The Peril & Promise Of Solar Power In Pakistan – CleanTechnica

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Something is happening in Pakistan. The amount of electricity delivered to customers by its grid is going down — a lot! It’s not that Pakistanis are turning off their electrical devices. What they are doing instead is generating more solar power from panels they own themselves. They are becoming prosumers, and that could portend a major shift in the energy market for other countries as well.

In a blog post on November 25, 2024, the World Economic Forum said that Pakistan’s rapid adoption of solar power, which is being driven primarily by market forces and with only minimal political support, provides valuable lessons for other emerging markets. “Declining solar panel prices, coupled with skyrocketing grid electricity tariffs that have increased by 155% over three years, are fueling a rush in renewable energy adoption in Pakistan, with solar power leading the way. The country is now the world’s sixth-largest solar market,” it said.

The driving force here is economics, not policies. Many countries feel threatened by China’s overproduction of solar panels, which has driven down their cost to the point where they are ridiculously cheap. As a result, Pakistan is now the third largest importer of Chinese-made solar panels. If Pakistan had its own solar panel industry, it would impose significant import duties on those panels from China, but it does not. Therefore, the influx of cheap panels is welcomed by most Pakistanis — but not all, as we shall see. Industrial, agricultural, and residential sectors have embraced solar, with imported Chinese modules totaling 13 GW having been added in the first half of the year. Forecasters predict that figure will rise to 22 GW by the time 2024 is over.

Solar Power Vs The Traditional Grid

While this may be good news for the environment and global efforts to adopt cleaner forms of energy production, the shift could bring new headaches for the Pakistani government as demand for energy from the state power grid shrinks and Islamabad juggles its tenuous financial outlook with the corresponding drop in revenue, says OilPrice.com. Kaiser Bengali, an economist who worked as an adviser to the chief minister of Pakistan’s southeastern Sindh Province, says the influx of Chinese panels has sparked an episode of “circular debt” where those left reliant on the expensive state power grid need to choose between saving money to switch to solar or refusing to pay their bills — which could, in turn, spark a cascade of unpaid debts. Consumption of electricity from the national grid fell by 10% in 2023 compared to the previous year amid rising electricity prices, and this decrease could deepen as Islamabad faces pressure to increase electricity prices in order to repay a loan from the International Monetary Fund.

These new realities are shaped by the inability of the national grid to deliver a stable supply of electricity, a challenge that has consistently hindered economic growth. The International Energy Agency reports says Pakistan’s per capita electricity consumption grew by 87% between 2000 and 2022, yet more than 40 million people remain without access to electricity and half the population still lacks clean cooking facilities. Many more live in off-grid or underserved areas, without access to electricity for more than 4 hours a day. Meanwhile, record-breaking heat waves are boosting demand for basic cooling from fans and air conditioners.

Inconsistent Energy Policy

The government’s inconsistent energy policy, which is characterized by inefficiencies in production, pricing, and regulations, has made the energy crisis worse. A price hike in July was seen by many as an alternative tax and has driven electricity consumption from the grid to its lowest level in four years. This trend has sparked a wave of solar adoption among industrial, commercial, and private users who can afford self generation from solar panels.

Global regulations, such as the European Union’s Carbon Border Adjustment Mechanism, and global brands’ net-zero commitments are adding to the urgency of cleaner energy adoption. Export driven industries face competitive pressure to source renewable energy or risk losing market share to greener competitors. Without access to renewable energy via the grid or captive units, these businesses are at a significant disadvantage, the WEF suggests.

In its State of the Industry report for 2023, Pakistan’s National Electric Power Regulatory Authority attributed an “unprecedented increase” in the cost of electricity to a range of factors. Those included currency devaluation, reduced electricity demand, high transmission and distribution losses, theft, varying demand patterns, litigation, and “poor governance in the overall electric power sector.” The momentum towards solar adoption is further fueled by growing consumer independence made possible by declining battery prices and the desire for reliable energy. Affordable battery-based systems are reshaping demand patterns, accelerating the shift to renewables, particularly solar power. This highlights the urgent need for proactive grid modernization to manage effectively the growing integration of distributed renewable energy sources, according to PV Magazine.

Solar Power & State-Run Energy Grids

While solarization offers immense opportunities, it also underscores the risks of an unmanaged transition, the WEF says. Pakistan’s case raises questions about the viability of traditional state-run grids and the economic impact of large scale renewable adoption. A decade ago, the question was, “Can solar power Pakistan?” Today, the question is, “Can Pakistan and other emerging markets realistically transition entirely to renewable energy without jeopardizing the stability of their national grids?” With the rapid shift of demand from the grid to rooftop renewables, the national grid is at risk of a downward debt spiral.

Modernizing Pakistan’s national electricity grid is essential for enhancing reliability, expanding access to off-grid areas, and significantly reducing costs. This will necessitate the adoption of advanced AI-driven monitoring and forecasting tools, investments in capacity augmentation — including the integration of rapid response battery storage and digital metering infrastructure — as well as proactive initiatives by distribution companies to align supply with demand effectively. The question is, how will those improvements be paid for?

Strong policy support will be needed to implement comprehensive market reforms, including the privatization and unbundling of distribution companies, in order to foster a competitive market. However, the prevailing political instability and the high costs associated with grid modernization make these measures unlikely in the current climate. China’s dual role in this transition further complicates the picture. While heavily investing in Pakistan’s thermal power projects, China also benefits as the leading supplier of solar technology, influencing both sides of the energy equation.

The WEF points out that Pakistan’s experience offers insights into managing the clean energy transition, particularly with regard to integrating renewable energy within complex economic and political dynamics. Global grid operators must reassess their approach to consumers who are also producers — known as prosumers — and embracing advanced distributed renewable technologies like solar, wind, and battery storage. Transitioning from a government controlled energy model to a deregulated, competitive market will be necessary to avoid grid obsolescence. Such a market can reduce energy costs in the short term, create new revenue streams for grid operators, and reinvigorate demand for grid services.

This Crisis Has Been A Long Time Coming

The roots of Pakistan’s power sector crisis go back decades, but the problems really began in 1994 when Islamabad offered lucrative deals to foreign investors to build power plants as the government and its rapidly growing population pursued economic growth. Called independent power producers (IPPs), these operators secured liberal provisions from the government in the form of government-backed, dollar-indexed returns and commitments to pay for even unused electricity. Financing mostly flowed to thermal generating stations fired by coal or methane, which left electricity prices largely tied to fluctuations in the global market for fossil fuels, OilPrice.com reports. As a result, the cost of electricity in Pakistan has more than doubled in the past three years.

The government also scaled back subsidies and passed the capacity payments made to power producers on to consumers, a bane for large sections of society in a developing country like Pakistan where roughly 40% of the population lives below the poverty line, as defined by the UN. Industrial groups complain that energy costs for businesses are double those in India and Bangladesh, and some factories have been forced to shut down.

In navigating the intertwined debt and energy problems, consumers say they’re dealing with policy whiplash. In 2017, Pakistan started a system for “net metering” that allows people to sell excess electricity back to the national grid. But in March, the government indicated it wanted to end the net metering policy to meet IMF criteria for state spending as it tries to stabilize its economy. Despite concern from the federal government, the provincial governments of Punjab — home to more than half of the country’s population — and Sindh — with more than 50 million people — are now offering free or subsidized solar panels to help low income households. The federal government is also renegotiating debts, with the hope of stabilizing the grid and reducing its reliance on fossil fuels.

Pakistani Energy Minister Awais Leghari told the Financial Times in September that the government was renegotiating with Chinese and domestic investors over its power sector debts and exploring ways to privatize certain companies. But the minister also expressed concern that the continued interest and use of solar panels risks making the grid “unaffordable” due to a sustained loss of paying customers. “Demand is shrinking off the grid. That’s a big concern for us,” he said.

The Takeaway

Pakistan may not be top of mind for many, but what is happening there is also happening in many other places around the world. Puerto Rico is an example of a place where decades of benign neglect from Washington has left its grid especially vulnerable to the more powerful storms that result from a warming climate. Many island nations suffer from the same malaise. Policy whiplash is upending the rooftop solar market in California. In many parts of Africa, access to locally generated solar power is allowing underserved communities to leapfrog over the traditional energy grid model all together and go straight to a prosumer model where people generate and consume most of their own electricity.

You see where this is going, right? An end to the energy grid as we know it and the empowerment of local communities to meet their own energy needs with distributed microgrids and virtual power plants that turn the energy industry upside down. Oh, and don’t forget — those local power sources do it all without creating any emissions that contribute to the further overheating of the planet. Does what is happening in Pakistan offer a hint about the future of electricity? “We’ll see,” said the Zen master.