Shahid Javed Burki

For Pakistan, 2008 will prove to be a long and hot summer. In April, some of the major cities were being put through six hours of load shedding every day. In May, power interruptions had increased to seven hours a day. Another hour may be added in June. Some relief may come in July as the reservoirs begin to be filled up by the monsoon rains but once the dry season arrives, the duration of load shedding will begin to increase again.

The government estimates the supply-demand gap at 4000 MW. This is not likely to be cut down since no new generation capacity is in the works for at least another one to two years. In the meantime, the price of oil continues to increase. New records are being set almost every day. This will increase the cost of generating electricity since a significant amount of power is generated by oil-fired stations. How to deal with this problem?

The question has some urgency as there are serious economic and social costs for letting the energy shortage go unaddressed. For some inexplicable reasons Pakistan never treated the energy sector as deserving of serious attention by the policymakers. The sector was an area of residual concern even when the country treated economic planning and strategising on economic issues as high priorities area for the policymakers. Power houses at Mangla and Tarbela were the byproducts of the Indus Water Treaty with India. The decision to invite the private sector to invest in energy generation was taken in the early 1990s when the country was faced with a growing supply-demand gap. In other words, the policymakers have turned to the sector of energy only when opportunities have arisen as a result of other developments or when there is a serious crisis. There is a crisis at this time. How will Islamabad react?

This may be a good time to develop a comprehensive approach towards the sector, factoring in policies aimed at affecting demand, supply and environmental concerns. In looking at supply, the country should seriously examine alternative sources for generating electricity than those that have been tried in the past. In this context is solar energy a serious option for Pakistan? Have the recent technological advances achieved by the industrial world made the sun a viable source of energy for a sun-drenched country such as Pakistan? If the technology that converts solar energy into electric power still more expensive than other sources of energy could subsidies be provided to attract private investment into this sector?

Some recent developments in converting solar power into electricity have begun to provide some answers to these questions. Surprisingly the answers come from the work being done in Germany. It is useful to look at the German experience to draw some lessons for Pakistan. Although Germany is wreathed in clouds and is therefore an unlikely candidate for becoming a pioneer in this field, it has become a leader because of the design of public policy to encourage the use of the sun as a source for generating electricity.

In 2007, Q-Cells, a German company surpassed Sharp, a Japanese company, to become the world’s largest manufacturer of photovoltaic solar cells. Thanks to the work done by Q-Cells, Germany has by far the largest market for photovoltaic systems which convert sunlight into electricity. It has about one-half of the world’s total installations. It is the third-largest producer of solar cells and modules, after China and Japan. Once the United States and Japan were the rising solar stars where the private sector was taking advantage of government subsidies. But these became less enticing as the government’s interest in developing the industry waned.

According to Mark Landler writing for The New York Times, “the debate over solar subsidies is a test of how an environmentally minded country can move from nurturing a promising alternative energy sector to creating a mass-market industry that can compete with conventional energy sources on its own footing. [But] it is a tricky transition, even with a sympathetic population.” Thanks to a policy that encouraged the development of solar energy, more than 40,000 people now work in the photovoltaic industry in Germany. Investors have come in from many countries including those from Canada, Norway and the United States. Many investors have come from the places that had developed the needed technology but where the governments were less supportive than the one in Germany.

All the heart of the debate in Germany is the Renewable Energy Sources Act which requires power companies to buy all the energy produced by alternative systems, not only solar but also wind and ocean waves at a fixed, above-market price for 20 years. This has proved to be powerful incentive for investors including those working with solar panels. The Act locked in the customer base for the electricity produced by alternative systems. They can earn reliable returns on their investment. The amount of electricity generated by these systems rose 60 per cent in 2007 compared with 2006. Most of the increase has come from wind systems, which now provide 6.4 per cent for the total electricity produced in Germany.

The share of solar energy is still very small – only 0.6 percent of the total. The small share of solar is understandable. The country gets only 1,528 hours of sunshine a year, less than a third of the total daylight hours. London has about the same exposure to the sun, but it has one third fewer sunshine hours than in the cities in Europe along the Mediterranean and one-half of the cities in western United States. Most cities in Pakistan receive between 2,200 and 2,500 hours of sun, 60 to 70 per cent more than that of Germany.

Germany is a good example of how public policy can overcome natural disadvantages. The Renewable Energy Sources Act has contributed to the country’s far lower dependence on hydrocarbons for generating electricity. In 2007, it derived 14.2 per cent of its electricity from renewable sources, ahead of the 12.5 percentage adopted by the European Union as a target.

The German Act, while mandating the utilities to buy the electricity generated by alternative systems, allows them to pass on the additional cost to the consumers. There is no limit on how much electricity can (or should) be purchased by the utilities from the alternative systems. This has caused utility bills to increase but for the time being by modest amounts for an average domestic consumer. The additional cost was only $1.70 a month in 2007. This will double by 2014. By that time the solar industry will scale up to $185 billion in terms of public support. This is about the same amount being provided to the superannuated coal industry.

The debate about the cost of solar and other renewable sources of energy has created pressures on the government to make the current law less generous. There are proposals to cut down the period over which subsidies would be provided, from the current 20 to 15 years. There is also as effort to sharply reduce the above-market price allowed to the producers. Fears that such proposals would be enacted into law, are forcing some Germany companies to move to other countries. Signet is building its next factory in Chennai, India; Q-Cells is building one in Malaysia.

What are the lessons for Pakistan in the German experience and the work being done in other industrial countries? One, Pakistan needs a structure of incentives to get power generated from such renewable sources as the sun. A purchase price guaranteed for a fairly long period that ensures good returns to the private sector would help. Two, this may be a good time to encourage the development of domestic industry that would produce the needed equipment for developing generating electricity from renewable sources. The technologies are still in their infancy and there is an opportunity for newcomers in the area to create niches for themselves. Some work is going to replace silicon in photovoltaic cells with plastics.

At this time, the efficiency of plastic photovoltaic cells is only five per cent while that of conventional silicon cells is 15 to 18 per cent. Even countries such as Pakistan could invest in the industries needed to develop alternative sources for generating electric power. Three, it may be an appropriate time to fix some targets for encouraging the use of renewable sources for generating power. The EU is working on a target of 12.5 per cent. In the United States, the two candidates for the Democratic ticket want renewable energy to generate 25 per cent of electricity by 2030.

This is the time for action by the government and it should look at all possible avenues for solving the current crisis.