Collaboration with China key to Pakistan’s green energy future: study

KARACHI: Pakistan must collaborate with Chinese authorities and businesses to formulate a renewable energy deployment plan, identifying clear technical and financial pathways to scale up renewable energy projects.

Building the confidence of Chinese investors is pivotal for accelerating the integration and promotion of renewable energy in Pakistan. This collaboration would not only address Pakistan’s economic challenges in the power sector but also enable China to leave a green technological, economic, and environmental footprint in the country, a study by the Policy Research Institute of Equitable Development (PRIED) has indicated.

The study highlights that Pakistan needs to upgrade its grid infrastructure and introduce smart grid technologies to enhance the transmission capacity of the national grid. This would ensure renewable energy projects have a guaranteed means of evacuating and transmitting the electricity they generate.

The report also underscores the importance of developing integrated plans for energy generation, transmission and distribution. These plans should encompass broader resource management strategies to ensure efficient, affordable, and sustainable resource allocation.

CPEC and renewable energy transition

The report advocates for mechanisms that ensure economic growth under the China-Pakistan Economic Corridor (CPEC) is environmentally sustainable, socially inclusive and equitable. Special focus should be placed on rural electrification through community-driven mini-grids and microgrids to make energy accessible to all segments of society.

Achieving an effective energy transition under CPEC requires reducing carbon emissions from existing coal-fired power plants while expanding renewable energy sources. China, with its installed renewable energy capacity exceeding 510 gigawatts and the world’s largest carbon market, is well-positioned to support Pakistan’s energy transition and green economic development.

Financing the transition

The report recommends initiating negotiations with Chinese financial institutions, including the Export-Import Bank of China (EXIM Bank) and the China Development Bank, to establish a short-term pathway for transitioning CPEC from fossil fuels to renewable energy. These institutions can help Pakistan identify mutually beneficial areas for cooperation and funding.

The study also suggests exploring alternative financing mechanisms such as the Energy Transition Mechanism (ETM), Just Energy Transition Partnerships (JETPs), Accelerating Coal Transition (ACT), and international climate funds like the Glasgow Financial Alliance for Net Zero (GFANZ). These could facilitate early retirement of coal-fired power plants and transition to renewable energy.

Medium- and long-term plans should include repurposing or converting coal-based power plants into renewable energy generation facilities. Mechanisms must be developed, with China’s support, to mitigate the financial risks faced by coal-fired power plants, such as delayed payments and restrictions on foreign currency transactions.

“These measures could enable coal-fired power plants owned by Chinese companies to repay investors and lenders earlier than scheduled, potentially at discounted rates,” the report noted. This proactive approach would allow plant operators to recalibrate their financial portfolios in line with the broader strategic objectives of both Pakistan and China, focused on promoting renewable energy.

Policy recommendations

The report also calls for implementing a carbon pricing mechanism to assess and internalize the social and environmental costs of coal-based power generation. This could take the form of a carbon tax or emissions trading to remove hidden incentives that allow coal developers to pollute without accountability.

Collaboration between the State Bank of Pakistan (SBP) and the People’s Bank of China is vital. The latter’s carbon emission reduction facility (CERF), a structural monetary policy instrument, can mobilise social capital to promote carbon reduction technologies and clean energy development.

Pakistan’s Ministry of Energy, Board of Investment (BOI), and Ministry of Industries and Production should work with China’s National Development and Reform Commission and Ministry of Commerce to facilitate the relocation of green Chinese industries to Pakistan. This should include industries focused on manufacturing solar panels, wind turbines, batteries, and electric vehicles.

Exploring financial instruments such as green bonds, venture capital funds and low-interest loans targeted at renewable energy and electric vehicle (EV) projects within Special Economic Zones (SEZs) would provide much-needed capital for businesses. Investments in SEZ infrastructure should be expedited, ensuring reliable access to electricity, water, and other essential amenities.

Bilateral forums for Pakistani and Chinese investors should also be established to foster collaboration and explore business opportunities within SEZs, the report concluded.