Indexing the sun Ammar H Khan

OPINION

Ammar H. Khan

Indexing the sun fuel, whether that is coal or imported gas). The problem is with the incentive structure that is being offered. Given the benefits of scale and technology, generation T he reduction in capital costs associated with solar energy and consequent drop in generation cost on a per kilowatt-hour (kWh) basis has primarily been driven by improvements in technology, and production scale. In effect, gen eration cost is only one-fifth of what it was six through solar is now lower than other fossil fuels. In such a scenario, there exists no rationale for the government to guarantee the purchase of power, which eventually translates into capacity payments. Solar generation by virtue of its market competitive generation cost would remain one of the cheaper sources, and hence be at the top of the electricity dispatch merit order. If the market and technology are already solving a years back resulting in market-driven adoption of solar panels problem, there exists no reason why any kind of demand guaracross the board. It also enabled electrification of off-grid areas antees are made available, considering how capacity payments or areas with intermittent electricity supply. The adoption of continue to weigh heavily on our energy bills.solar, primarily rooftop, decentralized, and off-grid has largely Similarly, providing a benchmark tariff, and indexing the been driven by market forces rather than any government same to 70% movement in PKR-USD parity also does not make intervention. If anything, the imposition of arbitrary taxes, sense. In the case of solar, the radiation of the sun is being uticonsiderable delays in net metering which needs to be facilitat- lized, which is certainly not linked to any movement in PKR-ed by distribution companies, and the absence of any cohesive USD parity. Similarly, there exists no reason why there needs solar strategy have largely acted as a deterrent. The absence of to be a benchmark tariff when a market competitive tariff can government has fared better for solar in the country, than its be used for the selection of projects. By creating a benchmark, presence. and indexing it to PKR-USD parity, we are essentially creating

Recently, the government has announced a plan to roll a market floor, incentivizing the producer, while passing on the out 10,000 MW of solar generation capacity across the coun- welfare loss to the consumer. try, split between installation near [high-load feeders], in Indexing the tariff to PKR-USD parity also creates a government offices, etc. A novel plan, which should certainly misalignment, wherein the incentive to improve efficiencies to be catalyzed given the country’s dependence on imported reduce costs and remain competitive would be eliminated, as an sources of energy, which have been deemed unaffordable in the index to PKR-USD parity would virtually guarantee escalation current scenario. To reduce electricity costs for consumers, it in tariff and distort the market. The consumer continues to pay is imperative that necessary steps are taken, and the rollout of a heavy price for such indexing for power projects across the 10,000 MW of solar is one such step. However, this will add spectrum, continuing the same would be further eroding any to already excess capacity in the country. The problem isn’t long-term cost benefits that can be accrued from solar energy.capacity, but the availability of affordable sources of energy (i.e. Land is a major cost in any utility scale solar project. The government providing land in strategic locations is an incentive which can catalyze rapid installation and off-take, and is appreciated. Availability of land at zero upfront cost would further reduce project cost, and consequently reduce electricity generation cost. Similarly, the only thing that the government should guarantee is connectivity to the grid, as infrastructure The writer is an for the same is still completely controlled by the government. Everything else should be left to marindependent ket forces,such that the best possible price can be discovered for the consumer. Absence of a price macroeconomist and discovery process and plethora of incentive which institute a price floor can potentially lead to welenergy analyst. fare loss for consumers, and can defeat the primary objective of the initiative, which is to generate clean affordable electricity via solar.