Pakistan

In accordance with NEPRA (Alternative & Renewable Energy) Distributed Generation and Net Metering Regulations, 2015, prosumers are permitted to install solar or wind energy-based distributed generation systems at their premises, with capacities of up to 1 MW. The energy generated by these systems is available for the prosumer's own consumption. Any surplus energy is exported to the grid, and at the end of each billing cycle, the distribution utility offsets the exported and imported units to determine the final energy balance for the prosumer. In Pakistan, the distribution utilities witnessed an exponential increase in the installation of net-metering based roof-top solar systems, where the installed capacity has exceeded more than 2 GW since the year 2015.

Low Barriers

Excess energy generated from distributed generation (DG) systems is exported to the distribution grid and offset against the imported units. Both imported and exported units are balanced at the same tariff rate. There is no cap on the amount of energy that can be exported to the grid. Additionally, the regulations allow prosumers to install a net metering system with a capacity of up to 150% of their sanctioned load.

Low Barriers

After the offsetting of energy units, any remaining excess is compensated at the prevailing Average National Energy Purchase Price (ANEPP). The ANEPP, calculated annually by the Central Power Purchasing Agency (CPPA), represents the average energy price paid to Independent Power Producers (IPPs). Payments for the excess energy are made quarterly based on this rate.

Low Barriers

Risk mitigation elements in the design of power purchase agreements

Related policy guide sections

• Power purchase agreements
• Direct power purchase agreements
• Off-taker risk mitigation

Power projects in Pakistan are open to both foreign and local investors, with no restrictions on the level of foreign ownership or percentage of shareholding.

Low Barriers

The government provides sovereign guarantees, to ensure that payments owed to the power producer under the PPA, typically from the CPPA or National Transmission and Dispatch Company (NTDC), are fulfilled. In case the contract (PPA or IA) is terminated due to a default by the government or the power purchaser, the sovereign guarantee ensures compensation to the power producer. This
compensation generally covers the repayment of debt (to lenders) and a return on equity invested, ensuring the investor is not at a total loss.

Low Barriers

The generation tariff to the power producers contains the indexation based on the Consumer Prices Index (CPI). CPI has increased from 239.27 in August 2023 to 262.32 by August 2024, making a reasonable increase in the generation prices.

High Barriers

The generation tariff for renewable energy projects (except bagasse-based co-generation plants) in Pakistan is subject to indexation, primarily linked to the dollar-to-rupee exchange rate, within the capacity component of the tariff. This adjustment accounts for the foreign fixed and operational costs incurred by power producers. These inflation and currency-linked adjustments strain Pakistan’s economy, particularly given its depleting foreign reserves and volatile currency.

Medium Barriers

Curtailment risk for power producers is mitigated through the Non-Project Missed Volumes (NPMV) mechanism. However, wind power producers in southern regions of Pakistan are experiencing significant curtailment issues due to congestion in the transmission system and the inability to evacuate power to load centers in central regions of the country. While these producers are entitled to claim compensation under the NPMV framework, the ongoing circular debt crisis in the power sector has left payments for NPMV outstanding with the Central Power Purchasing Agency (CPPA), adding to the financial strain on the sector.

High Barriers

The Implementation Agreements (IAs) between power producers and the Private Power & Infrastructure Board (PPIB), along with the Power Purchase Agreements (PPAs) signed with the Central Power Purchasing Agency (CPPA), typically span a term of 25 years for solar and wind Independent Power Producers (IPPs). However, in response to rising generation costs driven by inflation and currency devaluation, the government has initiated re-negotiations of PPAs, with a primary focus on capping indexation mechanisms.

Medium Barriers

Previously, around 72 projects, including renewable energy projects, were registered under the Clean Development Mechanism (CDM), an international framework that allowed countries to earn carbon credits by reducing greenhouse gas emissions. Currently, the Ministry of Climate Change & Environmental Coordination (MoCC&EC) is developing a policy to facilitate Pakistan's participation in voluntary carbon markets, which shall allow businesses and organizations to offset their emissions by trading carbon credits. In addition to government efforts, some domestic carbon trading platforms have been established by private entities, offering opportunities for businesses and individuals to engage in carbon trading at a national level.

High Barriers

Carbon tax: Currently, no carbon taxation mechanism exist in Pakistan.

High Barriers

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Previously, the
government made its first attempt in year 2023-24 in to develop 600 MW of solar power through competitive bidding, in multiple attempts. However, the initiative struggled to attract investor interest due to investment risks and unfavorable economic conditions. Currently, the government is planning to develop 300 MW of hybrid (wind and solar) projects through the Private Power
& Infrastructure Board (PPIB), acting as the Independent Auction Administrator (IAA). The electricity generated from these projects will be evacuated by K-Electric, the private utility responsible for power distribution in Karachi. Moreover, unsolicited bids are encouraged from project developers introducing new technologies, provided that the proposed tariffs are lower than the national average power purchase price

High Barriers

IGCEP does plan outlines a significant increase in the share of variable renewable energy—solar, wind, and bagasse (biomass)—in the energy mix by 2030. Inconsistent policies within IGCEP hinder VRE integration. Aligning IGCEP targets with national renewable goals and adding flexibility in procurement can promote solar and wind, while addressing financial risks and ensuring PPAs adapt to future cost reductions in renewables.

Medium Barriers

Corporate
Power Purchase Agreements (PPAs), business-to-business (B2B) connectivity, and third-party installations are permitted in Pakistan, allowing direct agreements between power producers and consumers. Notably, project developers and consumers are not required to obtain generation licenses from the regulator for these arrangements. Additionally, while electricity wheeling (the transport of
electricity through the grid for third-party use) has been introduced, it has yet to be widely implemented. The power sector in Pakistan is transitioning towards the Competitive Trading Bilateral Contract Market (CTBCM) model, which will enable bulk consumers to directly purchase electricity from producers

Medium Barriers

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The government has not provided grants, rebates, or subsidies to reduce the installation costs of renewable energy plants. Instead, subsidies are maintained for life-line consumers to ensure energy affordability, which limits the availability of financial support for renewable energy development.

Medium Barriers

The government-owned central bank of Pakistan, the State Bank of Pakistan (SBP), launched the Refinancing Scheme for Renewable Energy to encourage the adoption of renewable energy by providing low-cost financing to businesses, industries, and households. The scheme offers financing at a subsidized interest rate of 6% for the development of renewable energy projects with capacities of up to 50 MW. Despite the favorable terms, the scheme faced challenges in gaining widespread adoption. A major issue was that many commercial banks did not actively participate in or promote the scheme, limiting its reach and effectiveness. This lack of engagement from the banking sector hindered the full potential of the scheme, as borrowers struggled to access the affordable financing needed to implement renewable energy projects.

Medium Barriers

For project developers, there are existing tax exemptions on equipment used in renewable energy projects. In particular, solar panels in Pakistan are exempt from taxes, providing a financial incentive for renewable energy adoption. Additionally, the government is considering introducing special packages to encourage solar panel manufacturers to establish manufacturing plants within the country, further promoting local production and the growth of the renewable energy sector.

Low Barriers

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Interconnection Readiness Zones have been defined by the system operator to streamline the development of RE projects, strategically chosen to facilitate efficient integration of new projects into the existing grid infrastructure. During the feasibility assessment stage, developers are required to conduct micro-siting studies. This process involves a detailed evaluation of specific site conditions to optimize the placement and configuration of renewable energy systems. Micro-siting ensures that the project maximizes resource efficiency while minimizing environmental and logistical challenges. Typically, these preparatory steps are undertaken early in the project development process, following the issuance of a letter of intention from relevant government agencies, such as the PPIB or provincial energy departments. The entire process, including site assessments and regulatory approvals, generally takes about one year to complete. However, for decentralized zones, this spatial planning regulation has yet to be fully implemented, posing a gap in readiness for decentralized RE project integration.

Medium Barriers

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The allocation of land for power plant facilities falls under the jurisdiction of provincial governments. To avoid conflicts, land is usually acquired from private owners and subsequently sub-leased to project developers. The land arrangement for a renewable energy (RE) project is finalized after the project receives a letter of intention from the government. The lease terms are established to cover the duration of the project's operational life.

Low Barriers

Currently Pakistan has no plans for the installation of off-shore wind power plants.

Medium Barriers

For the development of renewable energy (RE) projects, several renowned consortiums have conducted comprehensive studies to identify optimal sites for solar and wind energy installations. These studies focus on assessing the potential of renewable resources, grid connectivity, and logistical considerations to ensure efficient and effective project deployment. In addition, biomass power facilities are specifically integrated with sugar manufacturing industries, leveraging the by-products of these industries for energy generation. Designated zones have been identified for RE development, allowing developers to install projects based on site-specific assessments and conditions.

Low Barriers

Private Power & Infrastructure Board (PPIB) serves as a "One-Window Facilitator" on behalf of the Government of Pakistan (GoP), streamlining the process for promoting private investment in the power sector. PPIB plays a key role in facilitating the development of power projects across the country, providing a centralized platform for regulatory approvals, coordination, and support to investors and developers.

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The total number of permits required from federal government are 08, while the permits required from provincial government are 2.

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The Environmental Impact Assessment (EIA) is a mandatory requirement for the development of any power facility, including renewable energy (RE) projects. However, Social Impact Assessments (SIA), which evaluate the potential effects of a project on local communities and social structures, are not currently being conducted as part of the standard approval process.

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Given Pakistan's high vulnerability to climate change and rising energy generation costs, public awareness and acceptance of renewable energy is exceptionally strong. Citizens are highly inclined towards adopting renewable energy solutions, recognizing both their environmental and economic benefits.

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The governing policies outline the process for developing renewable energy projects.

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VRE plants submit real-time generation data and daily forecasts at 15-minute intervals that are updated every six hours. Moving scheduling closer to real time would allow for a more accurate forecast. Forecasting is done for each individual plant, not on a system-wide level. Operators of hydropower plants must update the system operator every hour about reservoir levels and provide production forecasts for the following day (CASE 2024: 38).

High Barriers

There are no third-party aggregators for forecasting VRE output. This is related to the market design (PLN being the single buyer and power producers not selling their power onto wholesale electricity markets).

High Barriers

Power plants need to comply with their availability factor (contracted amount of electricity as stipulated in the PPA with PLN). If they fail to comply with the pre-defined availability factor, penalties need to be paid (MEMR 2024).

Medium Barriers

Currently, there is no system-wide forecasting of VRE output. This would allow for a more efficient system operation (IEA 2022)

High Barriers

In Pakistan, renewable energy plants are classified as "non-dispatchable" or operate under a "must-run" mode. This means the energy generated by these plants must be evacuated by the system operator. However, due to transmission constraints, wind power Independent Power Producers (IPPs) are experiencing curtailment, limiting the amount of energy that can be delivered to the grid despite their continuous generation.

Medium Barriers

Conventional power plants are dispatched according to their operating costs, with priority given to the most cost-effective units. In contrast, renewable energy (RE) plants are excluded from the system operator's economic dispatch list, meaning they are not dispatched based on cost considerations but typically operate under must-run conditions.

Low Barriers

Conventional power plants, including hydropower and thermal plants (such as coal and RFO-based facilities), operate under Power Purchase Agreements (PPAs) structured as take-or-pay contracts. These contracts obligate the government to pay for the full capacity of these power plants, regardless of the actual amount of energy generated.

Medium Barriers

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Currently, Pakistan’s power market is vertically integrated and lacks competitiveness. However, a transition is underway towards a wholesale market under the Competitive Trading Bilateral Contract Market (CTBCM) framework. The CTBCM aims to enhance competition by allowing bulk consumers to purchase power competitively. This system will enable intra-day, short-term, and long-term contracts between energy suppliers and bulk consumers, fostering a more dynamic and competitive energy market.

Medium Barriers

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For industrial, commercial, and larger residential consumers (those with a sanctioned load exceeding 5 kW), tariffs are increased during peak hours to discourage excessive electricity consumption. This strategy is primarily aimed at promoting energy efficiency and encouraging consumers to shift their usage to off-peak periods. The Time of Use (TOU) mechanism is employed for this purpose, applying higher rates during peak demand hours to manage load more effectively.

Medium Barriers

In 2019, Pakistan drafted the National Electric Vehicle Policy (NEVP), officially launched in 2020, setting ambitious EV adoption targets and offering incentives such as 1% custom duty and sales tax on locally assembled EVs. NEVP was integrated into the Auto Industry Development and Export Plan (AIDEP 2021-26). Despite these incentives, the transition to EVs faces significant policy and practical challenges, where the practical implementation on the policy is lacked.

Medium Barriers

To ensure grid stability and the full evacuation of power from renewable energy (RE) plants, a 100 MWh battery storage system is planned for integration with the transmission grid. This system will help manage the intermittent nature of renewable energy and enhance overall grid reliability. Plans are currently underway to secure financing for this project through government-to-government (G2G) partnerships.

Low Barriers

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Within the current regulatory and operational framework, there are no market-based incentives for fossil fuel-based power plants to provide residual or backup power for wind and solar facilities.

Medium Barriers

RE power plants, including biomass (bagasse) and hydropower, are classified as must-run facilities. However, there are no incentives or regulatory measures in place to ensure these plants operate in coordination with solar and wind Independent Power Producers (IPPs). Typically, hydropower plants are operated to cover base-load demand, but their operation is not harmonized with the variable generation from solar and wind resources.

Medium Barriers

One of Pakistan's ten distribution companies has begun installing AMI (Advanced Metering Infrastructure) meters for its new and upcoming prosumers utilizing net-metering systems. However, nationwide or large-scale implementation of this technology remains limited.

High Barriers

The process of automating and building the necessary infrastructure to digitize information sharing and data management in the power sector is currently in the planning phase. At this stage, the scope of work and cost estimates are being evaluated. However, for now, most information and data exchange continues to rely on traditional, manual methods.

High Barriers

Pakistan has yet to introduce formal incentives for transitioning its grids to smart grid technology, though there is growing support for this shift. While dedicated incentives are still lacking, some distribution companies are planning to implement Advanced Metering Infrastructure (AMI) for net-metering prosumers. This aims to improve billing accuracy and enhance monitoring capabilities.

Medium Barriers

National Power Control Center (NPCC), a division of the National Transmission and Dispatch Company (NTDC), serves as the central control center and system operator, coordinating the operations of the national grid. While NPCC does not have direct control over the output of individual power facilities, generation operators within the system are required to comply with NPCC's instructions to ensure smooth and efficient grid management.

Medium Barriers

The country's transmission system currently lacks advanced measures such as dynamic line rating, grid boosters, high-temperature low-sag conductors, and power flow controllers, which are essential for gaining experience with new control technologies and operational practices. While Pakistan recognizes the importance of these innovations, their implementation has been delayed due to the absence of adequate financial instruments and mechanisms to support such initiatives.

High Barriers

Typically, the costs associated with preparing for the evacuation of power from independent power producers (IPPs) are covered by NTDC. However, for rooftop solar PV systems, the prosumers are responsible for covering the costs of the necessary arrangements.

Low Barriers

The National Transmission & Dispatch Company (NTDC) is responsible for ensuring the grid connectivity of renewable energy (RE) power plants in compliance with established transmission codes. NTDC oversees all ancillary services and supporting arrangements necessary for proper grid integration. The interconnection process is initiated by NTDC in alignment with the project development timelines. However, any delays in establishing grid connectivity are not compensated for, leaving RE developers without recourse in such cases.

Medium Barriers

The grid codes do not specifically outline measures or standards for variable renewable energies (VREs). However, grid interconnection for renewable energy plants is regulated according to established standards such as those set by IEEE and UL.

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The grid interconnectivity process for rooftop solar PV systems involves straightforward steps, including preparing a technical integration diagram, obtaining approval from the distribution company (DISCO) or regulatory authorities, and installing the PV system along with a bi-directional meter. These procedures are relatively simple and streamlined compared to the more complex requirements for integrating large-scale power plants. However, thew advancements in the integration procedures is highly imminent.

Medium Barriers

Pakistan’s electrification rate is around 75%, meaning approximately 27% of the population still lacks access to grid-supplied electricity and relies on fossil fuels and biomass for energy. Many of these underserved communities are in remote areas where extending the grid is economically unfeasible due to high transmission and distribution costs, as well as the technical challenges posed by the country’s diverse geography. Currently, persistent financial issues in the power sector have hindered any significant planning for distribution grid expansion to reach these unserved populations. However, the government has outlined plans to enhance the evacuation capacity of the transmission system through four key projects under the Transmission System Expansion Plan (TSEP).

Medium Barriers

Pursuant to the National Electricity Plan 2023-27, the government has prioritized and directed the National Transmission & Dispatch Company (NTDC) to develop and submit the Transmission System Expansion Plan (TSEP) for regulatory approval. The primary objective of the TSEP is to expand transmission capacity to accommodate power generated by Independent Power Producers (IPPs). However, the plan does not establish specific boundaries or limitations requiring the TSEP to align with renewable energy targets, leaving flexibility in its development.

Medium Barriers

The Central Asia-South Asia power project, commonly known as CASA-1000, is a $1.16 billion initiative currently under construction. The project aims to facilitate the export of surplus hydroelectricity from Kyrgyzstan and Tajikistan to Afghanistan and Pakistan, strengthening regional energy cooperation and addressing power shortages Curtailment and grid expansion planning: Wind power in Pakistan faces significant curtailment due to insufficient evacuation capacity in the transmission system. The system operator holds the authority to curtail power generation from renewable energy IPPs, including wind power, as a result of these limitations.

Low Barriers

The National Electricity Plan 2023-27 outlines initiatives to modernize the distribution systems, including measures to reduce technical and recovery losses and proposed amendments to distribution codes. However, the plan lacks concrete programs or comprehensive frameworks to govern and administer long-term distribution system planning effectively.

High Barriers

In Pakistan's vertically integrated electricity market, there are no provisions for third-party access to the grid. While regulations technically permit energy wheeling, allowing private entities to transmit electricity through the national grid, this mechanism has yet to be implemented in practice.

Medium Barriers

Electricity wheeling is permitted and regulated within Pakistan's power sector, allowing energy transfer between two business entities. Charges for wheeling are payable to the distribution company facilitating the process. However, due to technical constraints and insufficient capacity within distribution companies, electricity wheeling has yet to be effectively implemented in Pakistan.

Medium Barriers

Any distribution company can be established and granted a license by the regulator to supply and distribute electricity within its designated area of jurisdiction. Licensed Distribution companies are permitted to install direct lines and maintain distribution network to facilitate power delivery.

Medium Barriers

Pakistan lacks a comprehensive fossil fuel phaseout strategy, though it has announced intentions to transition towards cleaner energy. The current energy mix is still heavily dependent on coal, gas, and oil. While coal power expansion continues, there are government signals to halt new coal-fired power projects in favor of renewables and cleaner sources such as hydropower and nuclear.

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Not applicable and defined by regulatory authority.

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No market based interventions are applicable for fossil-fuel phase out.

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The government is actively working to accelerate the implementation of its net-zero goals, but significant challenges hinder progress, particularly due to inadequate financing. As Pakistan grapples with the impacts of climate change, much of the available climate funding is directed towards adaptation efforts, leaving limited resources for critical mitigation measures. This imbalance is a key obstacle in achieving the country's broader environmental objectives.

High Barriers

Pakistan has not officially committed to a net-zero emissions target. Although the country is focused on reducing emissions and has set ambitious goals through its Nationally Determined Contributions (NDCs), which include reducing greenhouse gas emissions by 50% by 2030 (with conditional international support), it has not aligned with the global push for net-zero by 2050.

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There is a need for robust governance mechanisms to track progress towards energy transition targets. Existing regulatory frameworks need strengthening for better monitoring and compliance to international climate commitments. Some independent regulatory bodies like NEPRA (National Electric Power Regulatory Authority) oversee sector developments.Automatic adjustment of policies: There is no mechanism for policy adjustments, and the formulation and approval of new policies in the country are lengthy and time-consuming processes.

Medium Barriers

No, Pakistan does not yet have explicit renewable energy targets for the heating and cooling sectors. These sectors largely rely on conventional fuels, and renewables' penetration in these areas remains limited. While there is growing recognition of the need for energy efficiency in industries, no binding targets have been set for renewables in heating and cooling.

High Barriers

No, Pakistan does not have a formal Renewable Portfolio Standard (RPS) with binding targets. The renewable energy targets are aspirational, and although there are incentives for renewable energy deployment, there are no financial penalties or strict legal requirements for failing to meet those targets.

Medium Barriers

No, there are currently no specific targets for green hydrogen production in Pakistan. The country has not yet fully developed a strategy around hydrogen as a renewable energy resource, though it has shown interest in cleaner fuels as part of its energy transition strategy. This could be an area of development in future climate and energy policies.

High Barriers

The targets in the ARE Policy 2019 are indicative rather than legally binding. Pakistan’s renewable energy targets lack strict financial penalties for non-compliance, and progress is often contingent on international financial assistance and policy consistency. The current focus is on providing a guiding framework for growth rather than enforcing stringent laws.

Medium Barriers

Yes, the 30% renewable energy target by 2030 applies to the overall energy sector, primarily focused on the electricity sector. However, other sub-sectors like transport, heating, and industry do not yet have comprehensive renewable energy targets. The emphasis is currently on power generation.

Low Barriers

Yes, Pakistan has set national renewable energy targets. As per its Alternative and Renewable Energy (ARE) Policy 2019, the country aims for 30% of its total electricity generation to come from renewable sources by 2030, which includes wind, solar, biomass, and small-scale hydropower. This goal complements the additional 30% expected from hydropower, bringing the total share of clean energy to 60% by 2030.

Low Barriers

Yes, the ARE Policy 2019 includes specific technology-based targets. For instance, Pakistan is planning to install 20 GW of wind and solar capacity by 2030. While this isn't broken down specifically into targets for distributed generation or rooftop solar, the policy promotes various renewable technologies and deployment mechanisms, including large-scale utility projects and distributed generation models.

Low Barriers

Yes, Pakistan’s 30% renewable energy target by 2030 specifically targets electricity generation. The country is also prioritizing investments in wind, solar, and biomass projects, aiming to expand installed capacity in these areas.

Low Barriers

Yes, Pakistan has set short- and mid-term targets for renewable energy, which contribute to its long-term vision of having a significant share of renewables in its energy mix by 2030. In the short term, Pakistan has set goals for wind and solar installations under its ongoing energy plans, with recent focus on ramping up solar power projects across government buildings and industrial sectors. For the long term, the 2030 renewable energy target is part of its broader climate action plan under the NDCs submitted to the UN.

Low Barriers

Yes, there is a target related to electric vehicles (EVs) under Pakistan's Electric Vehicle Policy 2020, which aims for 30% of all new vehicles sold by 2030 to be electric. However, there are no specific renewable energy targets for the transport sector in terms of fuel replacement or green hydrogen usage.

Medium Barriers

Currently, there has been no assessment of the financial participation requirements at the regional level. It is widely perceived that the financial demands of community-based projects are the primary obstacles hindering investor growth and engagement.

High Barriers

Incentives for community-owned renewable projects are currently limited. However, there is growing interest in distributed energy models like rooftop solar installations and small-scale renewable energy projects in rural areas, which can be scaled up with financial and policy support.

High Barriers

Regions like Sindh, which have coal reserves and natural gas fields, are heavily reliant on fossil fuel industries. Transition plans for these areas are essential, with a focus on alternative economic opportunities, investment in clean industries, and supporting workers and communities through economic diversification strategies. Currently, there is no policy/plans on this.

High Barriers

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Pakistan lacks formal programs to re-skill or up-skill workers in the fossil fuel sector, which is critical for a just transition. Government programs focusing on workforce development in renewable energy sectors, such as solar or wind energy, are needed to support this shift.

High Barriers

Pakistan’s energy transition planning includes stakeholder consultation, but significant challenges remain in siting renewable energy projects. These challenges stem from issues such as inadequate financial compensation mechanisms, ongoing land disputes, environmental concerns, and bureaucratic delays. To overcome these barriers, stronger coordination between government authorities and local communities is essential to streamline the permitting and approval processes, ensuring a more efficient and inclusive transition to renewable energy sources.

Medium Barriers

Renewable energy offers multiple co-benefits for Pakistan, including enhanced energy security, reduced reliance on imported fossil fuels, significant job creation in clean energy industries, and environmental improvements through lower greenhouse gas emissions and better air quality. However, there remains a gap in comprehensive assessments of these socio-economic benefits specifically for Pakistan. A more detailed evaluation would help quantify how renewable energy contributes to job growth, poverty alleviation, and long-term economic resilience, especially in rural areas where energy access is limited. Filling this gap is crucial for optimizing policy decisions and maximizing the positive impacts of renewable energy.

Medium Barriers

Not available

High Barriers