The international energy demand/supply imbalance has resulted in a steep rise in the cost of energy inputs. Pakistan cannot control the international geopolitics behind the crisis, but taking emergency countermeasures to fix our energy situation is certainly possible.
In this article, I will argue why we need to launch a major programme of solar roof-tops to handle the current crisis and for the long-term sustainability of the power sector. I propose that Pakistan adds six gigawatts (GW) of new roof-top solar plant capacity within the next three years by putting the right measures in place.
Making 1GW capacity addition in 2022-23, 2GW in 2023-24 and 3GW in 2024-2025 may seem like an ambitious target given our slow track record of solar installations, but if the distribution companies (Discos) and the banking sector join hands it is fully achievable.
A substantial portion of our installed power generating capacity is based on imported fuels, mainly Liquefied natural gas (LNG) and coal. Several recent attempts to buy LNG from the international market have failed as international suppliers prefer to supply to other customers, especially in Europe.
Pakistan can either embark on the green energy revolution while it is still at an early stage or be a late-comer as usual
The lesson for our policymakers is that Pakistan’s long-term energy security depends on reducing our reliance on imported fuels. Solar-based power systems, whose prices are now at a historical low in dollar terms and which have no operating cost unlike imported fuel plants, can be our saviour.
The National Transmission & Despatch Company’s new power expansion plan envisages utility-scale solar power plant additions in multiples of 50MW in the coming years through independent power producers. The roof-top-based solar systems have greater potential than utility-scale plants and can be installed far more quickly under a PPP (public-private partnership) scheme.
No capacity payments are involved nor is there a need to arrange sovereign loans. Unlike utility-scale plants, roof-top solar produces energy where it is needed, ie in urban areas, thus offsetting the need for building long-distance transmission lines.
A comprehensive investment programme may be launched under an empowered team drawn from the Alternate Energy Development Board (AEDB), Discos and the banking sector. The banks, in particular, must take on an active role unlike in the past whereby the concessional funds made available to them by the State Bank of Pakistan (SBP) have mostly remained unutilised. Each bank must be given a target of financing a certain number of megawatts of roof-top-based systems both of the net-metering and stand-alone types.
Roof-top solar offers an avenue for directing individuals’ savings towards a productive investment that brings financial returns in the form of a reduction in the energy bill of the participating consumers. Those, like myself, who have already installed net-metering systems have a reason to feel delighted every month when they see the financial savings accrued to them in the electricity bills.
The main items that are used in a solar power system are the panels and inverters both of which are presently imported and are a drain on the country’s meagre forex reserves. International financial institutions can provide long-term funding in foreign currency at fairly concessional interest rates. However, a robust and viable implementation plan will need to be presented to them to obtain their funding.
Any financing programme must have the full and active involvement of the SBP unlike in the past when it merely approved a re-financing facility at a 6 per cent interest rate without stipulating the actual lending targets for the banks. The result was that banks did not actively promote loans for solar projects. This time around, the banks would be given targets and compliance will be monitored by the SBP.
Thus far, the Discos have been acting as an approving body rather than seeking out active partnerships with consumers to promote solar projects due to some well-known concerns that need to be addressed. A new nexus between commercial banks and Discos must evolve so that together they can offer financial products to the “prosumers” — a term for consumers that are also producers of electricity.
A three-way contractual arrangement between the Disco, the bank and the prosumer will give comfort to the lending bank concerning the repayment of its loans through the monthly bills sent by the Disco.
The AEDB is expected to put together a fool-proof arrangement which has the buy-in and active involvement of all stakeholders. The quality of products and services given by the approved vendors will need major improvements as there is a common complaint that the registered vendors outsource the supply and installation of the project to those contractors who have substandard qualifications.
According to the International Energy Association May 2022 report, the world added a record 295GW solar capacity in 2021 while 2022 will see another new record of 300GW of solar capacity addition. Pakistan is lagging behind in the race as its present solar power capacity is dismally low.
If the last three decades were the decades of information technology (IT) it can be safely forecasted that the next three decades belong to clean energy developments and innovations. Pakistan has to decide whether it wants to embark on the green energy revolution while it is still at an early stage or be a late-comer to the game just as it was in developing its IT software capabilities.
The author is the former Director of Energy of the Islamic Development Bank and can be reached at firstname.lastname@example.org
Published in Dawn, The Business and Finance Weekly, August 8th, 2022