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The emergence of Pakistan's commercial and industrial (C&I) solar industry

published: 2024-05-29 18:01

Industrial consumers in Pakistan are increasingly turning to solar arrays due to the high energy prices and tariffs. According to CEO Omar Malik of Shams Power, industrial consumers currently face a tariff of $0.12/kWh, in addition to an extra $0.10 in taxes for every kilowatt-hour purchased from the grid. The government heavily relies on electricity for indirect tax collection, making it one of the main sectors.

High self-consumption rates result in lower electricity costs and taxes. Present regulations in the country only permit the sale of excess power to the grid under net metering for generators up to 1 MW in size.

Import duties are only exempted on solar panels, with no exemption in place for solar inverters. Despite this recent change, it has not impacted market development significantly, as stated by Malik.

Official statistics from the Associated Press of Pakistan reveal that Pakistan’s National Electric Power Regulatory Authority (NEPRA) issued 1,596 net-metering licenses with a combined capacity of 221.05 MW in the 2022-23 fiscal year.

Malik also noted an increase in panel imports, with 2.8 GW imported in 2022 and an expected increase to 5 GW in 2023, despite import controls. Forecasts for this year predict up to 12 GW of solar panel imports in Pakistan.

One of the primary obstacles to overcome in Pakistan’s commercial and industrial sector is the issue of obtaining financing.

Malik pointed out that banks and lenders in Pakistan tend to view solar assets as rapidly depreciating, with the added challenge of the Pakistani rupee's volatility compared to the more stable Indian currency. Access to financing is consequently more difficult in Pakistan, while India presents a more favourable environment for international investors due to its currency stability.

Notwithstanding these difficulties, Shams Power managed to secure a $20 million debt from local banks, facilitated by a guarantee from the international credit enhancer, GuarantCo.

Malik emphasized the need to involve the bank in the project finance stage or at a later point after the assets have been in operation for a year or two, highlighting the defined cash flows and performance of the assets to secure portfolio refinancing.

Numerous Pakistani companies exporting denim and textiles to the US and European markets are under pressure from buyers to sustain their supply chains with renewable energy.

According to Malik, there is indirect pressure to transition towards renewable energy, although it is not driven by the government.

The segment for battery storage in the commercial and industrial sector currently lacks a compelling business case.

According to Irteza Ubaid, the chief operating officer of Shams Power, battery storage still struggles to achieve economic viability due to high import duties and taxes on storage technologies. The existing electricity price structure only allows for profitability during power outages or peak rate periods. Additionally, the levelized cost of C&I tier-1 batteries remains around $0.35/kWh, making it challenging to offer economic benefits for clients to invest in storage, especially when grid power is available at a lower cost. Shams Power is currently undertaking the construction of 5 MWh of storage projects in Pakistan. Ubaid emphasizes the importance of considering not only the per kWh cost but also the additional benefits such as power quality and environmental advantages while convincing clients to embrace storage solutions.

Import duties on batteries continue to drive upfront costs higher in comparison to more established renewable energy markets. Despite these challenges, Shams Power has a successful track record of deploying over 40 MW of C&I solar projects for notable clients and has a pipeline of over 200 MW with multinational corporations and local businesses across Pakistan, demonstrating commitment and expertise in the field.

Source: PV Magazine

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