s China accelerates its investment in renewable energy, setting a global example in Green Development by adding 133 GW of capacity in just the first half of 2024 — a 25 percent increase from the previous year there is a unique opportunity for Pakistan for rapid expansion of its renewable energy capacity, given its partnership under China-Pakistan Economic Corridor.

Pakistan has the potential to add 23,801 MW — around 31.5 percent of renewable energy capacity till 2030, as confirmed by the World Bank’s Variable Renewable Energy Locational Study. However, it currently has a mere 7 percent contribution from renewable energy in its energy mix.

This disparity presents a significant opportunity. It also highlights a pressing issue. Despite its enormous potential of generating clean energy, Pakistan has struggled to attract the necessary investments for its $115 billion renewable energy transition.

China’s remarkable progress in renewable energy is a testament to its strategic shift towards sustainable development that has positioned it as a global leader in Green Technology. With 339 GW of utility-scale wind and solar projects already in the works, China holds 64 percent of the world’s total capacity in these sectors. Pakistan stands to benefit from this trend, given its substantial financing needs for transitioning to renewable energy and its collaboration with China under the CPEC and beyond.

As Pakistan transitions into CPEC Phase-II, prioritising business-to-business engagement, the focus on green infrastructure within the scope of the Green Corridor presents significant opportunities for Chinese businesses and private investors in renewable energy. However, current policy frameworks and financial instruments have failed to provide the necessary incentives for large-scale investments in renewable energy.

Pakistan’s renewable energy ambitions - generating 30 percent of the country’s energy mix from renewable resources by 2030 – face several critical issues. The absence of a comprehensive national industrial policy for over two decades has left the country without a clear roadmap for prioritising industries, including those related to Green Energy.

Policy shifts with every change of government have created an unstable political environment that discourages long-term investments. Special Economic Zones that can be hubs for renewable energy are failing to attract significant investments due to excessive regulation, a lack of accountability, economic uncertainty and insufficient incentives, including tax breaks and machinery import exemptions.

In its recent agreement for another loan package, the International Monetary Fund has asked Pakistan to phase out tax exemptions and some other incentives given to the SEZs that can aggravate the business environment and discourage investment.

To facilitate its transition to clean energy, Pakistan needs to explore alternative financing mechanisms such as Green Investment and Finance Partnership, Energy Transition Mechanism, and Just Energy Transition Partnerships. However, a lack of understanding around of suitable financial instruments and underdeveloped markets makes it difficult to channel funds from global markets into renewable energy projects.

Developing financial instruments, such as Green Bonds and Renewable Energy Certificates, tailored to the Pakistani market is also critical. These instruments could help attract both local and international private investments. 

Effective implementation of Green Finance initiatives is a necessary condition for the development of the local renewable energy industry. This can be achieved by establishing a joint working group on greening CPEC projects to facilitate collaboration between Chinese banks, environmental, social and governance investors and local regulators.

Developing financial instruments, such as Green Bonds and renewable energy certificates, tailored to the Pakistani market is also critical. These instruments could help attract both local and international private investments.

Pakistan must take decisive steps to capitalise on the investment opportunities provided by the CPEC. The second phase of the CPEC emphasises the operationalization of SEZs across Pakistan to facilitate Chinese investment, offering a strategic opportunity to localise the renewable energy industry.

The SEZs set up under this phase in Faisalabad, Rashakai, Dhabeji and Bostan provide an ideal platform for the localisation of the renewable energy industry. China, a global leader in solar power, manufactured 80 percent of the world’s solar panels and is the largest investor in Pakistan with approximately 87 percent of foreign investment in solar PV.

However, this can only be possible with long-term policy clarity, including political guarantees and incentives for stable agreements that encourage low-carbon investments from. Establishing clear Green Investment criteria for Chinese investors and ensuring the financial viability, security and profitability of these projects will be essential for success.

Focusing on small-scale renewable energy projects and decentralised management can improve energy efficiency and access while promoting the renewable energy industry. China’s mini-grids for rural electrification, particularly through initiatives like the Township Electrification Programme focused on distributed generation from renewable sources. 688 villages are powered by PV-battery mini-grids.

These can be used for rural electrification. Electric power can thus be supplied in underserved areas such as rural Sindh and the mountainous districts of Gilgit Baltistan, Khyber Pakhtunkhwa and Balochistan, where nearly 40 percent of the people still lack access to electricity.

Implementing these reforms can help Pakistan tap into its vast renewable energy potential. By diversifying its power generation sources and reducing reliance on thermal and hydropower projects, Pakistan can address its three-pronged crisis of energy insecurity, low human development index and economic stagnation.

There are vast opportunities for investors, developers, manufacturers and financial institutions. The government must create an enabling environment to attract more investments in renewable energy solutions. This requires confidence-building measures for investors, addressing market access concerns and ensuring a stable and supportive regulatory framework. Pakistan must achieve energy security while reducing carbon emissions.

The writer is a researcher based in Islamabad.