By Faraz Khan
On 5 August 2026, Pakistan and Denmark signed a memorandum of understanding launching a Strategic Sector Cooperation programme.
Under the government-to-government arrangement, the Danish Energy Agency, the Danish Embassy in Islamabad and Pakistan’s Power Division will work together on long-term energy planning, renewable energy integration and industrial energy efficiency.
The programme builds on the Danish Energy Transition Initiative, which provided technical assistance to Pakistan’s energy authorities from 2021 to 2025.
The agreement is modest on paper. Its significance will depend on whether it helps Pakistan move from targets and technical reports to an electricity system capable of absorbing a fast, largely unplanned energy transition.
Denmark has relevant experience to offer. Wind supplied roughly 60 percent of Danish electricity consumption in 2025, supported by strong interconnectors, market institutions and decades of investment in forecasting and system operation. Denmark’s most valuable export is therefore not only turbines. It is institutional knowledge: how to plan, regulate and operate a power system with a high share of variable renewable energy.
Pakistan confronts a very different starting point. The 2022 floods affected 33 million people and caused more than USD 30 billion in damage and economic losses. Its 2025 Nationally Determined Contribution commits the country to cutting projected emissions by 50 percent by 2035 – 17 percent unconditionally and 33 percent subject to external support. Delivering the plan has been estimated to require USD 565.7 billion by 2035.
Pakistan’s transition is already under way
Yet Pakistan’s energy transition is not waiting for international finance. It is already happening from the bottom up. Estimates based on trade data suggest that the country imported solar panels with nameplate capacity of roughly 7.6 GW in 2023, 16.4 GW in 2024 and 16.9 GW in 2025. These volumes do not equal verified installed capacity, but the direction is unmistakable. Net-metered rooftop capacity approached 7 GW by June 2026, driven by expensive grid power, unreliable supply and falling solar costs.
Different systems, transferable capabilities
This is where Danish expertise can help – but the analogy should not be overstated.
Denmark integrated large amounts of mainly centralised wind power within an interconnected Nordic and European system. Pakistan is dealing with millions of decentralised assets, weak distribution companies and large volumes of behind-the-meter solar that are not reliably measured. The systems are different. The transferable capabilities are forecasting, grid codes, two-way power flows, market design and long-term planning.
Denmark’s recent offshore wind experience offers a useful warning. A 2024 tender attracted no bids. The government then redesigned the auctions around state-backed contracts for difference, and in August 2026 Vattenfall won the Hesselø and North Sea I Mid projects. The lesson is not that Danish policy is flawless. It is that ambition without bankable market design does not put steel in the water – or electrons on the grid.
The new cooperation has the right architecture. Its three pillars – planning, renewable integration and industrial efficiency – map directly onto Pakistan’s most urgent energy challenges.
There is also a commercial opportunity. Maersk has announced plans for investments of up to USD 2 billion in Pakistan’s maritime sector, while APM Terminals has explored a green deep-water container terminal in Karachi.
But these plans still need to become binding agreements and deployed capital. Announcements should not be counted as investment before projects reach financial close.
Finance, policy and who pays
The first constraint is finance. Denmark is offering technical assistance and capacity building, not capital at the scale required by Pakistan’s climate plan.
The partnership will only achieve scale if Danish expertise is used deliberately to reduce project risk and mobilise finance from multilateral development banks, Chinese financial institutions, Saudi and other Gulf investors, and the wider private sector.
The second constraint is the power sector itself. Pakistan closed the 2025-26 fiscal year with circular debt of about PKR 1.685 trillion, while distribution losses, legacy power-purchase agreements and tariff shortfalls continue to undermine utility finances. Better planning cannot substitute for a sector in which providers struggle to recover their costs.
The third is policy credibility. In February 2026, net metering was replaced by net billing under new prosumer regulations, reducing compensation for exported electricity. Meanwhile, analysts estimate that tens of gigawatts of solar may sit behind the meter, largely unmeasured. Pakistan cannot plan an orderly transition without a credible picture of its own power system, and investors cannot plan if policy changes arrive without a predictable pathway.
That uncertainty also raises a distributional question. When households and businesses that can afford solar reduce their purchases from the grid, fixed network costs can shift towards consumers who lack the capital or rooftop space to leave. A successful transition must therefore do more than add renewable capacity. It must improve reliability and affordability, keep utilities viable and help energy-intensive exporters – including the textile industry – protect jobs and meet tightening sustainability requirements in their markets.
From partnership to implementation
What should both sides do? Three steps would turn the programme from diplomatic architecture into an implementation partnership.
First, the Danish Energy Agency and Pakistan’s Power Division should produce a bankable integration roadmap within 18 months. It should include a verified estimate of behind-the-meter solar, updated grid codes, storage procurement frameworks, a credible renewable auction model and public milestones for implementation. The roadmap should be a decision tool, not another report.
Second, the partners should create a pipeline of financeable projects. Danish assistance should be used to prepare industrial efficiency, storage and green port projects that can attract IFU, Danida Sustainable Infrastructure Finance, multilateral and private capital. The Maersk framework should be converted into binding agreements where projects prove commercially and environmentally viable.
Third, Pakistan should make the shift to net billing transparent, evidence-based and socially fair. Regulators should publish the data and distributional analysis behind tariff decisions, protect low-income consumers from a growing share of network costs, and give households and investors a stable policy horizon. The partnership should report not only on activities, but on outcomes: renewable capacity integrated, industrial energy saved, private finance mobilised, emissions reduced, and changes in reliability and affordability.
Denmark has shown how an interconnected electricity system can accommodate a high share of variable renewable energy – and its setbacks have shown that market rules matter as much as targets. Pakistan is showing how quickly an energy transition can advance when it is driven by necessity and consumer demand.
The Strategic Sector Cooperation programme can connect those two experiences. Its success should be measured not in memoranda signed, but in megawatts integrated, capital deployed and a power system that works better for the people and businesses that depend on it.
Faraz Khan MBE is the co-founder & Partner of Sustainadility LLC & founder of Seed Ventures. He is a visiting professor of social policy and impact at University of st. Mary’s UK and on the advisory board of University of Lincoln UK.
He is also a Special advisor to ICCD -OIC (affiliate chamber) of 57 countries on climate finance and transition.
