Pakistan Plans to End Net Metering for Solar Panels, Aims to Reduce Electricity Costs

pakistan's solar energy adoption faces taxation hurdles

ISLAMABAD: Pakistan has informed the International Monetary Fund (IMF) that it will soon end the net metering policy for rooftop solar panels. The new plan, gross metering, aims to sell more expensive grid electricity to consumers.

During ongoing talks with the IMF, Pakistani officials also discussed plans to restructure $15.4 billion of energy debt from China, according to government sources.

The Ministry of Energy told the IMF about its plans for changing the solar panel policy, which currently helps consumers reduce their dependence on costly grid electricity. Pakistan wants to replace net metering with gross metering to discourage the use of solar panels. The increasing use of solar panels is cutting into the revenues of power distribution companies, which now face competition from home-generated power.

Years of poor policies by previous governments have led residential consumers to either leave expensive grid electricity or reduce their dependence on it by installing their own small power units.

Under gross metering, electricity generated by rooftop solar panels would go to the national grid, and solar panel owners would use units from the grid. This change would reduce the financial benefits for residential consumers, as their home-generated and consumed electricity would be measured separately.

Currently, a bidirectional meter calculates both rooftop generation and the import of grid electricity at night.

Pakistan’s middle class to rich people are switching to solar power at home due to the high cost of electricity from the grid. This cost is driven by expensive power purchase agreements, system inefficiency, and uncontrolled theft and leaks.

The average base tariff in Pakistan is Rs29.79 per unit, including Rs17 per unit for idle capacity charges. Adding various surcharges, fuel price adjustments, quarterly adjustments, and taxes, residential consumers pay up to Rs62 per unit.

The IMF was also informed that a major electricity price hike is expected in July due to annual base tariff adjustments and other charges.

The energy ministry is more concerned about the Rs1.90 per unit impact of net metering on tariffs than the Rs17 per unit idle capacity payments, which benefit power plant owners and foreign investors.

Rapid adoption of solar power has led to reduced electricity demand, increasing idle capacity payments and leading to higher quarterly tariff adjustments.

In the first ten months of the current fiscal year, around 6,800 megawatts worth of solar panels have been imported. However, some imports are allegedly being used to launder money, as discussed in a Senate Finance Committee briefing.

Due to reduced grid electricity use, solar consumers are paying less and falling into the protected consumers’ category, benefiting from lower rates. Gross metering would remove these benefits, said the sources.

The IMF asked Pakistan about plans to reduce electricity generation costs. The government is finalizing debt restructuring with Chinese Independent Power Producers (IPPs) under the China-Pakistan Economic Corridor (CPEC).

The IMF suggested negotiating capacity payments with all power producers to reduce costs. Most contracts were renegotiated in 2020, except for CPEC plant contracts, as China refused. A five-year debt restructuring is expected to reduce tariffs by Rs3 per unit, less than half of the expected increase in July.

Idle capacity payments are a major reason for constant price hikes. The IMF also urged a review of the captive power generation policy, where industrialists use cheaper gas for in-house electricity production. Captive gas may be discontinued in July to push these industries to use more expensive grid electricity.

My Opinion:

I believe Pakistan’s move to switch from net metering to gross metering could have significant implications for consumers. While the government aims to reduce electricity costs, this change may discourage the adoption of solar panels, which provide a sustainable and cost-effective alternative to grid electricity. The focus should be on addressing inefficiencies and reducing idle capacity payments rather than discouraging renewable energy use. Sustainable policies that encourage renewable energy adoption could lead to long-term benefits for both consumers and the environment.