Local, global solar market in trends

ISLAMABAD: There has always been a problem in Pakistan’s energy sector. Earlier, there were load-shedding issues due to generation capacity limitations. Now, there is capacity surplus causing circular debt. There is also higher fuel prices issue and lower transmission capacity and its discontinuities. The future of solar energy looks promising as there is a potential significant reduction in the use of fossil fuels beyond 2050.

Alternative projects delayed due to high capacity payment liabilities. Now, high fuel costs and lack of foreign exchange have compelled us to go solar in a big way.

In this space, we will take a view of the national and international solar market in terms of supply conditions and other details.

Solar PV prices have been coming down continuously. Some prices are too low to taken as benchmark prices, while others are more reasonable representing average conditions.

MENA region, primarily containing the UAE and Saudi Arabia, has had solar PV utility from 1.5 to 3.0 US cents per kilowatt-hour (kWh) over the years between 2017 and 2019.

Main reasons are high insolation exceeding 2,200 kWh/m2/yr and low cost of capital varying between 3% and 6%.

In Chile, in September 2022, Canadian Solar won solar PV bids at 3.738 US cents per kWh for a 253-megawatt project and 1 gigawatt-hour (GWh) storage.

Earlier in August 2021, Canadian Solar also won its lowest bid at 1.332 US cents per kWh, among other offers which were in the range of 2.1 to 2.8 US cents.

The most recent bidding results that are available in public domain and are relevant to Pakistan’s conditions are from India and Uzbekistan.

Uzbekistan solar:

In Uzbekistan, the lowest bid of French firm Voltalia has accepted for 100MW at 2.888 US cents per kWh. Masdar, a Saudi firm, won a bid of 3.044 cents per kWh for a 250MW solar PV plant. And Power China won a 150MW solar project at 4.828 cents/kWh.

There is a wide variation among project bids. Perhaps locations and specs were responsible for such variations.

One notable point is that a French company quoted the lowest bid and won against Chinese, negating a common perception about countries’ competitiveness.

Perhaps the most relevant and competitive solar market is India. We have access to public data on 12 successful tenders of 2022 and 2023 with capacities ranging from 250MW to 1,200MW.

Three types of projects are there – solar PV only, solar PV and wind hybrid, and solar PV, wind hybrid plus storage.

Four types of soar PV utility projects are in vogue these days. These are solar PV only, solar PV with battery storage of one to four hours, solar PV-wind hybrid without storage, and solar PV-wind hybrid with battery storage of one to four hours.

Most popular have been solar alone for covering the day-time load providing the cheapest power. However, solar PV-wind hybrid with storage is emerging to provide 24-hour power supply.

Battery prices are still high, although they are coming down fast. With lower battery prices, type 4 will get more popular eventually offering a complete individual power supply solution.

Solar Roof:

Solar rooftop projects have been popular at hose rooftops, both in Pakistan and elsewhere.

Commercial and social buildings requiring daytime electricity mostly have found solar PV installations providing electricity at cheaper rates with and without net-metering provisions.

Solar PV project size has started going up, which started with 30-50MW a decade ago. Recently, India has gone for 1,000-1,200MW hybrid projects, although 500-600MW projects are more common.

Next popular size is 250-300MW. In Pakistan, solar projects of 50MW have been popular.

Solar capital expenditure (capex) was reported to be the lowest in India in 2019 at $619 per kW.

The lowest cost figures in India can be attributes to the lowest labor cost in installation and low transportation cost, which are likely responsible, due to local manufacturing.

For China, unit capex cost of $795/kW has quoted, although this figure appears to be higher than actual.

There are problems in obtaining price data in public domain in China.

In the same year, Russia and Japan had the highest unit capex at $2,000/kW plus. In Europe, the same has been at $900-1,000/kW.

Therefore, In Pakistan, Nepra has earlier approved projects at 4 US cents per kWh. For Muzaffargarh project of 600MW, Nepra has approved a benchmark tariff at 3.4108 US cents/kWh.

Global Market:

European sources have, however, expressed pessimism about competition, calling the benchmark tariff too low due to a higher risk in Pakistan’s market.

On average, Pakistan’s electricity prices have been higher by 40-50% due to higher risk, interest rates, rent-seeking and monopolistic trends in the supply market.

Internationally, interest rates have increase as measured by Libor, which is quote at 5.5% at present. Nepra’s earlier tariff of 4 cents was based on lower interest rates of 0.5% Libor and a margin of 4.5%.

Local interest cost is even higher at treasury rates of 20-21% and the IMF has demanded a further increase in rates.

It appears that Nepra’s benchmark tariff of 3.4108 cents/kWh for Muzaffargarh project is based on earlier lower interest rates.

However, one is not sure, if and when interest rates would go down, depending on the early recovery of world economy.

Energy projects have a long cycle of 30 years. Nepra may like to seek international input from experts with respect to interest rates trend in the long run, although such forecasts can be dicey.

Bidders may be in a better position to project and calculate. It is said that bidders and the market are better than regulators at predicting prices.


Ironically, local investors have not welcomed the Muzaffargarh project as it has delayed the implementation of their approved projects which are generally of lower capacity of 50MW. For Pakistan’s market, many argue that this is a better project size.

However, other reasons such as existence of load and transmission infrastructure have led to the Muzaffargarh site at 600MW.

It is yet to be seen from bid results whether one gets better prices and competition at 600MW or would have got at smaller capacities of 50-100MW.

It is a debatable question as to the right size of solar projects. As mentioned earlier, load locations, capacity requirement and transmission infrastructure determine the size.

However, from the point of view of local investors and industry, smaller capacities in the range of 50-100MW may be desirable.

Solar has great future. Fossil fuels may be substantially reduced if not totally vanish beyond 2050. Even hydrogen would require solar and wind.

Thus, it is important to develop local industry to create employment, business and trade. There is no better way to do this than capturing the local market.

However, due to the recent economic crisis and heavy currency devaluation, energy demand may go down and earlier growth assumptions may not apply.

Actual risks and market risk perception about Pakistan are high. We have earlier indicated scepticism of European circles.

It is feared that higher bid prices may be obtained and in that case Pakistan would be better off postponing the project.

However, nothing is known in advance about bid results. Market has its own surprises and suppliers have their own reasons and strategies.

Chinese companies have better understanding of Pakistan’s market and risks with a sympathetic government and CPEC presence.

International production capacities in solar are projected to increase leading to higher competition and higher prices.

Chinese PV module prices have been projected to fall by 15% in 2023. Let us hope for the best.

The writer is former member energy Planning Commission. He has authored several publications of energy sector.

Published in The Logical Baat, May 15th, 2023.

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