This influx has led to an oversupply crisis, decimating profit margins for solar developers.

While there is a growing call for the liberalization of the electricity market, the government remains cautious, fearing that rapid changes could exacerbate existing pressures on utilities already grappling with high capacity payments.

Unprecedented Solar Panel Imports

The sudden surge in solar panel imports is attributed to a series of economic challenges faced by Pakistan.

In 2022, the country’s central bank faced a severe foreign exchange crisis, leading to an unspoken ban on non-essential imports. This restriction lasted for nearly nine months, limiting the availability of solar modules.

However, those businesses with access to foreign currency began importing modules at high margins, fueling a speculative boom in the market.

“We had a massive 100% margin in the trading business,” Hussain Khan, head of commercial at Wateen Energy Solutions, Hussain Khan said. As a result, many companies, including those in unrelated sectors, began importing and reselling solar panels to capitalize on the demand.

The Impact of Oversupply

By 2024, the oversupply of solar modules has led to significant price drops, with some panels being sold at a loss.

Despite this, industry experts like Innovo Corp Muhammad Mujahid predicted that most businesses will remain in the market for at least another year, citing previous profits as a buffer against current losses.

Corporate Investments in Solar

The commercial and industrial (C&I) segment has been a major driver of solar investments in Pakistan.

Companies are increasingly turning to solar as a straightforward investment option, with returns often realized within 18 to 24 months. Wateen Energy Solutions reported a growing portfolio, with plans to install 50 MW of solar capacity by 2025.

Capacity Payment Crisis Pakistan’s electricity sector is facing a critical capacity payment crisis.

Between 2019 and 2024, the country paid Rs6 trillion ($21.5 billion) in capacity payments, while energy revenue totaled only Rs5 trillion. The financial strain is exacerbated by dollar-indexed long-term power purchase agreements (PPAs), which have become increasingly burdensome due to the devaluation of the rupee.

The Institute for Energy Economics and Financial Analysis (IEEFA) Haneea Isaad highlighted the difficulty of exiting these legacy contracts, which were necessary to attract foreign investment two decades ago.

Future Market Changes

As the government considers reforms to the electricity market, including the potential implementation of a competitive wholesale market, concerns about the impact on utilities remain.

Experts warned that unrestricted solar generation could lead to a significant reduction in grid payments, further jeopardizing the financial stability of state utilities.

An expert on renewables Syed Faizan Ali Shah, cautioned that without appropriate regulatory measures, the rapid growth of distributed solar could lead to a collapse of the existing market structure, leaving state-owned power plants idle and unprofitable.