The government had to face tremendous backlash lately regarding imposing a fixed tax on solar panels. On its part, the Government’s intention was to rectify a policy anomaly that currently benefits a certain privileged segment of society at the expense of the general populace. Despite the rationale behind the amendment, the resistance to this change has been formidable. The crux of the dissent lies in the fact that this privileged group stands to lose a substantial incentive – a benefit that many argue should never have been so disproportionately allocated.
The government had to face tremendous backlash lately regarding imposing a fixed tax on solar panels. On its part, the Government’s intention was to rectify a policy anomaly that currently benefits a certain privileged segment of society at the expense of the general populace. Despite the rationale behind the amendment, the resistance to this change has been formidable. The crux of the dissent lies in the fact that this privileged group stands to lose a substantial incentive – a benefit that many argue should never have been so disproportionately allocated.
In the realm of net metering, those who can afford solar technology—generally wealthier households with adequate roof space—enjoy considerable reductions in their electricity expenses. This benefit, however, is not extended to those unable to invest in solar panels, including a large portion of the middle and upper classes. These groups end up bearing a disproportionate share of the costs associated with electricity infrastructure. The lower economic segment, though exempt from direct taxes, indirectly pays higher rates, which are adjusted to cover fixed infrastructure costs.
The tariff structure of electricity is composed of several critical components. The Energy Purchase Price (EPP) is a variable cost related to the fuel used for power generation, which can be avoided by solar power users. However, the Capacity Purchase Price (CPP) and the Distribution/Supply Cost remain fixed and are associated with the infrastructure needed to maintain and operate power plants, network grids, and distribution systems. These costs do not decrease with the uptake of solar power, meaning that about 70 percent of the electricity tariff remains unaffected by individual solar adoption. As a result, non-solar users end up subsidizing these infrastructural costs.
The use of solar also impacts the national and industrial tariffs. The government claims that the uneven burden of infrastructure costs has already added approximately PKR 2 per unit to the national tariff, a figure set to rise unless the policy is adjusted. This not only places a heavier load on non-solar users but also escalates industrial tariffs, potentially hampering economic progress and making these rates uncompetitive compared to those in neighboring regions.
Moreover, solar panels may reduce dependence on the grid during daylight hours but do not eliminate the need for grid services at night or during cloudy weather. This underutilization of grid leads to costs that are passed on to those without solar installations.
Another disadvantage due to installation of personal solar setups, is the fact that the interconnection capacity to integrate the renewable into the grid also gets reduced. To understand this better it also important to understand how new capacity planning works. Hourly demand profile is analysed on software (Pakistan uses Plexo which is the international standard) and opportunities are identified as to how much solar can be integrated. Solar power generally works during 7 am to 5 pm and if during this period the demand is reduced by installation of solar at homes, then the grid solar feasibility reduces correspondingly. While solar installation at homes benefits one individual family, the solar installation at grid benefits all.
To address these issues and promote sustainable solar adoption, it is crucial to revise the current policies. Potential measures include reducing the buy-back rates for surplus solar energy, transitioning from net to gross metering that would include fixed charges for grid maintenance, and implementing these changes for existing solar users who have already completed 2-3 years of solar usage panel usage. Additionally, a grace period of up to 2-3 years can be provided for recent solar panel users, allowing for a smooth adjustment to the new policy framework.
As the adoption of solar power grows, it is imperative to develop policies that ensure a fair distribution of costs. This will help maintain the financial viability of the grid and ensure that the benefits of renewable energy are shared more broadly across society. The aim should be to foster an energy system that balances individual benefits with collective needs, supporting broader economic and social progress while addressing the challenges posed by current net metering policies.
However, urgent policy change is needed to correct this anomaly, as the quantum of solar is almost growing exponentially, and if no urgent measures are taken, the PKR 2 impact may also increase exponentially. It is a matter of prioritizing individual interest over collective interest, and there should be a healthy debate on this instead of resorting to rhetoric.
The write is an energy economist.
