The current growth in solar power use in Pakistan marks a significant shift in the country's energy situation. A rising number of consumers are turning to solar solutions as the cost of solar panels falls and power bills rise regularly. However, this quick transformation has not been without controversy. Policymakers are increasingly split on how to effectively manage this transition, particularly as the government grapples with the economic consequences of lower demand for traditional grid-based electricity and the resulting increase in idle capacity payments.

The frequent delays in enacting the 'Solar Panel Local Manufacturing and Allied Equipment' policy demonstrate a reluctance to fully embrace solarization. The government's hesitation mirrors a larger debate about whether to encourage or hinder the growing solar business. This reluctance is strikingly contrasted with recent steps to eliminate import levies on raw materials and equipment required for domestic solar production, as suggested in the FY 2024-25 budget. These contradictory signals illustrate the complexities and opposing interests in Pakistan's energy strategy.

The Economic Tensions of Solar Adoption

The financial burden created by capacity payments to Independent Power Producers (IPPs) is the heart of the problem. These reimbursements, guaranteed by the government regardless of electricity use, have increased as more people switch to solar power. This condition increases the budgetary burden on the government and customers, who must pay higher power rates to meet these expenditures.

Instead of slowing the pace of solarization, a more strategic strategy would entail tackling the underlying reasons for these capacity payments. The existing approach, which binds the government to costly, inflexible contracts with IPPs, requires reconsideration. A competitive electrical market that better matches supply to real demand might reduce some of these financial strains.

The Falling Cost of Solar Panels

The cost of solar panels has dropped considerably in recent years. Prices have plummeted from PKR 80 per watt in 2022 to PKR 37 per watt, owing mostly to global trends and bulk imports from China. This reduction has made solar electricity more accessible to a larger portion of the population, changing what was once considered a luxury into a feasible choice for many houses and businesses.

Imports of solar panels increased from 2.8 GW in 2022 to 5 GW in 2023, owing to a worldwide supply glut. Chinese manufacturers, in response to years of rising demand, have increased production, resulting in an excess that has further lowered prices. The International Energy Agency expects this trend to continue, with supply potentially tripling demand by the end of the year.

Policy Recommendations for Sustainable Solar Growth

Given these favourable market conditions, the next step is to encourage and increase solar use. The 17% GST exemption on imported solar panels, implemented in 2022, should be maintained to keep solar systems cheap. Furthermore, reducing customs procedures and optimising import logistics can help to cut costs, ensuring that savings are passed on to customers.

Market controls are critical for preventing price manipulation and ensuring that the advantages of decreased costs reach consumers. Surplus domestic supply created by bulk imports might help fund attempts to deliver free solar PV systems to economically disadvantaged populations, such as those proposed by the Punjab and Sindh governments. Furthermore, increasing renewable energy use in agriculture, such as solarising agri-tube wells, can boost productivity and sustainability in this critical industry.

To ensure long-term prosperity, Pakistan must invest in building its local solar manufacturing industry. This includes encouraging innovation and technological developments to make locally manufactured solar equipment competitive on a worldwide scale. A strong local sector may help Pakistan reduce its dependency on imports, generate employment, and establish itself as a player in the global renewable energy market.

Addressing the Capacity Payment Conundrum

The issue of capacity payments necessitates a thorough policy change. Transitioning to a competitive energy market can assist in matching generation capacity to real demand. Using idle power for more productive reasons, like increasing electric vehicle (EV) charging infrastructure, can give immediate relief. This method not only handles present financial challenges but also prepares the grid for a future in which solar PV will play a major role.

Pakistan's current energy systems are not only unsustainable but also environmentally harmful. The country's persistent energy issues highlight the urgent necessity for a transition to renewable energy sources. Solar energy, with its falling costs and rising accessibility, must become a key component of Pakistan's energy security plan.

Solarization of Balochistan’s Agriculture

Prime Minister Shehbaz Sharif announced a $197 million initiative to solarise 27,000 tube wells in Balochistan, demonstrating the potential benefits of solar adoption. This effort intends to replace tubewell electric connections with solar systems, which will drastically reduce farmers' operational expenses. Given Balochistan's economic troubles and hard natural circumstances, solar energy provides a long-term answer to the country's electricity and water challenges.

The initiative, financed 70% by the federal government and 30% by the provincial government, promises significant savings on power prices while reducing the need for hefty subsidies. Farmers in one of Pakistan's most economically underdeveloped districts can increase agricultural production by switching to solar electricity, which is more reliable and inexpensive.

Conclusion

Pakistan is at a crossroads in its energy strategy. The option is clear: seize the opportunity by lowering solar panel prices and global market dynamics, or risk falling behind in the worldwide transition to renewable energy. Pakistan can pave the road for a cleaner, cheaper, and more sustainable energy future by promoting solar energy, resolving structural concerns such as capacity payments, and investing in domestic manufacturing. Any pause or reversal in this endeavour would not only slow development but also impose unwarranted economic and environmental consequences on the country.

Waleed Sami is a postgraduate student of Strategic Studies from the Centre for International Peace and Stability (CIPS), a school of the National University of Science and Technology (NUST), Islamabad. Waleed completed his bachelor's in international relations at the National Defence University Islamabad (NDU).