ISLAMABAD: Pakistan’s solar energy sector has been growing by leaps and bounds in recent years, driven by large-scale imports of solar panels and increased adoption of rooftop solar solutions.
While this shift toward renewable energy is reducing dependence on fossil fuels, it has also placed the government in a financial dilemma—balancing the rising number of solar users with the economic sustainability of the national grid.
The latest policy adjustments, including a drastic cut in the buyback tariff for net-metering consumers, highlight the government walking a tightrope between affordability and sustainability in the power sector.
Solar power surge
Pakistan has been making strides in solar energy integration, with projects like the Quaid-i-Azam Solar Park in Bahawalpur contributing to the country’s renewable energy mix.
As of 2024, Pakistan imported over $1.4 billion worth of solar panels from China, indicating a significant shift toward decentralised power generation.
The number of net-metering consumers jumped from 226,440 in October 2024 to 283,000 by December 2024, reflecting a rapid transition toward solar-powered households and businesses.
Slashed buyback tariff
In response to this surge, the Economic Coordination Committee (ECC), led by Finance Minister Muhammad Aurangzeb, recently approved amendments to the net-metering policy.
The buyback tariff for surplus solar energy fed into the grid has been slashed from Rs. 27 per unit to Rs. 10 per unit.
The government argues that this decision was necessary to prevent an unsustainable financial burden on grid-dependent consumers, who are forced to indirectly subsidise solar users.
Investors and consumers need stability. Frequent changes in net-metering policies send a negative signal to the market and may slow down Pakistan’s transition to clean energy.
Under the new rules, consumers will sell excess solar energy to distribution companies at Rs. 10 per unit during the daytime.
However, they will have to purchase electricity from the grid at much higher rates—Rs. 42 per unit during off-peak hours and Rs. 48 per unit during peak hours, excluding taxes and additional charges.
Additionally, new net-metering consumers will only be allowed to install solar systems up to 110 per cent of their sanctioned load, a significant reduction from the previous 150 per cent margin.
The burden on grid consumers
Pakistan has experienced a remarkable surge in solar energy adoption, positioning itself as the world’s sixth-largest solar market and proving that the winds of change are blowing the country’s energy sector.
This rapid growth, while advancing renewable energy goals, has introduced challenges to the national electricity grid and raised concerns about financial burdens on non-solar consumers.
The increasing per-unit burden on non-solar consumers is a key concern behind drastic policy changes that instead discourage solar power adoption.
The government claims that the rapid adoption of solar energy is transferring an unsustainable financial cost onto grid users.
According to official figures, net-metering users shifted Rs. 159 billion in costs to other consumers in 2024 alone.
If left unchecked, this amount could balloon to Rs. 4.24 trillion by 2034, threatening the viability of the power sector.
Pakistan’s Federal Minister for Energy Awais Leghari defended the policy shift, stating, “The urban middle class, which can afford solar installations, has been benefiting from net-metering at the expense of the general population. The grid infrastructure still needs maintenance, and the costs should be shared equitably.”
The urban middle class, which can afford solar installations, has been benefiting from net-metering at the expense of the general population. The grid infrastructure still needs maintenance, and the costs should be shared equitably.
However, not everyone is on the same page with the government’s approach. Federal Minister for Petroleum Ali Pervez Malik has warned that sudden policy reversals could deter investment in renewable energy.
“Investors and consumers need stability. Frequent changes in net-metering policies send a negative signal to the market and may slow down Pakistan’s transition to clean energy,” he remarked.
Grid consumers under fire
Many solar consumers are alarmed by the drastic reduction in the buyback tariff.
An Islamabad-based homeowner who recently installed a solar system expressed frustration: “We made this investment expecting to recover costs through net-metering. Selling at Rs. 10 per unit while buying at Rs. 48-plus exorbitant taxes makes no financial sense,” he maintains.
Meanwhile, a small business owner in Rawalpindi pointed out the dependability of solar in the event of frequent grid failures: “We are forced to go for solar to ensure uninterrupted power supply. And now, they are making it more expensive for us to use our own electricity.”
The IPP Dilemma
Pakistan’s power sector also faces a financial strain due to capacity payments to Independent Power Producers (IPPs), which are made irrespective of actual power consumption.
It significantly contributes to the country’s mounting circular debt. As more consumers shift to solar, grid-based electricity demand declines, yet the government remains obligated to pay IPPs for their unused capacity that too in terms of dollar-indexed payments.
Pakistan’s circular debt has already reached dangerous levels, and the government is struggling to renegotiate contracts with power producers to reduce these fixed payments.
Drastic changes in currency exchange rates in the last couple of years have also jacked up the capacity payments, leaving the government with no option but to pass on the burden to the consumers.
Pakistan’s circular debt has already reached dangerous levels, and the government is struggling to renegotiate contracts with power producers to reduce these fixed payments.
According to a recent report by an international news agency, Pakistan has been in talks with IPPs to restructure agreements to prevent further economic strain.
There are also reports in the international media that the government’s bid to renegotiate capacity payment guarantee agreements came under criticism of lenders led by the International Finance Corporation, the commercial lending arm of the World Bank.
In a reported letter these international financial institutions told the government that negotiations would dampen the investors’ confidence.
The road ahead
So far as sustainability is concerned, Pakistan’s solar energy revolution is a step in the right direction, but at the same time, the government faces the complex challenge of ensuring that the transition does not destabilise the broader power sector.
Striking a balance between encouraging renewable energy adoption and maintaining grid financial stability remains a task to reckon with.
The question now is whether the government’s latest policy changes will successfully address the financial burden on grid consumers—or if they will throw cold water on solar growth, slowing down Pakistan’s progress toward a greener energy future.
A larger question remains: If solar growth threatens the financial sustainability of the national power grid, what implications does this hold for other renewable energy sources, particularly wind power?
