PL/SQL :: Passing Variables From Shell Script To Separate Sqlplus Script

I am having issues passing variables to a separate sqlplus script invoked by the shell script, e.g.

#!/bin/sh
DB_NAME=TEST
PWD1=PA55W0rd

echo exit | sqlplus / as sysdba @${DB_NAME}.sql ${DB_NAME} $PWD1 >> ${DB_NAME}.sql

exit 0

The script picks up the $DB_NAME variable fine, and therefore invokes the required sql script. However, when I pass the variable $PWD1 to the sql script I get an error. The script creates a database link:

create or replace procedure new.link
is
begin
execute immediate 'create database link TEST
connect to TESTSCH identified by '$PWD1'
using ''TEST''';
end;
/
exec new.link;
/

output is:

ERROR at line 1: ORA-00911: invalid character ORA-06512: at "NEW.LINK", line 4 ORA-06512: at line 1