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Government’s Solar Policy U-Turn Phases Out Net Metering to Impose Higher Costs on Consumers

By: Monitoring Desk

ISLAMABAD: The Pakistani government’s energy policies have been scrutinized as they navigate the challenges of balancing energy costs, consumer interests, and financial health. Initially, the government encouraged households and businesses to adopt solar power to alleviate the electricity shortage. However, recent developments reveal a shift in policy that could undermine these efforts and impose further financial burdens on consumers.

NOTE: Power production, in the month of April, saw a staggering 14% decline, plummeting to 8,640 gigawatt-hours (GWh), attributed to a significant surge in electricity prices, a slowdown in industrial activities, and a notable migration of businesses and households towards solar power from the national grid, thus exacerbating the burden of capacity payment and circular debt on the nation.

During discussions with the International Monetary Fund (IMF), Pakistani authorities disclosed plans to phase out the current net metering policy for rooftop solar panels. This policy allows solar energy users to offset their grid electricity consumption with power generated from their own rooftops. It will be replaced by a gross metering system, which aims to increase the use of more costly grid electricity.

The policy shift is part of broader negotiations as Pakistan seeks further engagement with the IMF, including a proposed $15.4 billion energy debt restructuring with China. The Ministry of Energy has informed the IMF of the upcoming changes in solar panel policies, which have traditionally enabled consumers to reduce dependence on expensive grid electricity.

Under the new gross metering policy, solar energy generated on rooftops will be fed directly into the national grid, with homeowners drawing their electricity solely from the grid. This change will diminish the financial benefits of generating their own power, potentially increasing costs for consumers. The new system will require two separate meters: one to measure electricity fed into the grid and another to measure consumption, replacing the current bidirectional meter system.

The government’s rationale for this policy shift is to bolster the revenues of power distribution companies, which have suffered due to the growing popularity of in-house solar power generation among Pakistan’s middle-to-upper class. This demographic turned to solar power as grid electricity prices soared, driven by inefficient power systems and unfavorable power purchase agreements.

The average base tariff in Pakistan is currently Rs29.79 per unit, but with additional charges, consumers can pay up to Rs62 per unit. The IMF has been informed that a significant increase in electricity prices is expected in July, further compounding the financial burden on consumers.

The rapid adoption of solar power has led to a decrease in demand for grid electricity, exacerbating the issue of idle capacity payments. These payments, made to power plant owners regardless of electricity production, have significantly contributed to the high cost of electricity.

The Ministry of Energy also expressed concerns that the net metering policy allows some solar panel users to fall into the ‘protected consumers’ category, enjoying lower electricity rates. The introduction of gross metering would withdraw these benefits, aligning more consumers with standard tariff rates.

In its ongoing financial strategy, Pakistan has discussed renegotiating capacity payments with power producers under the China-Pakistan Economic Corridor (CPEC) and other agreements to alleviate financial pressures. However, negotiations have been challenging, particularly with CPEC-related projects, due to resistance from the Chinese side.

The proposed changes and ongoing financial negotiations underscore the complex challenges Pakistan faces in managing energy costs and policy failures. Initially, the government could not fulfill the energy needs of its people, pushing many to adopt solar power. Now, as more households and businesses shift to solar energy, the government plans to phase out supportive policies and potentially tax solar users, highlighting a significant policy inconsistency and placing additional strain on consumers already burdened by high electricity costs.

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