Promoting solar equipment manufacturing

Apart from saving forex, local manufacturing will increase employment, help adopt technologies

ISLAMABAD:

Solar photovoltaic (PV) panels have come of age. Global installed capacity of solar PV stands at 728 gigawatts in 2021, which is expected to grow at a fast rate of 13.78% to reach 1,645GW. In monetary terms, the 2026 market is valued at more than $200 billion.

Both roof-mounted and utility-scale capacity is growing. Its cost of generation has come down to 2 US cents per kilowatt-hour (kWh) and even lower in some countries. In Pakistan, its cost is a bit higher at Rs4-6 per kWh, but still it is less than half that of fossil power plants.

Addition of solar capacity would bring down the average cost significantly. Current market of fossil fuels is rather destructively high. This has, however, created incentives and sensitivities in importing countries to go for renewable sources including solar.

Solar demand and market

The Indicative Generation Capacity Expansion Plan (IGCEP) has provided for a capacity of 7,932 megawatts for solar energy and 5,005MW for wind power by the year 2030. Solar has an advantage as it is available throughout Pakistan. Solar intensity in Pakistan is twice that in Europe. Wind power can be generated in a part of Sindh only.

Solar panels can be installed in a distributed fashion near almost every district. This would not require large transmission networks. Even if 50 districts are covered with 100MW solar capacities, it would amount to 5,000MW.

Then there is demand for off-grid rural electrification. There is also roof-top solar market of urban areas. If 10,000 rural settlements are electrified by solar energy, it would amount to several thousand megawatts of off-grid energy.

Consideration may be given to organising electrical or energy cooperatives to include solar, biomass and biogas. There are a large number of electrical cooperatives in the US.

Some pilot cooperatives may be tried initially. This may have significant impact on agricultural productivity, education and healthcare sector outreach.

Solar panel market in Pakistan is of 1,000MW. In monetary terms, it has been estimated at Rs60 billion for panels and Rs10 billion per year for all ancillary equipment like inverters. This is mostly private purchase for roof-top solar.

Recently, there has been no major solar utility project. A number of solar projects are in the pipeline but there are some tariff issues. Temporary excess power capacity, circular debt and current financial problems have also had an impact on the lack of solar project installations.

Provincial governments are, however, quite keen on launching their own projects. Some formalisation and apportionment of solar capacities in this respect is required.

Provincial interest and action can go a long way in expanding solar capacity, especially in education and health sectors, and rural electrification. This, however, has to be under a consultative arrangement so as not to cause excess capacity problems.

Solar PV manufacturing

Several developing countries have installed local solar panel manufacturing plants. These include India, Turkey, Chile, Thailand, Malaysia, Hong Kong, Singapore and Vietnam and may be other developing countries.

Turkey, Malaysia and Vietnam appear to have emerged as leading solar PV manufacturers.

Turkey entered into solar PV business in 2011 and in a decade’s time has built a thriving sector consisting of more than 20 solar PV assemblies and manufacturing plants with aggregate capacity of 5,610MW.

Recently, a Chinese company has installed a 500MW integrated solar PV manufacturing facility with an investment of $400 million.

Malaysia has a solar PV manufacturing sector of several thousand megawatt capacities despite a small installed 1,500MW of solar energy production capacity. It means that bulk of the production goes to exports.

China plans to invest $10 billion in integrated solar PV manufacturing in Malaysia. Recently, there has been an agreement between a leading Chinese company for installing an ingot and wafer manufacturing plant in Vietnam of a large capacity of 7GW.

In Saudi Arabia, a relatively large 1.2MW solar cell and assembly plant has been commissioned with an investment of $186.9 million, which does not appear to be an extraordinary large investment figure. Even the UAE has four solar PV manufacturing plants despite high labour costs and availability issues. In India and Turkey, there are incentives and subsidies on local manufacturing.

Chinese companies are leading suppliers of solar panels and other associated equipment and are also active in installing manufacturing facilities abroad.

We have Special Economic Zone (SEZ) programme with China under CPEC. Some efforts should be made for launching projects for local manufacturing of solar equipment.

Pakistan’s trade gap is increasing with rising imports. Export of textiles and some agricultural commodities is not enough to close the trade gap.

Local manufacturing has to be expanded in the engineering sector, IT and other pioneering fields. Solar is an ideal field that has a large and growing potential. Some parts of solar industry are also labour-intensive like solar panels, inverters and other ancillary equipment.

Apart from saving foreign exchange, local manufacturing would increase employment and promote technologies and skills. Pakistan’s solar market today is dominated by small traders and informal sector, triggering quality and even safety issues.

Local manufacturing would organise the market, reduce cost and improve quality. Although our subject is focused on solar PV, it may not be out of place to emphasise local manufacturing of solar water heaters and biomass cookers to reduce the demand for gas.

Remarkably, Pakistan installed a pilot plant for making solar ingots and wafers as early as in the 1970s. The plant is still there and working. Panel assembly facilities were added later.

It was a good nucleus for expanding knowhow. Unfortunately, the initiative couldn’t be sustained. However, solar PV economics and competitiveness has emerged only recently.

Although there is a substantial user market, solar PV projects would be required to attract foreign direct investment (FDI) in the manufacturing sector.

There are some manufacturers of ancillary equipment like inverters, which are mostly limited to assembly operations. It may also be encouraged and expanded.

It may be noted that solar manufacturing capacities in the developing countries are far greater than the installed solar energy production capacity, meaning that all of these are export-oriented besides local consumption.

One wonders, what is wrong with Pakistan? Forward and positive thinking is required, shunning pessimism?

Pakistan’s user market is estimated at 1,000MW. There is potential for installing some 20 solar PV manufacturing plants of 50MW each. Local investors have that much capital to install one plant each. Joint ventures are also possible for knowhow, brand and export possibilities.

Local investors are usually shy without government initiatives and policies, especially in new areas. The government, Board of Investment and Power Division should consider initiating consultations and policy dialogue in this respect.

The writer is former member energy of the Planning Commission and author of several books on the energy sector

 

Published in The Express Tribune, December 13^th, 2021.

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