There is a silent revolution going on in Pakistan: the rooftop solar energy revolution.

As per official import numbers, Pakistan imported more than 950 megawatts (MW) of solar power capacity in the last financial year, more than in the last four years combined.

Since the contribution of solar energy to the grid is still scaling up, the bulk of the imported solar panels have been installed on rooftops. If the trend continues, the country might add up to 5,000MW of rooftop solar panels by 2022 — a no mean achievement.

The chief reason for this sudden increase in solar rooftop installation is the extraordinarily poor performance of power distribution companies (Discos) coupled with a drastic reduction in solar panel prices. With the country still suffering blackouts of six hours or more a day, rooftop solar power now provides a viable solution to become entirely independent of the national grid to both urban and semi-urban consumers.

The drop in prices is another reason: five years ago, the cost of the same rooftop solar was five times more than what it is today. Plus, the marginal efficiencies of solar panels have also improved, so that more output can now be generated thus reducing costs per unit.

A positive role has also been played by the government, which is now pushing for more solar energy with friendlier net metering rules and improved regulatory regime.

The connection and regulatory approvals for net metering previously required six months to complete but now only takes a maximum of one month — giving solar installers more agility to close in on new connections and save time and operational costs.

Today, it is estimated that most of the growth in the rooftop segment is driven by commercial and industrial users, largely because the economics has started favouring them.

For instance, if a mall purchases power from the grid at Rs12-14 per unit for its consumption which is spread over 24 hours, a solar rooftop solution can instantly cut the net tariff in half — thereby helping them to hedge a long-term power tariff.

There is another advantage for industrial and commercial consumers with solar power — the energy is available when they need it the most — during daytime — which results in significant cost savings for their operations.

Besides the above-mentioned consumers, educational institutes such as colleges and universities could come in next as potential players in the market. Think of these institutions which have expansive, flat-topped buildings and large campuses ideal for installing solar panels.

Some of the far flung, public and private schools, colleges and universities are not connected to the grid or experience intermittent power and for them, this is an ideal time to install solar panels.

Urban educational institutes obviously come with a net metering advantage and have become excellent candidates for rooftop solar plants. Many of these institutions have acres of roofs, but assuming conservatively that only 200 kW of solar gets installed on average on these premises, there is scope for additional installation of 5,000MW across the country.

The problem up till now was understandable. You put up a solar plant on the roof of a university for self-consumption of power, but what will they do with the electricity produced on holidays, or during summer or winter vacations?

Previously, zero gain on weekends and two to three months of summer vacations would make solar economics go for a toss. Not anymore. Net metering provides an ideal opportunity to sell power back to the grid in summer and over the weekends and supplying to the grid at a tariff of Rs10-12 per unit.

What once did not make any commercial sense is now solely lucrative on economic grounds.

With rooftop solar dominating, net metering has become even more critical today and is sprouting different business models such as the ‘opex model’ where the roof owner does not own the solar plant. The solar is owned by a third party who invests in the plant and sells power, typically, to the roof owner.

Since the rooftop solar plant owner is a power company and there is an incentive to sell electricity back to the grid through net metering, every unit of electricity generation matters. The roof owner is happy because he gets a fixed long-term tariff without undertaking any upfront investments — and hedges himself against rising power tariffs (think of all the surcharges).

The third-party owner of the solar panel is happy because his internal rate of return (IRR) of selling the power back to the grid and opex revenues from his customer is higher than his cost of capital. And last, the government is happy because the grid is now more stable owing to all the excess power being supplied to surrounding neighbourhoods instead of burning additional electricity.

As always, there are certain challenges. Pakistan’s power distribution companies aren’t keen on promoting rooftop solar power as that could hurt their finances.

All Pakistani Discos are owned by the government and have net accumulated losses on their balance sheets. With circular debt adding up their liquidity woes, they might see net metering as a potential threat where good paying consumers leave them for independent generation.

There are technological challenges, too, but they could be easily overcome. For instance, not many Discos have the technical capability to adjust to power fluctuations. During the day, there’ll be adjustments to accommodate sudden spikes of generation; in the evenings, there’ll be a reverse flow which makes the power variability and intermittency come in a much larger way.

There is another concern of the government’s stranded costs of assets that it has procured on stringent ‘take or pay’ terms.

With another 20,000MW due to come on line in the next three years, the government might fear the silent net metering revolution can make existing assets redundant in the long run. This can happen if consumers choose to opt out of the national grid and join the greener club, which will make the existing tariffs even steeper for consumers who are paying for the grid in the first place.

But even when stranded costs are high, this revolution must never be thwarted and stopped. Fortunately, the government has shown a long-term vision and far sightedness by simplifying net metering rules and encouraging Discos to adapt to the changing times.

Published in Dawn, The Business and Finance Weekly, May 7th, 2018