A sunny future

The tax break for residents who install solar systems would make solar energy instantly attractive

Pakistan has dug itself into a hole and keeps burrowing deeper each year. We can sit around and point our fingers at examples of corruption and ineptitude all day, but the nation can’t sit idle when more than 1,200 citizens die from a heatwave. With practical consensus among climatologists that global temperatures are rising, we can expect even hotter events in the future. To its credit, the leadership has announced recent deals with China and a Norwegian company to bring roughly 17,000MW of green energy on-line in the future. The first 100MW from these Chinese investments came on-line last spring. These moves, however, are a top-down strategy that have long lead times and do nothing to solve the problem of Pakistanis being reluctant to or unable to pay their bills. Tax collection remains at low levels and electricity bills go unpaid far too often. Those trends will be perpetuated along with the 20 per cent of losses due to outright theft unless something is done to enforce laws or encourage more people to behave responsibly.

One method to provide a small amount of immediate relief would be to reward law-abiding citizens with direct incentives to install household solar systems. Subsidising citizens with a significant tax break would make solar energy instantly attractive. This incentive can be extended to businesses as well to make it more lucrative for them to stay in the country rather than shifting to Bangladesh or elsewhere. Pakistan has been subsidising electricity for ages. It only recently agreed to reduce the power sector subsidies to Rs118 billion to satisfy IMF demands, down from the old mark of Rs221 billion. Keep in mind that one-third of Pakistan’s power is derived from fossil fuels. The current subsidies promote pollution while making it difficult for emerging solar technology to compete.

The tax break for residents who install solar systems would have positive secondary impacts as well. A large enough tax incentive may persuade more Pakistanis to report their incomes and start living in an above the board manner. This addresses a major problem for a nation which has one of the lowest tax-to-GDP ratios in the world. The IMF has set a target of 15 per cent tax-to-GDP ratio for developing nations and Pakistan’s is currently around 11 per cent. Funding may be available to support ideas that work towards achieving the IMF goal while also promoting renewable sources of electricity.

Household and business rooftop solar systems have many additional benefits. They can be installed in a matter of days rather than the months or years that are needed to build large-scale plants. With proper metering equipment, surplus electricity from these systems can bolster the grid during peak times of the day. The US government offers a 30 per cent tax break to its citizens and the solar industry is booming. Home-owners are saving money on their electricity bills while millions of people are hard at work manufacturing and installing photovoltaic panels and inverters. California suffered from power shortages in the early 2000s and its modest solar incentives have been a factor in literally reversing the problem so that California is now concerned with frying its grid due to surplus electricity if current trends continue.

It is unlikely that Pakistan will need to worry about frying its network with surpluses any time soon, but a country can dream. The government should consider supplementing its large-scale projects with this strategy. Families that can afford to install systems will have a stable source of electricity during the hottest parts of the day while everyone else will benefit marginally from the reduced load from each solar system brought on-line.

Published in The Express Tribune, July 13^th,  2015.

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