Saleha Riaz Published October 17, 2022
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KARACHI: Sectors like textile and cement that hold contracts to export abroad could benefit the most from making the switch to solar as more companies abroad demand the use of renewable energy, said the COO of Dubai-headquartered Yellow Door Energy, which operates in the Middle East and Pakistan.
“If you look at the Walmarts of this world and brands like Armani, they have it written into their contracts that anything exported to us must be able to show a certain amount of clean energy in its generation,” Rory McCarthy told Business Recorder in an exclusive interview.
He gave an example of a client in Jordan who was supplying to Walmart and needed a certificate to prove 50% of his energy generation came from clean sources.
“It’s also being implemented in Europe. So that’s going to be more and more prevalent for companies in Pakistan that hold international contracts for clothing, textiles, cements, etc”.
And that’s where he sees the most potential for companies like Yellow Door, which provides sustainable energy solutions for commercial and industrial businesses.
It’s already worked with big names like Nestle and Carrefour, as well as smaller companies like Starlet Shoes and Treet Corporation. Last week, it announced it has signed a solar power purchase agreement (‘PPA’) with Hinopak Motors Limited.
McCarthy also sees potential in industrial parks, as well as food and retail manufacturing – “areas with high consumption of electricity, high demand” and a need to be self-sufficient.
He added that there is “a big movement in Pakistan towards sustainable practice. I think it’s happening globally. Solar can help businesses, help the renewable energy transition, help move away from dirty fuel generation and support the network in the grid.”
On the advantages of solar
McCarthy says there is a missed opportunity in Pakistan in terms of businesses generating electricity and putting it back into the national grid.
“By increasing the capacity for net metering and businesses putting electricity they don’t use into the grid, it’s a resource that the utility could tap and use potentially for grid support. It could also be used to stabilise the volatility in the network.
“It also negates the need for additional investment in transmission networks. So, for example, if you spend $500 million on developing a new power plant, you’ve got to usually spend 75% of that investment number and transmitting that electricity across the different provinces and across the different states. So you can avoid that by setting up small distribution points where you’re able to generate solar, and some of that electricity can be injected back into the grid to support the national utility.”
McCarthy says solar can benefit Pakistan’s businesses “both from a volatility aspect of supply and also from a pricing aspect”.
He says soaring cost of fuel and gas is going a long way to “making solar looking more attractive.”
On top of that, he says solar will become cheaper, “especially in the medium term, as we’re seeing the supply of solar coming out of China. The cost of panels and a lot of the supply globally for silicon is shifting and you’re going to have more of an excess next year, which I think will bring solar into a more competitive space.”
At the moment, in terms of efficiency levels, he says “we’re operating around about 23% efficiency out of a solar panel, whereas a gas engine can get 80% efficiency.”
But he believes there is potential to get solar panels to 46%, 50% electricity efficiency from generation “and that’s powered from the sun without any cost of diesel, without any smell, without any automotive servicing, without any breakdowns.”
And lastly is the impact of climate change, which has hit Pakistan badly in terms of severe rains and flooding.
“If you look at Pakistan’s commitment to increase the share of renewable energy to 60% by 2030, which was published in its Nationally Determined Contributions last year, it means very clearly, Pakistan sees itself as a responsible provider and generator of clean energy and a responsible provider to ensure we have a better climate for the future.
“Cleaner air for our children to breathe and less emissions will mean that we try and stay away from crossing that 1.5 centigrade boundary. If we cross that, we’re going to have more problems, weather will become more severe, desertification will become far more extreme.
The challenges of operating in Pakistan
A major concern for McCarthy is pollution, especially the smog that hits cities like Lahore, which impacts how much solar energy can be created.
He says it’s not about heat but the quality of UV light that hits the solar panels, which is interrupted when air quality is bad.
But he says the more people switch to renewable energy and electric vehicles, the situation can be improved.
“So I see that as being both an opportunity and a challenge.”
Another challenge is being able to get a permit to be able to build.
“It can take three or four months,” he says, whereas customers, once they sign a contract and they know they can get cheaper energy, want it built as soon as possible.
And then there is the factor of political instability that has impacted Yellow Door’s operations.
“When you invest in a project with severe inflation, we’re very much worried about being able to recover that capital. If we spend $3 million on a plant today, are we going to be able to recover that $3 million in the future, given the fact of a depreciating currency and inflation?
“Now, Pakistan links its tariff escalation to inflation, but normally there’s a little bit of a gap. So we need to be quite careful about how we work with our customers, how we can bring them a tariff that’s going to work for them, but at the same time make sure that we’re secure in terms of making sure we’ve got a contract that has longevity.
“If you combine financing regulation and you create the current situation with being able to invest in Pakistan and security of payments, then also securities against a contract, you have to re-evaluate every customer that you’ve got or new customers you’re looking at based on the environment we’re in today. A year ago, it was very different.”
When asked to compare the situation to Dubai, where he is based, McCarthy says the situation is much more stable because “in the UAE you’ve got a fixed US dollar parity currency”.
He also says Dubai is more forward in terms of regulation, support and awareness when it comes to solar, “but only by about two or three years”.
He notes that in the UAE, Yellow Door has a large variety of customers, from medical to fast moving, consumable goods.
But he points out that the UAE is more of a service-led economy, whereas Pakistan is much more of an industrial economy.
So in some ways “the opportunities in Pakistan are far larger.”
Copyright Business Recorder, 2022