THE State Bank of Pakistan has been at the forefront in encouraging investment in renewable energy by formulating and implementing the Renewable Energy Refinancing Scheme. This scheme is meant for refinancing such systems at a discounted rate of six per cent. However, the scheme is becoming increasingly less effective owing to factors mentioned below.
The scheme was introduced in 2016 and worked fine till June 2019. In July 2019 the SBP extended it at the same rate, six per cent, days after having set the policy rate at 13.25pc, which works out to a massive 55pc discount! This visionary step was welcomed and helped many users make the switch to renewable energy.
Things have since changed dramatically. On May 15, the SBP reduced the policy rate to 8pc, owing to the economic slowdown because of Covid-1 9and other ensuing factors. Analysts are predicting a further reduction to seven per cent. Compared to the reduced policy rate, the scheme’s discounted six per cent rate does not seem very attractive anymore and is increasingly less effective.
SBP authorities are requested to apply the same discount ratio to lower the scheme’s rate to 3.6pc from the present eight per cent. The other option can be to set the scheme’s rate at 3.15pc based on the predicted policy rate of 7pc.
The SBP has reduced the policy rate to revive our economy. However, history tells us that restarting the economy will spike carbon emissions that the lockdown had curtailed --as had happened after the 2008 recession.
Environmental scientists have even said that kick-starting the economy after 2008 caused more harm to the environment than the recession had helped. Having learnt this lesson, countries are making the environment a major stakeholder in the economic revival process, and Pakistan must also do the same.
Solar energy is one of the cheapest forms of energy available and Pakistan is blessed with one of the highest rates of solar exposure. Investing in solar energy today is a sure-shot way of tackling power shortages and pollution for decades to come.
Published in Dawn, June 1st, 2020