Islamabad – Pakistan has informed the International Monetary Fund (IMF) of its intention to end the net metering policy for rooftop solar panels, opting instead for a gross metering system. This move aims to promote the sale of expensive grid electricity, replacing the current policy that supports cheaper power generation.
During ongoing negotiations for further engagements with the IMF, Pakistani authorities disclosed plans to seek $15.4 billion in energy debt restructuring from China. The Ministry of Energy has taken the IMF into confidence regarding its plans to overhaul the solar panel policy, which currently benefits consumers by reducing reliance on costly grid electricity.
Sources indicate that Pakistan aims to replace the net metering policy with gross metering for rooftop solar panels, discouraging their use. The rising dependence on solar panels has negatively impacted the revenues of power distribution companies, which now face competition from in-house power generation.
The gross metering policy would require rooftop-generated electricity to be fed into the national grid, with the owner of the solar panel withdrawing the units they consume. This change would reduce the financial benefits for residential consumers, as their in-house generation and consumption would be monitored by two separate meters.
Currently, a bidirectional meter calculates rooftop generation and the import of electricity from the national grid during nighttime. However, Pakistan’s middle and upper classes are increasingly turning to solar-based in-house power generation due to the unaffordable cost of grid electricity, exacerbated by expensive power purchase agreements, inefficiency, and uncontrolled theft and leakages.
Pakistan’s average base tariff stands at Rs29.79 per unit, including Rs17 per unit idle capacity charges. After various surcharges, fuel price adjustments, quarterly adjustments, and taxes, residential consumers pay up to Rs62 per unit. The IMF has been informed of an impending significant increase in electricity prices in July due to annual base tariff adjustments, quarterly adjustments, and monthly adjustments.
The Ministry of Energy expressed concern over the Rs1.90 per unit additional impact of net metering on electricity tariffs, compared to the Rs17 per unit idle capacity payments benefitting power plant owners and foreign investors. The rapid adoption of solar power has led to a decrease in electricity demand, increasing idle capacity payments and driving higher quarterly tariff adjustments.
Approximately 6,800 megawatts worth of solar panels were imported in the first ten months of the current fiscal year. However, solar panel imports have also been linked to money laundering activities, as reported to the Senate Standing Committee on Finance.
The Ministry of Energy noted that reduced reliance on grid electricity has led rooftop solar consumers to fall into the protected consumers’ category, paying minimal electricity charges. Gross metering would remove the advantage of protected category rates for these solar consumers.
The IMF has inquired about Pakistan’s plans to lower electricity generation costs. The government is finalising debt restructuring with Chinese Independent Power Producers (IPPs) under the China-Pakistan Economic Corridor (CPEC). The IMF believes negotiating capacity payments with all power producers is crucial to reducing electricity costs.
While Pakistan renegotiated most power contracts in 2020, contracts with CPEC plants remain unchanged due to China’s refusal. The Ministry of Energy estimates that a five-year debt restructuring could result in a Rs3 per unit reduction in tariffs, a figure less than half of the increase planned for July.
The IMF has identified idle capacity payments as a major factor in rising electricity prices and has urged a review of the current captive power generation policy, which allows industrialists to produce in-house electricity using cheaper gas. There is a possibility that captive gas supplies may be discontinued from July, forcing industries to rely on expensive grid electricity.
