Pakistan Looks to Add 9000 MW Solar on Priority to Address Energy Crisis

The Pakistan government, stung by a persisting power crisis that has brought both outages and spiraling power costs in its wake, has finally changed course to add more solar to its grid.  While announcing plans to target 14,000 megawatts of solar capacity this year, the country is seemingly making up for lost time. We have pointed out earlier that the country has been a surprising outlier when it comes to large solar projects, considering the  heavy Chinese presence there and ideal conditions for establishing giga scale projects.

Keeping in view the recent hike in electricity prices following the rise in fuel cost, the government is kicking off 9,000MW projects under ‘Solar Energy Initiatives’ on priority. Linked to project completion times varying from 12 months (for large projects) to 6 months (projects under 4 MW), the solar push is marked by a degree of desperation to ensure its success.

To ensure the solar push is successful, the Pakistan federal government is pulling out all stops to attract investors as well as industry to the wagon. From timely payments, to land availability, to duty waivers to 70% indexing of tariff on a quarterly basis, there is every effort to ensure gains are made, and can be demonstrated. Fortunately, more solar is one area where the government as well as the PTI led opposition should be on the same page, a critical point of worry for any investor in the country right now.

The government has promised a straight-line tariff through single-stage, two-envelope bid process to ensure fast decisions. ‘Friendly countries’, (probably Chinese and some Middle East EPC firms)  will be offered attractive tariffs that will be less than the last solar PV project tariff and benchmark tariffs for projects on a government-to-government basis.

The federal government will purchase all power generated on a 25-year BOOT (Build, Own, Operate and Transfer) basis and will also give 12 months for Energy Purchase Agreements (EPA) signing under Commercial Operation Date (COD). Investors will be exempt from all import related duties and taxes. Underlining the magnitude of the need for solar, the cash strapped government is even waiving  income tax on profits for the first 10 years from COD.

Solar PV rooftop systems are also being encouraged with net-metering through bidding on a lease model, to take place on a 10-year BOOT basis or on an own-cost model. As always, the bigger focus seems to be on Punjab state, which hosts the majority of Pakistan’s  population, and tends to dominate in many other ways.

The moves underline both the thirst for cheap and renewable energy, as well as the lack of any domestic supply chain to enable solar projects. With a severe forex crisis, the government has also promised to release forex for such projects within 60 days of invoicing on priority.

Energy Storage, the missing element of the policy so far, will probably be considered once some projects are up and running, but clearly, the government sees no need at this stage when even supplying power through daylight hours had become a huge challenge.

Ironically, the government is also pushing for higher use of coal from mines in the part of the Thar desert that lies within the country. Though inferior to imported coal, the domestic coal will potentially save a lot of foreign exchange for the country. Foreign exchange that will hopefully be needed and used for the first few Gigawatts of solar capacity.