Solar Panel Manufacturing and Distribution
Solar Panel Manufacturing and Distribution
Business Model Description
Investment in Business to Customer (B2C) model as a distribution and installation network and/or in a Business-to-Business model (B2B) engaged in the manufacturing of solar panels. Examples of companies active in this space are:
Shams Power Limited, established in 2015, is Pakistan’s leading solar energy developer and investor. Pioneering the solar industry of Pakistan, the company has origins in a joint venture between Pakistan’s two leading energy companies, PITCO and Orient Operating Company. (10)
GuarantCo, part of the Private Infrastructure Development Group (PIDG) and Bank Alfalah, have provided Shams Power with a USD 11.3 million financing solution to support the construction of approximately 21 MW small rooftop and ground mounted solar plants at commercial, industrial and institutional sites across Pakistan to reach grid connected users. (11)
This transaction has the potential to transform the rooftop solar market in Pakistan by demonstrating the ability for rooftop solar providers to access debt funding locally; this will allow for developers to scale up to unlock more solar potential. (11)
Expected Impact
RE based electricity generation to serve household and commercial needs, ensuring sustainable energy generation and consumption practices
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Pakistan: Sindh
- Pakistan: Balochistan
- Pakistan: Punjab
Sector Classification
Renewable Resources and Alternative Energy
Development need
As of 2020, 75.4 per cent of the population in Pakistan had access to electricity. A growing population is likely to increase the demand for affordable and clean energy. In addition, nearly a third of Pakistan's energy needs come from imported Liquified Natural Gas (LNG), the price for which has shot up since the Russia- Ukraine war. Further exacerbating the energy crisis is the 2022 floods, where the energy sector suffered damages to the tune of USD 88 Million. It is estimated that USD 117 Million is needed for reconstruction. (1) (2)
Policy priority
To enhance and support the sector, govt has introduced an Alternate and Renewable Energy (ARE) Policy 2020 which aims to achieve sustainable development in power sector. The ARE Policy 2020 aims to increase the contribution of Renewable Energy (RE) to power generation from 5 to 20-30 percent by 2030. (1)
Gender inequalities and marginalization issues
Energy can be a vital entry point for improving the position of women in households and societies. Women in developing countries suffer in terms of health impacts, collection time for water, and quality of energy supply for the equivalent level of energy services as their counterparts in the developed world. (3) In Pakistan women overall constitute 4 per cent of the workforce in the energy sector, 2 per cent on technical positions (4)
Investment opportunity's introduction
New technology, lower unit cost of production, and private solutions in renewable energy sector, could revolutionize energy industry in Pakistan. Benefits could include reliability, less pollution and affordable energy solutions to benefit households, businesses and project developers. (5)
Key bottleneck's introduction
The biggest challenge for an on-grid solution is the unsolidified renewable energy policy, and its implementation through an autonomous energy authority. Uncertainties around Feed-in-Tariff and challenges for getting a Letter of Intent (LOI) can lower entry level barriers for businesses and investment in this sector. (6)
Alternative Energy
Development Need
In 2020 energy mix is dominated by fossil fuels at 63 per cent, and Variable Renewable Energy (VRE), comprising wind and solar, accounting for 4 to 5 per cent. Demand is expected to increase from 118-Terawatt hour (TWh) in 2019 to 249 TWh by 2030 under business-as-usual scenario. Alternate energy solutions are needed to meet anticipated growth in demand. (7)
Policy priority
In addition to ARE policy 2020, Board of Investment has also included "energy" in its priority sector list for investments. Furthermore, as per ARE Policy, projects of Biomass, Geothermal, Ocean /Tidal Wave energy, Solar, Wind, Storage Technologies, Biogas, Energy from Waste have been given priority for establishment in Pakistan (1)
Gender inequalities and marginalization issues
Gender disparities in the energy sector have been observed around the world. Reasons include women’s own perceptions of the industry, insufficient access to information, finance, and training, corporate human resource practices, and cultural biases and norms about gender roles. (8)
Investment opportunity's introduction
To diversify investment portfolio, ARE Policy suggests participation of private sector in competitive bidding for large projects, development of projects based on new technologies on unsolicited mode, local manufacturing of RE equipment, investment in off-grid and distributed generation that include net metering, B2B sales, and the likes.
(1)
Key bottleneck's introduction
Perception of high costs and technical difficulties associated with renewables; Constraints related to the grid and transmission infrastructure; Distributed power generation; Insufficient focus on rural electrification and the off-grid market. (9)
Solar Technology and Project Developers
Pipeline Opportunity
Solar Panel Manufacturing and Distribution
Investment in Business to Customer (B2C) model as a distribution and installation network and/or in a Business-to-Business model (B2B) engaged in the manufacturing of solar panels. Examples of companies active in this space are:
Shams Power Limited, established in 2015, is Pakistan’s leading solar energy developer and investor. Pioneering the solar industry of Pakistan, the company has origins in a joint venture between Pakistan’s two leading energy companies, PITCO and Orient Operating Company. (10)
GuarantCo, part of the Private Infrastructure Development Group (PIDG) and Bank Alfalah, have provided Shams Power with a USD 11.3 million financing solution to support the construction of approximately 21 MW small rooftop and ground mounted solar plants at commercial, industrial and institutional sites across Pakistan to reach grid connected users. (11)
This transaction has the potential to transform the rooftop solar market in Pakistan by demonstrating the ability for rooftop solar providers to access debt funding locally; this will allow for developers to scale up to unlock more solar potential. (11)
Business Case
Market Size and Environment
USD 100 million - USD 1 billion
< 5%
The government aims to increase renewable energy to 30 percent by 2030 from 5 percent in 2019.
Pakistan Solar Energy Market is expected to record a CAGR of 2.5 percent from 2022 to 2027 (12) In 2022, Pakistan does not have a Pakistan based manufacturing facility. The distribution networks are established but they require a manufacturing facility in Pakistan for sustainable business models. (Discussion with Chairman Engineering Development Board)
In 2022, Pakistan does not have a Pakistan based manufacturing facility. The distribution networks are established but they require a manufacturing facility in Pakistan for sustainable business models. (Discussion with Chairman Engineering Development Board).
In order to meet the policy goals, the private sector has picked up the solar panel manufacturing business idea and Netline has raised USD 3.5 million to manufacture solar panels in country. (13)
Indicative Return
> 25%
15% - 20%
> 25%
Return on Investment is calculated as per ADB's Renewable Energy Development Sector Investment Program 2021 to be in 15 to 20 percent range (14) The gross profit margin hovers around 29-39 percent for 2017-2021 in the power generation. (15)
Based on Small and Medium Enterprise Development Authority's Pre-feasibility study on the IOA, the expected IRR is 59 percent . (16) Based on discussions with the Chairman, Engineering Development Board, solar energy is a viable option for households and industrial units in light of the increasing fuel-based energy prices and prevailing inflation.
Up to now, the average utilization rate of operational solar PV plants is merely 19 percent, far from the utilization rate of over 95 percent in China. This represents a huge untapped opportunity in this sector in Pakistan. (17)
Imports of solar panels have risen from USD 1 million in 2004 to a peak of USD 772 million in the fiscal year ending June 30, 2017. While imports have since dropped down to USD 409 million in fiscal 2019, the country’s imports of solar panels appear to be a strong upward trajectory, growing at an average rate of 15.9 percent per year in US dollar terms in the five years between 2014 and 2019.(18)
Investment Timeframe
Short Term (0–5 years)
Based on Small and Medium Enterprise Development Authority's Pre-feasibility study, investment timeframe for solar projects is 3 years for a distribution company network and one to two years to establish a manufacturing unit.
Ticket Size
> USD 10 million
Market Risks & Scale Obstacles
Capital - CapEx Intensive
Business - Supply Chain Constraints
Market - High Level of Competition
Impact Case
Sustainable Development Need
Investing in solar, wind and thermal power, improving energy productivity, and ensuring energy for all is necessary to meet the demands of country as well as targets of ARE Policy.
75 percent of population of Balochistan (lowest) and 97 percent in Sindh (highest) access to electricity Both provinces are suitable locations solar power generation and can contribute to meeting the needs for energy empowerment. (16)(17)(20)
Only 46 percent of Pakistan's population has access to clean cooking fuels while 106 million people still lack access. Pakistan is one of the top 20 countries with the widest access deficit for clean cooking fuels. This gap has significant health and wellbeing related challenges, adversely impacted by use of fuels like wood, charcoal, dung and coal, which causes indoor air pollution. (9)
Gender & Marginalisation
Without electricity, women and girls have to spend hours fetching water; clinics cannot store vaccines for children; limited access to electricity restricts students from studying during the night and restricts people from running competitive businesses. (21)
In 2018, women made 4 percent of the workforce in 9 power utilities. Average share of women working in technical positions as engineers is only 4 percent. More investments will play an encouraging role in onboarding women in diverse roles in the manufacturing, installation, distribution of solar panels. (7)
With more opportunities for women and men developed by investments, there is a need to enrich the human resources with skills to match the requirements of the emerging business models.
Expected Development Outcome
A steady reduction in the current (10 Month-Financial Year 2022) import bill of the country, along with reduced households bills (19) will allow the government and households to save financial resources which can be spent on other essential needs. It is expected that if Pakistan achieves the targeted level of RE by 2030, 140,295 jobs will be created by 2030 (22)
Gender & Marginalisation
With the availability of clean and green energy women in the households will have alternative choice for carbon based fuel for cooking and other activities, resulting in efficiency gains and health benefits.
With improvements in relevant curriculum to support entry of skilled workers in the workforce to support scaling of technical sectors like Renewable Energy, policy, investments and private sector momentum can improve the proportion of women employed in the sector (4)
Primary SDGs addressed
7.1.1 Proportion of population with access to electricity
7.1.2 Proportion of population with primary reliance on clean fuels and technology
7.b.1 Installed renewable energy-generating capacity in developing countries (in watts per capita)
An increase of three percent was recorded in 2019-20 with 96 percent of the population having access to electricity as compared to 93 percent in 2014-15 (20)
Renewable energy share in the total final energy consumption recorded an increase from 0.77 percent in 2014-15 to 3.63 percent in 2018-19. (20)
The total renewable electricity capacity was 8088.8 Megawatts in 2015 and this has been increased to 12896 Megawatts in 2019 (20)
The Vision 2025 and ARE policy 2020 acknowledge that proportion of population with access to electricity is an important component of demand management but does not give a specific target to achieve and instead provides a demand projection that would need catering. Demand that needs to be met by 2030 will be 249 tera watt per hour. (7)
By 2030, ARE Policy suggests increasing the share of renewable energy to 30 percent by 2030 from 4 percent on 2020 (1)
As per Vision 2025, increase percentage of indigenous sources of power generation to over 50% by 2025. Demand that needs to be met by 2030 will be 249 tera watt per hour or 24000 Megawatts. (21)
12.a.1 Installed renewable energy-generating capacity in developing countries (in watts per capita)
The total renewable electricity capacity was 8088.8 Megawatts in 2015 and this has been increased to 12896 Megawatts in 2019 (20)
From Vision 2025, increase percentage of indigenous sources of power generation to over 50 percent (21)
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Indirectly impacted stakeholders
People
Planet
Corporates
Public sector
Outcome Risks
If the country starts importing solar panels to meet the increase in electricity demand, instead of manufacturing domestically, the outcome of reducing imports will not be achieved. Additionally, If the country starts importing solar panels to meet the increase in electricity demand, instead of manufacturing domestically, the outcome of reducing imports will not be achieved.
Impact Risks
The environmental impacts of battery production and disposal are substantial and may overwhelm any environmental benefits of zero-emission wind and solar power. (25)
Impact may be reduced as high cost of connection to the grid may limit last mile users; in many regions, this includes female-headed households. (26)
Impact Classification
What
Solar panel manufacturing and distribution to facilitate the country's shift to clean energy and increase RE's contribution to the energy mix from 4 percent (2019-2020)to 30-40 percent by 2030. (1)
Risk
Risk of competition with cheaper Chinese manufacturers will be the major challenge if scale production is not achieved.
Contribution
The business model contributes to the goals set by the government to increase alternate energy in it is energy mix to 30 percent by 2023.
Impact Thesis
RE based electricity generation to serve household and commercial needs, ensuring sustainable energy generation and consumption practices
Enabling Environment
Policy Environment
Alternate and Renewable Energy Policy 2019: aims to safeguard the environment by increasing the share of “green” energy in the overall energy mix; to provide the least cost power generation while keeping other constraints in mind.
ARE 2020: To ensure fast track and transparent development of ARET (Alternative and Renewable Energy Technology) power projects; to encourage and ensure utilization of indigenous resources; to encourage private sector investment while securing competitive rates of return. (1)
Financial Environment
Financial incentives: State Bank of Pakistan's Financing Scheme for ARE is in three categories, with Category I providing the highest limit of financing up to USD 21 million. (28)
Fiscal incentives: Exemption of Custom Duty on import of machinery, equipment, and spares for power generation through solar, wind, micro-hydel, bioenergy, ocean, waste-to-waste, and hydrogen cell. Exemption from sales tax and income tax on import of plant and machinery not manufactured in Pakistan for solar, nuclear, and renewable energy. (29)
Regulatory Environment
NEPRA's ARE: Distributed Generation and Net Metering Regulations 2015. The regulation state the application process, metering requirements, fees and dispute resolution systems for companies, DISCOs and government. Simplified Regulation of Alternate Energy Development Board for regarding solar equipment, system installations and companies. (27)
Marketplace Participants
Private Sector
Solar business companies like Reon, Shams Power, Sky electric, Premier Energy and the likes.
Government
Alternative Energy Development Board, Energy Department of provincial governments
Multilaterals
Green Climate Fund and International Finance Cooperation and World Bank, Japan International Cooperation Agency and Asian Development Bank
Non-Profit
Renewable Energy Association of Pakistan. Pakistan Solar Association and Pakistan Council of Renewable Energy Technologies
Target Locations
Pakistan: Sindh
Pakistan: Balochistan
Pakistan: Punjab
References
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- (2) UNDP (United Nations Development Programme). 2022. “Pakistan: Flood Damages and Economic Losses over USD 30 billion and Reconstruction Needs over USD 16 billion.” UNDP press releases. https://www.undp.org/pakistan/press-releases/pdna-pakistan-floods.Accessed 28 March 2023.
- (3) Babalola, F. D. 2010. "Harnessing Energy Crisis and Gender Empowerment: Impacts of Household Energy Consumption Pattern on Women's Welfare and Education." Paper presented at the International Conference organized by United Nations Girls' Education Initiative (UNGEI), Dakar, May 3-7. https://genderandsecurity.org/projects-resources/research/harnessing-energy-crisis-and-gender-empowerment-impacts-household-energy. Accessed 28 March 2023.
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