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Obstacles and subsidies in consumer financing

Consumers and companies in Pakistan have suffered greatly from policy shifts and uncertainty. Important policies are created, modified, and abandoned precisely as quickly as governments change regularly. Unfortunately, solar energy has not been an exception. At the start of the year 2022, the previous government imposed a general sales tax (GST) of 17 per cent on all solar equipment, causing a substantial price increase and resulting in a reduction in demand. Reduced demand and deployment of solar power inadvertently mean that our import bill for fossil fuels continues to increase instead of reducing.

In May 2022, the new government declared that the GST decision was being overturned after realising this expensive error. The reversal finally took effect in July 2022 after much back-and-forth decisions but the GST on solar inverters was still in place. The imposition and then removal of GST caused a significant dip in demand and deployment of solar installations for the first half of this year. This not only hurt solar businesses because of reduced demand but, more importantly, consumers who have had to stomach record-high electricity bills from the grid.

The electricity bills enforce the need to finance solar energy as the resources available to people do not allow people to purchase solar panels because they are already suffering from deprived purchasing power and high inflation. Facts described that almost 35 per cent of Pakistan’s population i.e. 70 million people does not have access to power. Pakistan, like other emerging nations, mainly depends on fossil fuels to provide power. Liquefied natural gas (29%) oil (22%), and coal (12%) imports are the main components needed to close the supply-demand imbalance. Massive dependence on fossil fuels has created serious economic and environmental problems. However, the creation of regional market-based solutions that would facilitate a greater adoption of solar energy by homes, the agricultural industry, and SMEs appears to be hampered. There are still significant knowledge gaps about whether and how this process plays out among different sectors, despite the fact that supporting initiatives like subsidies and solar finance have a critical role in lowering barriers to solar installation.

We all are aware of the fact that local market-driven changes can help solar installations follow a more general direction. It can create job opportunities, encourage respectable economic growth, alleviate poverty, and contribute to achieving SDG-7. The consistent availability of power may boost family and company revenues by $4.5 and $8 billion, respectively, and save $18 billion which is 6.5 per cent of GDP.

The World Bank estimates that increasing the use of solar energy can cut carbon emissions by nearly 225 million metric tonnes in half. Furthermore, Pakistan might save up to $5 billion over the following 20 years by achieving affordable energy security. The country now experiences an annual increase in energy consumption of roughly 9 per cent, but reliable projections show that it will increase eight-fold by 2030.

Pakistan buys 4.7 million tonnes of coal and 309 thousand barrels of oil every day to cover its current energy needs, spending almost 60 per cent of its foreign cash earnings on these imports. As a result, using fossil fuels as the main source of energy is no longer competitive and needs to be drastically reduced so, Promoting solar energy might be a viable, affordable, and suitable alternative to fulfill future energy demands while also creating jobs and boosting family, agricultural, and SMEs revenue.

But, unfortunately, Pakistan is confronting several barriers and challenges in solar transformation and green energy policy implementation including:

  • Economic barriers including barriers to solar installation among the three underlying sectors in Pakistan. It denotes four critical barriers: (1) high initial capital cost, (2) no subsidy, (3) lack of formal financial services, and (4) lower yearly return on investment (ROI).
  • Green energy policy-related barriers include (1) extensive net metering process, (2) lack of green energy policies, (3) limited feed-in tariff, and (4) lack of political commitment.
  • Technological barriers cover three critical barriers: (1) lack of sufficient local market base, (2) local technology is unreliable, and (3) dependency on imported technology.
  • Information and human resource-related barriers include (1) lack of consumer awareness of the latest solar technologies, (2) lack of knowledge regarding PV material, and (3) lack of locally trained people to operate.
  • Social barriers cover (1) lack of trust in local PV installation companies and (2) lack of acceptance for solar as an alternative.

Pakistan’s energy future is varied, prosperous, and sustainable thanks to the promise of solar energy. Pakistan has started a variety of projects, such as solar finance, to achieve a wider trajectory in solar energy, although it is still far from making progress towards its solar energy goals. Stronger political commitment and well-thought-out government policies, however, can aid in removing fundamental barriers to solar installation in Pakistan. The following strategies are suggested for eliminating these important obstacles or making them less important given the analyzed barriers:

International partnerships

Pakistan’s plans to employ green energy might be derailed by the high cost of imported solar systems, which forces Pakistan to purchase cheap solar panels. Given this, the WTO should step in to end the trade conflict on the global energy market. More crucially, the government requires foreign technology-sharing partnerships to begin domestic solar panel production. The expansion of innovative and affordable solar technology in developing nations can be facilitated by improved international collaboration for local manufacturers, which may view government subsidies for eco-friendly technologies as an opportunity.

National green energy policy

Pakistan’s Alternative and Renewable Energy Policy 2019 was adopted in August 2020. By 2030, the initiative sought to raise the proportion of renewable energy to 30 per cent from its current level of around 5 per cent. However, as the nation produces excess energy, the continuous construction of coal-fired power plants may prevent the scaling up of green energy. Possibly, Pakistan declared a prior renewable energy program in 2006, but because there was no action plan to support the policy framework, it did not provide the expected results. Therefore, it is suggested that policymakers include a strategic plan that is cohesive and includes a system to improve coordination and foster goodwill among all parties involved in the new policy.

Role of local government

By supporting decentralised energy systems, local government may play a crucial part in Pakistan’s transition to solar installation. To support the transition to green energy, local governments at the municipal and regional levels should prepare their initiatives for land use planning, environmentally friendly transportation, and community- and/or proximity-based solar installations. Additionally, the local government could combine funds to finance solar installations and offer consumers support and technical assistance for installing solar electricity. Local governments also need to take new initiatives in order to achieve a wider trajectory for solar power and make a bigger shift towards climate-energy planning.

Public education campaigns

Despite the introduction of solar technologies in Pakistan about two decades ago, only a tiny portion of the public has had first-hand exposure. This poses severe issues with regard to the dependability, cost-effectiveness, stability, and trustworthiness of these technologies. The public should be made aware of the concrete and intangible advantages of solar energy through the use of all appropriate channels by the government and local stakeholders.

Additionally, customers need to be informed about ongoing government activities for solar financing and subsidies. The media may also play a key role in the general promotion and acceptance of solar technology by establishing programs that educate and enlighten the public about the newest solar technologies.

Solar financing

The government should offer solar subsidies and lengthen the cycle by increasing its reach to private residences and rural regions. However, substantial funding is needed for this project, which may be upgraded by reducing subsidies for traditional fuels (such as petrol, diesel, coal, and LPG). Notably, lowering or eliminating these subsidies can eventually lead to the development of a solarisation environment since subsidies for conventional fuels lead to significant disadvantages and market distortions that prevent consumers from adopting solar energy on a larger scale.

One window operation

To make the net metering procedure easier and to finance solar energy, the nation must use one-window operations. The government must make it easier for local businesses to acquire property for solar energy projects and guarantee that transmission lines will be ready when they are needed. As a result of increased private investment in the solar energy industry, developers and businesses will be more motivated by profit, opening up new investment opportunities for both domestic and foreign businesses in Pakistan.

Solar parks

Solar parks should be erected in each of the special economic zones created under the China-Pakistan Economic Corridor (CPEC), similar to the Quaid-e-Azam solar park. Additionally, promoting public-private investment in the construction of solar energy parks will help to achieve economies of scale and move the energy, manufacturing, and transportation sectors towards sustainable supply chains. Importantly, the creation of solar energy parks might spark resource allocation for the green transition and support an all-encompassing solution to the interconnected climate and energy concerns.

Improved pricing and a net metering system

The country’s recent adoption of net metering, which enables customers to sell excess electricity to the grid, offers great potential for expanding solar installations. The net-metering method, however, may hasten the adoption of rooftop solar and provide businesses and farmers a chance to have enough room for solar installation. Importantly, giving longer-term contracts in exchange for advantageous feed-in tariffs for grid-connected solar energy will significantly speed up solar investment and aid in electrifying rural communities all across the nation. Promoting a two-way metering system also offers more opportunities for Pakistan to adopt solar energy since it takes into account financial incentives, reduces the cost of storage devices, and resolves problems with the disposal of obsolete solar panels.

R&D initiatives:

It is critical to develop R&D initiatives with a greater political commitment in order to carry out planned actions in Pakistan that aim to reduce energy poverty and fossil fuel usage. To make solar technology more dependable, affordable, and user-friendly, rigorous efforts and R&D work are necessary. It seems to reason that financial incentives should be provided to researchers and developers for creating cutting-edge, high-performance solar technologies, such as concentrate PV and performance flat-plate PV modules, which have the additional potential to shorten the pay-off time and lower cost. The government should provide adequate funding for R&D activities at research institutes and universities.

Human Capital Development

Lack of training for human resources is the main obstacle to solar installation in rural and isolated places. If this problem persists, solarisation may only be a nightmare. The solar transition might be achieved by opening enough training facilities and offering free training courses in solar technology. Additionally, developing human resources with greater technical proficiency would aid in spreading profound understanding and open up new economic opportunities for regional communities all around the nation.

Pakistan has some of the greatest levels of irradiance (sunlight) of any nation on earth, which enables us to use clean solar energy while saving significant foreign currency that would otherwise be spent on expensive fossil fuels. In addition to being environmentally friendly, solar energy also has a very short payback period as little as three to four years for residential installations and as little as two years for commercial ones given the exorbitant price of power. Adopting and promoting policies that support solar energy deployment is a good idea; this is something that has been done all over the world, even when solar energy wasn’t as cost-effective as it is now. As our country’s energy demands continue to rise quickly, solar energy must play a big role in our future energy mix. It is crucial to ensure that these policies continue to be progressive and consistent regardless of which party is in power. The future of our economy and ecology relies on it.

The Author is MD IRP/ Faculty Department of H&SS, Bahria University Karachi.