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Improving the Policies of Solar Energy in Pakistan

Shaheryar Ajmal
Oak Ridge High School, Student
Sacramento, United States of America
sherio777@gmail.com

Dr. Rana A. Jabbar

COO QA Solar

Abstract This paper summarizes the current solar energy

situation in Pakistan, identifies the pros and cons of Pakistan's
fiscal solar energy policies, and cross references India's policies
and their success. The purpose of this paper is to recommend
policy changes to improve Pakistan's solar energy status. The
research was done with cooperation with Quaid-e-Azam Solar
Power Limited(QA Solar) by obtaining direct information about
Pakistan's solar situation. QA Solar provided project reports and
analyses on energy policies regarding solar energy development.
For analysis of investment encouraging policies in Pakistan, the
Alternative Energy Development Board's (AEDB) current
regulations were analyzed. Areas of improvement were identified
based on the successful Indian policies which were thoroughly
analyzed. Recommendations regarding the improvement of rules
and regulation in Pakistan are suggested in the research article so
that Pakistan can reach its full solar potential.
I.

Introduction

Pakistan is in the middle of an energy crisis. Fifty-five percent

of the population does not have access to electricity, and the
ones that do, have to endure twelve to fourteen hours of load
shedding a day. Factories that cannot afford expensive
generators remain inert during load shedding hours. This
drastically cuts productivity and takes a severe toll on
Pakistan's economy.
However, solar power seems to be the answer to such a
problem. Pakistan has a solar potential of 1600 GW/year [11].
Areas such as the Cholistan Desert provide ten hours of sun a
day and remain sunny almost all year round. Furthermore,
many sunny areas of Pakistan are uninhabited, providing room
for large solar farms. Solar technology also takes little time to
install. A solar farm of 100 MW would take six to eight
months. One of 1000 MW would take three years [12]. The
installation speed of solar also makes it favorable to political
parties because they would be able to install solar farms and
see energy results within their five year election term.
But in order to install any energy system, effective policies
must be legislated. Policies dictate how solar farms should be
installed, coordination between the public and private sector,
and most importantly, the financial incentives that will bring
investment. Without effective policies that attract

Ahmad Shamyl Akhlaq

AM QA Solar

development, companies will have little interest in investing in

solar.
Section 2 and 3 will give background on Pakistan's solar
situation and its projects. Section 4 and 5 will analyze
Pakistan's and India's renewable energy policies. Section 6
will provide a roadmap for solar development. Section 7 will
conclude.

II.

Current Progress

Pakistan has made some progress on solar through small scale

projects. The AEDB has powered over 3000 homes using
photovoltaic power. This totaled to 200 kW of generation. The
Pakistan Council of Renewable Energy (PCRET) has been
able to power over 500 mosques and schools using solar,
generating 80kW [9].
Pakistan has not completed any large scale projects on solar
energy. However, it is recently in the process of building a
1000 MW solar farm in the Cholistan Desert. Quaid-E-Azam
Solar Power Limited is currently managing the project. Phase
I will be complete by the end of 2014, generating 100 MW.
Phase II will be complete by the end of 2015, generating
300MW. Phase III will be complete by the end of 2016,
generating 600 MW [12]. Most importantly, QA Solar is a
benchmark project. Companies are waiting to see if solar
energy in Pakistan will be a fruitful investment. If this project
succeeds then many more companies will look into solar
investment in Pakistan.
III.

General Insecurities

Solar energy may seem like a very fruitful solution to

Pakistan's energy problems, but it does come with some
issues. The first is cost. Even with tax cuts solar energy is
much more expensive than fossil fuels [11]. Businesses,
homes, and factories cannot afford to instantiate solar projects
The second issue is political instability. Political instability
discourages investment by reducing trust in the government's
ability to maintain itself and its investment promises. Political
instability causes politicians to focus less on the economy and

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more on maintaining their power. This prevents the

government from helping businesses and creating an investor
friendly environment. Violence is also prominent in politically
unstable nations. Pakistan regained its democracy back in
2008 with the end of Musharraf's military coup. The military
coup had long term effects of investor loss. Investment from
the USA, UAE, and UK, is less than half of what it was years
ago [2]. Pakistan's continued corruption and its poverty have
also reduced investor interest. As Pakistan's democracy is still
unstable it threatens a solar project. Rapid shifts of power
from one political party to another can stall or halt large scale
solar projects.
Terrorism also discourages investment in Pakistan. After
Pakistan began its anti-terrorism campaign and militarily
fought terrorists, it saw a sharp decline in foreign investments
[1]. Terrorist activities and violence puts the security of large
scale solar projects at risk.

Pakistan's Solar Fiscal

Policies
IV.

Market Provision:
It shall be mandatory for the power distribution utilities to buy
all the electricity offered to them by RE projects established in
accordance with the provisions given [7].
Fiscal Incentives According to AEDB:
i. No customs duty or sale tax for machinery equipment and
spares (including construction machinery, equipment, and
specialized vehicles imported on temporary basis) meant for
the initial installation or for balancing, modernization,
maintenance, replacement, or expansion after commissioning
of projects for power generation utilizing renewable energy
resources Policy for Development of Renewable Energy for
Power Generation, 2006 Government of Pakistan 17
(specifically, small hydro, wind, and solar), subject to
fulfilment of conditions under the relevant SRO. The SRO has
recently been overturned [11].
ii. Exemption from income tax, including turnover rate tax and
withholding tax on imports.
iii. Repatriation of equity along with dividends freely allowed,
subject
to rules and regulations prescribed by the State Bank of
Pakistan.
iv. Parties may raise local and foreign finance in accordance
with regulations applicable to industry in general. GoP
approval may be required in accordance with such regulations.

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v. Non-Muslims and non-residents shall be exempted from

payment of Zakat on dividends paid by the company [7].
Benefits:
The policies listed by AEDB are a very attractive offer to
investors. Companies can engineer, procure, construct, and
contract without paying income taxes and special taxes, such
as the zakat. This saves companies money and earns them a
higher profit on their efforts. Also, these policies allow
company assets to be transferred. The profits and investments
made in Pakistan can be transferred to the investors home
country. Restrictions on repatriation of equity would give
investors less control over their assets. Giving greater control
of assets to investors is a successful fiscal policy. These
policies also allows easier capital generation. By allowing
companies to raise local and foreign finance, they can obtain
money easier to spend on their projects than if capital
generation was restricted. Easy capital generation makes
spending on expensive solar energy projects easier.
Pakistan is on the right track to bring in investment. The
AEDB has helped created investor friendly policies that
eliminate major taxes and have alleviated many restrictions on
capital generation and asset control. Companies earn higher
profits and have greater control. These investor friendly
policies help mitigate many of the insecurities and attract solar
energy investment.
Areas of Improvement:
Pakistan's fiscal policies can use some improvement. The first
is to reinstate the SRO in section i. Removing taxes on
imported materials and machines for solar energy projects is
important to resolve the energy crisis of Pakistan. It
significantly cuts costs for the Pakistani investors and allows
faster development for projects. This was a policy until July,
when the GoP instated a 30% tax on imported solar cells [10].
This increases QA Solar Project cost, potentially jeopardizing
the project. This policy weakness must be addressed right
away.
Another issue is high solar cost. Installing solar cells on
rooftops is very expensive. Factories, businesses, and homes
can't afford to spend so much. It would make more sense to
buy a generator than to install solar panels. Even if solar
panels save more money in the long run, people are turned
away by the high upfront costs. One way to address this
problem is by offering subsidies. This would reduce the
upfront costs and make the long run benefits stand out more.
Subsidies are being offered to the energy companies; just not
renewable energy companies. Pakistan subsidized fossil fuel
companies by 28.9% in 2010 [3]. Thirty percent of fossil fuel
costs were paid by the government. This automatically makes
fossil fuels cheaper. The Pakistani electorate would not be
enthusiastic about renewable energy if fossil fuels seem so
cheap. A reduction on subsidies or even a carbon tax would

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encourage solar energy production.

India's Policy Success

V.
India is the most similar nation to Pakistan in the world. It has
similar culture, food, and climate. One key difference,
however, is that India is thriving in solar energy while
Pakistan is lagging behind. About 1000 MW of solar power
have already been implement in India and India is planning to
add 10 GW of solar power by 2017 [8]. This is mainly due to
India's fiscal policies which encourage solar development.
Indian policies are very thorough while Pakistani aren't that
defined.
For starters, India has exempted custom and excise duties on
specific goods for the installation of solar energy. This is
significantly reduces the cost for solar energy. Projects cost
between 10%-20% less because of these tax exemptions [4].
Developing countries financially improve their chance of
developing solar when the cost is reduced. Reduced costs have
helped India finance many of their projects.
India also offers subsidies to those going solar. India has
recently approved a 3 billion rupee subsidy for farmers
wishing to switch to solar powered water pumps. The Ministry
of Renewable Energy will provide 17,500 solar water pumps
for farmers and reduce their costs [5]. Many farmers cannot
afford such expensive technology. But because the
government is subsidizing it, they will switch and will be able
to save money reducing their need on diesel fuel. Subsidies
encourage the switch to solar.
India has also implemented a carbon tax of 100 rupees per
every ton of coal. Though this tax may seem minimal, it raised
535 million USD between 2010 and 2011. The money
generated was used to fund the National Clean Energy Fund
[6]. A carbon tax has essentially two purposes. The first is to
reduce consumer use of carbon. With a carbon tax, coal
becomes more expensive. Consumers become less willing to
spend money on carbon because of the increased cost. This
brings greater attention to renewable energy. Secondly, a
carbon tax generates revenue. This revenue can then be used
to fund solar energy projects.
VI.

Solar Promotion Plan

Pakistan can adopt India's renewable energy policies and fiscal

incentives to boost solar development. But Pakistan must be
strategic about how it implements these policies. It can't
implement a carbon tax, subsidize solar, and increase the
budget all at once. This would be harmful to the economy.
Pakistan must focus on implementing policies in phases.
The first should be to remove the recent duties Pakistan has
implemented on solar panels. These duties would increase
solar panel costs by 30%. QA Solar is a benchmark project.

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The success of this project will encourage companies from

around the world to invest in Pakistan for solar energy. In
order for solar energy to thrive in Pakistan it needs to put the
utmost focus on this project and help it succeed. The new
taxes on solar panels are jeopardizing solar energy projects.
Pakistan should remove these duties in order to promote solar
energy.
Completion of the 1000 MW Solar PV project in 2016 will
pave a way forward for other investors
because the
technology can be implemented in a very short time and will
provide high rates of return. Because the solar market will be
strong, there will be competition as companies fight for
projects. Competition would decrease prices and increase
quality. Pakistan should still not charge any taxes on solar in
this phase as it will be creating a strong market.
Once a healthy market is created for solar, solar energy will
become more popular. Companies would be willing to sell and
install individual solar panels as well as large scale solar
projects. A strong solar market would increase the popularity
of solar cells as various kinds and qualities become available.
At this point, the government should highly subsidize solar
keeping in mind the end user as the poverty rate of Pakistan is
quite high. With greater popularity and a decreased price,
people will begin to see the long term savings solar energy
brings. Businesses, factories, and homes would be more
willing to install solar cells.
Once solar starts to become prevalent in homes and businesses
the government should instantiate a small carbon tax on coal.
This would nudge Pakistan into switching from carbon power
to solar power. Solar power at this point would already be
popular. A higher price for carbon would make renewable
energy even more popular. Plus, the revenue generated from
this tax can be used to fund more solar projects or to offer
more subsidies.
This plan will take years, maybe decades to complete. But it
presents a format for solar energy progress. If Pakistan is to go
solar, then it must adopt fiscal policies similar to India's,
which were stated earlier, that are investor friendly.

Conclusion

VII.
It has been concluded that Pakistan has adequate policies in
terms of tax exemption, capital generation, and asset control.
But it's fiscal policies are lacking in terms of subsidies and
affordability. Progress on solar is being made in Pakistan as
both small scale and large scale projects are in progress. It is
this development phase which is key for Pakistan's solar
future. If Pakistan fails in its first projects, then there will be
little investor interest. However success is sure to attract a
high number of companies. Fiscal policies must be created to
attract investors and make solar feasible. The remedy for
Pakistan's energy crisis lies in solar development.

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Acknowledgment

[6]

Pearson, N. O. (2010, July 1). India May Raise $535

Million From Coal Tax Meant to Encourage
Alternatives - Bloomberg. Retrieved August 8, 2014.

[7]

Policy for Development for Renewable Energy for

Power Generation. (2006).

[8]

Progress under Jawaharlal Nehru National Solar

Mission (83632). (2012).

[9]

Sheikh, M. A. (2009). Energy and Renewable Energy

Scenario in Pakistan.

[10]

Yahya, M. (2014, July 24). Taxes on solar panels: Say

bye to cheap electricity. Retrieved August 8, 2014.

[11]

Yazdanie, M., & Rutherford, T. (2010). Renewable

Energy in Pakistan: Policy Strengths, Challenges,
and the Path Forward.

[12]

Shah, N. A., Jabbar, R. A., & Akhlaq, A. S. (2014). An

Overview of Quaid-e-Azam Solar Park.

Syed Raza Ali Zaid, procurement manager. Aimen Majeed,

AM. Rehman Ur Rauf, AM. Taha Bin Tariq, AM.

References
[1] Abbasi, N. M. (n.d.). Impact of Terrorism on

Pakistan.

[2] Ahmad, K. (2012, January 20). Political instability

discourages investment in Pakistan. Retrieved August 8,
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[3]

[4]

[5]

Fossil fuel: The carbon burden - Newspaper DAWN.COM.

(2012,
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KPMG | GLOBAL. (n.d.). Retrieved August 8, 2014.

Pearson, N. O. (2014, May 6). India Approves 3

Billion Rupees in Solar Pump Subsidies Bloomberg. Retrieved August 8, 2014.

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