Shift to solar comes at a price for Pakistan’s national grid

Pakistani officials are desperate to slow a world-leading solar revolution, as a surge in cut-price Chinese panels and batteries bleeds the country’s finances and threatens the viability of its debt-ridden grid.

The power ministry has proposed to reform the country’s “net metering” policy by reducing the amount paid to buy excess solar electricity from households from Rs27 to Rs10 ($0.035) per unit. In June, the government also proposed an 18 per cent tax on imported panels, later revised and passed at 10 per cent. 

Shimmering Chinese panels, blocked from the US by tariffs, have spread across the roofs and backyards of factories, mosques, farms and wealthy neighbourhoods. Last year, the country of 240mn people imported 17GW worth of solar capacity, among the world’s highest, says renewable energy think-tank Ember. Solar units delivered at least a 10th of electricity needs and helped consumers offset power prices that have doubled in three years. 

The surge helped progress towards a target of 30 per cent of power from renewable sources by 2030, but the twin policies aim to stem what analysts have called a “death spiral”, as households who can afford solar switch off the grid, while more bills go unpaid by poorer customers who cannot afford the jump in power prices.

But traders and analysts expect demand for panels and batteries to stay high even if both measures pass. Avinash Kumar, a solar panel trader in the city of Sukkur, says the tax would barely dent demand as panel prices have fallen since last year. 

Fears of net metering reform are spurring customers to buy Chinese hybrid inverters, costing about Rs450,000 ($1,590), which feed energy back to the grid and store it in batteries, Kumar adds. “Sales are doubling every year.”

Demand for lithium-ion batteries is also surging, traders and importers say, in part because households are preparing to lose the payments from selling to the grid that they use to offset high charges during peak usage times in the evening, while industries also want to scale up renewables.

Pakistan introduced net metering 10 years ago to help households defray the costs of installing solar — then 10 times higher — by letting them sell spare power to the grid. The move worked, but policymakers say a surge in installations — net metering capacity was 2,813MW as of March — from 300,000 consumers, mostly households, added a burden of Rs150bn ($529mn) on the other 40mn consumers last year from fixed and buyback costs. The impact could reach Rs4,400bn for the period 2025 to 2034 if current policy persists, officials say. At the same time, demand for grid power has fallen.

Since 2015, Pakistan has drawn in billions of dollars of sovereign-backed loans to build power plants, and signed long-term liquefied natural gas deals. This resolved blackouts but was costly, as economic growth has not kept up with demand projections. The result is a country owing $18bn in mounting power and gas sector debts to finance excess energy supply. According to Arzachel, a consultancy, two-thirds of a household electric bill comes from fixed costs, such as capacity charges even for idling plants. 

In March, the government proposed cutting the electricity buyback rate, reducing the licensing period for net metering contracts, and limiting consumers to installing only as much solar as is authorised by their electricity provider. The plan stalled after it was denounced as “cruel” by politicians, who said consumers and industries would be saddled with power costs of between Rs30 and Rs60 per unit, among the highest in south Asia.

Power minister Awais Leghari says a change is a “necessity” as the “wealthiest households in Karachi, Lahore and Islamabad . . . avoid fixed costs while their share is covered by the most vulnerable”. 

“Why should we buy power at a price that is Rs17 more expensive than the national energy pool price I buy from other generators?” Leghari says. He adds that reforms would raise payback periods to four or five years, from two to three currently, which “remains a fair incentive”.

Haneea Isaad, an Islamabad-based analyst for the Institute for Energy Economics and Financial Analysis, says there was nearly a nationwide blackout during Eid in March, as solar power surged and the grid could not absorb frequency changes as some backup generators and plants were switched off due to low demand in the holiday. “Technical problems are . . . a ticking time bomb,” she says, and the switch to solar means companies are losing revenues to invest.

The government says imported panels harm prospects of a local industry and it hopes to recoup some of the import bill. Analysts say the proposed levy is aimed at slowing solar adoption. To boost grid use, enabling investment to improve the service, Pakistan is banking on cryptocurrency mining, AI data centres, power cost reductions, levies on industries using captive natural gas plants, and electric vehicles.

Saadia Qayyum, an energy consultant at Canada-based Hatch, says “the government appears to be relying on short-term policy adjustments that risk slowing down solar adoption” among the poorest. “Many consumers are turning to solar because grid electricity is expensive and unreliable — in some areas, supply is limited to just 8 hours a day,” she says. “Policy shifts that make it harder to access or afford solar risk removing that essential lifeline.”

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