Pakistan's 600MW Solar Tender Attracts Zero Bids Despite Generous Incentives

Pakistan's flagship 600-megawatt solar power project at Muzaffargarh attracted no bids despite multiple deadline extensions and a package that included land provision, a 25-year guaranteed offtake, tax breaks, and a 70% dollar-indexed tariff. Industry observers and German development agency GIZ cite a high-risk investment environment and an insufficiently low benchmark tariff of 3.41 US cents per kilowatt-hour as the primary deterrents.

The Pakistani government launched its Fast Track Solar PV Initiatives 2022 in October of that year, aiming to add approximately 10,000 megawatts of solar power across three phases as a substitute for expensive liquefied natural gas and gas-fired capacity. A request for proposals for the first phase's 600MW Muzaffargarh project was issued in February 2023, with initial bid submission deadlines extended three times due to a lack of developer interest. GIZ Team Leader Gerd Schober stated that the project was deemed too risky by investors given Pakistan's challenging political and economic environment, and that European markets offered better risk-adjusted incentives.

Renewable energy in Pakistan has historically been added under fixed upfront or cost-plus tariff regimes, both of which were discontinued in 2016 as the regulator mandated a shift to competitive bidding. The abrupt removal of these regimes without a functioning auction mechanism created a policy vacuum that stagnated approximately 7 gigawatts of solar and wind energy projects for nearly five years. Local renewable energy developers report that current policy lending rates are too high to make the government's benchmark tariff commercially viable.

IEEFA's assessment calculates an optimum benchmark tariff range of 4.2 to 5.8 US cents per kilowatt-hour for solar power in Pakistan, depending on the type of financing involved. Even at the high end of this range, solar power remains substantially cheaper than fossil fuel-based generation, which carries a marginal production cost 5 to 15 US cents per kilowatt-hour higher. The failed first auction has raised broader questions about whether Pakistan's renewable energy market is sufficiently mature for competitive bidding, or whether the government must first de-risk the market environment to restore investor confidence.

Key figure — 3.41 USc/kWh — Pakistan's benchmark tariff for the 600MW Muzaffargarh solar project, assessed as too low by investors