Tapping solar energy potential

It’s summer in Pakistan but for the common Pakistanis it’s the season for load-shedding.

For them, it’s a routine matter to go through over 10 hours of daily load-shedding every summer. Load-shedding is hurting Pakistan’s economy, the power sector being its Achilles’ heel.

Where is the problem in Pakistan’s power sector? The question doesn’t have a simple answer. Pakistan’s ‘circular debt’ is considered to be the main reason behind this chronic load-shedding problem.

The circular debt in Pakistan’s energy supply chain refers to the cash flow shortfall incurred in the power sector from the delayed payment or non-payment of obligations by consumers, distribution companies and the government.

The National Transmission and Dispatch Company (NTDC) is responsible for supplying power to all government departments and to the Karachi Electricity Supply Corporation. These government departments fail to pay regularly and promptly to NTDC for the power they use. As a result, NTDC fails to pay to the power producers who are mostly relying on oil companies for fuel supplies to run their power plants. This forces the fuel suppliers to stop supplying the fuel (furnace oil, etc), which finally leads to lower power production and widespread load-shedding. On the other hand, the old power transmission and distribution networks also add to the power loss.

Pakistan’s power mix relies heavily on fossil fuels for power production. The country currently generates 60.9 per cent of its electricity through thermal power, while another 24.7 per cent come from hydropower. Besides, 12.4 per cent power from nuclear power and just 3 per cent from renewable sources such as solar and wind.

It is predicted that the national energy demand will increase eight-fold by 2030 and twenty-fold by 2050 in Pakistan. How the country is planning to deal with this growth in demand and what policy options it has are the questions everyone has in mind.

Pakistan has a long history of load-shedding and different policies were adopted to cater to the problem in the past. It brought independent power producers in the 1990s. The Pakistan Muslim League government in its last tenure between 2013 and 2018 started the China Pakistan Economic Corridor (CPEC) project. In CPEC, China committed heavy investment in Pakistan’s energy sector keeping in mind the future demands. However, unfortunately most of the energy projects in CPEC are coal based whereas countries around the world are pledging to end reliance on coal for their energy needs.

Renewable energy as a solution

In order to fulfill the expanding energy demands, it is a dire need of the present and the future to find sustainable energy alternatives. In recent years, Pakistan has initiated projects to increase the share of renewable sources in its energy mix. Still the country is far away from utilizing the available potential of clean energy. Despite having a number of successful projects, the installed capacity of solar and wind energy in Pakistan stands at over 2,585 megawatts (MW), which is just 6.2 per cent of total capacity.

A World Bank study commissioned in mid-2018 estimated that increasing solar and wind energy generation to at least 30 per cent of total installed capacity by 2030 would represent a ‘least-cost’ expansion scenario, resulting in fuel savings equal to $5 billion over 20 years. The steps towards this direction will help increase energy security, and reduce emission of greenhouse gases. It will require Pakistan to install around 24,000 MW of solar and wind projects by 2030, up from just over 1,500 MW today. The Alternative Renewable Energy Policy, 2019 also aims to produce 30 per cent of its energy from non-hydro renewable energy resources by 2030.

Rooftop solar energy

Pakistan waived off the General Sales Tax (GST) on solar panels in 2014 to encourage people to go for alternative energy sources. There was a steady positive year-wise growth between 2013 and 2017. Pakistan’s imports of solar panels increased from $44 million to $772 million during this period. The market, however, was impacted in 2020 due to the COVID-19 crisis. Nonetheless, it started reviving in 2021. However Pakistan’s Tahreek e Insaf’s government again slapped 17 per cent GST on solar panels in January 2022 in a bid to enhance its overall tax collection. According to industry estimates reported by the media, in the case of solar panels only, the importers were paying 16 per cent customs duty, 17 per cent sales tax, 3 per cent additional sales tax, 11 per cent income tax and 4 per cent additional customs duty at the landing port. Moreover, if the import takes place at the Karachi port then 1.5 per cent Sindh excise duty is also applied. It means that if an importer imports Rs.1 million worth of solar products, a 51 per cent tax rate would take the cost to more than Rs.1.5 million before the importer has even factored in his own profit margin.

In May this year, to encourage power generation through alternative energy sources, the government announced the removal of the 17 per cent GST on solar panels imposed by the previous government. Government officials believe that it is the only way forward to reduce the country’s oil import bill that stood at $20 billion.

Solar is a capital intensive technology where the major share of their life cycle cost is incurred upfront. Any increase or decrease in system cost thus influences significantly the demand forces. 

“It is important to note here that among the different PV (photovoltaic) customer segments in the Pakistan market, the residential sector remains one of the key sectors driving the solar PV growth in the country. This is also one of the most price-sensitive sectors. So, the withdrawal of taxes will set the right signals to potential buyers as well as businesses in the country, and spur general interest in the adoption of the technology” says energy economist and climate change professional Naila Shah.

Rashid Majid, Regional Director Pakistan of the 8.2 Renewable Energy Experts Hamburg Germany, a leading international organisation having expertise in renewable energy, agrees with Shah that this withdrawal of GST is the step in the right direction. “The withdrawal of 17 per cent tax will reduce the overall price of solar PV systems. As solar systems are mostly installed on CAPEX (capital expenditures)/ upfront cost it is very price sensitive for consumers. The solar modules account for almost 50 per cent of the total system cost,” Majd says.

Brigadier (Retd) Iftikhar Ahmed Shahid, an energy expert currently pursuing PhD in Energy Equity and Energy Justice, is of the opinion that the 17 per cent reduction is only one of the many factors influencing citizens’ decision on adoption of rooftop solar technology. “As per my research based on the data collected through an online survey, change in price/ cost of rooftop solar systems is one of the factors influencing citizens’ decision on adoption of rooftop solar technology. However, among many other parameters affecting people’s willingness to procure and get the system installed, withdrawal of tax is not one of the main motivating factors”.

India, Pakistan’s neighboring country, is providing subsidies to promote solar power in the country. The country has set an ambitious target to achieve a capacity of 175 GW (gigawatts) worth of renewable energy by the end of 2022, which expands to 500 GW by 2030.

Can Pakistan adopt the same approach and provide subsidies to promote rooftop solar energy and will this help in ending the energy crisis? “Subsidies too are one of the financial incentives (like withdrawal of taxes) offered to the general public to benefit from the available opportunities for relief at individual levels and for contribution towards the society’s overall benefit. However, as per my findings such measures too may not prove to be a main stimulus for the common citizens to go solar,” says Brigadier (Retd) Shahid.

The State Bank of Pakistan offers financing facilities for renewable energy projects. However, this financing is available only for prospective sponsors, desirous of setting up renewable energy power projects with a capacity ranging from more than 1 MW and up to 50 MW for their own use, selling of electricity to the national grid (including distribution companies) or combination of both on markup rate of 6 per cent per year.

Naila Shah believes that a good financing facility for potential borrowers can help in increased demand.  “Financing is seen as central to influencing increased responsiveness from potential borrowers. However, despite this very concessionary and useful scheme by the State Bank of Pakistan, solar financing is still in its infancy,” says Shah.

Multi-pronged approach needed

Pakistan needs a multi-pronged approach to convince people to go for rooftop solar energy systems. Rashid Majid wants solar PV to be mandatory for all new buildings. He says: “City rooftops provide an excellent area for installation of Solar PV close to the load centre without competition with agriculture land and transmission system losses.”

Brigadier (Retd) Shahid says that Pakistan also needs to promote the local solar PV industry and expand the related industrial base, which helped accelerate the pace of solar PV adoption in other countries. “Pakistan also needs to invest in focused data collection and research through think-tanks and academia to identify grey areas in the existing policies and initiate result oriented modifications in the policy,” he says.

Rashid Majid says that incentives for local production should be given by the government. Once local production is established, he adds, import duty should be imposed on solar cells being imported to support local production as is in the case of mobile phones. He feels Pakistan needs to continue the State Bank of Pakistan’s financing facility for renewable energy projects as an incentive.

The experts also feel that there is an urgent need of investing in awareness campaigns among masses to adopt rooftop solar energy solutions. It will help Pakistan to convince people to go for these solutions, they say. “There must be campaigns for educating the solar energy prosumers on maintenance, upkeep, and safety of solar systems. Proliferation of technological skills will add value to the members of the society and contribute towards improvement of the national economy as well,” says Brigadier (Retd) Shahid.

Pakistan also needs to facilitate households going for rooftop solar energy solutions through one window operations. According to Rashid Majid, it will definitely help Pakistan if it establishes online application processing through one window for net metering. “There is a need for timely response and installation of bi-directional green meters to facilitate consumers. In addition better tariff rates for net metering from consumers can also help in convincing people to go for rooftop solar systems,” he says.

Naila Shah, on the other hand, believes that Pakistan must go for innovative business models as globally innovative business models are playing a key role in stimulating solar PV drive. According to Shah, Bangladesh is a leading example where coupling of the PV technology to a viable business model ‘Infrastructure Development Company Ltd’ (IDCOL) resulted in its extensive uptake among customers—more than 9 per cent of the country’s total population —one of the highest shares globally. “Likewise in India, rooftop PV reached 14 per cent of the country’s total installation in 2018, supported by a mix of CAPEX and OPEX (operating expenses) models facilitating dissemination of the technology,” say Shah.

Pakistan can learn from its neighbours who are adopting innovative business models to increase the share of solar energy consumption in their overall energy demand. The country needs more power for its household, industrial and transport sectors in the coming days. Its dependence on fossil fuels for energy productions is not only causing a balance of payments crisis but also hampering its economic growth. It’s high time for Pakistan to look for alternative energy sources to avert the energy crisis threat again and again.

Brigadier (Retd) Shahid says that while the energy crisis is a threat, it also presents an opportunity. Pakistan being blessed with enormous solar energy potential, innovative approach through focused research, based on customised data collection, can turn this country into an energy giant, he says. “With one clear objective of energy independence, there may be the need for vertical as well as horizontal restructuring of certain ministries, departments, boards, and institutions followed by redefining the role and responsibilities of each,” he says .