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The Federal Budget 2024-25 was much of a non-event for the power sector highlighted by the same repetitive discussion around the privatization of DISCOs, revamping transmission and distribution networks, and moving towards sustainable energy (read: focus on renewables) - except that there was a whopping increase in budgeted subsidies for the power sector.

Many were expecting some decision regarding rooftop solar systems and net metering which have been hot topics in recent times. Rooftop solar panels have significantly picked up in the country following a supply glut and price crash. Industrial, commercial, and residential consumers have been deploying rooftop solar setups due to high energy costs and the expectation of a 25 percent increase in power tariffs soon. This had sent the government into reconsidering its net metering and solar panel import policy with reports on moving towards a fixed rate regime and gross metering policy, etc.

The Budget, however, took a different route, and the government announced relief measures to encourage local manufacture of solar PV and allied materials. The conflict that the government faces has not been simple. On the one hand, the government wants to boost the share of renewable energy, which can also be seen from the rise in the share of renewables during the first 9 months of FY24 as highlighted in the Economic Survey of Pakistan released a day before the Budget announcement. On the other hand, the authorities have been worried about the rising installation of solar PV systems and the increase in net metering affecting the grid electricity consumption and capacity payments negatively.

The finance minister in the budget speech announced zero import duty on the raw materials for solar panels and allied industry including inverters and batteries. From these proposals, it seems that the government is keen on moving toward solar panel manufacturing. In the current global market dynamics, will Pakistan be able to carve out a share for itself? The finance minister was sure to mention that the government hoped to reduce the reliance on imports of solar panels, save precious foreign exchange, fulfill local requirements, and export panels as well.

First, Pakistan will have to face direct competition from China. Global solar panel manufacturing is dominated by China with a share of over 70 percent with enormous economies of scale. Recently India’s share in solar module manufacturing has picked up drastically too. Pakistan imports most of its solar panels from China. While talking to BR Research, one key Chinese supplier highlighted the absence of import duty on solar panels that disincentivizes any investment in local production of solar PVs. Zero import duty on CKD solar panels currently discourages the setting up of a production facility in the country. The recently finalized draft of “Solar Panels Local Manufacturing and Allied Equipment Policy” by PPIB does offer an imposition of tariff on imports of finished goods (CKD Solar Panels) by 5 percent in the first year, 10 percent in the second year, and 15 percent in the tenth year. However, the Chinese supplier told BR Research that the incentive is not enough to incentivize investment due to China’s cost advantage in the global market. He further highlighted that a 20 percent tariff is needed on imports right now for local manufacturing to break even which means that the barriers to stop imports are too few as of now. Moreover, the draft policy says that the bank guarantee to be paid by the investor will equal the amount of tariff and tax exemptions.

It must be known that parts of PV modules do not have any customs duty. However, duty on raw materials for the manufacture of PV modules if imported by the local manufacturers is between 0-5 percent; and on parts of solar inverters is somewhere between 0-4 percent; and 0-10 percent on parts of lithium batteries. Despite the removal of duty on parts of inverters and batteries, these are still not economically viable when compared to grid electricity – so says an industry expert.

Then comes the issue of financing, especially for the industrial and commercial sectors looking to set up their captive solar setup. Banks are still hesitant to finance solar investments.

Another important aspect to mention here is that the rising demand for imported solar modules and commercial, industrial, and residential consumers rushing towards solar power setup has not been the import burden. Yes, the government should support and encourage localization over imports and move towards sustainable renewable energy. The ongoing solar power policy crisis in the country arose due to the supply glut of imported solar panels amid falling prices and the backlog of LCs last year in the post-COVID times. This has resulted in the government fearing a decline in grid electricity consumption amid transmission challenges and high capacity charges that the government must pay. A reflection of this can also be seen in the recently announced power sector stats in the Economic Survey 2023-24 where power generation was higher than grid power consumption.

On net metering, though the budget was silent, the government might still take up the required reforms and rationalization - in due course of time.

Comments

200 characters
KU Jun 14, 2024 02:42pm
The thieves n traitors of economy are all set to protect the gold egg-laying power sector theft with further twists. Plans for solar/wind energy or its manufacturing is a facade, suffer we shall.
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M. Zahid Iftikhar Jun 14, 2024 03:08pm
Energy import (Petroleum, LNG, Coal) & Current Account Deficit are connected. Solar energy is part of the solution to both. It's advisable to import from China instead of slowing the adoption.
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test Jun 15, 2024 04:31pm
We do not manufacture local anything at all except bubble gums, chew gums, condoms, textiles, agriculture, surgery equipment, sports accessories and we call these our local industries. Its ridiculous.
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Builder Jun 15, 2024 10:28pm
If and when this happens, we should plan for local production of solar inverters as well. These are still very expensive and main reason is artificial shortage.
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