Government abandons $300 million floating solar project

Pakistan has withdrawn a $300 million loan proposal it wanted to take to build a 300 megawatt floating solar power project.

The government confirmed to The Express Tribune on Saturday that it had “requested the World Bank to stop preparations for the 300 MW floating solar project”. Both the project and the loan were shelved after the Directorate of Electricity decided not to include the scheme in the Indicative Generation Capacity Expansion Plan 2024-2034 (IGCEP).

The Electricity Directorate on December 20 forwarded its final decision on the floating solar photovoltaic (FPV) project to the Ministry of Finance and the World Bank, official documents showed. The project was much cheaper and its foreign loan would have been recouped within five years.

“The proposed project has not been incorporated in the draft IGCEP 2024-34, while it is in the final stage of formulation,” said a Power Division office memorandum addressed to Economic Affairs Secretary Dr Kazim Niaz on Friday.

The memorandum said that “the Electricity Directorate does not recommend a loan for a project which may not have an assured power buyer, CPPA-G (Central Power Purchase Organisation-Guarantee)”.

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

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

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

The documents said using the floating solar project would be more than 60% cheaper than running 64 thermal options and more than 100% cheaper than running 55 thermal units.

The internal assessment showed that Pakistan could have recovered the total capital expenditure in five years and then save over $72 million per year in foreign exchange.

The development of floating solar panels would have helped Pakistan reduce the use of expensive and inefficient thermal plants, paving the way for their retirement and reducing overall production costs.

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

The 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 cities in the country are covered in thick smog and people are facing increasing health problems.

Ironically, a day earlier before the decision to terminate the project, the Water and Power Development Authority (Wapda) informed the Energy Directorate that “after rigorous financial and technical evaluations, the cost of the project has been substantially rationalized to 238 million dollars”.

He informed the government that if the useful life of the project is extended to 30 years, the tariff would be further reduced to US 2.98 cents per unit. Wapda said the tariff of 2.98 cents was not only competitive but also the lowest ever in the region, which would represent a “significant economic advantage for Pakistan”.

The decision to stop the project may also cost Pakistan due to the expansion of the share of renewable energy. Wapda had requested that the project be included in the IGCEP.

World Bank documents showed that contrary to popular belief, Pakistan’s electricity generation capacity was less than demand. Installed generation capacity is not equal to available capacity due to abandoned facilities, hydrological, economic and foreign exchange constraints.

Although the installed capacity is often quoted as 43,700 MW, it cannot meet the peak demand of 30,000 MW in the summer months due to seasonality in hydropower, shortages of imported fossil fuels, and economically unviable thermal and abandoned power plants.

The Ministry’s response

The energy sector is facing challenges with higher-than-expected increased off-grid generation, reduced demand from the grid, with strong seasonal fluctuations in supply-demand imbalances, an energy ministry spokesman said in a written response.

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

“As part of this reassessment and planning of our future electricity generation needs, particularly in renewable energy sources, we have indeed asked the World Bank to stop the preparation of the 300MW floating solar project,” the spokesman said.

The spokesperson added that even if a project is temporarily withdrawn from a development partner’s pipeline due to its ongoing review by relevant government agencies, it can be quickly processed and re-prioritized at the government’s request once the necessary formalities are completed.

The World Bank supports Pakistan’s energy transition to more renewables, and it is not unusual when we manage a pipeline of operations in preparation to stop some projects that can be taken up at a later stage when priorities change or, as is the case here, he said the representative.

The spokesman said the government needs more time to assess its investment needs in some sectors undergoing significant transformation, such as the energy sector. It already happened, for example, after the devastating floods of 2022, when we had to stop a large part of the World Bank project pipeline to make room for the rebuilding response. “It is not an unusual development in our relationship with multilateral development banks and good technical preparation of projects is never lost. After informing the IGCEP, the government may decide to restart the preparation of the said project.”