Blunders Vis-a-Vis Solar Energy

Policy changes and uncertainties in Pakistan have been a major bane for consumers and businesses alike. With frequently changing governments, important policies are made, changed, and scrapped just as rapidly. Solar energy, unfortunately, has not been an exception.

Championed as one of the greatest assets for this country, solar energy has not been fully exploited to our benefit, nor has its progress been sustained. Instead, its progress has been hampered due to these constant policy changes. Three such policies, which (un)surprisingly have all occurred within this year, are highlighted in this article:

At the start of the year, the previous government imposed a general sales tax (GST) of 17 per cent on all solar equipment, causing a substantial price increase and resulting in a reduction in demand. Reduced demand and deployment of solar power inadvertently mean that our import bill for fossil fuels continues to increase instead of reducing.

Realising this costly mistake, the new government announced in May that the GST decision was being reversed. After a constant back and forth from the prime minister and the then finance minister, the reversal eventually came into effect months later in July — but GST on solar inverters remained.

The imposition and then removal of GST caused a significant dip in demand and deployment of solar installations for the first half of this year. This not only hurt solar businesses because of reduced demand but, more importantly, consumers who have had to stomach record-high electricity bills from the grid. Thankfully the removal of GST on solar panels (accounting for up to 70pc cost of the solar system) has contributed to a reduction in cost.

2) Approval of LCs

However, just five days after partially removing the GST, the State Bank of Pakistan (SBP) imposed a defacto restriction on the import of solar panels and inverters, requiring its approval before any Letter of Credits (LCs) could be issued.

With this sudden policy change, many suppliers who had shipments at the port or in transit found it very hard for their import payments to get approved. Containers were stuck at port beyond their agreed timelines attracting huge demurrage charges from shipping lines. Since the approval requirement, new LCs have yet to receive SBP approval which has contributed to a shortage of solar equipment and an increase in their prices.

3) Financing option

To counter the initial capital expenditure, the SBP introduced a financing policy in 2016 for anyone wanting to install solar or wind energy — fixing the financing rate at 6pc. With a generous spread for banks, and a significantly low rate for consumers, the financing option is a no-brainer for home and business owners alike.

The financing policy was set to expire in June of this year, but the SBP thankfully extended the timeline for another two years. Seems like a big win for solar energy; however, calls for celebrations are early. Since its extension in July, the SBP has yet to disburse any funds under the financing policy to banks for onward disbursal to customers.

What in effect has happened is that even though the financing policy exists, with no availability of funds for banks to disburse and no one can avail it.

Pakistan receives some of the highest irradiance (sunshine) of any country in the world — allowing us the benefit of clean solar energy whilst helping us reserve valuable foreign exchange, which we drain on expensive fossil fuels for energy.

Not only is solar energy clean, but given the outrageous cost of electricity, the payback period for installing it is as low as three to four years for residences and as low as two years for commercial enterprises.

Policies that encourage solar energy deployment should be adopted and promoted, a practice that has continued throughout the world even when solar energy was not at its current affordable levels. Solar needs to be a significant part of our future energy mix as energy needs continue to grow rapidly.

What is especially important is to make sure these policies remain consistent and progressive regardless of which government is running the show. Our economic and environmental future depends on it.

Related posts