Amir Saeed

Pakistan’s energy sector faces an affordability crisis, requiring strategic investments and policy reforms to address financial and regulatory challenges effectively and sustainably.

Talking to WealthPK, Dr Khalid, an energy expert, said that the country’s energy sector is grappling with a multifaceted crisis, shifting from accessibility challenges to affordability concerns. He underscored the stagnation in renewable energy development at the utility scale due to already installed capacity constraints. Khalid emphasised the pressing need for strategic capacity expansion, the early retirement of underutilised power plants, and a reevaluation of Power Purchase Agreements.

To address transmission constraints and the rise in Non-Performing Market Volume, he recommended investing in green hydrogen and the opportunities linked to renewable energy to promote sustainable development. The energy expert underscored the critical need to redirect subsidies to facilitate an inclusive and fair energy transition. He pointed out that the country’s Weighted Average Cost of Capital for utility-scale projects remains prohibitively high at 15-20%, deterring investment.

He called for robust fiscal incentives and policy stability to attract both international and domestic investors. Additionally, Khalid said that outdated transmission planning, inefficient regulatory frameworks, and a lack of structured renewable energy policies are significant barriers to progress. “Transparency, long-term planning, and competitive market mechanisms are critical to enhancing investor confidence.”

Talking to WealthPK, Aatizaz Hussain, a development economic researcher at National Defence University, Islamabad, highlighted two key trends in the country's renewable energy sector, noting minimal progress at the utility scale, with no financial closures for projects in the past four years. “Although global investments in energy transition exceeded $2 trillion in 2023, developing economies like Pakistan received only 10% of these funds due to high financing costs and macroeconomic risks,” he noted.

“However, Pakistan’s decentralised solar PV market is thriving as a global success story, becoming one of Asia's largest markets for Chinese PV products,” he said. He noted that this trend was expected to continue in the coming years, but emphasised the need for improved regulations to integrate these consumers into government systems effectively.

Hussain also highlighted the urgent need for strategic investments and policy reforms to address the country’s energy affordability crisis. “Without decisive action, the country risks exacerbating economic and social challenges tied to its dysfunctional energy sector.”

Credit: INP-WealthPk