Solar energy is the energy of present and future. Pakistan is importing almost all of the solar equipment from abroad, mostly China. China is the production house of the world and has captured world markets even in developed countries like the U.S. and Europe. In case of Solar PV, China has a world market share of 75-80%.
Global installed capacity of solar PV production exceeds 200 GW. Surprisingly, the market share of Europe and the US combined is small, under 10%. Enthusiasm for promoting Solar has prevented protectionist policies in the West.
Due to change in political environment, this may now change. The question is should Pakistan start indigenization in the area of solar PV equipment? Would it be economic to produce locally? Would it promote expansion of Solar PV in the country? Same questions also apply to Wind power sectors as well?
China Solar PV equipment output is 150 GW (200 billion USD) and exports amount to more than 50 billion USD which means that bulk of the output is locally consumed as is evident by the total installed solar capacity of 306 GW as opposed to only 95 GW of the US. China export markets are primarily the US (26%) and Europe (50%) of total Chinese exports.
There are some 35 countries which have some degree of solar PV equipment production which is limited to solar panel assembly. Only 10-12 have larger capacities exceeding 1 GW, others have under 1GW. Among developing countries, Vietnam, Thailand and Malaysia are the leading producers, which are essentially part of the China supply chain.
India, however, has now a gigantic expansion programme to install 38 GW capacity, including integrated plants of 4 GW each. This would bring India to the number 2 rank after China. In Pakistan, reportedly, there are several small plants. It is not known, how much is the local content and how much is their market share, success and quality?
Surprisingly, in Africa under German support (GIZ and Fraunhofer Institute), several countries have initiated installation of solar PV equipment production capacities, led by Egypt, Morocco and Algeria. Even tiny Burkina Faso has recently installed a solar PV assembly plant.
High cost of production in the U.S. and Europe has prevented expansion of solar PV equipment industry. In China, Solar panel cost is 20-24 USc, in Asean 26 USc and India 33 USc per watt. As opposed to these numbers, production cost of solar panels is 52-56 USc. Long-term potential in the EU or the US may be created by politics and not the economics.
It appears that a lot of protection may not be required for supporting indigenous solar PV production. Imports and trades have disadvantages also. Recently, a case has been discovered by FBR audit department of over-invoicing and money-laundering of Rs 69 billion in the imports of solar panels. Smaller order size by a large number of traders also results in high import prices.
There are five stages of making solar panels. 1. Purification of sand and making poly-silicon which is the most complex part of the process. Most of it is produced by China only, and some by the U.S. and Germany.
It is highly unlikely that even India would be able to reach this level. 2. Ingot blocks casting. 3. Wafers slicing. 4. Cell making, 5. Panel assembly. Most panel assembly plants start from importing cells and assemble panels using other inputs like glass, plastic, wires etc. There are integrated plants as well starting from ingots and ending with Panels.
Pakistan had installed a pilot silicon plant in NIST (National Institute of Skilled Training) in the 1970s. Alas, where Pakistan is now? The plant is still there in PCRET (Pakistan Council of Renew Energy Technologies). Criticism on PCRET is unfair. It cannot be held responsible for lack of progress in the field of R&D sector. Government policies are responsible for it. PCRET is an R&D centre. Such centers are required for a variety of support services in training, quality testing, standards development and a variety of other inputs and advice. Its institutional strengthening is required.
Pakistan’s market is relatively small as compared to the population of the country. In 2022, solar panel imports were 2.4 GW. There is potential of growth. One could assume a stable market size of 2 GW per year. This is enough of market size for supporting indigenous production. Average plants capacity varies from 200 to 500 MW.
India has an installed capacity of 38 GW for solar PV panels, nearly 50% of which is utilized. India plans to increase this capacity to 100 GW. India will become second largest manufacturer of solar panels in the world after China.
Import duty on solar panels is 40%and on Cell imports is 25%. It means net duty protection on panels production is 15%.The U.S. had also imposed anti-dumping duty of 30%, which has now been reduced to 18. Duties are a double-edged sword. It protects local production but decreases the demand.
While Indian market is too big to be a model for Pakistan, Turkey can be adopted as a development model. Turkey has an installed power generation capacity of 100 GW. It has a solar PV panel assembly production capacity of 8 GW with 16 producers. Average plant capacity is 200 MW.
Local content varies from 50-85%. Turkey has one of the largest integrated solar PV plants which started with an initial capacity of 500 MW with a CAPEX of 400 million USD. It has now reached a capacity of more than 1 GW.
Pakistan could start both with small as well as large plants. Small plants may be installed by domestic investors. While large plants of 0.5-1 GW may be installed under CPEC (China Pakistan Economic Corridor) JVs, to cater both for domestic and export markets.
It may have a CAPEX of less than 1 billion USD. China’s raw material silicon industry is located near Pakistan’s border in western China. This plant and many more later can be installed in one of the CPEC SEZs. For larger plants, all would depend on the export strategy of China. There is a large adjoining market in the Middle East and Africa. Turkey is exporting to Europe. Pakistan can do it as well.
Pakistan has a considerable industrial capacity both in terms of installations and skills. A considerable capacity is lying underutilized. As we mentioned earlier, Pakistan started with solar and silicon technology in the 1980s.
As we have mentioned, there is some protection in the beginning in many jurisdictions, e.g., India and U.S. There are successful examples of deletion programmes like agricultural tractors which began with a zero-duty regime on raw materials, which are now being exported. Automotives have a mixed story of extra protection but nevertheless an automotive component industry has developed under it.
Optimistically speaking, assuming Chinese assistance and cooperation, one can aim at 5 GW installed production capacity by 2030. Pakistan’s market can accommodate installing 10 small, medium and large solar panel plants.
It is not too much; India has 70+ plants and Turkey 16.There are two tracks that are possible; G-to-G supported large plants; and the other smaller plants in private sector. The biggest uncertainty is whether Tier-1 manufacturers would be willing to come and join in with our private sector. They would be interested in 0.2-0.5 GW plant capacities.
Due to rising cost of electricity, roof top solar has acquired attractiveness. Presently, most of the solar market is from this sector which can be catered by small to medium private sector. Utility sector will be suffering from demand issues as there is capacity surplus and high capacity cost will be deterring solar expansion in this sector.
We have seen that no bidder came up in case of the Muzaffargarh project of 600 MW. In the meantime, however, government buildings and solar PV pumps would be creating demand. Demand issues can create a time gap to develop large solar PV industry that may participate in the utility industry projects.
Solar PV is not just solar panels. Panels take only 30-40% of the total cost. There are other components like Inverters and Batteries and other electrical parts. There is a considerable scope of local manufacturing of inverters under JV arrangements.
Most inverters in Pakistan are imported from China. Battery manufacturing for automotives have a long history in Pakistan. Solar batteries are, however, large and of different types. Lithium Ion batteries have also emerged in the local market. All of these have significant potential for local manufacture. We will take up these issues in a later piece.
Fossil fuel prices have been increasing and are unstable. Renewable energy are the future. The market will expand. Pakistan’s` trade balance has been going from bad to worse. Hence, indigenization, not only of the items discussed, but in all other feasible areas, is an urgent necessity. Planning and implementation of policies and actions are required jointly by private and public sector.
Copyright Business Recorder, 2023