Electricity prices are resurfacing as a cause of concern across Pakistan. Between April 2022 and July 2023, successive price hikes have resulted in a reported increase of up to PKR 18 per unit in the base tariff. This excludes monthly adjustments for fuel costs and quarterly adjustments, as well as the Power Holding Limited (PHL) surcharge levied indefinitely to service debt incurred for power generation projects.
This vacuum – compounded by the shadow of capacity charges and a dependence on imported fuels – has given way to a slew of renewable energy addition. Per NEPRA SOI, accumulated annual generation by net metering customers, mostly residential, grew to 481 gigawatt-hours (million units) or by 220% between FY23 and FY22. During this period, the number of customers only registered a 50% increase. Present estimates by the Energy Ministry put the number of customers at 150,000, collectively generating 3,000 megawatts of electricity.
Isn’t this a good thing?
150,000 customers represent less than 1 percent of the total electricity connections in the country. Installing rooftop solar is also a natural choice when seeking relief from rising prices. It would also be unfair to expect households to make decisions cognizant of their impact on the country, because it is not their job. Yet, the rapid adoption of solar technology does exhibit elements of opportunism that requires attention and redressal. The problem lies in lacuna-laden policies that have enabled such rent-seeking behavior.
Pakistan’s experience is part of a decade-long global conversation that spans from California to Indonesia, where utilities have been caught in the rapids of solarization. To stem the bleed, one common measure which has been taken is to reduce the rate at which electricity is bought from these producers. In Australia’s case, the policy even went to the extreme of proposing an additional charge on the customer for exporting their generation, at certain hours.
Why is such a drastic measure even required?
In Pakistan’s case, today’s interventions are addressing tomorrow’s challenge.
Before proceeding, some important context. The power sector relies on recovery of fixed costs – used to ensure the upkeep and stability of the grid – which are distributed across all electricity users as a percentage of their electricity bills. Each customer going towards solar will inevitably use fewer units, leaving behind more fixed costs to be recovered from the remaining users. This would result in an increase in electricity prices for non-solar customers, putting the system into a deadly downward spiral. Per CPPA’s presentation on Use of System Charges in 2023, 40 percent of the estimated PKR 2.4 billion in fixed costs in FY24 are to be borne by 4 categories of customers most likely to transition away from the grid: namely industrial, bulk, commercial, and domestic customers using over 400 units or on the TOU system.
The avarice seeps in when distributed generators export back to power utilities, fully aware of the glut in the system, at a rate that is almost comparable to the national average price of electricity at about 22 rupees. Without avenues to utilize these units, it makes little sense for any purchaser – especially a cash-strapped government – to pay to waste electricity so that someone can break even on their installation cost. Per NEPRA SOI, in FY23, residential net-metering customers across the country exported 321 gigawatt-hours of electricity, almost 93% of what they consumed from the grid. Effectively, this customer subset paid for 7% of their grid-based electricity consumption, leaving the remaining cost spread among the rest of the customers.
Faced with a similar situation in 2023, California changed its legislation to compensate panel owners for how much their power is “worth” to the grid. 2 years earlier, the Australia Energy Market Commission enacted limits to the amount of exportable electricity or levied a penalty for doing so. Without casting doubt on the intentions of the users or demonizing them, we have to evaluate the situation without our tinted glasses to avoid greenwashing. Can Pakistan truly afford to continue compensating for electricity it does not need?
Eating the system from within
The turnaround time of getting panels at your home is naturally a fraction compared to the cumbersome process of utility scale solar. Most utilities drastically underestimated this, which has created two other challenges.
In the short term, utility-scale solar projects will face the brunt of rooftop solar adoption, which goes against the government’s own vision to reduce electricity prices for all customers. Curtailing this generation is also “a waste of zero-cost energy” according to energy experts.
Secondly, we also must consider grid stability, which has to dynamically optimize generation capacity with demand. Upgrading transmission and distribution infrastructure – a costly undertaking – must be driven by forecasted demand and not supply gluts. Load balancing is also premised on clear forecasts which can only be prepared when policies provide a clear way forward.
So where do we go?
We began by acknowledging that the issue is not in those availing net metering facilities, but the policies that enable rent-seeking behavior. But the path to sustainability cannot be paved on unsustainable foundations, and an honest discourse is required among policymakers and legislators if they are to chart a way forward. The Ministry of Energy is reported to be working on a multifaceted solarization policy based on reduced buyback rates, and extended capital return timelines. These are steps in the right direction, but not a complete solution. The government also needs to explore energy storage solutions, to capture surplus energy produced distributed energy resources and dispatch it back to the grid when required. To relieve peak and minimum demand stress on the distribution network, an Australian utility company has piloted a pole mounted battery solution; if the pilot is successful the pole mounted battery system would avoid the need the for an expensive network augmentation, that would otherwise be required to mitigate network constraints.
The writer works in the power sector and has an extensive expertise on studying grid technologies.