Arshad Mahmood Awan

The Economic Coordination Committee (ECC) of Pakistan recently approved a set of amendments to the net-metering regulations aimed at reducing the growing financial burden on grid consumers. However, this decision has raised concerns among solar energy stakeholders and critics, who argue that the new changes could stifle the growth of renewable energy in Pakistan. The revised buyback rate for solar-generated electricity, which has dropped from Rs27 to Rs10 per unit, is expected to apply only to new net-metering agreements, meaning existing consumers will not be affected until the expiration of their current contracts.

The primary aim of these amendments is to reduce the financial pressure on grid consumers by lowering the compensation for surplus solar energy fed back into the grid. While the rationale behind the move is to prevent further strain on the national electricity grid, many wonder if the government’s focus on the buyback rate is misplaced, especially when other systemic issues in Pakistan’s energy sector remain unaddressed.

Net-metering is a policy that allows consumers who generate their own renewable energy—specifically solar power—to contribute excess electricity back to the national grid. In exchange, they receive credits that offset their future energy consumption. This mechanism was first introduced in Pakistan’s 2006 Renewable Energy Policy, primarily to address the country’s energy shortages, reduce power outages, and promote clean energy. Over the years, it has grown in popularity, especially among businesses and households seeking to reduce their dependence on the national grid.

By allowing consumers to generate clean energy for their own use and sell the surplus back to the grid, the government hoped to encourage renewable energy adoption, reduce reliance on fossil fuels, and ease pressure on the grid. However, the ECC’s recent decision to lower the buyback rate for solar electricity raises questions about the government’s commitment to these goals.

Under the revised regulations, the buyback rate for solar energy is now set at Rs10 per unit, a significant drop from the previous rate of Rs27 per unit. This adjustment is expected to affect new solar net-metering consumers, as existing consumers will not see any change until their current agreements expire. While the government argues that the new buyback rate will reduce the financial burden on grid consumers, it also risks undermining the attractiveness of solar energy investments.

The buyback rate directly impacts the financial returns that consumers receive for the surplus electricity they generate. A reduction in this rate could discourage both individuals and businesses from investing in solar systems, as they may no longer see a reasonable return on investment. With the drop in compensation, the economic viability of solar power for many potential adopters is diminished, which could slow down the pace of renewable energy adoption in the country.

According to the Finance Division’s statement, as of December 2024, solar net-metering consumers had transferred a financial burden of Rs159 billion to grid consumers. This amount is expected to rise to Rs4.240 trillion by 2034 if the regulatory framework is not amended. The rise in the number of solar net-metering consumers has contributed to increased costs for grid consumers, as these consumers avoid paying certain fixed charges associated with the transmission and distribution of electricity.

The ECC also highlighted that 80% of solar net-metering consumers are concentrated in major urban centers, particularly in affluent areas. This geographic concentration has led to an uneven financial burden on grid consumers in other regions, further complicating the issue. The committee argued that regulatory adjustments were necessary to ensure a fairer distribution of costs across all consumers, including those who do not benefit from solar energy.

While it is true that solar consumers do not pay fixed charges like capacity charges, the underlying issue is not necessarily the growth of the solar market, but rather the inefficiencies in the national electricity distribution system. The growing number of solar consumers has exposed the flaws in the energy sector, but the solution should focus on addressing these inefficiencies, such as reducing transmission and distribution (T&D) losses and improving bill collection. These losses contribute significantly to the financial instability of the power sector and add to the burden on consumers.

Rather than focusing on cutting the buyback rate, the government could have explored other avenues to reduce the financial strain on grid consumers. One key area for improvement is the reduction of T&D losses, which remain a significant issue in Pakistan’s electricity sector. The country’s T&D losses amount to billions of rupees annually, and addressing these losses would have a much larger impact on reducing costs than reducing compensation for solar energy producers.

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A report from November 2024 highlighted that the National Electric Power Regulatory Authority (NEPRA) had initiated legal action against Distribution Companies (DISCOs) for contributing to circular debt through increased T&D losses. According to the report, while the total electricity purchases for DISCOs slightly decreased, their losses increased, further exacerbating the circular debt crisis in Pakistan’s power sector. The government’s focus should have been on addressing these losses, which are 20 times greater than the solar energy purchases made from net-metering consumers.

Former Finance Minister Miftah Ismail criticized the government’s decision to reduce the buyback rate, pointing out that the government is targeting the small solar units installed by middle-class consumers, while ignoring the far more significant issue of T&D losses. He also questioned the fairness of selling electricity to consumers for Rs48.8 per unit, while purchasing it from solar producers for only Rs10 per unit. Ismail emphasized that other neighboring countries like India, Bangladesh, and Sri Lanka manage to sell power at much lower rates, pointing out that Pakistan should be pricing power closer to the marginal cost of production.

The reduction in the buyback rate is likely to have long-term consequences for Pakistan’s renewable energy sector. The solar industry in Pakistan has seen rapid growth in recent years, driven by both falling solar panel prices and the government’s net-metering incentives. However, the new buyback rate could discourage new investments in solar power, slowing the expansion of the renewable energy market. This, in turn, could undermine Pakistan’s efforts to reduce its reliance on expensive fossil fuels and curb its carbon emissions.

Instead of punishing solar energy producers, the government should have focused on addressing the root causes of Pakistan’s energy sector challenges. Reducing T&D losses, improving bill collection, and investing in the modernization of the power grid are essential steps that would have a more significant and lasting impact on reducing the financial burden on grid consumers.

The government’s recent decision to amend net-metering regulations and reduce the buyback rate for solar-generated electricity appears to be a short-term solution to a much deeper problem. While the intention behind the change is to reduce the financial burden on grid consumers, the move risks stalling the growth of renewable energy in Pakistan and discouraging investment in solar power. Instead of focusing on penalizing solar energy producers, the government should prioritize addressing inefficiencies in the energy sector, such as high T&D losses and poor revenue collection, to create a more sustainable and fair energy system for all consumers.