Govt Drops $300M Floating Solar Project

December 22, 2024 Mahi Bukhari

Introduction

ISLAMABAD: Pakistan has shelved a $300 million loan proposal intended for the construction of a 300-megawatt floating solar power project. The government confirmed to The Express Tribune that it has requested the World Bank to pause preparations for the project. The decision comes after the Power Division decided not to include the scheme in the 2024-2034 Indicative Generation Capacity Expansion Plan (IGCEP).

Decision and Rationale

The Power Division communicated its final decision to the Ministry of Economic Affairs and the World Bank on December 20, 2024. Official documents revealed that the project and its associated loan were shelved after the Power Division’s decision. The project, planned for water bodies at the Tarbela and Ghazi Barotha hydropower projects, was initially given the green light for feasibility in 2021.

Economic Considerations

The floating solar project was considered highly cost-effective, with its foreign loan recoverable within five years. The electricity generated would have been cheaper than the operating costs of about 86 existing thermal power plants. Internal assessments indicated that the project could have saved over $72 million annually in foreign exchange after recovering its capital expenditure in five years.

Environmental and Financial Benefits

The project’s economic rate of return (ERR) was estimated at 42.4% without environmental benefits and 51% with them. This was significant given the severe smog and health issues in many Pakistani cities. The deployment of floating solar panels would have helped reduce reliance on expensive and inefficient thermal plants, paving the way for their retirement and lowering overall generation costs.

Influence and Opposition

Despite its benefits, sources indicated that the strong influence of thermal fuel importers was a factor in dropping the project. Ironically, a day before the final decision, the Water and Power Development Authority (Wapda) informed the Power Division that the project cost had been rationalized to $238 million. Wapda also highlighted that extending the project’s useful life to 30 years would further reduce the tariff to 2.98 US cents per unit, making it the lowest in the region.

Long-Term Energy Needs

A spokesperson for the energy ministry explained that the government is reassessing its long-term energy needs and power generation plan. The update of the IGCEP is ongoing to reflect these trends and market conditions. The spokesperson added that even temporarily dropped projects could be quickly processed and prioritized again upon the government’s request once requisite formalities are completed.

FAQs

Q1: Why was the $300 million floating solar project shelved?

The project was shelved because it was not included in the 2024-2034 IGCEP and due to concerns about having an assured power purchaser.

Q2: What were the expected benefits of the floating solar project?

The project was expected to provide cheaper electricity than many existing thermal power plants, recover its capital costs in five years, and save over $72 million annually in foreign exchange.

Q3: Could the floating solar project be reconsidered in the future?

Yes, the project could be reconsidered and prioritized again after the government’s reassessment of long-term energy needs and completion of requisite formalities.

Q4: What were the environmental benefits of the floating solar project?

The project had an estimated economic rate of return of 51% with environmental benefits, helping reduce smog and health issues by decreasing reliance on thermal plants.

Q5: How did Wapda rationalize the project’s cost?

Wapda reduced the project cost to $238 million and proposed extending its useful life to 30 years, which would further reduce the tariff to 2.98 US cents per unit.

Conclusion

The decision to shelve the $300 million floating solar project highlights the challenges in balancing economic, environmental, and political factors in Pakistan’s energy sector. While the project had significant potential benefits, the influence of thermal fuel importers and the need for reassessment of long-term energy needs led to its exclusion from the IGCEP 2024-34. However, the possibility remains for the project to be reconsidered in the future, reflecting the dynamic nature of energy planning and policy.