Pakistan is experiencing an unprecedented solar panel oversupply. Dealing with an influx of 13 GW of Chinese solar modules in just the first half of 2024, prices have plummeted, and the market is feeling the strain. While businesses continue to invest in solar energy, government concerns about the impact on utilities and capacity payments add complexity to the situation.
Why Is There a Solar Panel Glut in Pakistan?
The rapid increase in solar imports can be traced back to Pakistan’s foreign exchange crisis in 2022. The country’s central bank restricted imports due to low foreign reserves, causing a backlog. When restrictions eased, businesses rushed to import solar panels, leading to an oversupply.
According to BloombergNEF, Pakistan became the third-largest market for Chinese solar module exports in early 2024. With an estimated demand of only 3.5 GW in 2023, the influx of 13 GW in six months has overwhelmed the market.
Impact of the Oversupply on Solar Businesses
During the foreign exchange restrictions, businesses that generated US dollar income through exports took advantage of the high demand for solar panels. Initially, profit margins were as high as 100%, but by mid-2024, prices collapsed due to excess supply.
Despite the financial hit, many businesses are expected to remain in the market, having already profited significantly. The corporate sector continues to invest in solar energy, especially multinational and local companies looking for cost-effective energy solutions.
Corporate Investment in Solar Energy
Pakistan’s commercial and industrial (C&I) sector is leading the solar adoption wave. Companies like Wateen Energy Solutions have installed 30 MW of solar capacity in just 18 months and plan to add 50 MW in 2025.
High electricity costs and favorable net metering policies have made solar an attractive investment. Even if net metering incentives are reduced, rising grid electricity prices ensure solar remains a viable alternative.
Rising Electricity Costs and Capacity Payments
Pakistan’s electricity sector is facing a crisis due to rising costs and fixed capacity payments to independent power producers (IPPs). These payments, indexed to the US dollar, have surged due to the rupee’s depreciation. The country paid PKR 6 trillion ($21.5 billion) in capacity payments from 2019 to 2024, exceeding total energy revenue.
Long-term power purchase agreements (PPAs) signed in the 1990s and early 2000s continue to burden the economy. These agreements were necessary at the time to attract foreign investment but now contribute significantly to rising electricity prices.
The Future of Solar PPAs and Wheeling in Pakistan
Solar power purchase agreements (PPAs) are becoming more popular in Pakistan, allowing businesses to buy electricity at a fixed rate. Companies like Shams Power have pioneered this model, offering up to 70% savings on electricity costs.
With the introduction of wheeling regulations, businesses may soon have the ability to transmit power across the grid, further enhancing solar investment opportunities. Shams Power has a potential 500 MW pipeline, with major clients such as Unilever, Pepsi, Nestlé, and Coca-Cola expressing interest.
Government Concerns and Policy Considerations
While businesses push for more solar liberalization, the government is cautious. A sudden shift to private solar generation could weaken the financial viability of state-run utilities, exacerbating the capacity payments crisis.
National renewables expert Syed Faizan Ali Shah warns that unrestricted solar adoption could disrupt Pakistan’s electricity market. If industries rely entirely on private solar solutions, government-procured power plants may become redundant, leading to further financial strain.
