Chinese solar panel boom threatens Pakistan’s debt-ridden grid

From the article (archive):

Businesses in Pakistan are racing to cover their factory rooftops with ultra-cheap Chinese solar panels, after a surge in electricity prices that has made the state-owned power supply among the most expensive in South Asia.

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In order to put an end to widespread electricity shortages a decade ago, the Pakistani government drew in billions of dollars from Chinese and other lenders to its power sector with promises of sovereign-backed, dollar-indexed returns and commitments to pay for even unused electricity.

Financing mostly flowed to the coal-fired plants and power tariffs in Pakistan have more than doubled over the past three years alone, as the cash-strapped government scaled back subsidies and passed the capacity payments made to power producers on to consumers.

In response, moneyed Pakistanis have capitalised on the country’s punishingly harsh sunlight by importing some $1.4bn worth of Chinese solar panels in the first half of this year, making it the third largest national destination in the world, according to data compiled by BloombergNEF.

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The federal government sees the switch to solar as being in the country’s environmental interests, as climate change has brought more extreme weather including deadly heatwaves and floods, which caused the deaths of more than 1,500 in 2022.

But the mass adoption of solar panels also risks making the power provided by the Pakistani grid “unaffordable”, Awais Leghari, the energy minister, told the Financial Times. “Demand is shrinking off the grid. That’s a big concern for us.”

Earlier this year, the ministry complained that “solarisation has grown too fast”, as a result of a policy to buy some excess solar power from households and industry at above-market prices.
A remaining estimated 30mn low-income consumers who cannot afford the new solar panels or lack the rooftop space now face rocketing prices for the state-owned power supply.

Local industrial groups complain that energy costs are double those of businesses in India and Bangladesh. Some factories have been forced to shut even as the Pakistani government seeks to boost exports to transform the import-dependent, boom-and-bust economy.

Jenny Chase, lead solar analyst at BloombergNEF, says the cost of panels has halved to about 10 cents per watt, from 24 cents last year.

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Rising debts have created a vicious cycle in which ever-increasing power tariffs push wealthier households and businesses to invest in solar panels and reduce the bills they pay to power distributors.

This incentivises those left reliant on the expensive existing grid with the choice of saving money to do the same, or to refuse to pay their bills, said Asha Amirali, a fellow at the Centre for Development Studies at the University of Bath.

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Power consumption from the expensive grid fell by about 9 per cent last year, as double-digit inflation shredded purchasing power and the climbing bills led people to turn to solar and other off-grid options.

Despite the federal government’s concern about its power network, the provincial government of Punjab, home to more than half of Pakistan’s population 240mn, announced in July that it would give away free or heavily subsidised solar panels for millions of citizens struggling with rising electricity bills.

The party that rules Sindh province, with more than 50mn citizens, said last month it would follow suit with a similar policy for its poorest residents.

Dealing with Pakistan’s solar panel glut

Pakistan is awash with solar panels. In August 2024, BloombergNEF revealed Pakistan had imported 13 GW of Chinese modules in the first six months of the year. One project developer told pv magazine that there is so much oversupply, modules are “lying on the road.”

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Apparently there were import restrictions due to a lack of hard currency that resulted in high profits for whoever could get around them:

“If it cost me $0.15 [per watt of panel generation capacity] to import directly from the OEM (original equipment manufacturer), people were selling for $0.30/W in the local market,” said Hussain Khan, head of commercial at Wateen Energy Solutions, the renewables arm of telecoms giant Wateen Telecom. “There was a massive 100% margin in the trading business. Everyone jumped in and started ordering lots of panels. A lot of companies that have exports, if they export rice for example, they would bring their dollars back from abroad. Suddenly you saw a large increase in the distribution business.”

Mujahid said a lack of solar expertise was no barrier. He added that the commoditization of panels meant that “you could import [modules] from grade-A manufacturers and just sell them in the market. It’s not a hard sell.”

The panel glut, however, obliterated those margins in 2024 and PV modules are being sold at a loss.

Despite this, Mujahid said he does not expect to see a rush of businesses leaving the market. “I think it would take another six months, or maybe a year of losses to exit because those guys have made significant money,” he said.