KARACHI: “Not a single letter of credit (LC) has been opened since the State Bank of Pakistan (SBP) implemented a requirement for approval of solar equipment in early July,” says Mujtaba Raza, CEO of Solar Citizen in Karachi. “I cannot bring in new business because I do not know whether I will be able to provide the apparatus.”

Given the cost and bulk of solar panels and remaining paraphilia, engineering, procurement and construction (EPC) companies do not normally carry large stocks of equipment.

Soaring electricity prices have generated demand amidst a tight supply crunch. Costs for solar solutions have sky-rocketed by at least 50 per cent. A 10kW system for a household, previously around Rs1-1.2m (without batteries), easily costs Rs1.5-2m if the supplier can procure the equipment.

“It has come to the point that the prices are changing daily. I negotiate with a wholesaler and agree on a price. The next day the same supplier charges a higher price. It is very difficult to give a quote to a prospective customer since we appear unprofessional if we keep changing the price,” says Mr Raza.

EPC companies are unanimous in their lament: the government has destroyed a flourishing industry.

“My company is two years old, and I went through a period in which I considered closing up shop,” says Bilal Haque, CEO of Sun Wire in Islamabad. “It used to be a good industry. However, this year it has suffered a lot of blows,” he says, listing the 17pc tax Imran Khan had imposed just before he left office and the proposed change in buyback rates by the National Electric Power Regulatory Authority (Nepra).

Loss of benefit

When the sun shines, solar panels generate electricity. Units not consumed are sold to the grid and offset by credit, reducing electricity bills. This is called net metering. For example, Ali Karimjee, a resident of DHA Karachi, generated enough credit during the summer to skip electricity bills in winter last year.

According to Nepra’s regulation, the rate at which solar credit is adjusted is the average power purchase price of around Rs10. With rising fuel prices and other challenges, the government’s average purchase price increases to Rs19, explains Musa Khan Durrani, an industry insider previously with SkyElectric.

Nepra, instead of adjusting the rate of solar credit upwards, proposes to leave it at the same or change it to the rate at which it purchases from solar power plants, he explains. And therein lies the new cost-benefit analysis.

In residential households, children go to school during the day, and the adults go to offices or run errands. Electricity consumption is minimal. But this is not true for all households, many of which are in hot cities where ACs run during the day and night.

EPC providers have differing views: one asserted that 80pc of solar energy generated by a household is consumed, so the lower net metering rate will decrease the benefit by only 5-10pc. Another argued that 70-80pc of energy produced is sold to the grid. Without a sufficient amount of net metering credits, the viability of a solar solution for a household is limited.

Case against elevated structures

The sun’s light travels millions of miles; a few additional feet of height will not make a difference, says Mr Raza, arguing against elevated structures for solar panels.

“Elevated structure from a solar company’s perspective is the easiest to install because the entire structure’s fabrication is outsourced, and the company that puts it up also installs the panels. So all my team has to do is go in and put in the wiring, and that is a job done in a day or two.”

However, he explains that an elevated structure is challenging.

The dustier the panels, the less efficient the system will be, and the less energy it will generate. In Karachi, ideally, the panels should be washed every week.

The timing of the cleaning exercise is vital as well. If the panels are washed when they are hot, they develop micro-cracks which damage them over time. Hence, it is recommended that they be washed in the morning or the evening.

“An elevated structure also has to cater for wind pressure,” adds Mr Haque. “Wind can damage the installation, and the structure may be less stable if it is not factored in.”

Elephant in the room

The SBP has not refreshed banks’ credit lines to continue the 6pc financing scheme for solar solutions. However, given the demand, some banks have launched their products for financing solar but at interest rates that range from 17.5pc to 21pc or higher.

However, financing is not the challenge at hand since some have ready cash. While the higher rates of solar paraphernalia have increased the payback period to four to five years (from three to four years previously), rising electricity prices continue to make solar an attractive investment. But the elephant in the room is the supply crunch of solar equipment, without which all cost-benefit analyses are mere words.

Published in Dawn, October 16th, 2022