We must also push hard against projects that generate electricity using imported coal. But for civil society to turns its sights from one of the most important resource finds in our country’s history, based on false reasoning and dodgy calculations, is ill-advised. And to not even understand what is at stake when advocating for extreme measures, like abandoning Thar altogether, is catastrophically misguided.

The writer is a Lahore-based columnist. He has previously served as a director in the global markets division of a major European investment bank, where he specialized in energy trading. He has served as a strategy consultant at a leading global management consulting firm. The views expressed are entirely his own. @AssadAhmad