Pakistan’s $4.1 Billion Solar Paradox: How Import Dependency Threatens Energy Justice

Pakistan imports 22 GW of solar panels while local manufacturing dies. This $4.1B spending spree enriches China but impoverishes the poor—here’s the hidden cost of green energy without green jobs.

The rooftops of Lahore, Karachi, and Islamabad glitter with crystalline silicon—a testament to Pakistan’s renewable energy revolution. By mid-2025, solar power will provide over 25% of the nation’s electricity, surpassing any single fossil fuel source. Yet beneath this gleaming facade lies a disturbing paradox: Pakistan has become the world’s second-largest importer of Chinese solar panels, hemorrhaging $4.1 billion in foreign exchange over four years while building precisely zero manufacturing capacity at home.

This is not the story of a green transition. It’s the story of a missed industrial revolution—one where Pakistan’s energy independence is being mortgaged panel by panel, and where the poorest citizens will ultimately pay the price for the wealthy’s escape from the grid.

The Import Addiction: Trading One Dependency for Another

Between July 2023 and January 2025 alone, Pakistan imported 22 gigawatts of solar capacity—enough to power nearly 15 million homes. The scale is staggering, the pace unprecedented. Walk through any upscale neighborhood in Pakistan’s major cities and you’ll see the evidence: rooftop after rooftop adorned with imported panels, each one a small declaration of independence from the dysfunctional national grid.

But zoom out, and the picture darkens. According to Pakistan Bureau of Statistics trade data, the country has funneled over $4.1 billion into imported solar equipment since 2020, with China capturing nearly 95% of this market. Pakistan now ranks as China’s second-largest export destination for solar products globally, trailing only the European Union. For a country perpetually scrambling for foreign exchange, burning through billions on imports—while creating no domestic production—represents economic policy malpractice.

The employment calculus tells an equally grim story. While solar adoption has created thousands of installation and maintenance jobs, these are low-skill, low-wage positions. The high-value manufacturing jobs—producing polysilicon, wafers, cells, and modules—remain in China. Pakistan imports the finished product, screws it onto rooftops, and calls it progress. The $4.1 billion spent could have seeded an entire manufacturing ecosystem, generating skilled employment for engineers, technicians, and factory workers. Instead, it’s a one-way transfer of wealth with no multiplier effect.

Energy Justice or Energy Apartheid?

Perhaps most troubling is the equity dimension that policymakers conveniently ignore. Pakistan’s solar boom is overwhelmingly concentrated among affluent households and businesses—those who can afford the $3,000-$10,000 upfront investment in rooftop systems. These solar adopters effectively exit the grid’s financial obligations while still relying on it for backup power during cloudy days and nighttime.

The problem? The grid’s fixed costs—transmission infrastructure, substations, grid maintenance—don’t disappear when consumers generate their own power. According to National Electric Power Regulatory Authority (NEPRA) estimates, approximately PKR 200 billion in fixed grid costs must still be recovered. As wealthier consumers defect, this burden cascades onto those who remain: the poor and middle class who cannot afford solar installations.

NEPRA has already signaled that base tariffs for non-solar users could increase by 17% to compensate for revenue shortfalls. This creates a perverse outcome where Pakistan’s green energy transition is being financed by those least able to afford it—shop owners in small towns, factory workers in Faisalabad, farmers in rural Sindh. Energy justice demands that the benefits and costs of transitions be distributed equitably. Pakistan’s current model does the opposite, creating what amounts to energy apartheid.

The Policy Architecture of Failure

Why hasn’t Pakistan developed local manufacturing despite obvious incentives? The answer lies in a toxic combination of misaligned tax policy, regulatory instability, and bureaucratic dysfunction.

“Pakistan has become the world’s second-largest importer of Chinese solar panels—a consumer, not a producer, in the very revolution meant to secure its energy future.”

Consider the case of ReneSola, one of the few companies attempting local assembly in Pakistan. The company faces an absurd tax structure: imported finished panels enter Pakistan duty-free (0% tariff), while manufacturers trying to produce locally must pay 18% sales tax on raw components and machinery. This creates what industry insiders call “structural impossibility”—it is literally cheaper to import finished products than to manufacture them domestically.

The perverse incentives don’t end there. Local manufacturers face an 18% general sales tax on imported manufacturing equipment, while importers of finished panels enjoy streamlined customs processing and minimal documentation requirements. The government has essentially subsidized imports while penalizing domestic production—the exact opposite of every successful industrialization strategy in modern economic history.

Beyond tax policy, regulatory instability has scared away potential investors. Chinese foreign direct investment in Pakistan—once flowing robustly through the China-Pakistan Economic Corridor (CPEC) framework—dropped by 40% in 2024 according to State Bank of Pakistan data. Industry representatives cite inconsistent policy signals, frequent rule changes, and high perceived credit risk as primary deterrents. Solar manufacturing requires capital-intensive investments with 10-15 year payback periods. No investor commits that kind of capital in an environment where policies shift with every cabinet reshuffle.

Then there’s the institutional fragmentation. Responsibility for solar policy is scattered across the Ministry of Energy, Ministry of Commerce, Ministry of Industries, Alternative Energy Development Board, and provincial governments. Each entity has overlapping mandates, competing priorities, and limited coordination. A comprehensive solar manufacturing policy has been “under consideration” for nearly three years, perpetually delayed by inter-ministerial turf battles and bureaucratic inertia. While committees meet and draft papers, the import bill grows and the manufacturing window narrows.

The 5S Framework: A Localization Blueprint

Pakistan doesn’t need to reinvent the wheel. Successful solar manufacturing ecosystems exist in India, Vietnam, Thailand, and Morocco—each offering lessons applicable to Pakistan’s context. What’s required is a coherent, multi-year strategy executed with political consistency. The “5S Framework” provides such a roadmap:

Strategy: Establish Institutional Clarity Pakistan needs a National Solar Industrialization Task Force—a dedicated body with Cabinet-level authority and representation from relevant ministries, provincial governments, and private sector stakeholders. This task force should produce a binding 10-year Solar Manufacturing Policy with clear targets, incentive structures, and accountability mechanisms. India’s Production-Linked Incentive (PLI) scheme for solar manufacturing offers a proven template: guaranteed subsidies tied to production milestones, creating predictable returns that attract serious investment.

Subsidies & Tax Rationalization: Fix the Duty Structure The current duty structure must be inverted. Pakistan should implement a phased tariff schedule on imported finished panels—starting at 5% in year one, scaling to 15% by year three, and reaching 25% by year five. Simultaneously, all duties and sales taxes on solar manufacturing components (polysilicon, wafers, glass, aluminum frames, inverters) and manufacturing equipment should be eliminated entirely. This creates a “manufacturing advantage” that makes local production commercially viable without requiring permanent subsidies.

Standards: Build Quality Infrastructure Pakistan must establish a National Solar Certification Body modeled on India’s Bureau of Indian Standards or Thailand’s Thai Industrial Standards Institute. This body would certify both imported and domestically produced equipment against international benchmarks (IEC standards), ensuring quality while creating the regulatory foundation for future exports. Quality certification also protects consumers from the flood of substandard panels that currently plague the market.

Special Economic Zones: Create Integrated Clusters Rather than scattering investments across the country, Pakistan should develop integrated solar manufacturing clusters within existing Special Economic Zones under CPEC 2.0. The Rashakai SEZ (Khyber Pakhtunkhwa) and Allama Iqbal Industrial City (Punjab) offer ideal locations with existing infrastructure, power supply, and logistics connectivity. These zones should offer 10-year tax holidays, subsidized land, and streamlined approvals specifically for solar value chain investments—from upstream polysilicon and wafer production to downstream module assembly and inverter manufacturing.

Science & Knowledge Transfer: Leverage CPEC 2.0 The recently announced CPEC 2.0 includes an “Innovation Corridor” framework for technology collaboration. Pakistan should negotiate explicit technology transfer protocols with Chinese solar giants like Longi, JA Solar, and Trina Solar. The model: joint ventures where Chinese firms provide technology and management expertise while committing to gradually increasing local content over five years—from 30% in year one to 80% by year five. Vietnam successfully employed this strategy with Samsung electronics; Pakistan can replicate it in solar.

The China-Pakistan Win-Win

Skeptics might ask: why would China help Pakistan build manufacturing that competes with Chinese exports? The answer lies in changing global dynamics and mutual strategic interest.

First, Chinese solar manufacturers face growing protectionism. The United States has imposed 250% tariffs on Chinese solar products; the European Union is considering similar measures. By establishing production facilities in Pakistan, Chinese firms can bypass these restrictions, labeling products “Made in Pakistan” while accessing markets otherwise closed to them. Pakistan becomes a strategic production base—just as Mexico has become for Chinese EV manufacturers seeking U.S. market access.

Second, China’s domestic solar industry suffers from massive overcapacity. Chinese firms produced 720 GW of solar panels in 2024—nearly triple global demand. This overcapacity has crashed prices and squeezed profit margins. Diversifying production to friendly markets like Pakistan allows Chinese firms to better manage capacity while maintaining market share.

Third, Pakistan offers a geographic gateway to untapped markets. With production facilities in Pakistan, Chinese solar technology can more easily penetrate the Middle East, Africa, and Central Asian markets—regions with enormous solar potential but limited current penetration. Pakistan’s location, combined with improved market access through trade agreements, makes it an ideal export platform.

For Pakistan, the calculus is straightforward. Chinese investment brings not just capital, but technology, management expertise, and access to global supply chains. The goal isn’t autarky—complete self-sufficiency is neither possible nor desirable. The goal is value capture: moving up the manufacturing chain so that more of the $4 billion currently spent on imports circulates within Pakistan’s economy, creating jobs, tax revenue, and technological capabilities.

A Crossroads Moment

Pakistan’s FY26 budget cycle, beginning in June 2025, represents a make-or-break moment. If the upcoming budget fails to include a comprehensive solar manufacturing policy with concrete incentives, the window for green industrialization will effectively close. By 2027, Pakistan’s solar market will likely reach saturation—most viable rooftops will already be covered, and growth will plateau. The import bonanza will end, but Pakistan will have nothing to show for it except a depleted foreign exchange reserve and a legacy of missed opportunities.

The alternative path requires political courage and bureaucratic competence—admittedly scarce commodities in Pakistan’s governance ecosystem. But the economic logic is irrefutable. Every successful industrial economy in modern history—from South Korea to China to Vietnam—moved from importing finished goods to manufacturing them domestically. Pakistan has natural advantages: a large domestic market providing guaranteed demand, cheap labor for assembly-stage manufacturing, and a strategic partner in China willing to invest if conditions are right.

What Pakistan lacks is not resources or potential, but policy coherence and political will. The country can either continue as a passive consumer in the global solar value chain—enriching foreign manufacturers while burdening its poorest citizens with the costs—or it can pivot to become an active partner, building the industrial base that generates employment, captures value, and secures genuine energy sovereignty.

The solar panels glittering on Lahore’s rooftops are not, by themselves, symbols of progress. They will only become so if Pakistan learns the fundamental lesson of industrialization: energy independence isn’t built on imported panels; it’s forged in local factories, designed in domestic R&D centers, and powered by the skilled hands of Pakistani workers. The choice is Pakistan’s to make—and the clock is ticking.