Govt drops $300m floating solar project

ISLAMABAD:

Pakistan has shelved a $300 million loan proposal that it wanted to take for construction of a 300-megawatt floating solar power project.

The government on Saturday confirmed to The Express Tribune that it "asked the World Bank to pause the preparation of the 300MW floating solar project". Both the project and loan have been shelved after the Power Division decided not to include the scheme in the 2024-2034 Indicative Generation Capacity Expansion Plan (IGCEP).

The Power Division on December 20 conveyed its final decision for the floating solar photovoltaic (FPV) project to the Ministry of Economic Affairs and the World Bank, showed official documents. The project was highly cheaper and its foreign loan would have been recovered within five years.

"The proposed project has not been picked up in the draft IGCEP 2024-34 while it is in the final stage of formulation," said an office memorandum of the Power Division written to Economic Affairs Secretary Dr Kazim Niaz on Friday.

The memorandum stated that the "Power Division does not recommend a loan for a project which may not have an assured power purchaser, the CPPA-G (Central Power Purchasing Agency-Guarantee)".

The project was planned to be constructed on water bodies of the Tarbela hydropower project and Ghazi Barotha hydropower project. The government had given the go-ahead for feasibility of the project in 2021. It did not require any new transmission lines due to it being near to the Ghazi Barotha and Tarbela projects.

The plan was to connect the project to the national grid by May 2027 and start power generation from 2026.

Documents showed that electricity from the proposed floating solar plants was even cheaper than the operating cost of about 86 existing thermal power plants.

The documents stated that using the floating solar project would be more than 60% cheaper than operating 64 thermal options and over 100% cheaper than 55 thermal units.

The internal assessment showed that Pakistan could have recovered total capital expenditures in five years and thereafter saved over $72 million annually in foreign exchange.

Deploying the floating solar panels would have helped Pakistan reduce the use of expensive and inefficient thermal plants, paving the way for their retirement and reducing the overall cost of generation.

Sources said that one of the reasons for dropping the project was the strong influence of thermal fuel importers.

Documents showed that the solar project's economic rate of return (ERR) was 42.4% without environmental benefits and 51% with environmental benefits. Environment and health are extremely important at this stage as most of the cities in the country are covered with heavy smog and people face increasing health issues.

Ironically, a day earlier before the decision to shelve the project, the Water and Power Development Authority (Wapda) informed the Power Division that "after rigorous financial and technical evaluations, the project cost has been rationalised substantially to $238 million".

It informed the government that if the useful life of the project was extended to 30 years, the tariff would further fall to 2.98 US cents per unit. Wapda said that the tariff of 2.98 cents was not only competitive but also the lowest ever in the region, which would have represented "significant economic advantage for Pakistan".

The decision to shelve the project may also cost Pakistan on account of expanding the share of renewable energy. Wapda had requested to include the project in the IGCEP.

World Bank documents showed that contrary to the general understanding, Pakistan's electricity generation capacity was less than the demand. Installed generation capacity is not equal to available capacity due to derelict plants, hydrological, economic and foreign exchange constraints.

Even though the installed capacity is often stated as 43,700MW, it cannot meet the peak demand of 30,000MW in summer months because of seasonality in hydropower, shortages of imported fossil fuel, and economically unviable thermal and derelict power plants.

Ministry's response

The energy sector has been facing challenges in terms of higher-than-anticipated increased off-grid generation, declining demand from the grid, with strong seasonal variations of supply-demand imbalances, said a spokesperson for the energy ministry in a written response.

"The government is reassessing its long-term energy needs and power generation plan for the coming decade. Updating the Indicative Generation Capacity Expansion Plan (IGCEP) to reflect these trends, estimated future demand and market conditions, is ongoing," the spokesperson added.

"In that context of re-evaluating and planning our future power generation needs, particularly in renewables, we have indeed asked the World Bank to pause the preparation of the 300MW floating solar project," said the spokesperson.

The spokesperson added that even if a project is temporarily dropped from a development partner's pipeline due to its ongoing analysis by relevant stakeholders of government, it can be quickly processed and prioritised again on the request of the government once the requisite formalities are completed.

The World Bank is supporting Pakistan's energy transition to more renewables, and it is not unusual when we manage a pipeline of operations under preparation, to stop some projects which can be picked up at a later stage, when priorities shift or, as is the case here, said the spokesperson.

The spokesperson said that the government needs more time to evaluate its investment needs in certain sectors that are going through a significant transformation as in energy. It was already the case, for example, after the catastrophic 2022 floods when we had to pause a large part of the WB pipeline of projects to make space for the reconstruction response. "This is not an unusual development in our relation with multilateral development banks, and good technical preparation of projects is never lost. Following the update of the IGCEP, the government may decide to restart the preparation of the said project."