KARACHI: Pakistan’s government has once again been caught in a tight spot. It wants to promote renewable energy – for several reasons including climate change – but also does not have the room to add energy to its grid given faltering demand.
‘Idle’ or capacity charges are also a worry amid slowing economic growth and high inflation that has stifled investment, pushing down consumption as well.
In a recent development, it was reported that the government was mulling cutting down by almost half the buyback rates for net-metering electricity, much to the dismay for those users who have installed solar power primarily as means to cut down on cost.
The introduction of net-metering, which allows households and businesses to generate their electricity and sell excess power back to the grid, was a significant step towards incentivising solar installations.
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“The government wanted to promote solarisation in the country and it initially encouraged people. But now it is coming back to bite the government,” said a source familiar with the matter.
Omar Malik, CEO of Shams Power that is in the business of solar panels, explained that the proposed change in cutting buyback rate primarily affects the tariff at which Distribution Companies (DISCOs) would pay for excess, unutilised electricity after three months, which might not significantly impede growth of solar power.
He reassured that net-metering, which allows households to offset their consumption with solar generation, remains unaffected.
Furthermore, some argue that a reduction in buyback rates is not inherently negative.
“Pakistan is in a situation where it has power plants sitting idle, yet they charge capacity payments. Now, with much of this net-metering capacity coming online, there is an additional obligation to pay household generators of power as well,” said an official who did not wish to be named.
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Mohammad Umair, a residential user in Karachi, shared his experience, noting that his solar panel system has enabled him to generate surplus electricity, resulting in ‘negative’ electricity bills. He explained that excess units are settled against future consumption, demonstrating the potential benefits of solar adoption.
Similarly, Mohammad Kashif, a factory owner in Lahore, highlighted the significant reduction in his bills since installing a solar system. He calculated his payback period to be around three years, indicating the economic viability of solar power.
However, Dr Khalid Waleed, an energy economist, criticised the government for introducing net-metering without considering its long-term implications. He noted that while the investment break-even period might increase with lower buyback rates, rooftop solar remains economically viable in the long term.
Dr Waleed pointed at the dilemma that encouraging rooftop solar, which reduces carbon footprint, is exacerbating inequalities, benefiting only affluent individuals and burdening non-solar users with fixed capacity payments.
Amid these discussions, the Ministry of Energy’s Power Division highlighted the need to review the net metering policy to alleviate the burden on poor consumers. The government expressed concerns that affluent individuals are benefiting from subsidies meant for the poor, leading to potential increases in electricity bills for low-income groups.
The situation presents a complex challenge for the government.
In addition to the immediate implications for solar adopters, the government’s decision on buyback rates could have broader consequences for Pakistan’s energy landscape and its efforts to combat climate change.
Dr Waleed said discouraging rooftop solar would contradict the necessary steps to combat climate change.
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Dr Waleed emphasised the need to raise awareness among consumers about utilising surplus electricity generated through solar, such as for electric cooking, which could significantly lower gas bills and help Pakistan in slashing the gas and oil import bills.
The surplus electricity of solar rooftops could also be utilised for charging electric vehicles, particularly the two and three-wheelers at homes.
He also mentioned that agreements with independent power plants (IPPs) have long durations, typically 30 to 40 years, and are challenging to renegotiate due to sovereign guarantees, with many of them being CPEC-related and fossil fuel-based.
Keeping the context of the upcoming Carbon Border Adjustment Mechanism (CBAM), the dilemma of a dirty national grid will cause the industry to install more captive solar and wind power plants.
Experts suggest the way forward for Pakistan is to invest in on-grid solar parks and ensure a reliable and affordable grid for industry to fill the void in electricity demand created by rooftop solar through increased industrial demand.
Pakistan, being the eighth most vulnerable country to climate change, must respond accordingly, stress experts.
Dr Waleed emphasised that for Pakistan to access climate finance, it must work towards the bankability and feasibility of early retirement of coal-powered plants and not discourage renewable energy in any form.
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Furthermore, financing schemes may be reinitiated for households who cannot afford to install rooftop solar systems and incentivising the industrial sector through innovative tariff regime, reliability and full utilisation of existing power plants that can help Pakistan in solving the dilemma of the capacity trap.
In a statement, the Ministry of Energy’s Power Division had earlier said that the net metering policy of 2017 was aimed at promoting alternative energy in the system.
However, the Division added that proposals and amendments are being considered to save the poor from further burden.
It added that the government, domestic, and industrial consumers are being burdened to pay Rs1.90 per unit in the form of subsidy. It is affecting between 25 million and 30 million consumers.
“This Rs1.90 is going out of the pockets of the poor and into the pockets of the middle and upper-income groups. If this trend continues, the bills of poor consumers will increase by at least Rs3.35 rupees per unit,” the statement added.
It added that they are studying this whole system and would announce new rates soon.
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A source in the National Electric Power Regulatory Authority (NEPRA) said that they are yet to receive any directions since the change in buyback rates is at a summary stage. Its role will start once the summary is approved.
Pakistan’s energy sector outlook
Pakistan’s energy sector is undergoing a significant transformation, as it diversifies its energy mix and increases reliance on renewable sources.
According to the NEPRA’s 2022 yearly report, Pakistan’s total installed power generation capacity was 43,775 MW. The energy mix was dominated by thermal sources (59%), followed by hydro (25%), renewable (7%), and nuclear (9%).
To shift towards a more sustainable energy future, Pakistan adopted the Integrated Generation Capacity Enhancement Plan (IGCEP) 2021-2030. This plan targets a substantial increase in the share of renewables, particularly solar and wind power, from 6.4% in 2022 to 30% by 2030, representing a 373% increase in renewable energy’s share over the next eight years.
The government’s broader goal is to achieve a 60% share of electricity generation capacity through indigenous clean energy technologies – Alternate Renewable Energy (ARE) and hydro – by 2030, as outlined in the Indicative Generation Capacity Expansion Plan (IGCEP).
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Looking ahead, the draft of IGCEP 2022, prepared by the National Transmission and Despatch Company (NTDC) and pending approval from the NEPRA, projects a countrywide demand of 41,338 MW and an installed capacity of 69,372 MW by 2031 under the base case scenario. These developments indicate a strong commitment to transitioning towards cleaner, more sustainable energy sources in Pakistan’s energy sector outlook.
However, many experts believe adding power will not solve Pakistan’s crises.
“Where is the demand coming from,” said a noted expert. “Pakistan barely sees sustainable growth over a period of two-three years. You can keep adding electricity. People will not have the money to use it if you keep increasing tariffs.
“You need to temper this with economic growth, empower the lower- and middle-income groups, and create opportunities for industrial expansion. I don’t see a policy geared towards any of this.”
Pakistan is also riddled with unresolved issues such as circular debt (power and gas) that has gone beyond Rs4.5 trillion. Transmission and distribution losses along with theft have added a hefty burden on the country’s budgetary book with privatisation of DISCOs also on the cards.
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There is wide consensus, though, that issues need to be resolved in tandem as Pakistan looks to navigate a tricky few years where it has to balance economic growth with its expenditure and balance sheet that is riddled with expensive debt.
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