How Pakistan is Innovating in Energy Amidst Crisis

In the volatile world of global energy markets, 2022 was a year of intense pressure and opportunity. For some, like Ksenia Alleyne, a gas trader at Gunvor, it was a year to capitalize on the sharp spikes in gas prices following geopolitical upheavals like Russia's invasion of Ukraine. Gunvor's profits swelled to a record $2.4 billion, partly due to redirecting gas supplies from long-term contracts at lower prices to more lucrative spot markets. Among those affected by this redirection was Pakistan, a country already grappling with severe energy challenges.

Pakistan's energy crisis is not just a story of market forces; it's a consequence of decades of political instability, corruption, and poor governance. When Gunvor pulled back on its gas commitments, Pakistan was forced into an even more precarious situation, facing widespread power cuts that disrupted daily life and crippled industries like textiles, which account for 8.6% of the country's GDP. The government was left with no choice but to purchase natural gas at significantly higher prices on the spot market, leading to tough negotiations with the IMF and exacerbating the country's economic woes.

But there’s a twist in this tale. Despite the challenges, Pakistan’s energy sector is quietly undergoing a remarkable transformation, driven not by large-scale government projects, but by grassroots innovation and a shift toward renewable energy.

A Paradigm Shift in Energy: From Commodity to Technology

At the beginning of this year, I had the opportunity to speak at the DLD conference in Munich, where I discussed the declining cost of energy self-sufficiency. My argument was simple: as energy transitions from a commodity controlled by autocrats to a technology, it will become increasingly affordable. This shift is fueled by the decreasing costs of solar panels and batteries, driven by advances in technology and economies of scale.

This shift has profound implications for global trade and geopolitics, but it’s particularly transformative for countries like Pakistan. Traditionally, complex energy projects like gas or nuclear power plants have been plagued by inefficiency, corruption, and delays in countries with weak governance. However, solar energy and battery storage offer a decentralized solution that can bypass these systemic issues. Local investments by businesses and households in their own energy systems can create a bottom-up revolution in energy self-sufficiency, reducing reliance on flawed national grids and unstable international markets.

Pakistan’s Solar Surge: A Bright Spot in a Dark Time

Amidst the gloom of Pakistan’s energy crisis, there is an emerging paradox. While soaring energy prices have driven down demand from the national grid by 10% in just two years, the economy has still managed to grow by 2%. This raises an intriguing question: how is Pakistan managing to sustain its economic growth while consuming less grid energy?

The answer lies in the rapid adoption of solar energy. Pakistan has become the third-largest importer of Chinese solar panels, acquiring an astonishing 13GW in the first half of this year alone. To put that in perspective, the UK is only set to add 1.5-2GW of solar capacity this year, and the entire U.S. economy added 32GW of solar capacity in 2023. This surge in solar imports suggests that Pakistan will likely become the sixth-largest installer of solar panels this year.

What’s even more impressive is the scale relative to Pakistan’s existing infrastructure. The country’s total electrical generation capacity was only 46GW in 2023, yet it imported solar capacity equivalent to 30% of this total in just six months. This suggests that a significant portion of Pakistan’s energy consumption is shifting away from the grid and toward decentralized, self-sufficient solar power systems. These solar installations are likely being deployed by businesses and households that are taking energy generation into their own hands.

Innovating Against the Odds

Pakistan's shift toward solar energy is a story of resilience and innovation. Despite the government’s often retrogressive planning and attempts to discourage net-metering, Pakistani households and businesses are finding ways to generate their own electricity, reducing their reliance on an unreliable grid and volatile global markets.

This grassroots energy revolution in Pakistan is more than just a response to crisis; it’s a glimpse into the future of energy in developing countries. As solar technology becomes more affordable and accessible, even countries with challenging political and economic environments can move toward energy independence. This shift could fundamentally change the global energy landscape, reducing the power of traditional energy-exporting nations and empowering millions of people in energy-poor regions.

Pakistan's energy story is one of contrasts: a nation struggling with the repercussions of global market shifts and domestic mismanagement, yet innovating in ways that could lay the foundation for a more stable and prosperous future. The surge in solar energy adoption shows that even in the face of adversity, there are opportunities for positive change. As energy technology continues to evolve, we may see more countries following Pakistan’s lead, turning crises into opportunities for sustainable development.