The standard for policymaking is to establish clearly defined short, medium, and long-term goals. Unfortunately, Pakistan’s power sector has long been plagued by knee-jerk reactions, with the government playing the game of whac-a-mole: constantly addressing one issue only for another to emerge. It’s a never-ending cycle.
After considerable effort, the government has successfully negotiated with the first cohort of Independent Power Producers (IPPs) to sunset their power projects. The next batch of IPPs from the 2002 era is soon to follow. Although it is likely that newer IPPs will also undergo similar changes, reports of abrupt payment halts are concerning.
These unprecedented reforms are being implemented to reduce electricity production costs for the general public, regardless of investor sentiment. However, the intense focus on IPPs is diverting attention from other low-hanging opportunities, such as rooftop solarization.
Net metering is rapidly growing, and many eligible customers, including industries, are installing systems to become energy-independent. It is crucial for the government to balance its solarization efforts with its initiatives to reduce the overall electricity basket rate for all consumers.
While shelving large power projects is generating savings, rapid solarization could undermine this effort if enough large industries switch to solar panels. Numerous reports indicate a surge in industrial solar installations, and this shift could also occur in affluent residential areas, reducing grid consumption.
This does not suggest an outright opposition to promoting solarization but calls for more prudent regulation. Let’s do some basic math to illustrate the point. Solar panels and lithium-ion batteries are becoming more affordable, encouraging customers to opt for these solutions.
An informal survey in Karachi shows that a 10-kW system with two 5 kW storage batteries costs around PKR 1.5 million, including all expenses. Battery prices have nearly halved in the last year, making peak load shaving economically viable.
This system can generate about 42 units of electricity in a day on average in Karachi, with the majority being available for net metering or self-consumption. If we extrapolate this to the year, it translates it to savings of about PKR 800,000, allowing for a system payback period of less than two years. Larger systems would have an even shorter payback period.
The useful life of panels is about 20 years, so it appears that a solar customer is gaining 10x on their investment over the useful life of their panels. The battery life is claimed at 5000 cycles. However, considering it is at 4000 cycles, the life is of 10 years, and this gives 5x return on battery investment.
As battery prices continue to fall, reduced buyback rates in line with global trends may still be offset by increased self-consumption. This would help mitigate cost-shifting effects on lower-income electricity users who depend on cross-subsidies to keep rates affordable.
It is pertinent to note that this does not mean the government must take a U-turn on its policies but that it needs to look at things holistically so that the interest of the majority of customers is protected who will perhaps remain on the grid.
While focusing on big-ticket items, the tariff-setting process should be revisited to allow solar to enter the market more sustainably. Pakistan’s mission to lower its energy costs is reminiscent of Achilles’ formidable power. But without sufficient focus and adaptability, all it can take to topple the system is a small, well-placed arrow on his heel.