Pakistan’s renewable energy potential remains underutilized, despite its immense capacity to harness solar and wind power. As the country grapples with an energy crisis marked by soaring tariffs and frequent outages, the share of Variable Renewable Energy (VRE) in the energy mix stands at a meager 7% as of March 2024.
This underperformance persists despite Pakistan’s vast renewable energy potential: over 100,000 MW of solar energy and 50,000 MW of wind power along the Gharo-Keti Bandar coastal belt. However, renewable energy projects are critically underfunded, with most investments diverted to hydropower (42.3%) and coal (43.2%) during 2023-24, leaving little for solar and wind energy development. This is in stark contrast to the global trend, where renewables saved $521 billion in fuel costs in 2022 alone.
Falling Renewable Costs, Rising Investor Reluctance
Globally, renewable energy costs have plummeted, and Pakistan is no exception. Wind tariffs fell from 12.54 US cents per unit in 2013 to 4.45 US cents in 2023, while solar power costs dropped from 14 US cents to 3.9 US cents during the same period. Despite these significant cost reductions, investors remain wary of Pakistan’s renewable sector.
The core issue lies in the country’s outdated regulatory and financial frameworks, which are modeled on fossil fuel policies. These inefficiencies have caused significant delays for renewable projects, such as the Burj Wind Farm in Sindh, which was shelved after years of bureaucratic hurdles despite meeting all requirements.
Economic and Financial Challenges
High inflation, fluctuating exchange rates, and soaring interest rates have further eroded investor confidence. Dollar-denominated project costs, such as engineering, procurement, and construction (EPC), have increased significantly in rupee terms due to the depreciation of the Pakistani rupee. For instance, the cost of a 50 MW wind project dropped from $113 million in 2014 to $76 million in 2022 but rose sharply in local currency terms.
Such financial instability has deterred investors from even promising government-backed initiatives, like the solar power park in Muzaffargarh, which remains unfinanced despite revised terms to attract investment. Conversely, private sector projects like K-Electric’s hybrid wind/solar plant in Dhabeji, Sindh, have achieved record-low tariffs of 8.9189 rupees per unit, underscoring the private sector’s success in overcoming these challenges.
The Trust Deficit
The stark difference in outcomes between government and private sector renewable projects points to a trust deficit. Investors increasingly prefer private ventures over government-led initiatives, citing a history of strained relationships with state authorities in the energy sector.
To unlock its renewable energy potential, Pakistan must address its regulatory inefficiencies, foster investor confidence, and create a stable financial landscape for renewable energy development. Without these measures, the country risks missing out on an opportunity to transform its energy mix and mitigate its ongoing energy crisis.
