KARACHI: On top of uncertainty around the government’s consideration to cut buyback rates, adoption of solar power is facing the added issues of finances with banks now reluctant to provide the cash at concessional rates.
Haneea Isaad, an energy finance specialist at Institute for Energy Economics and Financial Analysis (IEEFA), outlined the challenges facing solar project funding: lack of concessional capital, high interest rates, absence of supportive schemes in Pakistan, and policy barriers hampering access to domestic markets.
“Developers struggle without off-take certainty, mandated by auctions for grid connection approval, leaving solar projects in limbo,” she told Business Recorder.
However, amid the setbacks, the Pakistan Stock Exchange (PSX) is looking to step up.
Farrukh H. Khan, Chief Executive Officer and Managing Director at the PSX, stated that the stock exchange can offer listings for solar companies and promote green initiatives as a responsible organisation in the country.
“The PSX can help solar energy companies raise capital for expansion and innovation in renewable energy technology,” he said.
“Companies can offer Green Bonds on solar power projects, providing opportunities to fund renewable energy projects and enhance sustainability in the country.”
PSX is also working on an ESG Sustainability Index to be launched in the future.
“The solar companies can be assessed for inclusion in the ESG Sustainability Index based on their business nature and other parameters, leading to increased visibility and investment for listed solar companies,” he added.
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Khan noted that with emerging trends in sustainability and ESG fast taking root in the global investment landscape, investors are seeking responsible investments in sustainable products and companies.
“Companies that list on the Stock Exchange will be ready to undertake their ESG journey as a listed company. PSX encourages and supports companies, including green businesses, to report on sustainability and adhere to ESG standards,” he said.
“Overall, solar firms have the opportunity to benefit from listing on the Stock Exchange. They can access capital for growth and attract interest from local and international investors in sustainable or green companies. For small to medium enterprises and greenfield companies/projects, the Growth Enterprise Market (GEM) Board is an ideal platform for listing. Solar firms within the SME ambit may find the GEM Board suitable for listing,” he said.
Advisors and consultants play a crucial role in assessing companies for listing eligibility, financial position, valuation, and capital-raising potential.
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While PSX encourages companies, including those focused on solar energy and green products, to list on the Main Board and GEM Board of the Exchange, advisors are the first point of contact for companies to consult on listing prospects.
“PSX, being a source for companies to raise capital for growth and expansion, is cognizant of investor protection and rights. Therefore, substantial due diligence is conducted to ensure that the company being listed offers requisite stability and growth potential,” Khan added.
Raeda Latif, Chief Marketing & Business Development Officer, said that PSX can make efforts to encourage eco-friendly companies to list on the exchange.
“It is important to note that PSX, as a frontline regulator, cannot provide special concessions or incentives to any particular sector or company. However, to facilitate SMEs and greenfield projects, PSX has the GEM Board where green companies may find it easier to list compared to the Main Board, depending on meeting eligibility requirements,” she said.
Latif stated that true assessment of a company’s potential is made by consultants and advisors, while PSX ensures investor protection by thoroughly studying the company’s eligibility, valuation, and potential.
Although PSX cannot comment on government plans to support IPO listings of solar and green companies, it will support efforts by the government for the expansion and growth of these companies.
“Given Pakistan’s geographical location, it is one of the most vulnerable countries to climate change, so any effort by the government to encourage green companies and solar businesses will be fully supported by PSX.”
Adopting solar energy will help Pakistan reduce its carbon footprint and tackle air pollution, a serious issue in many of its cities. Pakistan’s geographic location is advantageous for solar technologies, with 2.9 million MW of solar power potential due to year-round sunshine.
The global cost of solar technology has also fallen, making renewable energy sources more economically viable.
The Pakistani government has set goals to acquire 30% of the country’s power from renewable sources by 2030. To achieve these objectives, the government intends to establish solar-generating facilities through the Alternative Energy Development Board.
Investors globally are looking for companies with strong environmental, social, and governance (ESG) practices, transparent reporting, and clear strategies for mitigating climate change risks. Various funds, such as green bonds, cater to investors prioritising sustainability and supporting businesses adhering to ESG principles.
The potential to attract significant investment in solar firms is substantial, given the increasing global focus on transitioning to clean energy sources.
“The PSX can leverage this momentum by introducing green bonds for solar energy infrastructure projects, reflecting their scalability, profitability, and potential for innovation and technological advancements,” Latif said.
Latif highlighted that listing on PSX can enhance the visibility and credibility of a solar company.
“It provides a platform for the company to showcase its achievements, business strategy, and commitment to sustainability to a broader audience, including investors, customers, and stakeholders. This increased visibility can attract more attention from potential investors and partners, driving further growth and expansion opportunities.”
Listing on PSX provides liquidity for shareholders, allowing them to buy and sell shares more easily. This liquidity is attractive to investors seeking an exit strategy or diversifying their investment portfolio.
Being publicly traded also provides a transparent valuation for the company based on market demand for its shares. This valuation can serve as a benchmark for the company’s performance and growth prospects, helping to attract investors and partners. It also allows the company to benchmark its performance against industry peers and track its progress over time.
Publicly listed companies also have greater access to talent and partnerships due to increased visibility and credibility. This can be particularly beneficial for a solar energy company looking to attract skilled employees, strategic partners, and suppliers to support its growth and innovation initiatives. Additionally, being listed on PSX can open doors to potential collaboration opportunities with other companies in the renewable energy sector.
Several successful IPOs of solar companies have taken place in the global financial markets. One example is Nextracker, which raised 20% more capital than targeted when it went public on NASDAQ in February 2023. Another example is SolaX Power, listed on the Shanghai Stock Exchange STAR Market in January 2024. SolarBank Corporation also held a successful IPO and got listed on the Canadian Securities Exchange in March 2023.
“These and other solar companies across the world have had successful IPOs, which solar companies in Pakistan can also emulate for their own benefit and that of the economy,” said Latif.
Pakistan’s solar energy market is estimated to grow at a compound annual growth rate (CAGR) of 49.68 percent, from 1.30 gigawatts in 2023 to 9.77 gigawatts in 2028.
Umair Zavary, Group Director of Netline Group of Companies, which includes a solar company, stated that they are optimistic about an IPO as soon as market conditions are favourable.
He mentioned that while they initially planned for an IPO in 2024, financial consultants have advised that the current market conditions, characterised by high interest rates, are not conducive. Therefore, the company may pursue listing in 2025.
“Our next milestone of moving towards localisation depends on a public listing,” Zavary said.
In December 2022, the company announced that it had raised Series-A funding at a valuation of $4.5 million for Netline, a family-owned business in Pakistan’s energy and power sector. Netline provides power and energy solutions in Pakistan and has offices in the UAE and USA.
The company outlined plans to manufacture localised solar panels in Pakistan by 2027. In 2022, they disclosed that the first phase of investment, amounting to $3.5 million, was expected to be completed in the third and fourth quarters of 2023. An additional $5 million was planned to be raised through an initial public offering (IPO) in 2024, but this has now been postponed by a year.
Zavary highlighted that Pakistan has an abundant supply of quartz, the raw material for solar panels.
Quartz glass is crucial in many aspects of photovoltaic (PV) cell manufacturing, including light sources, reaction chambers, and tools used in producing solar cells, thin films, and silicon wafers.
However, the implementation of these plans will depend on the government’s policies.
Copyright Business Recorder, 2024
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