For fourth time : Govt stalls solar panel policy

Delays impact US investment plans, raise concerns over energy strategy

ISLAMABAD:

The government has halted the approval of a new policy for solar panel manufacturing—for the fourth time—due to confusion within official circles about whether to promote solarisation or discourage its use to protect imported fuel-based power generation.

The delay in approving the solar manufacturing policy has also impacted the investment plans of the Sinotec Solar Corporation of the United States. The Special Investment Facilitation Council (SIFC) in October last year had asked the government to address the policy-related issues raised by Sinotec. Sinotec Solar Corporation is one of the leading manufacturers of solar panels in the USA.

In the first phase, the company wants to relocate its factory from Thailand and is also planning to set up an automatic plant for manufacturing high-end solar panels for export purposes.

Sources told The Express Tribune that the Economic Coordination Committee (ECC) of the Cabinet last week again deferred the approval of the solar panel and allied equipment manufacturing policy 2024. This was the fourth time that the ECC did not approve the summary and postponed the matter. Earlier, the summary had been moved during the Pakistan Democratic Movement (PDM) government’s period but was not approved.

The ECC is violating the instructions of the SIFC by delaying the approval of the summary. The SIFC—the hybrid civil-military body—had asked in September last year to approve the solar manufacturing policy to reduce reliance on imports.

The local manufacturing of solar panels and allied equipment has the potential to contribute to substantial savings in the import bill of the country. Savings of up to $900 million can be achieved annually once the localisation crosses 50% of the total value of panels, according to the Ministry of Industry.

Currently, six solar power projects having a 430 MW capacity are operational, and projects of 461 MW are at various stages of planning.

According to the policy presented to the ECC for approval, the Ministry of Industry has proposed exemptions of duties and taxes on input materials and machinery used in the local manufacturing of solar panels and allied equipment. It has also recommended increasing the import duties on finished solar panels and allied equipment to discourage dependency on imports.

The policy has been proposed to support the local manufacturing of solar panels, which is currently more expensive compared to imports. According to the Ministry of Industry, the current import price of good quality panels is $0.15 to $0.20 per watt, whereas the cost of locally manufacturing panels is about $0.22 per watt. This disparity is mainly due to the absence of a level playing field, it added.

To make local manufacturing feasible, policy intervention from the government is needed, as without support it may not be possible for local companies to compete with global brands that have spent years building up their scale of operation and supply chains, according to the industry ministry.

The policy also proposes a long-term 10-year consistent and continuous plan by setting the annual targets of investment, production capacity, exports, and localisation. It is proposed that the investors provide bank guarantees equal to the amount of tariff and tax exemptions. The policy also supports the localisation of solar cells within the country.

Under the 10-year policy, the government has proposed that the manufacturing companies will have to enhance their capacity from one billion units in the first year to 2 billion units in the second year, three billion units in the third year, five billion units in the fifth year, eight billion units in the sixth year, and from the seventh year the production has to be increased and onwards maintained at 10 billion units.

In the first year, the companies will have to ensure 10% of the total production to be exports, which will have to be increased to 20% in the second year, 30% in the third year, 40% in the fourth year, and 50% in the fifth year, and subsequently increased to 90% in the ninth year of the policy.

The localisation of the parts has been proposed to be 10% during the first year, 20% in the second year, 30% in the third year, 40% in the fourth year, and 50% in the fifth year and onward till the tenth year.

There will be zero duty on the import of finished panels and parts in the first year, which will increase to 5% in the second year, 10% in the third year, and 15% in the fourth year.

However, the Ministry of Energy has proposed the imposition of a 10% custom duty on PV modules over the period of the next 10 years. It has also not agreed to 20% localisation in the first two years and wants the panels to be imported duty-free for two years.

It has been proposed that the incentives will be subject to the achievement of targets of localisation and exports. In case of non-achievement of the targets of localisation and export, the incentives on duties and taxes shall be withdrawn and shall be recovered. However, withdrawal and recovery of incentives will apply if non-achievement exceeds 20% of the value of the targets, according to the proposed policy.

The government has been dilly-dallying on the approval of the new policy despite setting a target of adding 10,000 megawatts of electricity from solar power by 2031.