Page 69 - CMA Journal (Nov-Dec 2025)

Pakistan's Renewable Energy Transition:
Focus Section

Finance, Policy, and Climate Resilience

The energy sector of Pakistan has been stressed over a long long-term contracts
period of time, and the effects of its structural flaws can be with the government.
recognized in nearly all of the economic indicators. The There is heavy involve-
frequent power outages, electricity price increases, circular ment of international
debt, and reliance on imported fuels have led to a cycle that development instit-
impacts households, industries, as well as the fiscal system. utions, including the
Concurrently, the exposure of Pakistan to climatic changes World Bank, Asian
has taken a new level of intensity. Frequent floods, extreme Development Bank, the
heat, drought like conditions, and erratic weather patterns International Finance
have continued to play havoc with agriculture, infrastructure, Corporation, and the
and livelihoods. In this respect, renewable energy is not KfW, in financing
merely an option but has become an economic prerequisite renewable energy and
and climate protection. The clean technologies, such as solar, energy reforms. They
wind power, hydropower, and others, have the potential to facilitate their efforts
decrease the importation of fuel, decrease carbon emissions, with assistance to
stabilize the cost of power, and provide long-term power Pakistan in terms of Dr. Shoaib Ahmed Khatri
security. They are also consistent with the national concessional loans and
development objectives and Pakistan, as a signatory to risk-sharing facilities, Assistant Professor,
international climate accords. Renewable energy also which enable it to Department of Electrical
contributes to SDG 1 (no poverty) indirectly because it helps strengthen its infra- Engineering, Mehran
to reduce the poverty burden on low-income households structure, which is in
and leads to a reduction in poverty in the long term, as it line with SDG 9.1, which University of Engineering
reduces energy costs and generates new jobs. These aims at ensuring & Technology (MUET)
objectives would help Pakistan to fulfill its obligations to reliable and sustainable
global climate treaties and help directly achieve SDG 7 connection of energy
(affordable and clean energy) on clean energy and SDG 13 and industry. In the past, the previous stages of CPEC were
(climate action) on climate action, so renewable energy biased towards coal-based projects, but as of late, there has
investment in Pakistan is critical to the future of its economy. been a preference for hydro, solar, and wind projects as a
result of the global disappointment that China has in financ-
Over the last ten years, Pakistan has been steadily increasing
its own renewable energy proportion, but the increase is still ing coal plants abroad. Even with such developments, there
less than what it could be. Hydropower continues to lead the is a significant gap in investment in Pakistan, since investors
clean energy sector with more than 10,600 MW of installed remain uncertain due to financial constraints, institutional
power. Wind power has reached approximately 1,800 MW, gaps, and gridlocks.
mostly located in the Gharo-Jhimpir wind project of Sindh, Whether the renewable energy projects transform planning
and solar power has increased to approximately 600 MW in into implementation is determined by finance. Currently, in
large-scale facilities, with more than 1,600 MW of rooftop and Pakistan, most utility-scale renewable projects are
small-scale plants established under net metering. All in all, dependent on project financing, where a lender considers
the current wind and solar provide close to 6-7% of electricity the possibility of a cash flow of a project rather than just the
in Pakistan, and with the introduction of hydropower, the assets of the company. This framework is operational in
clean energy quota surpasses 30%. The goal of the Alterna- circumstances where the flow of payment is predictable, and
tive and Renewable Energy Policy 2019 is to reach 30% of government payments are delayed, which influences
renewable energy (excluding hydro) by 2030 and close to investor confidence. However, green financing, including
60% with the addition of hydropower in Pakistan. These loans for rooftop solar systems, small industrial solar plants,
objectives can be strongly associated with SDG 7.2, which is and agricultural tube wells, is currently being made available
the expansion of renewable energy, and SDG 9 (industry, by commercial banks.
innovation, and infrastructure), supporting the moderniza- The State Bank of Pakistan has been instrumental in
tion of industrial and energy infrastructure in countries with providing a transformative role by putting up refinancing
the assistance of sustainable technologies.
plans that reduce the interest rates charged on renewable
Pakistan has a number of sources of investment in the renew- energy borrowers. With its green banking principles, SBP has
able energy industry. The investments of the public sector been able to encourage its banks to embrace environmental
are centered on hydropower, grid fortification, and solariza- and social risk management principles that enhance the
tion of state structures. These are long-term investments, and sustainability of projects and mitigate long-term risks. This
in most cases, they form the foundation for private investors. strategy falls under SDG 12.6 and SDG 17 (partnerships for
The leading role is played by the private sector through the goals) because it facilitates local financing and
independent power producers, who develop large solar and cooperation across nations. Through green bonds and green
wind projects. Such projects are usually built under a Build, Sukuk, capital markets are also engaging themselves.
Own, Operate, Transfer system, and they are based on

ICMA’s Chartered Management Accountant, Nov-Dec 2025 67