Pakistan’s Unexpected Solar Boom Comes With Pitfalls For the Future

In recent weeks, Pakistan has been cited as an example of a solar success increasingly. The reason? An unprecedented boom in solar capacity additions, perhaps as high as 15 GW in 2024, that have helped the country leapfrog its way to the top 6 solar markets worldwide. Powered by Cheap Chinese imports that face little hurdles unlike many other key markets, and many other factors that are not necessarily positive, the Pakistani solar boom has to be seen in the right context to appreciate if it is truly a singular achievement. Especially when the country’s power authority rushes to claim credit for it, pointing to its easy import regime (for panels) and net metering arrangements that have ‘allowed’ this to happen.  In fact, if one goes by actual official data, then the only plan the government had to tackle its energy challenge had been dependent on Hydro power, Nuclear  and more coal based power from the Thar mines in Sindh Province. But solar delivered power to the people, bypassing the government. It’s a classic case of incompetence being dressed up as foresight, and here’s how.

1. The Solar Boom is wholly consumer led, not government backed. The rush to add solar is not backed by subsidies, or any other benefits. It is backed by a desperation for energy access, and dependable power in a country where power cuts as long as 8 hours or even more in remote areas became the norm over the past two years. Consumers who could afford it realised Solar offers the best hope against this, and went for it. A forex crisis meant the country held off on LNG imports to fill consumption gaps, leading to even gas supplies for cooking being rationed in the past year, forcing many to seek a solution in electrification of cooking, creating further demand for solar power for self consumption.
2. Soaring Power costs from grid: With power costs rising over 150% over the past three years, solar was a compelling option for most consumers who could afford it. These power costs rose due to a combination of dollar linked tariffs for thermal projects signed in the 1990’s and plain corruption, taking power costs to unimaginable levels in a country at the frontier of climate change and suffering increasing heat waves. Thus, consumers went for the only viable option within budgets, solar preferably with energy storage alongside, as both could be sourced cheaply from China. Today, a comparable solar+storage system in India for instance is over 100% more expensive in India as compared to Pakistan. Another sign of the government’s little role to play other than benign incompetence is the tremendous share of rooftop solar in the mix. Large, utility scale solar accounts for under 15% share in the solar additions, indicating just how poorly the government’s own efforts have fared.

3. Is the Grid Ready For This? Total solar capacity of over 20 GW in a grid with a peak demand of just over 30 GW should have usually been a disaster for stability considering Solar’s actual hours of generation. That it hasn’t crashed the grid is because of the high share of storage backed and off grid projects here, which signal a divorce from the national grid for many owners. Sketchy data available with the government, whose own official figures (80% lower than unofficial estimates at 3.5 to 4 GW) have no connect with the actual capacity added on the ground only proves this further. In fact, even with its much lower figures of grid connected solar on net metering plans, the government found it worthwhile to tinker with the net metering rule to cap the upside for new additions. One of the reasons given? The risks to the grid from solar additions.
4. The New ‘Death Spiral’ for the grid: While subsidised solar in other markets has got its fair share of criticism for shifting subsidies to the rich who could afford to install solar and had the space for it, in Pakistan the high share of people shifting towards solar out of compulsion means the grid keeps losing paying customers. Fixed costs are going to have to be levied on an increasingly smaller base, making reform or a viable grid even more challenging. The circular debt of the power sector was a term first heard in the early 21st century, and the issue today has already assumed legendary proportions. Referring to the money owed by discoms to generators, which falls short due to inadequate collections leading to a cascading effect across the supply chain right down to transmission firms, coal mining firms and other suppliers in the power chain, the debt is quite simply, unmanageable for now at almost PKR 3000 billion or 3 trillion (USD 10.7 billion).  The best hope? A wholesale renegotiation of power contracts and even rejection of renewals to reduce the cost of power. Will the government do it? Noone knows, but the circular debt certainly keeps growing.

5. Will the story continue? Like all ‘good’ things, this one will also end, but due to reasons 1 and 2 above, not quite a full stop. The government, for all its protestations, will continue to make solar much less ‘lucrative’ than it is, to temper demand. Off grid might be the only way to go for many users who have high needs, now that energy storage costs are even lower. With a target of 8000 MW of nuclear power by 2030, from an existing  3600 MW, the share of nuclear in Pakistan’s grid is set to be as high as 30%, a welcome baseload stability possibly as renewable or solar share rises further. But there is no doubt that the grid requires a major overhaul that is already being undertaken in parts, or planned with help from institutions. But with an ever worsening debt profile for the country, it will all come at a cost that noone knows really can be covered by the economy as it is currently,.

Conclusion:  Perhaps the Pakistani experience is a happy coincidence of cheap solar and poor governance, which has helped create a solar base that was not expected even by 2030. But the self generation and consumption of a critical resource like energy will only increase the distance between citizens and dysfunctional governance. Any effort to rein it in has already been met with fierce resistance. How that impacts attitudes and resistance to future efforts to tax, regulate or monitor the sector is anyone’s guess. Going by past experience, it will simply be one more aspect of their lives that the government will be forced to ignore, or make peace with at a high cost for future growth and stability. A country where both industry and residential counts its own solutions as a more effective option than official supplies is doomed to failure in the long term, as a strong, cost effective grid simply cannot be made otherwise.