Pakistan's Solar Transformation

Significant Potential and Struggles in Pakistan's Solar Energy Sector

In a remarkable shift towards renewable energy, Pakistan has emerged as a major player in the global solar energy sector, with nearly 5.3 gigawatts (GW) of net-metered solar capacity by April 2025, reflecting a growing emphasis on solar power. However, the nation faces challenges in maximizing its benefits while addressing concerns related to cost-shifting and infrastructure.

The country's solar energy potential is impressive, with more than 2,900 gigawatt-hours (GWh) of solar power annually, which is enough to power the nation over a hundred times. Despite this promise, solar energy currently contributes only 4% to the overall energy mix, yet has potential to deliver up to 40,000 megawatts (MW) by 2035.

At the heart of this sector lies a compelling solution: decentralized rooftop systems. Already, an estimated 1,500 MW of rooftop solar installations have been established, thanks to a surge in net metering adoption in 2022. Scaling up to 12,000 MW by 2030 could yield significant advantages, potentially reducing oil imports by $4 billion annually and creating 500,000 jobs, according to the International Renewable Energy Agency (IRENA).

A pilot in Punjab has highlighted the potential benefits of these systems. Rooftop solar redirected to industrial zones via wheeling agreements translated into a 30% reduction in energy costs and a $500 million boost to exports. Each 1 MW of installed solar capacity generates 25-30 jobs, making rooftop solar a substantial opportunity for job creation and economic growth.

By adopting decentralized energy in industrial zones, Pakistan could experience a 2-3% annual increase in GDP growth, thereby attracting foreign investment and expanding value-added exports. Replacing just 10% of fossil energy with solar would also eliminate approximately 28 million tons of carbon dioxide (CO2) emissions annually—the equivalent of planting 650 million trees.

To ensure this vision becomes a reality, decisive policy actions are essential. Prioritizing the redirection of capacity payments towards grid upgrades and subsidies for rooftop solar systems could be instrumental. Successful models from other countries, such as Bangladesh's solar home system and India's 30% rooftop subsidy, provide valuable templates for Pakistan's approach.

Bureaucratic delays, however, pose a hurdle, as net metering approvals can take up to six months. Grid modernization will also require an investment of $3-5 billion. Nonetheless, with 80% of rooftop installations already driven by households and businesses, policy support is the primary missing link.

The economic benefits of this transition are undeniable. A 20% shift to solar energy could slash the country's circular debt by Rs. 500 billion annually by 2027, according to IMF estimates. By prioritizing decentralized solar projects, Pakistan could finance 10 Mangla-sized hydropower projects, offering a faster and more cost-effective alternative.

As the world embraces sustainable energy, Pakistan stands at a crossroads. Continuing with the existing Independent Power Producers (IPP) model threatens a deeper economic decline. By embracing decentralized solar, Pakistan can transform rooftops into revenue-generating assets, stabilize the grid, and reignite exports. With over 300 sunny days annually, the nation's energy future could be not just stable, but radiant.

Circular tariffs currently penalize higher consumption, hampering industrial growth. Adopting inverted tariff slabs, where per-unit costs decrease with increased use, could save a textile unit consuming 25,000 kWh/month up to Rs. 375,000. This practice aligns with global best practices, like Japan's "Negawatt Trading," where energy efficiency improves without compromising output.

Effective integration of rooftop solar, hydropower, and IPPs through advanced grids is indispensable. Finding a viable balance between these three energy sources, as seen in Brazil's smart grid model, which reduced transmission losses from 17% to 8%, can help Pakistan save $200 million annually.

Pakistan must reconsider costly, loan-heavy projects and instead promote domestic private investment in rooftop solar and land-based solar parks. Streamlined land acquisition, deregulated energy pricing, and tax holidays for local solar manufacturing can mobilize local capital for scalable, self-reliant projects.

Fast-tracking net metering approvals to 15 days, offering India-style 30% subsidies, and streamlining project approvals can attract private investment worth $4.8 billion by 2030. Delaying action could result in $18 billion/year in GDP losses and missed climate targets.

Prioritizing green industrial zones powered by decentralized solar and digital grid technologies can draw local capital and empower private stakeholders. Embracing renewable-powered industries, simplified project approvals, and ESG mandates for exporters can help Pakistan tap its abundant renewable energy resources and emerge as a global player in the decentralized digital economy.

With a large, digitally-savvy youth population and growing IT exports, Pakistan stands to benefit from becoming a hub for IT and digital services, blockchain development, and cryptocurrency mining. By harnessing its renewable energy resources wisely, Pakistan can secure its energy future, stimulate economic growth, and create job opportunities—all while addressing climate change and preserving fiscal health.

To fully capitalize on Pakistan's solar energy potential, strategic investments in bonds linked to solar projects could attract potential investors and incentivize increased capital into the sector.
The solar energy sector's growth can reduce dependence on fossil fuels, thereby decreasing the national debt accrued from interest on energy-related loans and oil imports.
Embracing a decentralized blockchain-based trading system for solar energy could facilitate peer-to-peer trading, reduce energy losses in transmission, and provide investors with improved returns on their assets.
The renewable energy sector's advancements, such as solar power, offer a lucrative opportunity for domestic financial services and credit industries to expand their offerings and cater to emerging needs in the industry.
Adopting ESG (Environmental, Social, and Governance) principles in the financing of renewable energy projects would demonstrate a commitment to sustainable development, fostering trust among investors and aligning Pakistan with global financial industry trends.
The government could establish a research and development (R&D) fund for environmental science and engineering to develop innovative solutions for energy storage, creating jobs and boosting the nation's energy research and technology industry.
Implementing efficient energy policies, such as net zero-carbon industrial zones, would encourage energy-efficient industries and help Pakistan achieve its carbon reduction targets as set by international agreements.
Rooftop solar installations can reduce energy bills for businesses, freeing up capital that could be invested in other aspects of the businesses, thereby fostering economic growth.
By educating the public on solar energy finance options and offering tax incentives, such as deductions or credits for solar installation costs, Pakistan can encourage individual investments in renewable energy.
The adoption of decentralized solar energy can provide stable and predictable returns on investment, providing a more secure energy supply for businesses compared to traditional fossil fuels.
The solar energy sector's potential growth, coupled with the country's abundant renewable energy resources and young, tech-savvy population, positions Pakistan well to compete in the global decentralized digital economy and become a hub for renewable energy-powered industries, IT services, and blockchain development.