Grid defection: a looming challenge for Pakistan’s utilities–I

Grid defection refers to the phenomenon where electricity customers generate and store sufficient power locally to become partially or entirely independent of the central utility grid.

This shift is often facilitated by advancements in generation technologies such as solar panels, wind turbines, energy storage systems like lithium-ion batteries and micro-electronics such as hybrid and smart inverters.

These technologies enable consumers to produce renewable energy on-site and store excess energy for use during times when generation is unavailable, such as at night or during low wind and solar periods.

The “recipe” for grid defection relies on the right combination of key ingredients. In Pakistan, all the necessary ingredients for grid defection are readily available, which has created a perfect environment for consumers to “cook” this dish of energy independence. Here’s the breakdown of key ingredients:

• Ingredient No.1: Availability and acceptance of technology at scale

Solar panels, wind turbines, and battery energy storage systems are now widely available and comfortably accepted in almost all the regions of Pakistan. With each passing day more and more suppliers are entering the Pakistani market with some looking to assemble the equipment locally.

27GW of Solar PV panels have been imported over the last 5 years which shows the acceptability of the technology.

• Ingredient No. 2: Cheaper technology prices

The global decline in the cost of solar PV, lithium-ion batteries, and related energy storage technologies has made them affordable for residential, commercial, and industrial users.

These price reductions put renewable energy and storage solutions within reach of the masses. The Solar PV prices in USD/watt have decreased from USD 0.7 to USD 0.11.

• Ingredient No. 3: High utility rates

Rising electricity tariffs, coupled with additional surcharges and taxes have made grid electricity increasingly unaffordable for the consumers. This has motivated them to explore alternate solutions.

he power purchase price (PPP) over the last decade has increased from around PKR 13 to PKR 27 per unit of electricity.

• Ingredient No. 4: Unreliable electricity supply

Unplanned outages, revenue-based load shedding, prolonged power disruptions, and poor power quality have left consumers increasingly frustrated, prompting them to seek mental peace through the adoption of PV plus storage technology.

• Ingredient No. 5: Rich renewable resources

Pakistan boasts abundant solar irradiance, especially in regions like Punjab, Sindh, and Baluchistan, making solar PV systems highly effective. Similarly, areas with favorable wind conditions provide opportunities for wind energy generation.

• Ingredient No. 6: Favourable policy landscape

Government initiatives like net metering, tax incentives, zero customs duties for renewable energy imports, and policies promoting distributed energy resources (DERs) encourage consumers to adopt independent power generation.

The perfect “recipe for grid defection” is simmering in Pakistan, with all the right ingredients coming together to serve consumers a piping-hot dish of energy independence. Solar panels, wind turbines, and battery storage are no longer a niche; they’re mainstream, with 27GW of solar PV imported in just five years and local assembly gaining momentum.

Costs have plummeted, putting renewable solutions within reach of households and businesses alike. Meanwhile, skyrocketing utility tariffs and unreliable electricity supply have left consumers fed up, craving the stability and savings that PV plus storage delivers.

Blessed with rich renewable resources, scorching solar irradiance in Punjab, Sindh, and Balochistan, and breezy wind corridors, Pakistan has the natural ingredients to power this transition. Toss in favorable policies like net metering and zero custom duties, and the stage is set for a full-course energy revolution, where consumers take control and utilities scramble to adapt.

Despite all the ingredients within reach, utility representatives and other policy makers and experts argue that full grid defection, where customers completely disconnect from the utility grid, is often not cost-effective because off-grid systems must be designed to handle all energy needs independently.

To ensure a reliable power supply at all times, these systems require significant overbuilding of both energy generation, such as solar panels, and energy storage, like batteries. This overbuilding is necessary to account for periods when renewable energy generation is low, such as during cloudy days or at night.

As a result, the upfront costs for these oversized systems become very high, and much of the installed capacity remains underutilized during normal conditions, leading to inefficient use of resources. These factors make full grid defection an expensive and impractical option for most consumers.

For a second, we may consider this argument valid. Resultantly, it is analysed that in this case, low demand consumers (specifically domestic consumers which make around 85-90% of all consumers with 45-50% electricity consumption) would be more likely to leave the grid.

In fact, imposing increased fixed charges (like done recently by regulator on request of utilities), makes grid electricity less appealing for low-usage customers, especially in areas with abundant solar resources where generating their own energy becomes more viable.

Additionally, domestic customers who are willing to compromise on reliability, for example, by tolerating occasional power shortages (specifically rural consumers), may find defection to off-grid systems more affordable and economically feasible.

Furthermore, it is increasingly evident that many industrial consumers in Pakistan, particularly in the southern regions, are moving toward energy independence by adopting large-scale Battery Energy Storage Systems (BESS) alongside their existing Solar PV captive solutions.

As a natural progression, industries that initially invested in megawatt-scale solar PV systems are now complementing them with BESS to ensure reliability and cost optimization. In regions with favorable wind conditions, some industries have diversified their energy mix by combining solar PV systems, wind turbines, gas engines, BESS and the grid, with the grid often serving as the last resort due to high electricity tariffs and unreliable supply.

Should gas supplies to industrial units become further constrained, it is likely that a growing number of industries will transition entirely to Solar + Wind + BESS or Solar + BESS solutions. This highlights the need for utilities to balance cost recovery with customer retention strategies and maintain reliability standards to discourage defection.

The year-on-year decline in electricity sales in Pakistan for last couple of years serves as compelling evidence that residential, commercial, industrial, and agricultural consumers are increasingly defecting from the grid—if not entirely, then significantly through partial reliance on alternative energy solutions. This shows that customer preferences have evolved significantly.

In FY 2022 the electricity 133.6TWh was sold which declined to 121.8TWh (decrease of 9.6% YoY). In FY 2024 this further declined around 110TWh (further decrease of 10.7% YoY). The demand for energy independence, cost efficiency, and sustainability is driving consumers toward distributed energy resources, i.e., rooftop solar panels and lithium-ion batteries. This trend is reshaping the utility-consumer relationship, as customers seek control over their energy usage while reducing reliance on the grid causing revenue for the utility to wipe away.

While grid defection was once a fringe possibility, it is now an economic reality and a looming challenge for utilities and regulators more generally.

To mitigate further losses and ensure the viability of the power sector, the government must act swiftly and allow utilities to adapt and more importantly respond to this changing energy landscape in Pakistan. It is feared that delayed action could solidify consumer transitions to energy independence, leaving utilities and regulators facing an uphill battle to regain relevance and restore balance in the energy sector.

In the next part we shall discuss the utility business model and potential solutions with recommendations.

Copyright Business Recorder, 2024