PNG's electricity generation challenge: Power to the people, power to the economy

Papua New Guinea's development goals require a tripling of electricity supply by 2030 - growth the existing electricity delivery system will be hard pressed to deliver.

That challenge suggests new directions for electricity, including both on-grid and off-grid solutions in remote areas – diesel should play little, if any role and grid extension should be judicious.

"If the current system will not meet PNG's needs, what should replace it? New energy technologies are prime candidates."
Grant Mitchell, Director Port Jackson Partners

How PNG can power into the Asian Century

According to ANZ's new insight report, Powering PNG into the Asian Century, prepared by my firm Port Jackson Partners, embracing new technologies could save around US$5 billion, or a third, of expected expenditure to 2030 and halve emissions over the same period.

But this new approach will require the extension of current electricity sector reforms such that incentives are effective, as significant innovation will be required.

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Economic and social development relies on an electricity system that delivers for everyone. Economic growth moves in lock-step with increased electricity supply. For social development, access to clean, affordable and reliable energy is of utmost importance.

PNG's development ambitions cannot be achieved without energy supply improvements, delivered at a pace and scale that are unprecedented. Supply must increase by 225 per cent, or 7.2 per cent per year to meet PNG's stated development goals, with the fastest growth in rural areas where current electricity outcomes and capabilities are weakest.

At a minimum, achieving PNG's target of 70 per cent of the population having access to electricity means rural access rates will need to rise from 7.6 per cent to close to 65 per cent. Over two thirds of new demand is likely to arise beyond PNG's current or future electricity grid.

If the current system will not meet PNG's needs, what should replace it?

New energy technologies – such as solar PV, micro-hydro and biomass – are prime candidates. The emergence and increasing viability of new energy generation and storage technologies provide a new electrification pathway. Recent improvements in their cost, price and capabilities have unlocked new ways to vastly improve energy access, often by freeing electricity supply from grid infrastructure.

Although understanding the full implications for PNG will require more detailed work, four key points are apparent:

Move beyond an assumption 'the grid is the answer'. As off-grid solutions improve in cost and reliability, the area for which grid extensions make sense is shrinking. For PNG, this area now ends much closer to the current electricity network than often thought. Outside urban areas, it is likely that most people currently off the grid should remain off the grid.

For on-grid generation, utilisation effects can challenge traditional approaches. For many plausible demand scenarios, large-scale hydro generation may not be the best option. The practical and commercial advantages of gas-fired generation may suggest gas is superior. Improved energy forecasts and greater understanding of the impact of generation type and scale on end-user costs are needed to make the right choices.

New technologies are a superb match for off-grid needs. In areas beyond the reach of the current electricity grid, the use of emerging energy technologies such as micro-hydro, biomass and solar PV – perhaps twinned with improved energy storage – could immediately make real improvements in cost and reliability, even when compared with currently installed capacity.

Some emerging technologies offer superior economics today across a range of settings. For agricultural processing our estimates suggest energy from diesel generation is 150 per cent more expensive than from biomass generators.

Similarly, diesel is 50 per cent more expensive than a twinned solar/storage setup in village settings. In regional centres – for example, Wewak – diesel generation is 20 per cent more expensive than micro-hydro and 150 per cent more expensive than biomass. These cost advantages will grow as the technologies mature.

The benefits extend beyond cost. As they are self-contained, generation plants based on these technologies allow diverse, decentralised supply approaches that can be well matched to local needs. They can be simpler to install and maintain and as many do not require fuel to be shipped to them, their ongoing operation is simpler to support.

The economics of these plants are also not contingent on the variable and at times high price of diesel in remote areas. In addition, they support the achievement of emissions targets.

Better integration of landmark resource and agricultural developments can support nationwide network development. ANZ's earlier insight report, Bold Thinking, identified the need to integrate infrastructure development with key agricultural and minerals projects. Electricity planning presents many opportunities to do so.

Large concentrated loads – arising particularly from minerals projects – enable the creation of at-scale electricity generation and can also be the centre of regional mini-grids.

However, this integration needs to be performed with care. Planning is needed such that integration is only undertaken where it makes sense.

Together, these points invite a move away from diesel. Achieving PNG's electricity goals by embracing new generation and storage approaches could reduce required expenditure from around US$15 billion to US$10 billion, saving PNG around US$5 billion over the next 15 years. Furthermore, these choices would more than halve carbon dioxide emissions over the same period.

Institutional and organisational changes will be needed to deliver these savings. Energy tariffs should be cost-reflective and subsidies made explicit, rather than being governed by internal PNG Power Limited (PPL) decision-making or government intervention. The component parts of the electricity system – generating electricity, transmitting it to end users and helping customers track and pay for the electricity they use – would be best organised and operated separately.

Targeted private sector involvement will be key, in this case to create the competition and innovation needed, particularly off-grid, to expand electricity access. Regional and remote customers in particular will benefit from a thoughtful approach to introducing appropriately regulated competition for the right to serve remote customers.

This report describes a possible end-state for PNG's electricity sector. However, the reforms proposed would represent rapid change for all involved and much remains to be defined. The many programs currently under way – including the drafting of PNG's new energy policy and NEROP – will ensure real resources are dedicated to establishing a secure energy future for PNG.

A conversation about how best to respond to these challenges is needed and should include:

What is the best way forward for PPL and off-grid electricity provision?

How can an appropriate and predictable environment for stakeholders involved in electricity provision be established?

How should electricity reform align with other government initiatives and with PNG's social reality?

The possible impact of successful electricity planning and implementation in PNG includes not only the US$5 billion savings outlined above but more importantly a foundation for PNG's national future. Achieving the kind of growth across agriculture and natural resources outlined in Bold Thinking will not be possible if electricity access remains a handbrake on development.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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