Pakistan’s Solar Power Boom: Key Insights and Challenges

Power Crisis at a Crossroads

• Pakistan’s power sector is struggling with soaring electricity prices, circular debt, and unreliable supply.
• Electricity prices have surged over 200% in five years, while circular debt reached 6 trillion by mid-2024.
• Millions remain in energy poverty, and inefficiencies continue to burden the economy.

Structural Challenges and Inefficiencies

• Despite 45,888MW capacity, power shortages persist due to poor grid utilization.
• Peak demand: 30,150MW (summer) | Off-peak demand: 7,015MW → Half of the power fleet remains idle.
• Annual capacity utilization: Only 33.88%, while capacity payments rose from Rs1.3tr (FY23) to Rs1.9tr (FY24).
• Aged power network cannot evacuate more than 25,000MW, leaving excess capacity unusable.

Distribution Losses and Rising Costs

• Transmission and distribution (T&D) losses: 18.31% (allowed: 11.77%), adding 28tr to circular debt.
• High tariffs (including indirect taxes & surcharges) account for 30% of consumer bills.
• Consumers bear the cost of systemic inefficiencies rather than just energy usage.

Solar Boom and Grid Defection

• Rising tariffs & unreliable supply are pushing consumers towards rooftop solar.
• Net metering users grew from 75,724 (FY23) to 157,844 (FY24), and capacity doubled from 583MW to 1,181MW.
• While solar adoption lowers consumer costs, it financially strains distribution companies (Discos) as high-paying consumers exit.

Essential Reforms for a Sustainable Power Sector

1. Revisiting Power Purchase Agreements (PPAs)

• Take-or-pay contracts force payments for unused electricity.
• Transitioning to flexible agreements that align with demand is critical.

2. Transmission & Distribution Modernization

• Addressing T&D losses, power theft, and bill recovery.
• Shifting from feeder-based to transformer-based load-shedding.
• Deploying smart grid technologies (e.g., smart meters, AI-driven monitoring).

3. Tariff Reforms & Consumer Protection

• Reducing indirect taxes & surcharges to ease financial burden.
• Implementing off-peak tariffs & peak shifting to balance demand.

4. Privatization with Accountability

• If Discos are privatized, they must meet performance benchmarks.
• Preventing monopolistic pricing through a competitive market structure.

5. Renewable Energy Expansion

• Hybrid solar-wind solutions remain untapped despite high renewable potential.
• Policy inconsistencies & transmission issues hinder large-scale renewable adoption.
• A renewable roadmap is needed for investment incentives & fast-tracking modernization.

6. Market Liberalization & Energy Equity

• Transitioning from a single-buyer model to a multi-buyer market (industries buying directly from producers).
• Decentralized energy solutions (mini/microgrids) for off-grid communities.

7. Energy Efficiency & Conservation

• Pakistan has focused on capacity expansion but neglected efficiency.
• Enforcing building codes, promoting energy-efficient appliances, and monitoring energy savings is vital.

The Road Ahead

Pakistan’s power crisis stems from decades of mismanagement and short-term fixes. The solutions are clear, but political will and governance reforms will determine whether the country can achieve a stable, consumer-centric, and sustainable power sector.

Muzaffargarh Solar Power Project: A Step Towards Renewable Energy

Project Overview

• Location: Muzaffargarh, Pakistan
• Status: Proposed
• Capacity: 600MW
• Area: 2,400 acres
• Type: Flat-panel PV solar farm

Government Initiative & Objectives

• The Muzaffargarh Solar Power Project is part of Pakistan’s broader plan to generate 10,000MW of solar power
• Aims to reduce reliance on imported fuel, lower electricity costs, and enhance energy sustainability.
• Designed to replace costly, fuel-based power plants during daylight hours.

Challenges & Delays

1. Land Acquisition Issues

• Required 2,400 acres of land, estimated at Rs 14 billion.
• The Planning Commission refused to fund the land purchase, delaying progress.

1. Poor Investor Response

• The bidding process received no interest, despite an attractive tariff of 4 cents per unit.
• The National Electric Power Regulatory Authority (NEPRA) is reviewing the tariff to encourage investment.

Future Outlook

• Government reassessing project feasibility and seeking alternative funding sources.
• Possible tariff adjustments and policy reforms to attract investors.
• If implemented, the project could boost Pakistan’s renewable energy mix and reduce dependence on expensive fossil fuels.

Pakistan’s PKR2.1 Trillion Capacity Payments Crisis Triggers Power Purchase Agreement Renegotiations

Background

• Capacity payments in Pakistan surged to 1 trillion in 2024, driven by reduced industrial output and declining grid demand.
• Under the International Monetary Fund (IMF) directive, the government has initiated renegotiations of power purchase agreements (PPAs) with Independent Power Producers (IPPs).

Key Developments

1. Targeting Underutilized Power Plants

• The government is focusing on middle-aged, low-utilization fossil fuel plants with no debt obligations for renegotiation.
• The goal is to reduce capacity payment burdens and save foreign exchange.

1. Termination & Contract Revisions

• Five IPPs have had their PPAs terminated, with two accepting discounted settlements of up to PKR20 billion.
• 18 other IPPs may transition to take-and-pay contracts, eliminating fixed capacity charges and ensuring payments only for consumed energy.

1. Investor Concerns

• IPPs claim repeated renegotiations and coercive tactics hurt investor confidence.
• They argue that dollar indexation, high return on equity, and government-backed guarantees initially attracted investment.

Potential Benefits & Challenges

• For the Government:
  • Reduces idle capacity payments and circular debt accumulation.
  • Saves scarce economic resources while ensuring fair compensation for unpaid dues.
  • Supports the shift towards a Competitive Trading Bilateral Contract Market (CTBCM)
• For IPPs:
  • Opportunity to sell power in secondary markets under wheeling regulations.
  • Potential for quicker financial recovery from unpaid dues.

Long-Term Reforms Needed

• Phased removal of unsustainable incentives in PPAs.
• Adoption of competitive bidding for future power contracts.
• Stronger auditing mechanisms to prevent inefficiencies.
• Gradual transition to a liberalized power market to avoid recurring financial crises.

The renegotiation process must be transparent and commercially driven to ensure a mutually beneficial outcome for both the government and IPPs.

ADB Approves $200 Million Loan to Modernize Pakistan’s Power Distribution System

Islamabad, December 11, 2024

The Asian Development Bank (ADB) has approved a $200 million loan to modernize Pakistan’s power distribution infrastructure and enhance the capacity of distribution companies (DISCOs) to deliver reliable and efficient electricity.

Key Objectives of the Project

• Reduce energy losses in transmission.
• Enhance grid resilience against climate-related risks.
• Improve revenue protection measures for power distribution companies.

Implementation Plan

The initial phase of ADB’s Power Distribution Strengthening Project will support three major distribution companies:

• Lahore Electric Supply Company (LESCO)
• Multan Electric Power Company (MEPCO)
• Sukkur Electric Power Company (SEPCO)

Key Infrastructure Upgrades

• 332,000 advanced metering systems for better energy monitoring.
• 15,800 transformer performance monitoring systems to improve efficiency.
• Voltage upgrades in SEPCO, increasing grid station capacity from 66 kV to 132 kV.
• 25 new or upgraded grid stations in LESCO.
• Replacement of high-loss 11 kV feeder lines with modern aerial bundled conductors.

Expected Impact

• Reduced power losses and lower financial burden on the power sector.
• Real-time data access to optimize grid performance.
• Faster fault detection and recovery during outages.

ADB’s Principal Energy Specialist, Seung Duck Kim, emphasized that these upgrades will help improve revenue collection, minimize power outages, and ensure better service delivery.

ADB’s Commitment to Pakistan

Since 1966, ADB has provided over $52 billion in funding for Pakistan’s economic growth, including investments in infrastructure, energy, transport, and food security. This latest initiative aligns with ADB’s vision for a resilient and sustainable energy sector in Asia-Pacific.

Revamping Pakistan’s Power Sector: A Call for Urgent Reform

Pakistan’s power sector is grappling with soaring electricity prices, mounting circular debt, and an unreliable supply. Over the past five years, electricity tariffs have surged by over 200%, while circular debt has ballooned to Rs2.6 trillion. Despite having a total installed capacity of 45,888MW, the country still faces power shortages due to inefficient utilization, with only 33.88% of capacity being used annually. Additionally, an ageing transmission network can only evacuate 25,000MW, exacerbating energy shortfalls even at peak demand.

The financial burden on the sector continues to rise, with capacity payments escalating from Rs1.3 trillion in FY23 to Rs1.9 trillion in FY24. High transmission and distribution losses of 18.31%—well above the allowed 11.77%—have further deepened the crisis. As a result, consumers bear excessive tariffs, with indirect taxes and surcharges making up 30% of electricity bills. Rising costs and an unreliable supply have also driven industries and households towards self-generation, particularly rooftop solar, leading to grid defection and worsening the financial health of power distribution companies (Discos).

Addressing these structural inefficiencies requires bold reforms. Revisiting power purchase agreements is critical, as the current take-or-pay model is financially unsustainable. Upgrading the transmission and distribution network, reducing power theft, and deploying smart grid technologies such as smart meters can improve efficiency. Tariff rationalization, including reducing indirect taxes and implementing demand-side management strategies, can help restore consumer confidence and affordability.

Pakistan’s energy future also depends on an aggressive transition towards renewable sources. Despite abundant solar and wind potential, policy inconsistencies and infrastructure limitations have slowed adoption. Encouraging investment in hybrid solar-wind solutions and modernizing the grid can help reduce dependence on costly fuel imports. Additionally, restructuring the power market to allow direct electricity purchases by industries and businesses can enhance competition and lower costs.

Finally, improving energy efficiency must be a priority. Enforcing building codes, promoting energy-efficient appliances, and integrating efficiency data into energy planning can help optimize electricity use. Without urgent and comprehensive reforms, Pakistan’s power crisis will persist, further straining the economy and making electricity a privilege rather than a fundamental necessity.

Pakistan’s Solar Boom: Lessons for Emerging Markets

Pakistan is witnessing an unprecedented surge in solar energy adoption, driven by an unstable electricity grid, skyrocketing tariffs, and declining solar panel prices. The country has become the world’s sixth-largest solar market, with imports of Chinese solar modules reaching 13GW in the first half of the year and projected to hit 22GW by year-end. This shift, largely market-driven rather than politically orchestrated, highlights how economic forces can accelerate clean energy transitions. However, the rapid move toward solar has also raised concerns about the financial stability of the national grid, as more consumers abandon traditional electricity connections, increasing fixed costs for those who remain.

The transition to solar energy has been fueled by Pakistan’s unreliable power supply, which has long hindered economic growth. Over 40 million people still lack access to electricity, and many endure less than four hours of power daily. Additionally, extreme heatwaves have driven up demand for basic cooling solutions, making solar energy a necessity rather than a luxury. The recent electricity price hike in July 2024 has further pushed grid consumption to its lowest level in four years, sparking a wave of solar adoption among industrial, commercial, and private users seeking energy independence.

While solarization presents immense opportunities, it also exposes risks associated with an unmanaged energy transition. Pakistan’s case raises critical questions about the viability of state-run grids in the face of large-scale renewable adoption. To prevent a downward debt spiral, modernizing the grid through AI-driven monitoring, battery storage integration, and digital metering is crucial. Moreover, regulatory reforms, including the privatization of distribution companies and the creation of a competitive electricity market, can help balance grid sustainability with consumer affordability.

The global shift toward cleaner energy sources, reinforced by international regulations and corporate net-zero commitments, is further pressuring Pakistan’s industries to embrace renewables or risk losing competitiveness. Encouraging policies such as credit facilities for solar adoption in off-grid communities and incentives for battery storage can smooth the transition. Additionally, promoting new demand sources, such as electric vehicles and industrial electrification, can mitigate potential disruptions in grid stability.

Pakistan’s solar revolution offers valuable lessons for other emerging markets. Balancing renewable energy expansion with grid modernization, market reforms, and proactive policy measures is essential to ensuring an equitable and sustainable energy transition. The challenge now is not whether solar can power Pakistan, but whether Pakistan can integrate solar energy without destabilizing its national grid.

Pakistan’s Dependence on Chinese Power Plants Deepens Economic Crisis

Pakistan’s heavy reliance on Chinese-built power plants, once seen as a solution to its energy shortages, is now proving to be a major economic burden. While these projects, largely financed under China’s Belt and Road Initiative, expanded the country’s power generation capacity, they have also led to unsustainable debt and soaring electricity prices. Consumers and businesses alike are struggling under the weight of high tariffs, with many receiving electricity bills that exceed their monthly earnings.

For ordinary citizens like Muhammad Imtiaz, a motorbike taxi driver in Islamabad, electricity has become a luxury. His monthly bill of over $120 during the scorching summer months—equivalent to his entire income—highlights the severe impact of rising energy costs on low-income households. With minimal appliances in his two-room home, including only a fridge, lights, and two fans, he still finds it difficult to afford electricity as temperatures soar above 110°F.

The financial strain extends beyond households. The burden of capacity payments—fees paid to power producers regardless of actual electricity consumption—has escalated, worsening Pakistan’s circular debt crisis. With industries and businesses reducing their dependence on the national grid in favor of self-generation, those still connected are forced to bear even higher costs. The government’s inability to reform power sector inefficiencies, coupled with expensive long-term contracts with Chinese firms, has exacerbated the economic downturn.

To escape this energy trap, Pakistan must urgently renegotiate its power purchase agreements, modernize its transmission and distribution system, and transition toward more cost-effective and sustainable energy sources. Without structural reforms, the country risks further economic instability, with electricity remaining an unaffordable necessity for millions.

Pakistan’s PKR2.1 Trillion Capacity Payment Crisis Sparks PPA Renegotiations with IPPs

Amid soaring capacity payments reaching PKR2.1 trillion in 2024, Pakistan has been compelled to renegotiate power purchase agreements (PPAs) with Independent Power Producers (IPPs) under pressure from the International Monetary Fund. A new report from the Institute for Energy Economics and Financial Analysis (IEEFA) highlights that while targeting underutilized, middle-aged fossil fuel plants with no outstanding debt is a step in the right direction, the renegotiation process must be conducted with greater transparency.

The government has already terminated contracts with five IPPs, with two accepting haircut deals worth PKR20 billion. Additionally, 18 more plants face potential conversion to take-and-pay contracts, ensuring payments are only made for actual energy consumed, rather than fixed capacity charges. While IPPs have raised concerns over investor confidence and alleged coercive tactics, excessive incentives such as dollar indexation, guaranteed returns, and backstopped payment guarantees have exacerbated Pakistan’s power sector debt crisis.

Despite tensions, the renegotiations present potential benefits for both parties. The government could save critical economic resources, while IPPs may recover unpaid dues or sell power to secondary markets under upcoming Competitive Trading Bilateral Contract Market (CTBCM) reforms. However, experts stress that ensuring a transparent, commercially driven negotiation process is crucial to optimizing long-term economic outcomes and preventing future financial distress in Pakistan’s power sector.

ADB Approves $200 Million to Modernize Pakistan’s Power Distribution

The Asian Development Bank (ADB) has approved a $200 million loan to upgrade Pakistan’s power distribution infrastructure, aiming to enhance grid reliability and efficiency. The Power Distribution Strengthening Project will modernize distribution systems, reduce energy losses, and improve resilience against climate change and natural disasters. In its first phase, the initiative will focus on three major distribution companies—Lahore Electric Supply Company (LESCO), Multan Electric Power Company (MEPCO), and Sukkur Electric Power Company (SEPCO).

Key upgrades include installing 332,000 advanced metering infrastructure units, deploying 15,800 transformer performance monitoring systems, and upgrading grid station voltage levels to enhance efficiency. LESCO will see the construction and modernization of 25 grid stations, while high-loss 11 kV feeder lines will be replaced with aerial bundled conductor cables to minimize power theft and technical losses. These advancements will improve revenue collection, optimize grid management, and enable real-time monitoring of electricity consumption.

ADB officials emphasize that these reforms will help reduce Pakistan’s power sector financial losses and alleviate economic strain. The project also includes policy recommendations to enhance the operational efficiency of the distribution companies, reinforcing Pakistan’s commitment to a sustainable and modern energy future.

 

Pakistan’s Solar Power Boom: A Lesson in Rapid Renewable Transition

Pakistan is witnessing an unprecedented surge in solar power adoption, driven by declining solar panel prices, skyrocketing electricity tariffs, and an unreliable national grid. With grid electricity costs rising by 155% in three years, industries, businesses, and households are turning to solar energy, making Pakistan the world’s sixth-largest solar market. The country has imported 13 gigawatts (GW) of Chinese solar modules in just the first half of the year, with projections reaching 22 GW by year-end.

However, this rapid transition presents challenges. As more consumers shift to self-generation, grid electricity demand has dropped by over 10%, worsening the financial strain on Pakistan’s state-owned power sector. Capacity payments for idle power plants continue to mount, pushing the grid into a debt spiral. The government’s inconsistent energy policies and recent tariff hikes have further fueled the exodus from the grid, while industries face pressure to shift to renewables due to global carbon regulations.

Despite the opportunities solarization presents, Pakistan’s experience underscores the risks of an unmanaged transition. The country’s outdated grid infrastructure needs modernization, including AI-driven monitoring, battery storage integration, and digital metering, to support the growing adoption of renewables. Market reforms, including privatization and unbundling of distribution companies, are crucial but face hurdles due to political instability.

Pakistan’s solar boom offers valuable lessons for emerging economies on managing renewable integration. A balanced approach—combining market-driven solar adoption with proactive grid modernization and policy innovation—is essential to ensure energy security, economic stability, and long-term sustainability.

Pakistan’s Military Expands Grip Over Economy Amid Rising Controversy

Pakistan’s military is increasingly tightening its control over the country’s economy, spearheading major investment projects through the Special Investment Facilitation Council (SIFC), co-led by Army Chief Asim Munir. One such project, a $720 million canal system aimed at irrigating land for military-backed agribusiness, has sparked protests, particularly in Sindh, where locals fear water shortages. The army’s economic footprint extends to various sectors, including tourism, mining, and energy, with serving and retired officers overseeing key reforms and contract renegotiations. While proponents argue that military involvement ensures political and economic stability, critics warn it prioritizes its own interests, discourages foreign investment, and diverts attention from pressing security threats. The military’s increasing influence has also led to political repression, with opposition figures facing arrests and media controls tightening. Despite securing an IMF bailout and stabilizing inflation, Pakistan’s economic challenges persist, and analysts fear that military-led governance could further erode democracy while failing to deliver sustainable growth.

Pakistan and Bahamas Join Global Push for Fossil Fuel Phase-Out

Pakistan and the Bahamas have joined a growing coalition advocating for a global treaty to phase out fossil fuels in an equitable manner. The proposed Fossil Fuel Non-Proliferation Treaty aims to provide a binding roadmap to halt the expansion of coal, oil, and gas, prioritizing wealthy nations with the highest emissions to transition first.

With the Bahamas officially endorsing the treaty and Pakistan becoming the first South Asian country to engage in its development, momentum is building. The initiative has already gained support from 15 nations, 120 cities, 3,000 academics, 101 Nobel laureates, and major organizations like the World Health Organization and the Vatican.

Pakistan, highly vulnerable to climate disasters such as floods, droughts, and extreme heat, faces a significant challenge in transitioning from fossil fuels, which currently make up two-thirds of its energy mix. However, its leadership is calling on wealthier nations to provide financial and technological support to ensure a just transition.

With formal negotiations expected in 2025, climate-impacted nations are leading the charge, urging global action based on science and equity. The treaty would complement the Paris Agreement by ensuring that developing countries are not left behind in the push for a clean energy future.

Pakistan Secures $20 Billion World Bank Funding for Development

ISLAMABAD (AP) — Pakistan’s Prime Minister Shehbaz Sharif on Wednesday welcomed a historic $20 billion agreement with the World Bank, set to provide funding over the next 10 years for renewable energy, education, and social sector development. The initiative, known as the Country Partnership Framework (CPF), reflects the World Bank’s confidence in Pakistan’s economic potential and resilience.

The World Bank’s lending will begin in 2026, focusing on key challenges such as child stunting, learning poverty, climate change impacts, and energy sector sustainability. Najy Benhassine, the World Bank’s Country Director for Pakistan, emphasized the framework’s role in addressing the country’s most pressing development issues.

Pakistan, which narrowly avoided default in 2023 with an IMF bailout, has since secured a $7 billion loan and witnessed significant economic improvements, including a drop in weekly inflation from 27% last year to 1.8% recently. Sharif has pledged to reduce dependence on foreign loans in the coming years, as Pakistan continues efforts to stabilize its economy with support from international allies, including China, the UAE, and Saudi Arabia.

 

China, Pakistan Strengthen Ties with New Infrastructure and Energy Deals

HONG KONG (Reuters) — China and Pakistan have pledged to upgrade Pakistan’s railway network, enhance Gwadar Port, and expand cooperation in mining and offshore energy projects, according to China’s Xinhua news agency. The announcement comes during Pakistani President Asif Ali Zardari’s visit to China from February 4-8, where he also attended the Asian Winter Games opening ceremony.

China has been a crucial financial and investment partner for Pakistan since 2013, supporting its struggling economy through the $65 billion China-Pakistan Economic Corridor (CPEC), a key part of President Xi Jinping’s Belt and Road Initiative. The two nations emphasized Gwadar Port’s strategic role in trade and connectivity, while Pakistan welcomed Chinese companies to invest in offshore oil and gas exploration and other resource sectors.

With thousands of Chinese nationals working on CPEC projects, the longstanding allies continue to deepen economic and geopolitical ties, driven by mutual interests and shared regional concerns, particularly regarding India and U.S. influence.

 

IFC Doubles Down on Pakistan, Eyes Major Infrastructure Investments

ISLAMABAD (Reuters) — The International Finance Corporation (IFC), the World Bank’s private investment arm, is ramping up equity investments and large-scale infrastructure financing in Pakistan, with potential investments reaching $2 billion annually over the next decade, according to IFC chief Makhtar Diop.

Diop’s visit follows the World Bank’s announcement of a $20 billion Country Partnership Framework for Pakistan, with the IFC set to match that investment. He emphasized that Pakistan is ready for large-scale financing in critical infrastructure sectors, including international airports, energy, water, and ports.

Despite being under a $7 billion IMF bailout program and narrowly avoiding a sovereign debt default, Pakistan is seeking investment in key sectors such as agriculture, financial services, and digital infrastructure. The IFC’s record $2.1 billion investment in Pakistan’s economy in fiscal year 2024 highlights its confidence in the country’s long-term growth potential.

With privatization efforts struggling, including failed attempts to sell Pakistan International Airlines and outsource Islamabad’s airport, Pakistan aims to attract foreign investments to boost economic recovery and development.

 

Tycoon Profits After India Eases Border Security Rules for Energy Park

The Indian government relaxed national security protocols along the Pakistan border to facilitate the construction of a massive renewable energy park, ultimately benefiting billionaire Gautam Adani’s conglomerate, according to official documents.

The Khavda renewable energy park, located in Gujarat and touted as the world’s largest, was initially under state control but was later handed over to Adani’s group after key security regulations were eased. The defense ministry amended security protocols, allowing solar panels and wind turbines to be installed just 1 km from the India-Pakistan border, raising concerns among military experts about national security.

Documents reveal that Gujarat’s BJP-led government lobbied for these changes at the highest levels, with the defense ministry overriding military objections despite concerns about tank mobilization and border security. By August 2023, Adani’s firm had acquired prime land, originally allocated to a state-run enterprise, after the revised rules made it significantly more valuable.

The deal has proven highly lucrative for Adani, whose company now controls 445 sq km of land, generating 30GW of renewable energy, with clients including Google. However, the US government has charged Adani with fraud, alleging a $265 million bribery scheme involving renewable energy contracts.

India’s opposition, led by Rahul Gandhi, has accused Prime Minister Narendra Modi of favoring Adani, alleging corruption and crony capitalism. Meanwhile, France’s Total Energies has suspended further investments, and some Indian state governments are reconsidering Adani’s energy contracts.

The Indian government has not responded to these allegations, while Adani’s firm denies any wrongdoing, claiming full compliance with regulations. However, military officials remain concerned about the strategic implications of placing a key energy asset so close to the border.