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.
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