Solar sector enjoying eased run on govt backing

KARACHI: Solar tariffs in Pakistan have come down a long way in the recent past. Due to the rapid advancement in technology, the cost of equipment has gone down by a significant margin while efficiency has increased.

Recently, the power regulator Nepra determined reference tariff generation for some solar IPPs, which included 100MW plant by Zorlu Energy and 50MW plants by Helios, Gharo, Meridian and HNDS Energy Pvt. Limited.

The approved levelized tariffs for these projects range from USc 5.2622/kWh to 5.6073/kWh over applicable over a period of 25 years. Solar tariffs in Pakistan were around USc 14/KWh a couple of years back as the market was still in a nascent phase.

However, the interest by the private sector from both the local and international players has led to investment in the sector. Gradually, as Nepra took into account the falling prices of solar PV panels and other technology across the globe, the tariffs have come down from USc 14/KWh in 2015 to USc 5-6/KWh presently.

Also, as a sign of moving from a nascent to a more formally established market, the return awarded by the regulator has fall from a previous IRR of 17 percent in 2015 to 15 percent in the current tariff structure. On the other hand, the capacity utilization factor has increased from 17 percent back in 2015 to almost 22 percent in these recent solar reference tariff determinations.

However, even as the solar market moves into a more mature stage, some steps taken by the government might be construed as counter-productive to renewable energy production in the country.

For example, the reservation of “take or pay” contracts for only government run power plants as well as CPEC projects, and “take and pay” for other projects including renewables will only serve to dampen investor interest in setting up renewable energy projects.

In most jurisdictions around the world, renewable energy projects are operated under “take or pay” mode to ensure economic viability of the projects that largely have fluctuating power output. In a nutshell, even though progress has been made when it comes to reducing tariffs and enhancing energy generation, policymaking also requires clarity to encourage more private sector participation in the power sector.

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