Solar flipflops and the energy crisis

Pakistan’s energy landscape is in upheaval. The government’s recent slash of the net?metering buyback rate -- from Rs27 to Rs10 per unit -- has sparked fierce debate. Awais Leghari, the energy minister, insists it’s a necessary measure to shield grid users from soaring costs, while critics argue it undermines the nation’s clean energy revolution at a time when power shortages are crippling the country.

Solar capacity exploded from 321MW in 2021 to over 4,124MW by December 2024, and the number of net?metering consumers leapt from 226,440 in October 2024 to 283,000 by year’s end. The Economic Coordination Committee (ECC), chaired by Finance Minister Muhammad Aurangzeb, claims this rapid expansion is unfairly burdening grid consumers. According to government figures, net?metering users shifted costs of Rs159 billion by December 2024 -- a figure projected to balloon to Rs4.240 trillion by 2034 if no action is taken.

Yet this crisis is not solely about solar policy. A long?standing grievance is the legacy of high tariffs negotiated with Independent Power Producers (IPPs) during 2013–2018. These contracts, struck under less competitive conditions, have locked in some of the highest electricity tariffs in Asia. Critics argue that these exorbitant rates not only burden the national economy but also exacerbate the cross?subsidisation that the revised net?metering framework now seeks to address. In effect, Pakistani consumers continue to foot the bill for a system built on overpriced generation.

Originally introduced under the 2006 Renewable Energy Policy to combat load?shedding and promote cleaner energy, net metering enabled consumers to generate power for self?use while earning credits for surplus energy fed back into the grid. This system was once hailed as a win-win solution, reducing reliance on expensive fossil fuels and empowering households to contribute to a sustainable future. However, as solar panel prices have plummeted and installations have surged, the unintended consequences of the policy are now impossible to ignore.

Energy Minister Awais Leghari and the ECC argue that the explosive growth in solar adopters is unfairly shifting costs onto grid users. With net?metering consumers proliferating rapidly, the fixed costs of power distribution and transmission are increasingly borne by those who remain on the grid. This, they claim, is why urgent measures -- like the reduction in the buyback rate -- are needed to recalibrate the cost distribution.

Senator Sherry Rehman, who chairs the Standing Committee on Climate Change, is blunt in her criticism: “Solar customers are now going to pay the costs for a dirty power system”. She contends that penalising solar adopters not only shortchanges the environmental benefits of renewable energy but also perpetuates dependence on ageing, polluting thermal power plants -- plants whose inefficiencies are compounded by those high IPP tariffs. Her stance resonates with many who view the revised policy as a punitive measure against an inherently green technology that should be encouraged rather than penalised.

Some experts warn that the lower buyback rate may have unintended long-term effects. With battery storage becoming ever more affordable, reduced returns from net metering could prompt households to abandon grid connectivity altogether. An energy analyst observes, “People will still invest in solar, but in a different way”. Some experts caution that instead of integrating solar power more efficiently into the national grid, the policy might hasten its abandonment by those who can afford to go off-grid.

On the face of it, recalibrating the buyback rate seems like a logical step towards a fairer energy pricing structure. However, critics contend that focusing solely on this tariff adjustment risks stifling Pakistan’s renewable energy ambitions. By reducing the incentive for new solar investments, the move could extend payback periods and ultimately stall the country’s solar revolution -- a dangerous prospect when clean energy is desperately needed.

The revised policy also sidesteps a glaring systemic issue: Pakistan’s power sector is riddled with inefficiencies. High transmission and distribution (T&D) losses, which inflate costs and contribute significantly to the nation’s enormous circular debt, remain unaddressed. Former finance minister Miftah Ismail has been scathing, asking: “Why is the government selling electricity for Rs48.8 per unit while buying from new consumers for only Rs10? If excess capacity abounds, why isn’t power priced closer to its marginal cost?” His comments show that the policy is merely treating the symptoms of a deeply flawed system rather than tackling its root causes.

Another critical factor is the concentration of net?metering consumers. Approximately 80 per cent are clustered in nine major, predominantly affluent cities. This geographical imbalance means that fixed costs for power distribution and transmission are disproportionately borne by those who still rely on the grid, thereby exacerbating urban-rural inequities.

Some industry experts warn that dampening the economics of net metering might slow the diffusion of renewable energy technologies. A decline in solar investments could trigger a ripple effect, stifling growth in related sectors such as battery storage and energy management systems. In a market fuelled by rapid technological advances and falling equipment costs, any factor that curbs investor enthusiasm risks derailing progress at a time when clean energy is paramount.

Yet there is a counterargument. Proponents assert that by discouraging the installation of oversized solar systems -- designed primarily to export surplus power -- the new framework will compel consumers to optimise for self–consumption. This could lead to more efficient resource utilisation and a steadier, more reliable grid, provided that incentives are carefully recalibrated.

However, Pakistan’s energy crisis cannot be solved by tinkering with net?metering tariffs alone. A comprehensive overhaul of the power sector is urgently needed. Reducing T&D losses, modernising the ageing grid infrastructure, rationalising tariffs, and even retiring underutilised thermal plants -- especially those burdened by legacy high-tariff IPP contracts -- are essential steps. Recent moves by the National Electric Power Regulatory Authority (Nepra) to consider legal action against power distribution companies, blamed for contributing to a circular debt of Rs276 billion, highlight the magnitude of the systemic inefficiencies that must be addressed.

Diversifying the renewable energy mix is critical. While rooftop solar has taken centre stage, the potential of wind, hydro and biomass should not be overlooked. A balanced portfolio of renewable sources would not only reduce grid strain but also enhance energy security and foster economic resilience.

Pakistan’s revised solar policy is emblematic of a broader struggle: balancing sustainable development, energy equity and economic efficiency. On one side lies the imperative to modernise the power sector and eliminate cross-subsidisation; on the other, the risk of stifling renewable energy investment and further entrenching high electricity prices -- prices that are, in part, a legacy of the steep IPP tariffs negotiated between 2013 and 2018, which have made Pakistani power among the highest in Asia.

Focusing solely on the buyback rate risks alienating a burgeoning sector that could help reduce carbon emissions and mitigate climate change. The government must adopt a holistic strategy -- one that revises tariff structures, modernises the grid, enhances regulatory oversight and promotes a diversified renewable energy mix. Only such an integrated approach can address both the short-term fiscal imbalances and the long-term sustainability challenges that bedevil Pakistan’s energy landscape.

Pakistan stands at a critical crossroads. The decision to cut the net?metering buyback rate is a bold, if controversial, attempt to address fiscal imbalances. Yet, as critics warn, it may undermine the progress needed to forge a sustainable, equitable, and resilient energy future -- a future further burdened by legacy IPP contracts that have driven up electricity prices to record levels in Asia.

The true measure of success will not lie in mere tariff adjustments but in the government’s ability to transform Pakistan’s energy infrastructure into a modern, efficient, and fair system. Without bold, holistic reforms, the nation risks remaining mired in inefficiency and inequality -- a stark warning for other countries navigating the renewable energy transition in today’s challenging global landscape.

The writer is former head of Citigroup’s emerging markets investments and author of ‘The Gathering Storm’.