Solar power boom in Pakistan undercuts coal-fired plants built by China

Pakistani think tank says China can play a leading role in country’s energy transition, but Chinese expert not so sure

The rise of decentralised solar power has prompted a Pakistani think tank to call for China to play a leading role in Pakistan’s energy transition, creating a model for other countries in the Global South. However, a Chinese energy scholar has questioned whether its vision is too expensive to be true.

An increasing flow of cheap Chinese solar panels to the South Asian nation is undercutting demand for power from coal-fired plants that China helped finance and leading to a vicious cycle of stranded assets, according to a report by Renewables First, a think tank based in the Pakistani capital, Islamabad.

“China’s solar panels are outcompeting China’s power plants,” said Muhammad Basit Ghauri, lead author of the report. “What we are seeing is an unintentional but profound strategic contradiction. And Pakistan is ground zero for this global experiment in energy disruption.”

Pakistan had witnessed a rapid transition to “distributed” solar power generation on people’s rooftops over the past five years, with 39 gigawatts of solar panels imported over that time, mostly from China, the report said, adding that was roughly the equivalent of three-quarters of Pakistan’s total installed power generation capacity.

With a zero tax rate for solar power imports, Pakistan has emerged as the second-largest destination for Chinese solar panels, behind only Brazil.

According to data from the Pakistani government’s Finance Division, thermal power generation accounted for 59.4 per cent of the country’s installed capacity at the end of March last year, followed by hydroelectricity on 25.4 per cent, nuclear on 8.4 per cent and renewables on 6.8 per cent.

Although China pledged in 2021 that it would no longer support new coal-fired power plants abroad, marking a shift in its global energy policy, its existing investment footprint in Pakistan remains heavily concentrated in coal-fired power projects. Chinese-funded projects account for 28 per cent of the country’s installed power capacity, with 89 per cent focused on coal-fired generation.

The China-Pakistan Economic Corridor (CPEC), launched in 2015 as part of Beijing’s Belt and Road Initiative, has been the driving force behind energy investment in the country, with its initial phase having concentrated on coal-fired power generation.

However, the solar power boom has cut grid demand, with the report saying that some Chinese-financed coal-fired plants operate at an annual utilisation rate of just 4 per cent – turning them into financial millstones.

Legacy coal-fired plants and distributed solar cannot both be winners in the one market, the report said, adding that China had to make a choice.

By supporting a unified clean energy vision in Pakistan, “China has the opportunity to develop and validate transition models that could be replicated across the Global South,” it said, noting that the United States’ withdrawal from climate diplomacy had created space for China to champion the global energy transition.

The report also said it was vital to develop indigenous manufacturing, given rising global trade tensions and China’s recent export restrictions on critical minerals essential for solar technology.

“China and Pakistan need to evolve from an importer-exporter relationship to co-creators of a home-grown clean-energy innovation ecosystem,” it said.

However, Lin Boqiang, director of the China Centre for Energy Economics Research at Xiamen University, told The Post that making solar power the main source of electricity in Pakistan was not feasible due to prohibitively high costs.

Distributed solar power is not a stable energy source, and requires additional infrastructure for stabilisation and storage, which would significantly increase costs and ultimately lead to higher electricity bills, he said.

Even in China, the proportion of electricity generated from wind and solar power reached only 16 per cent last year, Lin noted. He added that for Pakistan, transitioning to clean energy as a cornerstone of its energy supply was unrealistic given the country’s current infrastructure and purchasing power.

The two countries have been discussing the second phase of CPEC, with energy transition included in the agenda. However, Pakistan continues to face several challenges in attracting foreign investors, particularly private ones.

Security concerns, lengthy permit processes, frequent regulatory changes, and the accumulation of significant payment arrears for CPEC power plants are among the key challenges facing Chinese investors in Pakistan, according to a report by the Institute for Energy Economics and Financial Analysis, a think tank based in the United States.

Outstanding receivables for CPEC power plants in Pakistan have reached US$1.4 billion, it said.

In the second phase of CPEC, Pakistan stands to benefit from Chinese advances in solar photovoltaic modules, lithium-ion batteries and electric vehicles, especially amid tightening Western trade policies, but success will depend on addressing security risks, ensuring policy stability, and honouring contractual commitments, the US think tank’s report said.